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Who Will Win the Smartphone Wars?

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Bari Goodman

When people think of the smartphone wars, the first companies to come to mind are the guys actually making/designing the phones and operating systems. Specifically, Google, Apple, Rim, and Nokia. None of these guys will be the real winners (see below) but let’s take a look at the landscape anyway.

This was Rim’s game to lose with their Blackberry. I’ve had a Blackberry since 1999 (e-mail pager back then) and Rim invested in my company, Vaultus, so I have longstanding relationship with them. This was their war to win or lose — and they lost it. Very few developers are developing applications for the Blackberry, and that’s where the game is. I still own one for the keyboard, but I’m old-school. The new generation doesn’t care. Blackberry, you’ll get the scraps and that’s it.

You can’t discount Nokia, because they own the handset market worldwide. But I fall asleep when I think of the features on their phones. They might keep 10-15% of the market in the long run but, again, the name of the game is apps.

That’s where you have Google and Apple. Apple and Google are in a battle right now for better and better features. The iPhone 4 has better storage and speed than the Nexus S, the latest Android phone. Also better video. The Nexus has made some improvements on form factor — the glass fits against the face better — but who really cares? They will spend money and resources battling it out on specific hardware features and only the consumer will win.

Bottom line: Google makes for a hundred different carriers and handset manufacturers, so ultimately they will keep a slight edge on iphone in terms of market share. Apple has the best form factor and always will. So they will be neck and neck with Google, but probably always ever so slightly down on market share.

BUT, more smart phones means more computing. People are using the smartphones as mini-computers. More apps will be developed and sold.

So who are the real winners? It’s the two companies that market the nuts and bolts of improving the network to make applications for mobile computers run better, faster, more optimized, etc. In other words, what Cisco (CSCO) was to the Internet in 1995, we want to find the equivalents to the smart phone revolution right now.

F5 Networks (FFIV) makes software that optimizes bandwidth on networks. Their software allows networks to recognize what the applications need and allocate bandwidth and other network resources accordingly. This is the key company that takes an old school network (Comcast, AT&T, etc) and makes it better for smartphone users. It has 70% year-over-year earnings growth. The multiple right now is high but this is going to be a 5-10 year effort and the stock will end up being much higher.

Riverbed (RVBD) is also in the “application layer” of this networking boom. Their software speeds up wide area networks (WANS) and also speeds up data access into cloud services (which every phone company, cable company, massive data center, WAN, supplies). An app for the iphone makes use of clouds and WANs to store and access data. Riverbed speeds up that access by over hundredfold in some cases. It’s got 150% year-over-year earnings growth.

FFIV and RVBD are the Ciscos of the smartphone boom and belong in every growth portfolio. I love Apple and Google but you need more reasons to own them than just their smartphones. For more on stocks for smartphones, I highly recommend checking out Cody Willard’s recent articles on the topic.

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    • I found this article very interesting, especially given the recent explosion of press about Android and the speculations on what will happen when a low-cost smartphone becomes available (below $100.) But this article is exactly right in highlighting that for many companies in the industry, it doesn't matter WHO wins the smartphone war, because regardless of the company it will mean more smartphones in more hands, and more computing worldwide.

      VC Antonio Rodriguez has an interesting article on the topic,:

      His article is aimed more at entrepreneurs/tech companies and encouraging them to see through the haze of the smartphone wars to the core opportunity and potential benefit, but his suggestions are very much related to this.

    • Are we talking 1, 3, 5, 7 or 10yrs. Novell won the network wars until Microsoft got the sh*t together. Nokia won the dumb phone wars until Apple focus on smart phones. Convergence in consumer networking including cars, desktops, phone and residence is going to be evolutionary and don't count Microsoft out. I'd bet on two to three generations of car, phone and server evolution before all three provide integrated functionallity that enterprises are just now achieving. It'll all have an enormous impact on entertainment, financial management and home automation and providers like evolution since they can sell more interation to change design, engineering and manufacturing costs.

    • Look today (Dec. 10) FFIV up 3.00% and RVBD up 3.01%. What would be the point of owning both?

    • Optimizer hit the nail on the head - Riverbed and F5 are corporate/enterprise network plays, unlike Cisco and Juniper who also have strong carrier sales as well. Remember what John Gage said. Mobile endpoints might be entertaining for us consumers to size up, but they are just the needle that delivers the medicine. The big battle is in the core, and eventually the heavyweights are going to get sick of renting from Ma Bell and the other natural monopolies. Ironic (but not surprising) that they want us all to buy into "The Cloud" and urge us to rent rent rent, while they do the opposite and build up their photonic network investment so they can control the experience end-to-end and be the new landlord.

    • I have heard the commments before that the Blackberry is loosing the smart phone battle. But at least in the Netherlands the "cool kids" prefer the Blackberry over the iPhone. I know the local incumbent phone was heavely promoting the Blackberry because they didn't have the exclusive distribution rights to the iPhone.But when you are young, beeing "cool" is more important then beeing frugal. What ever happened to the expression "geek chique"? I think the term still applies to Apple and I think a lot of young consumers agree.

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