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The world has Xbox, PlayStation and Wii - it can handle 3 mobile OSes too

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Analysis The markets have delivered their verdict on Nokia. Failure is priced in, and the company is deemed to be worth little more than its intellectual property portfolio. The Finns may as well pack up their bags, go home, and whip themselves with birch twigs in the sauna – there’s no future to compete for.

That’s also the conventional wisdom of most technology pundits, who see no prospect for anyone outside the two "ecosystems" of Apple's iOS and Google's Android. Since Microsoft’s fortunes are inextricably tied to Nokia’s in the near term – it follows that Redmond, too, should abandon ship. Leave the smartphones to someone else, and concentrate resources on shoring up existing markets and trying to conquer new ones.

But in the past two weeks there’s been something of a change. Nokia has come out fighting. The company's new Lumias, announced last week in New York, are unexpectedly competitive. When they appear on the shelves, the mobile maker will once again be a candidate.

The Lumias offer some very practical, rather than theoretical or technical, attractions. They’ll appeal strongly to anyone not inextricably tied to Apple and its infrastructure (such as music equipment made for iPods) and content partners (iPad magazine subscriptions aren’t portable, yet). I very much doubt that households full of gear compatible with iPods and iPhones will junk the lot simply because Apple changed the connector on its new handheld gear, but it’s certainly a bump in the road.

So the Lumias will be a strong alternative to iPhones and Android offerings - and we haven’t seen the full Nokia portfolio yet.

The other factor is that Apple has opted to evolve gradually rather than create anything revolutionary with its smartphone. The iPhone 5 is faster and slimmer and has a larger screen – but it’s more of the same. To widespread surprise, it breaks little new ground. Apple has spurned areas where it may have set a standard, such as contact-less mobile payments by NFC or wireless charging.

One area where it has made an effort is the inclusion of wideband audio, aka high-quality voice calls, prodding 20 carriers to support it. It must be a little galling for Nokia, Motorola and Sony to be handed a lesson in high-end telephony by the Cupertino upstart – but there’s more to call quality than cool mics – and that kind of radio engineering is something Nokia still does best. In short, the Jesus Phone has stopped performing miracles.

That’s good news for every one of Apple’s competitors.

Why the long face?

The pessimism around Microsoft's mobile operating system Windows Phone is based on two suppositions: the market has rejected it to date – which is true – and Microsoft has left it too late to build up a competitive ecosystem of apps, developers and users. Microsoft’s strategy, and it’s one that Nokia chief executive Stephen Elop imported intact, is based on the premise that there’s room for more than two ecosystems, and Windows Phone will be the third. In other words, it’s a contestable market.

The pessimists declare that this is a mistake. Perhaps there won’t be room for a third ecosystem at all.

Behind this belief is the view that application developers do not target more than two platforms, and manufacturers of companion products such as music gear and TVs don’t hedge their bets either. App developers would like to support just one platform, ideally, and certainly can’t or won’t consider writing an app more than twice.

The PC market is a prime example of platform dominance, where the number of applications that run on both Windows and Mac can be counted on the fingers of two hands. (I challenge you to get past a dozen, counting Adobe Creative Suite and Microsoft Office as one app apiece). The PC market saw a network effect where heavily backed contenders such as IBM’s OS/2 failed. The winner took nearly all. Yet that market-specific peculiarity led to a dogma being born.

The PC myth

On PCs, Microsoft’s dominance was such that it wasn’t even worth writing an application twice, let alone supporting an obscure challenger, such as BeOS, GNU/Linux or OS/2. The Windows market was so large, it made more sense to focus on selling your product into that market than supporting concurrent development effort. Your quids or bucks were better spent on adding new features to the Windows version, and promoting the product better. So the view that the market will only support two platforms is largely borrowed from observations drawn in the PC market.

But, wait!

There are piles of economic literature on contestable markets, and none of the three factors – sunk costs, access to technology, and barriers to entry – that makes a market incontestable really apply to smartphones. In no way is the cost of app development for smartphones comparable to the cost of developing for PCs, or at least, not yet.

Being big in smartphones may give you cheaper components, and plump up your profit margins, but it doesn’t exclude competitors. And sunk costs don’t really apply. The decisive factor in a developer's mind is how many units on a particular platform shift.

If that market is measured in tens of millions of handsets – and today, Windows Phone isn’t – then the ecosystem will follow. Much has been made of the HTML5 factor, allowing developers to write a generic web app that isn't platform specific and runs in any capable browser. Facebook CEO Mark Zuckerberg said this week that backing HTML5 rather than native programming was a terrible mistake, and only the Financial Times has made a go of it. It's probably a distraction, and Redmond really, really, really needs those native developers, developers, developers.

The truth is, we don’t know what shape the smartphone market will be today. It certainly doesn’t have to be just two successful platforms. The games console market supports three platforms, each with flourishing ecosystems: Xbox, PlayStation and Wii. Redmond’s vision of the smartphone market looks a lot more like the console world.

And of late, there have been other encouraging signs for Microsoft.

The 'wow' starts now

Smartphones today are all pretty good – but they lack the kind of differentiation or wow! feature, that gets them talked about in pubs. The view that the size of the ecosystem is the only decisive factor in a purchasing decision is vulnerable.

It can be disproved by a hardware manufacturer that can incorporate features that do make a demonstrable difference. A camera that doesn’t shake, and a camera that takes great pictures in the dark, for example. Thanks to Nokia, Windows Phone will soon have such features.

And thinking rigidly and dogmatically about the shape of the market can lead pundits to overlook some other subtle dynamics. For example, as Apple diversifies its product line, it gives people another reason to ditch their smartphone while remaining a loyal part of the Apple ecosystem. Why not get an iPad or an iPod Touch for your games and apps, and choose another platform for your main phone?

In short, it’s all to play for. Which doesn't mean it's a shoe in. I'm extremely skeptical that ramming Metro Notro into the Windows 8 desktop will increase the public's affections for Windows Phone. As many commenters at El Reg point out, it could make punters yell "yuch!" to both.

Nokia’s cash situation is less critical than has been reported: it certainly has enough cash for another swing at the market this time next year. But Microsoft's Windows Phone team has absolutely no room for error. A buggy launch this time around – which is Windows Phone's Third Attempt - will surely test the tolerance of all but the most curious.

And so far, we’ve only heard about WinPho 8 running on three pretty big beasts – the Lumia 920 feels like a mini tablet. We have not seen how well the revamped operating system translates to smaller screens and smaller batteries – for punters with smaller hands and slimmer wallets. It’s so early in the Windows Phone 8 cycle we don’t know cost or power consumption yet, nor even the full feature set yet.

And to digress: there are some basics to be addressed, here. Not to labour a point, but I find it inexplicable that Windows Phone doesn’t sync with a contacts book on your PC. With Windows Phone you essentially lose control of your address book to the cloud, where modifying them is extremely difficult. Yesterday, I met a Windows Phone user whose every contact card had been linked to 27 other contact cards entries. Scary.

It’s quite ironic really that the wisdom on contestable markets, drawn from Microsoft's PC dominance, now works against it.

If I were Redmond – or Nokia – I’d be reminding the world that markets are pretty unruly, dynamic and volatile places, and sometimes they can support three ecosystems quite nicely. ®

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