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Ok, so all this Palm Pre business got me thinking about the state of the smartphone industry, again. There’s been a lot of activity in this space in the last couple years and it seems to be accelerating, which is great news for everyone. The market is expanding rapidly, 60% from 2006 to 07 and then 71% from 4th quarter 07 to 4th quarter 08. Smartphones are moving out of the niche and into the mainstream.

This is how I see it, when Apple released their first iPhone they essentially reset the smartphone market. They redefined it such that everything that happened before became more or less irrelevant to long term status in the market. As the market hits the mainstream and starts growing by leaps and bounds your prior huge installed base (as compared to the previously tiny smartphone market) will pale in comparison to the influx of new smartphone buyers. Your previously cool smartphone will not look so cool compared to the new generation of easy to use, easily extensible and well designed new phones. Companies will live and die in this new market by their ability to move quickly and capture the early mindshare in this new marketplace.

As I see it Apple has already clinched the number 1 spot for the next 4-5 years. They could do next to nothing and coast through based on their current momentum and branding. Of course, they won’t coast and this new crop of OS’s should serve to light a little fire under their feet. So the battle remains to see who is going to be number 2.

Here’s how I see it. To me it is currently a race between RIM, Android and Palm. Sure Microsoft is always Microsoft and you can’t really count them out, sure they shipped 20mil units last year but WinMob is hopelessly outclassed by the new guys and if they hadn’t made a move yet, when are they going to? If they launch a Zune phone (or whatever) with the Danger guys in charge, I’ll revise my thoughts then, but for what I’ve heard of now, I’m counting them out. Same with Symbian, sure they’re a 600lbs gorilla but they’re in trouble and they know it. Opening their OS isn’t going to help them in the face of a brand new and seemingly very popular Android. I just don’t see it.

So, ok. Now for my thoughts on my remaining three:

RIM

In many ways #2 is theirs to lose. They nearly have a monopoly on the enterprise which is a nice lock but they are struggling to move into the mainstream, which is where the big growth is going to be. Their big problem? They’re stuck with a legacy OS. They’ve got a pre-iPhone OS that was good compared to all the phones back in the day, but is now dated and looking a little shabby. Look at the poor reception the Storm got when it was released – because they’ve simply tried to bolt fancier features onto this thing to try and compete. And the web experience was still lacking.

Their primary advantage here is they’ve got a good brand name, a lot of cash coming in and they own the entire stack from hardware -> os and application layer. They can and must move quickly to do a major, major overhaul of their OS and open up the system more to make 3rd party applications a first class citizen on the phone. Consumers want games, news, novelties and social networks and the easiest way to get that is to let developers get access. They’ve bolted on some kind of RIM marketplace to the Storm, but I haven’t heard word one about it since the announcment so I’m guessing it isn’t a raging success.

You can’t count out Canadian engineering, but I think that unless they make a major update (without pissing off their key enterprise constituency) they aren’t going to be in 2nd place for too much longer (say another year or two).

Android

Google’s horse in this race is looking good these days. Hell, Motorola seems to have decided to become an Android reseller (maybe or maybe not ditching winmob and symbian)! It’s open source nature is a big selling point – not to consumers who couldn’t give two craps about that – but to developers and handset makers who will be able to customize things as they need to. Their marketplace is coming and should be a popular hit as the G1 was a big seller last year and there do seem to be a slew of new phones getting ready to hit the scene.

The two big question marks for me here are how free and open will the carriers actually allow this phone and marketplace to be? Will they give up their ringtone revenue? Will they give up their voice revenue and allow voip applications on the phones? I suspect not and if they can meddle enough to prevent those from showing up – how will this meddling be enforced and what freedom remains?

The other big one is whether Android will be able to innovate quickly enough. With a consortium of 30 odd companies, often companies in competition with one another, will design by committee bog the OS down should it achieve the success it hopes to? I’m super curious to see how this pans out.

Another worry I have with Android is the wonder on how applications and the marketplace will operate in a world with tons of different handsets with different resolutions and input methods. Will this kill the appetite for development? Will there be some magic involved? Or will applications be written for the a few major hardware sets and the rest be damned, choking off other hardware sets.

Despite all that this is strong competition. Google has a major name and the first phone was a strong hit and many more on the way. The OS seems excellent and a good platform to build on.

Palm WebOS

The newest entrant is Palm’s WebOS. Baking in Palm’s ovens for years this thing has finally been announced (although sadly not launched) to great acclaim and rightly so (at least from the demonstration). They’ve copied liberally from the iPhone (and copied the right things, thank god!) but they’ve innovated in the UI well beyond what Apple had – in my opinion from the little I’ve seen, they are the first to really do so. (most of my specific thoughts on and worries on them are in my first Pre post)

What worries I’ve seen from others are that Palm’s brand has lost its once very shiny luster. Which is absolutely true. On the other hand, I just don’t think it matters. Look at how quickly sentiment turned at CES from the most ardent haters of Palm? Instantly. I think, in smartphones, good technology combined with good design are significantly more important than the actual brand. Especially in an expanding market.

The big question mark for me here is whether or not Palm will actually deliver this thing and if the phone and its crazy web technology development system will actually allow for a good and diverse application experience. I think they’re absolutely missing the boat by downplaying games. Their javascript SDK, as I understand it (and would love to be wrong), simply won’t be able to handle intensive graphics. But time will tell, the phone certainly has the horsepower to handle what it needs to handle, so remain hopeful.

In the end

So, that’s how I see the contenders. If I had to place a wager at this instant on who I thought would be #2, I’m just not sure, I think I’d probably go with Android because I don’t think RIM has the nads to do a complete OS revamp. And while I’ve always been a Palm apologist, I’m still gunshy after all these years and don’t want to assume that Palm will deliver what it seems to have promised. But let’s talk in 6 months after the Pre’s out and perhaps this landscape will have changed dramatically. What do you think? Who’s your pick? Did I rule out WinMob and Symbian to casually?