Apple, Google vs. Big Wireless

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Within a year to 18 months, "customers will make their choice by software, not service," says Michael Mahoney, managing director at investment adviser Falcon Point Capital. "Those [companies] that attract software developers will end up being the winners in the long run. The future growth and the premium pricing will go to the product [with better software]."

Interestingly, this emerging danger to the wireless establishment's revenues may be hastened by industry efforts to neutralize the Apple-Google threat. The arrival of a device as completely different and successful as the iPhone will no doubt compel handset makers and carriers to experiment with new designs and business models. "Compared to the iPhone, every mobile device user interface looks woefully inadequate," Nomura analyst Richard Windsor wrote in an October report.

The Establishment Strikes Back

In response to these gathering forces, carriers, handset makers, and leading mobile software producers are gearing up their own initiatives. Some carriers are investing in open-source software: Vodafone (VOD) and Japan's NTT DoCoMo recently co-founded LiMo, one of nearly two dozen mobile flavors of Linux. And when another mobile Linux purveyor named Trolltech (TROLL) released a limited batch of handsets for developers to play around with in June, "a surprising number of handsets were bought by operators," reports Benoit Schillings, Trolltech's chief technology officer.

Symbian, majority-owned by Nokia (NOK), has already built one of the biggest mobile developer communities with more than 75,000 registered developers. But now it's trying to make participation less expensive. In October, it began allowing developers to register applications faster and cheaper, for $20 a pop, rather than several hundred dollars. And Microsoft is trying to make Windows Mobile more attractive through innovative alliances. On Oct. 24, chipmaker Qualcomm (QCOM) announced a smartphone chipset with built-in support for the Windows Mobile operating system that would enable handset makers to build such devices more cheaply.

Among handset makers, Motorola has also released new software tools for its phones to spur third-party development, and Nokia is coming out with a new kit as well. Motorola (MOT) also recently bought half of UIQ, a Symbian-based platform, from Sony Ericsson. Together, the phone makers plan to beef up UIQ's staff by nearly half, to 500 people, says Naresh Chouhan, head of developer programs at UIQ. "Both shareholders see UIQ as being a very strategic platform," he says. "They are encouraging us and funding us. In the future, I want to be able to compete with Apple and Google."

Kharif is a reporter for BusinessWeek.com in Portland, Ore.