Smartphone Battle IntensifiesA turbulent mobile phone market has vendors battling to protect their positions as traditional business models are tossed aside.

Each year, vendors ship hundreds of millions of wireless phones; these devices have become a "must have" for any mobile executive. The market's high growth rate and high profile has attracted two particularly well-heeled competitors, Apple and Google. The twosome has shaken the market with new product designs as well as novel ways of marketing their devices.

Nokia, long the market leader, has been forced to respond to changing market dynamics. First, the Finnish vendor wants to avoid mobile phone commoditization. Technology has advanced so users can now purchase functional devices for as little as $25 to $50. While educators and social advocates are promoting the idea of ultraportable devices, which provide basic functionality for $10 to $20, handset vendors realize that profits will be hard to generate with such low-priced systems.

One alternative to shrinking profit margins is to concentrate on high-end phones. Small and midsize business executives are willing, and often able, to pay a premium for tiny, highly functional devices. As a result, smartphones, such as RIM's BlackBerry and those running Microsoft's Windows Mobile and Symbian operating systems, have come to represent a larger and larger portion of mobile phone revenue.

There's another shift under way from hardware to software. This change is taking place because the devices themselves have become difficult to differentiate. How much smaller can they be? Is there any color a vendor hasn't tried?

In response, handset suppliers have turned their attention away from hardware to software. Many are trying to develop software ecosystems around their devices and encouraging third-party development. Apple has been aggressive in this space, with the release of many third-party applications and the Apple App Store. Google has taken a Linux/open source approach with its products. The company formed the Open Handset Alliance and LiMo Foundation to encourage third-party support for its platform.

Nokia has been the leading mobile phone supplier because it has been able to deliver portable devices with attractive features at reasonable price points. During the past few years, it has been successful in warding off traditional competitors, such as Motorola, but now the company has turned its attention from its historical foes to the nouveau competitors. Last month, Nokia paid $410 million for the 52% of Symbian it didn't already own. Symbian software runs on about two out of every three smartphones.

In addition to the purchase, it formed the Symbian Foundation with the objective of aiding software development for Symbian. AT&T, NTT DoCoMo, and Vodafone among carriers and Sony Ericsson, Samsung, LG, and Motorola among handset makers have signed on to support the initiative. The operating system, which is the foundation for devices from Samsung and Sony Erickson, has garnered a lot of carrier and handset supplier support; eight vendors have delivered 235 Symbian phones, they have sold more than 200 million devices, and their phones run on more than 250 mobile networks.

Also, Nokia has fought fiercely to retain the top spot in the mobile phone market. The company hasn't always been the technology leader, but it has done a good job of responding to market shifts. Initially, the company was slow recognizing how important the fashion aspects of cell phones had become, but eventually, it delivered sleek, colorful phones. The company also understood that attraction of the aesthetic and musical features found with Apple's iPhone and responded with its Xpress Music Phone and Nokia Tube.

However, Nokia faces challenges in maintaining its top spot. The company doesn't have a lot of expertise in the software market, so there's no guarantee that it will figure it out and be successful. How third parties will respond to Symbian Foundation is unclear.

The mobile phone market seems poised to undergo its most dramatic transformation in several years. Customers will benefit from the competition with lower product prices and more innovative devices while vendors, such as Nokia, scramble to protect their market positions as they watch their traditional business models turned upside down.