Google, Apple Tighten Grip on Smartphone Market

Apple is marching into new markets—most recently U.S. prepaid mobile phones—to continue the growth of its iPhone and iPad devices and iOS software.

At the same time, the Cupertino, Calif., company is developing software, such as mapping, that it once obtained from Google to make its devices stand out and to control some features more tightly.Google is shifting gears with its Android software to exert greater control over its destiny. In the past, Google relied on hardware manufacturers to build Android devices and on carriers and other retailers to sell them to consumers.

Today, Google is partly adopting Apple's integrated model by manufacturing some devices on its own and it plans to sell several devices directly with big marketing campaigns.

What's behind these moves? Apple and Google see bigger gains ahead. Of the about 1.4 billion phones sold this year, only about 35% will be smartphones, a percentage projected to climb to 75% in the next five years, according to research and trading firm Wedge Partners. That potential bounty is intensifying the fight to sell more devices and accompanying services.

Their ambitions are squeezing onetime market leaders RIM and Nokia. Last week, Nokia said its cellphone business is deteriorating rapidly and it would cut another 10,000 jobs by the end of 2013. BlackBerry-maker RIM is undergoing a strategic review under a new chief executive as its losses have mounted and its stock has slid.

Nokia, RIM and others "really underestimated what Apple and Google could do," said Michael Gartenberg, an analyst at research firm Gartner Inc. While Apple and Google have built up a "tremendous lead" thanks to their ability to offer books, music and hundreds of thousands of mobile apps, he said the mobile market is accelerating so much that "anything could change very quickly."

Overall, Google's Android held 59% of global smartphone shipments in this year's first quarter, up from 36.1% a year earlier, while Apple had 23%, up from 18.3%, according to IDC. Smartphones powered by Nokia's Symbian OS, which it is phasing out in favor of software from Microsoft, dropped to 6.8% from 26% over the same period, and RIM's share fell to 6.4% from 13.6%.

Yet Apple and Google—just bit players in the mobile market five years ago—face challenges that could trip up the two amid fast-changing consumer tastes and evolving technology.

Google, which gives away its Android software to device makers, doesn't make much money from the devices, even though it comes preloaded with Google's search engine and other services, analysts say.

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