Analyst Angle: As smartphones grow, LG taps an ally

Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
When The NPD Group reported that Google Inc.’s Android operating system had achieved 28% market share in the U.S., giving it the second highest market share among smartphone operating systems, many saw this as bad news for competitors Research In Motion Ltd. and Apple Inc.
But in the first quarter of 2010, Android’s share gains came at the expense of operating systems that already had low market share, such as Windows Mobile, which Microsoft Corp. is now in the midst of retooling. The continuing struggles of the Windows Mobile OS demonstrate that support of a mobile operating system, and a range of hardware partners and carriers, does not always guarantee success.
Developing one’s own operating system does not guarantee success, either. A major factor in Android’s gains during the quarter can be attributed to a buy-one-get-one free (BOGO) promotion that Verizon Wireless expanded from Blackberry devices to all smartphones. RIM, which was able to take part in the promotion, remained aloft in the market with 36% volume share. On the other hand, Palm Inc.’s WebOS, which had gotten off to a shaky start on Verizon Wireless, couldn’t reverse its fortunes – even with the BOGO promotion.
Increasingly though abstaining from the smartphone market altogether is becoming a liability. Such was the case for LG Electronics Co. Ltd., which felt collateral damage from Verizon Wireless’s smartphone run-up. Whereas other handset vendors have relatively balanced market share at each of the four major carriers, LG has its highest market share by far at Verizon Wireless. Thus, when Verizon Wireless made it more financially attractive up front to own a smartphone than several of LG’s feature phones, Verizon Wireless customers increasingly opted for the smartphone (despite paying more for a data plan over the course of two years).
This month LG introduced its first Android handset in the U.S., the LG Ally, which has a tie-in to the “Iron Man 2” film. The entry-level Android smartphone has a 3.2-inch screen and a 600 MHz processor compared to the HTC Corp. Droid Incredible’s 3.7-inch screen and 1 GHz processor, which was recently released on Verizon Wireless. Unlike the HTC handset, the Ally features a side-sliding physical QWERTY keyboard, like the Motorola Inc. Devour and other Android devices.
The Droid Incredible/Ally duo sets up a similar high-end/entry-level Android dichotomy to the one Verizon Wireless launched with the Motorola Droid/HTC Droid Eris combination – a phone-on-phone defense against the iPhone 3GS and iPhone 3G, with prices set at $199 and $99. Should Android continue to drive momentum at Verizon Wireless – and if the carrier continues OS-neutral smartphone promotions – the Ally should serve as a hedge for LG as smartphones continue to drive industry growth.
Ross Rubin (@rossrubin on Twitter) is executive director of industry analysis at The NPD Group (@npdtech on Twitter). He blogs at The NPD Group Blog as well as his own blog, Out of the Box.