• by Mark Walsh  @markfwal, July 8, 2013

With Mozilla last week launching the first Firefox-powered smartphones, a new report looks at how the new Firefox OS will fare in a market dominated by iOS and Android. How can it hope to compete with the two operating systems running on 70% of the world’s smartphones at the end of last year?
 
The short answer is to not go head to head with the iOS-Android duopoly in the first place, according to the analysis by Wedbush Securities analyst Michael Pachter. Instead, Mozilla -- whose main product is the Firefox Web browser -- will attempt to carve out a niche by focusing on low-priced buyers, mostly in emerging markets.

In addition to the stiff competition Mozilla faces, another question is what its business model is for Firefox OS. As a nonprofit organization, Mozilla doesn’t have to deliver steady returns to shareholders but does have to support its operations financially. CTO Brendan Eich told CNet that first it will get users, “then we’ll worry about monetization.”

Possible revenue streams include an e-payment service that allows users to make payments through their service carrier, according to The Verge. Most of Mozilla’s revenue to date comes from royalty agreements with Google that give the firm a cut of search ad sales from Google searches in the Firefox Web browser.
 
“Google has essentially funded the development of a competing product, while Mozilla has created an operating system that targets an important offering from its main customer,” Pachter concluded.
 
A recent IDC forecast projects smartphone shipments to developing regions will grow 15.7% annually through 2017 compared to just 8.3% in developed countries. The average selling price of a smartphone is expected to fall to $372 this year from $443 in 2011.
 
“This is a portion of the market that is just now being addressed by the current dominant offerings, Apple’s iOS and Google’s Android,” stated the Wedbush report. While Apple’s plans are not yet clear, the company is rumored to be moving toward introducing a lower-cost version of its signature handset to appeal to cost-conscious consumers.
 
Meanwhile, low-end Android devices have suffered from sluggish performance as the platform has become more advanced and apps require greater hardware performance. Even so, Pachter notes that both iOS and Android have powerful ecosystems and solid partner networks that make it hard for end users to switch to alternative platforms.

Firefox has gotten support so far from some large European telecom players, including Telefonica and Deutsche Telekom. Device makers coming on board include Alcatel, Sony, LG, and China-based ZTE, a rising power in offering low-cost smartphones. “These influential stakeholders assure that, at least in the short run, OS will have an appreciable marketing effort behind it,” Pachter wrote.
 
The first two devices carrying the Firefox OS -- the ZTE Open and Alcatel One Touch Fire -- sport thin touchscreen designs and an affordable price point of $90. After debuting the ZTE Open in Spain, Mozilla plans to release phones in Venezuela, Poland, Brazil and Portugal later this year before entering the U.S. in 2014.
 
With software based on the HTML5 coding language, the open-source Firefox OS is meant to make it easier for developers to create apps that can run across different devices. The Web-based system has failed to gain wide traction to date, given performance issues and the continued dominance of native apps.

As with the Firefox browser, users can also turn on a “do-not-track” feature in the new OS, telling Web sites and ad networks they don’t want their browsing data to be tracked.