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Apple Inc. (AAPL), Google Inc (GOOG): The Next Phase of the Smartphone War Is About to Begin

With the market for smartphones largely saturated, and handset innovation grinding to a standstill, the war for mobile dominance is about to change completely.

From a consumer’s perspective, when it comes to buying a phone, it may no longer be a question of screen size or operating system; rather, it will be one of interface — how does the device fit in with my other gadgets?

Companies’ ability to answer this question will determine their success or failure.

An operating system for your life

When one thinks of mobile operating systems, they are inclined to think only of tablets and smartphones — but increasingly, that’s no longer the case. Mobile operating systems are going to start appearing in cars, home appliances, TVs, and even clothing.

To some extent, they’re already there. But what’s coming in the next few years will take it to the next level.

The first wave: smartwatches

Apple Inc. (AAPL)The watch looks to be the first frontier. Sony Corporation (ADR) (NYSE:SNE)’s SmartWatch 2 is set to be released in September, and similar devices from Samsung, Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOG), and Microsoft Corporation (NASDAQ:MSFT) are said to be waiting in the wings.

If the other watches are like Sony Corporation (ADR) (NYSE:SNE)’s forthcoming model (and it seems likely that they will be), they’ll act as smartphone extensions. There’s obviously some value in being able to control your smartphone without having to take it out of your pocket.

But from an investor’s perspective, the more crucial aspect is how the existence of watches affects the survival of the overall ecosystem.

For example, the typical US consumer may upgrade their smartphone every two or three years. If they’ve bought a lot of apps on iTunes or Google Inc (NASDAQ:GOOG) Play, they may be less inclined to consider switching to different ecosystem. For example, surveys suggest that iPhone owners are less likely to consider switching, and they’re more likely to spend money on apps and media content — there’s an obvious link between the two.

The watch can further cement a given consumer in a particular ecosystem. If you’ve dropped several hundred dollars on a watch that works only with iOS or only with Android, you’re probably not going to want to abandon that ecosystem lest you render your watch completely useless.

Smartphones in the car

Watches are the most concrete example, given that they’ll start hitting store shelves in the next year (the Pebble has been around for a while), but they’re far from the only one.

The car is already setting itself up to be a major mobile battleground.

The next version of Apple Inc. (NASDAQ:AAPL)’s iOS (iOS 7) will include car connectivity. Owners of several different model cars will have the ability to “beam” a stripped-down version of iOS to their cars’ dashboard. Based on patent filings, Apple has a much bigger vision in mind.

Will a consumer’s choice of car depend on its smartphone connectivity capabilities? Probably not. But if your car offers a level of connectivity, it may influence your smartphone purchase.

Home appliances and clothing

Integration with the home may be further off than integration with the car, but already products like Philips’ Hue and LiftMaster’s MyQ allow users to control their lights and garage doors with their smartphones.

As for smart clothing, it remains in its infancy, but researchers in the lab are experimenting on clothing that could interface with one’s phone. These types of garments would likely appeal to athletes, and in addition to its smartphone interfacing FuelBand, NIKE, Inc. (NYSE:NKE) is rumored to be working on such clothing.

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