Smartphones: Microsoft and RIM battle for No. 3 by Jessi Hempel @FortuneMagazine January 28, 2013, 10:12 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons FORTUNE — On Jan. 30, Research in Motion — the Canadian company that once owned the American smartphone industry — will attempt to regain its foothold with the launch of a new mobile operating system, BlackBerry 10. The company’s goal is not to out-innovate the iPhone. Rather, in a market controlled by Apple AAPL and Google GOOG , RIM RIMM is simply fighting to remain No. 3. In the past two years the half-dozen contenders in the crucial American smartphone market have dwindled to just two. Google’s Android phones and Apple’s iPhones command 89% of the market, according to Comscore, up from 51% two years ago. Some would-be competitors like Nokia’s Symbian and HP’s Palm webOS have been abandoned. “It comes down to a battle between Microsoft MSFT and RIM for that third spot,” explains Forrester analyst Charles Golvin. “Any spot beyond No. 3 doesn’t matter.” MORE: Samsung’s road to global domination How did two of tech’s most powerful companies suddenly find themselves scuffling for table scraps? The smartphone world shifted. Consumers once bought phones with the fanciest hardware; now they care more about software and browsing the web. They gravitate toward devices with the most popular apps. Developers with limited resources, in turn, focus on the platforms most likely to bring them users — and profits. Consumers are also increasingly finding themselves locked into one company’s ecosystem, and the cost of switching is high. An iPhone user, for instance, can easily share material with an iPad or Apple TV. Likewise, Android-powered phones integrate effortlessly with Gmail, Google Maps, and the Siri-like Google Now. But, either by design or by circumstance, they are not often interoperable. (In January, Google admitted it was blocking Microsoft Windows Phone 8 owners from accessing Google Maps.) For this reason, many analysts wonder if there is even room for a third operating system. To compete, Microsoft announced a strategic partnership with Nokia NOK in early 2011. Nokia agreed to adopt Windows Phone as its primary smartphone platform. The two share development and marketing resources, and Nokia abandoned Symbian. Last fall the companies introduced the Lumia 920, which runs on Microsoft’s latest software, Windows 8. (Like Google, Microsoft also makes Windows Phone software available broadly to the likes of Samsung and HTC.) But while Microsoft CEO Steve Ballmer said initial Windows devices had sold out in many places, the company’s 3% share in the U.S. hasn’t budged. Meanwhile, RIM has seen its market share drop to just 7% from 34% two years ago. (Before the iPhone came along in 2007, it owned 50% of the market.) To be successful, the company will need to woo back deserters and win new customers without alienating BlackBerry diehards. Leaked plans show a pair of devices — one with the traditional BlackBerry keyboard and another with a touchscreen. The operating system itself has been rebuilt from scratch. This offers a window into CEO Thorsten Heins’s plans. He has said that BlackBerry 10 is meant not just to be a smartphone but a fresh start for the troubled firm. MORE: 5 new Apple products coming this year To make inroads in the current market, RIM is betting that chief information officers, long its biggest customers, still have considerable influence over the devices their employees carry. Microsoft, meanwhile, has committed hundreds of millions of dollars in promotional spending to lure would-be customers. Both companies have another advantage: heavyweight backers. Carriers, app developers, and other partners are rooting for the rise of a credible third player. A representative from a carrier, who declined to be identified, puts it this way: “Having just two players becomes polarizing, and then they become entrenched. You need a strong third to be able to have that choice and innovation.” In other words, no one wants Apple and Google to call all the shots. This story is from the February 4, 2013 issue of Fortune.