This is the first of three articles looking at how we measure – and mis-measure – who is “winning” in the mobile sector. Article one focuses on market share and was inspired by an article written by Bill Shamblin, entitled: “Chasing Smartphone Market Share Is A Chump’s Game.” Article two will focus on the proper way to measure or “score” mobile hardware manufacturing, mobile advertising and the “razors-and-blades” content models. Article three will focus on the role that market share plays in the network effect and will examine the proper way to measure or “score” how well a platform is doing.
Have you heard this one?
Two farmers bought a truckload of watermelons, paying five dollars apiece for them. Then they drove to the market and sold all their watermelons for four dollars each. After counting their money at the end of the day, they realized that they’d ended up with less money than they’d started with.
“See!” said the one farmer to the other. “I told you we shoulda got a bigger truck.”
Or how about this one?
Android is winning because they got a bigger truck.
The Joke Is On Us
Both “jokes” are based upon the old saw that one can lose money on every sale but make it up in volume. Unfortunately, the joke is on us because this is exactly the kind of nonsensical analysis that is being doled out by tech pundits and lapped up by the press and investors. You think I’m exaggerating? Take a gander at some of these recent tech headlines:
— Android is crushing Apple and Microsoft in the mobile device market
— Android looks like it’s winning
— CHART OF THE DAY: The iPhone’s Market Share Is Dead In The Water
— Despite its upmarket history, Apple needs to compete on price
— Gartner: Apple falls below 20% in smartphone market share
— Harvard Liquidates Apple Stake After IPhone Sales Lose Steam
— How Apple Is Losing Mobile
— IDC: Apple’s share of worldwide tablet market drops under 40%
— iPhone growth stalls as Android continues to nip away at Apple’s market share
— iPhone Market Share Stuck At 18%
— Nearly 75% Of All Smartphones Sold In Q1 Were Android
— Sharp to seek Samsung edge for survival as Apple sales lose steam
— Why Android Is Winning The Tablet Wars
I could link to a dozen more headlines just like them. These headlines – or their underlying articles – all have two things in common:
1) They contend that Android is winning and Apple’s iPhone is in deep, deep trouble; and
2) They point to market share as the sole or primary basis for their conclusion.
TechCrunch sums up the thoughts of many this way:
“The latest numbers are in: Android is on top, followed by iOS in a distant second. There is no denying Android’s dominance anymore. There is no way even the most rabid Apple fanboy can deny that iOS is in second place now. Android is winning.”
ReadWrite takes it one, final step further, stating:
“The Mobile Battle Is Over – And Google Won.”
In other words, pundits think that Android has won because they “have a bigger truck” (i.e. more market share) – regardless of how much – or how little – profit Android manufacturers make. Android, the pundits opine without a hint of irony, is not making much, if any, money but that’s okay because they’re making it up in volume.
But is that really how market share works? Can you tell how well a company or an operating system is doing solely by measuring its market share?
No, of course not.
Quiz #1: Market Share Alone
Question: Company A has 25% market share. Company Z has 75% market share. Which company is doing better?
Answer: With market share alone, there’s simply no way to know or tell. Company A might be bringing in all the profits and company Z might be going bankrupt.
The Wrong Way To Calculate Who’s Winning
(T)he primary problem with using market share as a measure of business health is it provides no insight into the profitability of the product being sold. ~ Bill Shamblin
Scoring by market share alone and ignoring profit is like saying that a baseball team won because it had more hits when the other team scored more runs. Scoring by market share alone and ignoring profit is like saying that a football team won because it gained more yards when the other team scored more points. Scoring by market share alone and ignoring profit is like saying that a hockey team won because it had more shots on goal when the other team had more goals.
Market share without context is not only useless, it is worse than useless because it is likely to be misinterpreted.
First, market share without context assumes that each percentage of market share is equal to another – that every Android activation is equal to an iOS sale. Nothing could be further from the truth. You can’t simply total up market share and determine a winner any more than you could count up coins or poker chips without knowing the underlying value of those coins or chips. A penny does not have the same value as a quarter and only a small child would rather have more coins than fewer coins but more money.
Second, market share without context implies that market share is a zero sum game – that market share gains for one always result in a loss to another. But in a rapidly growing market, a company can actually LOSE market share yet have both positive unit sales and profit growth. Not growing as fast as another company is not nearly the same as “losing”, especially if the growth is coming in a more desirable portion of the market.
For example, despite a decline in Q1 market share, iPhone sales actually increased based on year over year comparisons. (iPhone sales were not declining,they were growing slower than the overall market.)
The same was true of tablet sales. Last quarter, Apple LOST tablet market share, but because the entire market was rapidly growing, they GREW unit sales by 65%.
Source: Apple 2.0, “Pie charts of the day: Tablet sales grew 140% year over year”
The “Fair-Share” Way To Calculate Who’s “Winning”
What matters is not only market share and not only profit share but the ratio between them. This is called Fair share profit analysis. Fair Share Profit Analysis contends that 1 point of market share should deliver 1 or more points of profit share.
Less than a 1-to-1 ratio of profit share to market share demonstrates that a company is buying market share; that the company has not been able to differentiate its product in the market and is likely competing primarily on price.
More than a 1-to-1 ratio of profit share to market share demonstrates a company’s ability to differentiate its products, provide more value than its competitors, command higher prices, charge a premium and enjoy pricing power.
Quiz #2: Market Share or Profit Share
Question: Company A has 25% market share and 75% profit share. Company Z has 75% market share and 25% profit share. Which company is doing better?
Answer: If you said anything other than company A, then you are dumber than a doorknob. Any intelligent person would take company A’s profit share over that of company Z’s market share.
No one would be confused if Apple had 50 percent market share and 50 percent of the profits. But apparently it’s very confusing to some that Apple has only 5 percent of the market share and well over 50 percent of the profits. ~ John Gruber, The church of market share
Imagine, for example, that Apple were a hamburger chain who made more money than McDonalds, Burger King, and Wendys combined, but only sold 5% of the total hamburgers. Would anyone seriously contend that Apple was “losing” the hamburger wars?
Apparently so. For example, take this analysis from Matt Asay of ReadWrite (please!):
For those who say market share doesn’t matter, that Apple still commands most of the industry’s tablet profits, they clearly haven’t been paying attention to the smartphone market.
It turns out it’s a really big deal to maintain market share, and not simply profits. Profit share follows market share.
Profit share follows market share? Are you kidding me? Show me a business sector where profits have a 1-to-1 correlation with market share and I’ll show you the exception that proves the rule. The reason market share doesn’t necessarily correlate to profit share is because profits are made up of both market share and margins. And market share alone tells us nothing about margins, therefore market share and profit share are almost always going to be unbalanced.
Source: Asymco, Escaping PCs
Take, for example, the Apple Mac. As the pie chart above demonstrates, the Mac has 45% profit share with only 8% of the market share. That means that Apple pulls in an awesome 5.63% of the sector’s profits for each and every 1% of its market share.
Profit share always follows market share? Not hardly.
The truth is, anyone can get market share if they want it badly enough. All they need to do is sell their product at cost, give it away for free or, better yet, subsidize (pay their customers) to take the product off their hands. This is called “buying” market share, but it always comes at the cost of profits.
Pricing to gain market share simply for the sake of market share is a chump’s game. ~ Bill Shamblin
The problem is, you can “cheat” and buy market share, but you can’t do the reverse and “cheat” to buy profits. You have to EARN profits. Buying market share is a downhill race to the bottom but gaining profits is an tortuous uphill climb and it can only be made if the manufacturer is able to produce highly valued and differentiated products. The company that buys market share must inevitably go out of business or reverse its course and fight its way back up to profitability. The company with the value and the profits, on the other hand, has the advantage of holding the high ground and can choose to take market share at will.
Quiz #3: Less Market Share Can Be Better Than More
Question: Company A has 25% market share and 50% profit share. Company Z has 75% market share and 50% profit share. Which company is doing better?
Answer: Anyone with any business sense would say company A.
Company A is commanding 3 times the price of Company Z. The formula is 50% profit share divided by 25% market share (50/25 = 2). This means that for every one percent of market share, company A has two percent of the profit share. Company Z’s position is reversed. For every one percent of market share, they command only 0.5% profit share (50/75 = 0.66). Company Z would have to work three times as hard and sell 3 times as much product just to match the profits of a single sale by company A.
Grading The Contestants
Android accounts for approximately 70% of global smartphone shipments and 29% of global profits. This means that the average Android manufacturer creates just .41% of profit for each point of market share (0.29/0.70 = .414). In other words, the average Android manufacturer needs to capture 2.4 points of market share just to increase their market profit by 1%.
Such a low fair share profit index may indicate that Android manufacturers are:
— Having difficulty differentiating their product;
— Sacrificing profits in order to buy market share (the “race to the bottom”);
— Unable to reach economies of scale in the manufacturing process.
(Profit data, source: Canaccord, Market share, source: IDC)
Samsung is doing far, far better than the average Android manufacturer. Samsung’s 2013 Q1 market share was 33% and its profit share was 43%. This means that Samsung reels in 1.3% of the profits for every 1% of the market share it owns (0.43/0.33 = 1.30). Samsung, unlike all other Android manufacturers, is earning, rather than “buying”, market share.
(Profit data, source: Canaccord, Market share, source: IDC)
Apple’s iPhone 2013 Q1 market share was 18% with 57% profit share. This means that Apple’s iPhone took in a lavish 3.12% ((0.57/0.18) of all profits for each 1% percent of market share it controls.
If Android manufacturers needed to sell 2.4 phones just to gain 1% profit share, they would need to sell a staggering 7.5 units just to match the profits that Apple garnered from the sale of a single iPhone.
As Daniel Eran Dilger puts it:
“… Apple could simply have blown through much of its $13.1 billion quarterly profit to “beat” Samsung in market share, rather than allowing Samsung to do that while earning $4.8 billion less than Apple.”
Further, in 2012 Q1, Apple held 23% market share and 74% profit share. This means that each 1% of market share was equal to 3.22% (0.74/0.23) of the sector’s profit share. Apple’s market share to profit share ratio remains almost identical, which means that Apple has maintained its pricing power. Not only that, by focusing on just a few smartphone models, Apple has become the low-cost manufacturer in smartphones as well.
Source: Ben Evans, Mobile is eating the world
Take a good hard look at the chart, above, then go back and re-read the headlines I listed at the start of this article. What each and every one of those headlines is contending is that Android is winning and Apple is losing because Apple doesn’t control the green portion of the chart, above.
I mean, honest to goodness, take a look at the total units sold compared to the paltry profits obtained from those green sales. Who in their right mind would even WANT that market share?
What we’re really talking about here is the economic concept of price elasticity. “Price elasticity” seems to be way beyond the pay grade of most pundits and analysts who follow the mobile sector, but what it essentially means is that when the price of something goes down, sales almost always go up, but the rate of that sales increase depends upon the price elasticity of the product. In other words, dropping prices may increase sales but the increased sales may result in disproportionately larger or smaller profits.
Unless we truly understand the price elasticity of the iPhone, we really shouldn’t be calling for Apple to drop its iPhone prices.
It isn’t what we don’t know that gives us trouble, it’s what we know that ain’t so. – Will Rogers
Not only do the high priests of market share have it wrong, they have it exactly backwards. The company with the lower market share and the higher profits has all of the leverage. The goal is to INCREASE, not decrease, the ratio of profits to market share. Increasing market share at the cost of profits is a recipe for disaster, not a formula for success.
Apple may or may not do well in the future but right now, and contrary to popular belief, they are winning the smartphone wars and winning them handily.
RATIO OF PROFITS TO MARKET SHARE
0.41% All Android
Not only is market share not the best way to evaluate the relative positions of competitors but, without context, it is one of the worst. Assuming that market share will always bring you success is like assuming that a bigger truck will always bring you bigger profits. It’s literally a joke.
Next, I’ll talk about how market share affects hardware manufacturing, advertising and the “razors-and-blades” content models. The series will conclude with a discussion of platforms and the network effect.
Read Part Two of John’s column entitled: 4 Mobile Business Models, 4 Ways to Keep Score.
Read Part Three of John’s column entitled: Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.
3,227 thoughts on “Android’s Market Share Is Literally A Joke”
“Further, in 2012 Q1, Apple held 23% profit share and 74% market share.”
Oops. Need to swap “profit” & “market”.
Isn’t it convenient to have voluntary online editors?
It is convenient, particularly when they are so courteous and considerate. 🙂
“But why”, the ten-year old son asked his father “would you need a bigger truck”.
“Son”, he replied, “we sell red-stain remover”.
Good addition to get Google’s value in doing what they did. Perhaps one further addition: “Besides son, my partners are paying for our trucks and the watermelons.”
Google has lost money on Android so far. The $13 billion for Motorola alone puts Android in the red. And Motorola also loses further billions. And Google continues to make more money from iPhone users than from Android users.
Except watermelon eaters don’t really care about the red stains and a big portion of the red-stain remover buyers are apple eaters using it to remove apple juice stains.
Way to knock this one out of the park John. Seriously good stuff in here. I saw an interesting quote yesterday that “reading is fundamental, misreading is fundamentalism.” It seems as though we keep running up against market share fundamentalists. And you are right the economics, business strategy, business intelligence, etc., all get lost with most who write about these things things. As we know this problem is deep and wide and unfortunate.
It can not be overstated how disastrous Android has been for OEMs who have tried to make money with it. I’m not sure HTC or Moto ever realized it could get this bad, working with a company who pitched Android the way Google did. I’ve said it before and I’ll say it again. Google’s only care is to make money for themselves. I don’t believe they care about value creation for anyone else but themselves and from intimate discussions I have with execs at Google’s “partners” it seems I am right.
The Android business is so minor in the grand scheme of things for Google, yet its strategic. But that strategy has come at the expense of their partners struggling to make money. Not everyone has Samsung’s brand and not everyone will spend the kind of money Samsung has on marketing.
I feel for the hardware OEMs because there is very little that can be done. Lots of change is coming and I am concerned about a lot of companies. But as your analysis points out, Apple is not one of them.
It appears to me that Google’s Android strategy is/was largely aimed at disrupting Apple, for whatever reasons Google imagines.
Actually, I think that Google’s Android strategy was initially aimed at Windows Mobile and RIM/Blackberry. (But Android managed to take quite a few pot shots at Apple along the way too.)
Yes, that is why Android devices are plain carrier-controlled and carrier-sold phones, running plain carrier-friendly Java apps, same as any other 2005 era smartphone system. (Google bought Android, Inc. in 2005 when Android, Inc. was 2 years old.) If in the future, Google/Motorola create a high-end phone where they design and control the unique hardware/software then that would be the start of competing with Apple.
That’s a big “if” and, coincidentally, not very “open”.
That’s exactly what Samsung is trying to do with Tizen. They then control the software and the hardware. If they can launch Tizen successfully and make it popular, they will have a great step up. That however is a difficult feat considering how many people are hooked into droid and iOS. It might work however if they can make Tizen compatible with droid apps. I’m most interested to see what Ubuntu can do with their mobile OS. If they can bridge their desktop into the mobile experience it would be very powerful. How great would it be to plugin your phone to an hdmi monitor and have a full running Ubuntu OS?
I would even think their strategy is to grow the iOS market next or even before the Android one. Mostly due to the iOS’ premium ARPU. That is if you can imagine Google and Android as two different heads from the same body.
I agree with this article, but you omitted the historical value of Google’s business model. Google won search based on market share then sold ads on it. Guess what that means for Android?
One way to put this is that Google bought Android to ensure Windows Mobile wouldn’t dominate mobile, and that Apple actually did the heavy lifting. Then Google decided they’d rather be that dominant provider—why settle for not being a distant second when you can be the dominant mobile ad provider?—and decided to turn their unused cannons on Apple.
“I feel for the hardware OEMs because there is very little that can be
done. Lots of change is coming and I am concerned about a lot of
companies. But as your analysis points out, Apple is not one of them.”
As a chip manufacturing guy, I feel very uncomfortable with this, but I can’t disagree with it.
I sat at lunch today with a customer (Operations Manager) and a manufacturing equipment manufacturer (no, this is not a rabbi, priest, and Rastafarian joke). They were lamenting people who donate money to social or academic causes (a field which I support) and not to new technology and related manufacturing (which I also support, since it pays my bills and I find it intellectually fulfilling). I was very quiet at that moment at the table. (That doesn’t usually happen. 😉
I started my career at Cyprus Semi and semiconductors are a large part of my industry analysis focus area.
I always joke that I have an un-healtlhy love of semiconductors. I just find them fascinating and they are the engines that power our future.
It seems to me that, pre-Android, every OEM on the planet was standing on the sidelines with nothing to do but watch Apple sell tens of millions of the hottest device in the world — they were completely shut out from the party. Google — not RIM, not Apple, not Microsoft, not Amazon, not Palm, not HP, not…. — gave them the operating system with which they could attempt to compete. Where the OEMs took it from there (or didn’t) was, to a very large extent, their call, as was how they built / priced / positioned / modified their own devices. So, are OEMs struggling because of their own failures / missteps or those of Google? How did Google / Android meaningfully harm OEMs?
Additionally, I don’t doubt that Google cares about creating value for itself (as does every for-profit company), but I find it a bit odd that you fail to mention how much value Google creates for CONSUMERS in the process. Whether through Android (lower-cost, higher-functioning mobile devices), Search (free), Gmail (free), Maps (free)…., Google has, arguably, created more pure value for consumers in the last +10 years than any company on the planet.
You are right that in particular their ability to drive the market to low-cost devices is good for those who can’t afford premium computing experiences. Granted that last statement is subjective but I get every new phone and tablet that comes out and there are some experiences that are far superior on iOS–subjective opinion of course.
I agree that Goog has added value in things like search and other key areas, but I’m not sure I’d say they are the only one. If we are to just look at how computing itself is advancing I’d argue many others helped create value. Apple is one of them but so are semiconductor companies, component vendors pushing the science of material display, and more.
Free is great but its not always the best. There is a balance in each segment that is necessary for markets to maintain healthy economic balance. I don’t believe, and I don’t think any of the others writers here at Tech.pinions believe that Goog is going away.
But I think its important to look at economic issues as well as the pragmatic business side of things in a critical analysis, which is what we hope to perform. You certainly can’t say everything in a single article. We have great stuff in our archive addressing a range of stuff on these topics.
Clearly the writer of this article completely fails to see why android exists. It is not to sell phones or watermelons as it is crudely put but instead to control the platform from which they have built their spectacularly successful business. Obviously they are aware of the stupidity of your examples but the sale alone is not the battle, the number of eyeballs peering at your advertising partners content is how they will ultimately win. In this case the biggest truck wins hands down.
However you also fail to see that what the author pointed out, a mere observation I would add, that most so-called tech articles written by so-called pundits, tend to assume that Google truck sells watermelons. Hence they compare them to what Apple sells, while in reality, they sell something else and I would say, which is quite different from what Apple sells (Google ads as you already mentioned) and which I assume you know very well. While those tend to be free or part of or features or secondary of what Apple sell.
Is there a reason my post regarding the importance of total platform size and usage share was rejected?
On disqus? Disqus has been having some issues this morning. Not sure what is going on.
I took a screen shot to save it, for myself…. Hope it gets restored, but it was tagged as “waiting moderation”…. I think your point is key — and ties to how Apple (TC) has been telling us about how they view market share, relevance is only in so far as size and usage ensures a healthy platform that continues to encourage investment (by developers) and further viral usage.
I am not seeing a post pending approval in my admin panel. Not sure what happened. Sorry about that. Like I said Disqus has been acting funky.
“Imagine, for example, that Apple were a hamburger chain who made more money that McDonalds, Burger King, and Wendys combined, but only sold 5% of the total hamburgers…”
…made more money THAN McDonalds…
Fixed! Thanks for the heads up.
Excellent post. One thing to mention, exemplified most recently in a PC World article from yesterday about the Galaxy 4, is that Samsung’s sales figures reflect channel stuffing to retail outlets, rather than actual (final) sales to consumers. This would explain why “market share” and profit statistics are out of whack.
Samsung sells in more than double the locations that Apple sells, also. They have a gigantic channel to stuff.
And double the number of returns as well. Locations prove nothing.
I think what he means is that Samsung has a lot of locations in their channel, making it easy for them to stuff a LOT of unsold devices into that channel: easy, in other words, for them to make their shipment numbers artificially high, even when sales are not nearly so high. So the number of locations is relevant to JohnDoey’s point. (You may have jumped into thinking he was defending Samsung; he wasn’t. His channel-stuffing and your return rate both make the same point: Samsung devices aren’t selling as well as those “shipment” numbers might suggest.)
Apple reports sales numbers to retail outlets as well. I believe in their last quarterly report they mentioned they had about 11 million in channel inventory.
One of the all-time BEST explanations I’ve ever seen. Well done!
Great article! Never had it explained so well with graphics and, for me anyways, your trademark outstanding use of custom built analogies and quotes. Excellence is attainable and found here…
Excellent post. Unfortunately, the people who are going to listen are the people that already understood this. I doubt many (any ?) of the authors of the articles above are going to redact what they’ve already written. The “Apple is Doomed” headlines sell newspapers/ clicks.
Thank you. Thank you. Thank you.
I’ve been scratching my head for years, but particularly the past one, over how these market-share morons could print this crap without being laughed out of the writing business. (and let’s not forget the early adopters – Fred Wilson and Don (Prison-Stripes) Blodgett). The level of ignorance exhibited in your list of articles is truly staggering.
But, let’s also have a moment of silence for all those who insist on “Android” being in any way a meaningful category. How did THAT happen? Which ‘version” of Android are we talking about? An “Android” which includes Amazon’s forked offerings? An “Android” which includes the barely recognizable Asian phone systems? An “Android” which includes all the myriad early versions of the OS? For software developers these questions matter, and the ONLY argument which can be made for market share is that it matters for the developer community. (see “develop for Android first” from noted humorist Fred (“I’m a venture capitalist”) Wilson.) As Samesung starts to distance itself from mainstream Androidhood, this will become even more comical.
“But, let’s also have a moment of silence for all those who insist on “Android” being in any way a meaningful category.” – stsk
Thank you for your kind comment, stsk.
I also questioned the monolithic nature of Android in my article entitled: “Google’s New Android Math Doesn’t Add Up
“Android” is as meaningful as “WebKit.” They are both open-source projects that engineers may or may not decide to incorporate in their own software projects. WebKit actually has higher mobile market share than Android. Completely meaningless as far as business metrics.
Perhaps it is business metrics that are becoming less meaningful as people begin to collaborate more with each other, because of the internet, and create real value that can not be measured in dollars and cents. The vast majority of cell phones, web servers, consumer electronics, and super computers running on Linux can’t be wrong.
“Android” is as meaningful as “WebKit.”
You are right. Both aimed at preventing continued dominance of MicroSoft in their respective areas.
Great piece. One correction in math: “Take, for example, the Apple Mac. As the pie chart above demonstrates, the Mac has 45% profit share with only 8% of the market share. That means that Apple pulls in an awesome 17.7% of the sector’s profits for each and every 1% of its market share.” 45%/8% = 5.63.
My bad. Fixed.
Sorry, John – there’s another one: in Quiz #3 you have company Z at 75% market share and 50% profit share. Yet you then say “For every one percent of market share, they command only 0.5% profit share (25/50 = 0.5). Company Z would have to work four times as hard and sell 4 times as much product just to match the profits of a single sale by company A.”
By my calculation, you need to have profit share (50) / market share (75) = 0.66%
You are totally right. Cripes, they promised me no math when I took this gig and now I know why!
Sorry for the errors and much appreciate the considerate corrections.
So, you say I should go ahead and upgrade my Apple IIc to something better? But, won’t that cost money?
There are several ways to make a profit. Smaller marketshare with a price premium, or larger share with smaller margins. No one is denying apple’s perceived premium offerings. Your analogy with the watermelons is incorrect. Apple sells the watermelons for $10 at market while the android sells for $5.50. Still making a profit, just no where near as much (HTC being an exception). In this case a larger truck absolutely makes sense. Apple’s business model makes sense as long as their premium as a luxury good continues to be perceived as such by consumers.
There is common sense to chasing marketshare and volume. Along with that comes brand loyalty and exposure. It brings to mind an analogy among car manufacturers who are always chasing marketshareand volume. MB (apple) commands a price premium while Toyota (android) skimmed by on smaller margins and building marketshare…
There’s a problem in talking about Android manufacturers as a group when considering profits, since only Samsung is truly profitable. The situation is apple makes big profits on fat margins. Samsung makes good profits on thin margins. Everyone else loses money, except, barely, HTC.
Yes, but the only reason the author of this article combined all Android is to point out how that common practice does not make sense. The author did not say that talking about Samsung market share doesn’t make sense. If you combine Android into one group, it is an unprofitable group.
Take a good look at the green portion of the chart entitled “Dominance of Apple and Samsung” and try again to tell me that it makes sense to have a bigger truck. The “other” portion of the market has the biggest truck (market share) of all and little to nothing to show for it. Buying market share is a fool’s game.
In fact, I was hoping to see you break out the Samsung vs. Android profit ratios. You list Samsung as 1.3% and All Android as .41%. If you removed the Samsung Android profits from the .41% I believe you would end up with a Other Than Samsung Android profit ratio that is near zero (and maybe even negative).
That sure is winning for all those other Android handset manufacturers!
Let me add to the my earlier comment. If Samsung continues its dominance with Android and the other handset manufacturers pull back, then what is to keep Samsung from forking Android ala Amazon? They have created such a large market presence that Samsung is starting to become synonymous with Android. With their own fork, they could demand a cut of Google’s search $$ or they would switch their default search to Bing or some other engine.
Samsung’s Android market dominance could leave Google with the exact same fears that Apple’s dominance caused.
Google *needs* a diverse Android handset market to ensure no one player has the market dominance to potentially “Apple” Google services out of the Android market and that is not happening (Motorola alone is not going to cut it).
So far, it is only Samsung who clearly can profitably make Android smart phones.
“If Samsung continues its dominance with Android and the other handset
manufacturers pull back, then what is to keep Samsung from forking
Android ala Amazon?”
Total and utter lack of creativity.
If the buying market share crowd are too successful they’ll go bankrupt.
Toyota suffered heavily for their race to the market share lead with massive quality failures that rapidly tarnished their brand. Every auto manufacturer that has attempted to race to the market share lead has taken hits to their brand image for similar reasons. The other piece you seem to be missing here, is that it flat out costs more to sell more. While volume of like parts can and will drive down variable COGS, in the highly fragmented world of android devices, those benefits are muted but the costs of high volume are actually amplified.
Theoretically, you could have 100% market share by simply giving away or paying your customers to take your product, but that is not necessarily good for business.
And perhaps Braindoc is not aware of the European car market. Mercedes been attempting to move down market for about two decades (A-class and smart car), has not been very successful, and it has tarnished their brand there.
The watermelon analogy is correct. Most of the Android phones that are sold are unprofitable. Samsung is an exception. The article is about “Android market share” not “Samsung market share.” (Read the title.) When all Android devices are combined (as they often are by pundits) they are unprofitable. The Samsung profits do not outweigh the other maker’s losses.
Android market share is to benefit Google, now HW makers. Google is much like Microsoft in the past.
They don’t sell HW (Unprofitable Motorola exception), so they don’t care about HW maker margins. So market share to host/sell Google services is all that matters to Google.
Like the commodity PC business, most HW makers are suffering the low margin blues, with a couple of top players making money (only one really in Androids case).
You can argue that Google doesn’t make as much as Samsung/Apple but they aren’t really in the HW business so that comparison doesn’t really apply. That isn’t their concern.
From Googles perspective Android is working. They have a platform where their services won’t be blocked with huge market share.
You can also argue that Google would have been better served by simply having a better relationship with Apple to be the premier services partner, but paranoia that they might be cut out in the future, and greed of a growing corporation, wanting a piece of every pie made an Android challenger the likely bet.
And yet Google makes more money from iOS users than Android users. I understand the defensive move of Android, but it’s an insurance policy rather than a winning move.
For now. The goal of cornering a market (otherwise why would you crow about marketshare?) is to remove all/almost all competition then raising prices.
That is a sound theory but not I how I think Google played it out. In fact I don’t think Google cares about Apple at all. I think they want to kill MS and be the only other game in town to iOS.
They have never helped their partners make money. Its a mess and all the hardware OEMs I talk to don’t like working with them. Things will change now that Andy is gone. He was the rub.
Still I think Google wants Apple in the market. I think they want to kill everyone else.
Google is fundamentally a value destroyer, not a value creator because their default business model and way of thinking involves giving away something attractive and sell ads next to it.
They do want to kill Microsoft because they are like Microsoft in many ways. They have agreed to tolerate Apple because Apple’s goals conflict with theirs the least.
This is what people say about Microsoft and Intel. As others have mentioned, they’ve made plenty of value for themselves and for consumers, and destroyed a lot of dreams along the way.
How does giving things away for free destroy value? Last I checked a powerful search engine means everybody working a knowledge job and the majority of everyday consumers can spend a lot less time looking things up and a lot more time being productive or enjoying leisure time.
For example, giving news away has transformed journalism into a collection of page hits whores that prioritizes speed over accuracy and inflammatory reporting over intelligent analysis.
Def4, Hosni–Your personal argument has gone miles off-topic. How about taking it offline if you want to continue it.
It’s all in good fun, Steve.
After 675 comments already are we really damaging the landscape? 😉
Most right..they have made the main topic a non issue and continuing bickering…
All three of these companies you mentioned are crooks. Its fascinating to see how the people who lie to themselves the most like Apple the most.
Of course, they are all crooks.
Only cynical simpletons like yourself are doubleplusgood.
“Google is fundamentally a value destroyer, not a value creator because their default business model and way of thinking involves giving away something attractive and sell ads next to it.”
I am NOT a Google/Android user, but wanted to point out that you just dismissed the concept of commercial TV, which has been slightly successful over the past 60+ years, and has to date survived the ‘attacks’ of YouTube, AppleTV, Netflix, etc. (Of course, those niche technologies are fairly popular among those who can’t afford the cable, don’t have TV’s, etc. … conditions most common among those living in college dorms.)
The ever increasing quality chasm between paid and free television channels is the value I’m pointing to.
I believe the mind numbingly poor programming and frequently repeated ads provide an overall negative value to those that are stuck with them.
Let’s get back to your original claim. If Google gives you something worth $10 but takes away $15, value would be destroyed. However, under those circumstances you wouldn’t use it — so then Google wouldn’t destroy value after all. The fact that you can avoid doing business with Google precludes that.
The people who DO use Google are in the opposite situation: they receive services worth $10 but only give up $5, so for them value is created.
You seem to be confusing your own reaction to Google (and broadcast TV) with those of 100 million other people.
Google destroys value for everyone except freeloaders, especially IT savy ones.
A vibrant market can sustain multiple levels of quality, performance and pricing to serve the variety of needs, tastes and wallet sizes.
Once the basic tier of product or service is given away, only the high end survives. The fat middle of the market splits 95-5 into consumers that settle for less to get it for free and those who move upmarket and pay more.
The definition of value (and value destruction) is well established — by economists, not IT-savy code writers. Even if 100% of the people consume crappy services because they are free, that is not value destruction.
Speaking of freeloaders, how much do you pay to access this site?
Then we have a fundamental disagreement.
If all people consume crappy services then those services are lowering the overall quality of life of consumers and so they are value destroyers.
I pay nothing to access this site, but that doesn’t make me a freeloader more than breathing or drinking water from a stream.
No, we don’t have a personal disagreement. I already said that I prefer not to use Google’s services, so on that we agreed. The rest of my comments were aimed at informing you that you are using a technical term (value, destroying value or value destruction) that has a specific meaning to economists, and your interpretation/use of that term is incorrect. Then I provided easy examples ($15 vs $10 vs $5) so you couldn’t possibly be confused. Unless you insisted on it.
It is as though someone said “the hard disk drive on my iPhone is broken,” and you patiently informed them that iPhones don’t have hard drives … but they continued insisting that they’re right and you — an IT-savy guy — don’t know what you’re talking about. At some point, you would conclude that they’re not worth listening to.
Since I’m an economist (PhD), that explains why this lengthy exchange has (for me) come to an end.
Congratulations on your PhD!
Beware that it’s not a license to be a git.
It’s worth the paper it’s printed on if you’re not capable of communicating effectively the knowledge and expertise you have gathered.
Haha! Your eyes must have had tears in them and your hands must have been quivering when you typed that!
Good luck with that attitude.
Keep it up and soon you’ll be looking to get PhDs in psychology and anthropology just to figure out why nobody’s listening to you.
Your attempt to associate anthropology with “trying to figure out why nobody’s listening” to me reveals that your knowledge of that subject is exactly on a par with your other comments … confident and assertive, yet ignorant.
During your future study of anthropology you might find out why people start playing armchair phychologist when they run out of arguments on the Internet.
While I don’t claim expertise in the area, I jointly taught a course with an anthropologist for several years and know enough about the subject to guarantee that your earlier use of the term is incorrect.
I have one question about your previous comment: What is a “phychologist”?
Now … it’s your turn to say something else stupid. I’ll check back later.
This is great.
I always wondered if people could really act as pompous as fictional characters and you confirmed yet again that reality beats art.
So tell me more. What other hidden talents are you wasting by spending time on the Internet with all the stupid ignorant people?
I am not aware of “all the stupid ignorant people” using the internet. Did you have someone specific in mind, or was that simply an effort to deflect attention from your prior statements and share your personal achievement with millions of other people?
Yes, indeed. You are not aware.
I still don’t see how value is destroyed? Are more well polished apps coming over to android, yes. Are these apps attributing more success to android? That differs on the types of apps, but some apps like Instagram have reported huge success. Where is the value destruction, because they give you free services and in return advertise to you? That’s the most retarded statement I have heard, and shows that you don’t know anything about the industry. Apps and programs are increasingly being offered for free by developers because they have a monetary incentive to do so through ad revenue. Facebook can only attribute it’s success because it is free, and it’s only logical source of revenue is in advertisement and data collection. How is this a destruction of value, many industries are built this way including most of the entertainment industry like radio, television, and the internet. A mature market allows content creators to sell their goods at a price as well, whether these apps succeed depend on numerous factors, ie competition, price, market audience, and demand for the content. Look at the ios market, it’s becoming increasingly dominated by free apps. The difference being is the competition on android is even more dominated by free apps than the ios market, and that means unless your app provides a useful enjoyable experience to enough of the market it will fail. Does that make it a value destroyer? Hell no, it makes it more competitive and is forcing other companies to become more competitive or lose. IE look at microsoft office, it’s increasingly loosing out to google drive in the consumer market (not as much in the business market) the reason is it has most of the same features as office for the average consumer’s needs and it’s free upfront. Is that value destruction? It’s competitive behavior, because Google creates value for itself and the consumer, maybe less than Microsoft was making for itself, but that’s only because Microsoft used to be a monopoly and could charge a higher price in the market, sadly Microsoft still thinks it’s a monopoly and can charge that higher price, the fact that they are losing market share means that the market is no longer willing to uphold that price because of competition. By your argument you make it seem as if competition is a value destroyer, when in reality if you know your economics the more competitive the market, the more value it produces for the overall society.
Your statement is most sane and rational. I am in total league with you. As I am hailing from a non English speaking country, India, pardon me, if I have written wrong English.
I thought I disliked Apple – that was before Microsoft revealed their scam: Windows RT !
I’m now kind of wondering if Google doesn’t actually pushes iOS to make sure they have some “competition” on the mobile OS market.
Google makes money from all operating systems.
Google doesn’t care which operating system you use as long as you use their web services.
Android and Chrome OS are just [better cheaper] alternatives to access the web.
Yes, they are cheaper for Google.
They don’t have to pay for referrals and can track you to their heart’s content.
Except that Google has said many times that they make more money from all the iPhones put together than they do from all the Android phones put together. And now, because of Android, Google is losing its special preinstalled position on all the iPhones, and all the iPads (most popular PC model,) and all the iPods (most popular media player.) And the $13 billion that Google paid for Motorola is a loss for Android. Motorola loses money selling Android-based phones. The $13 billion is a loss for Android. So it is not a given that Android is working for Google. Notice that they just fired Andy Rubin — that is also not a sign that Android is working for Google.
The damage that Android has done to the Google brand and reputation is also considerable. For example, what Google did with Sun Java (erase the © Sun notice and put on a © Google notice) has essentially blacklisted Google with many software developers, movie producers, music producers — anyone who owns copyrights. Google continues to struggle to get copyright holders to partner with them because of that violation and many others.
I don’t think Google said that many times. I think they brought that up in a lawsuit a couple of years ago, when it was in their interest to play down Android profitability. At some point I suspect Google will be making more on Android than iPhone. It may already be happening.
Another factor is Google has more information gathering capability (violate your privacy more freely) on Android than on iPhones. It is hard to quantify what this greater information gathering is worth.
In the end I didn’t say I thought Google moves were the best ones, most seem motivated by paranoia and fear. They may have also be partly self fulfilling prophecy as their fear about a future soured relationship, lead them to action that soured the relationship.
But this is the operating model now. Grow market share and make money on the services, and those two things are happening.
While iOS keeps being the platform with the highest internet presence Google will continue making more money off iOS. Just because Android is selling does not mean Android is in the right hands.
“At some point I suspect Google will be making more on Android than iPhone. It may already be happening.”
I’m sure that you’re right, particularly now that Apple is moving to Yahoo, Bing, Siri+Wolfram, Apple Maps, etc. However, iPhone/iPad users spend 50% more time online, spend far more money online, and have far higher average incomes than Android users. These things drive advertising revenues. Moreover, Google is an ‘enemy of the state’ in China and Apple is rumored to be developing a low-price iPhone later this year.
Regardless of where it earns most of its profits today, Google STOOD TO GAIN more from iOS users than Android users. Now it doesn’t, and that is no victory for Google shareholders. (But it is for Apple shareholders.)
The iPad maybe a very popular device but there are thousands of competing products that together represent a much bigger market share.
iPods are dead, numbers are going down every quarter.
Google struggle to get copyright holders to partner? If so, how did Google managed to get a deal with music companies to make a music streaming service before Apple?
You can’t really copyright an API. If you were a developer you’d understand this a bit better. In a nutshell the first person to write a function called “Print” would stop everybody else from implementing “Print” in all other languages. The vast majority of developers were happy with the outcome of the Google/Oracle case because the opposite could have meant potential hell in the software world. Sorry but the idea that Android has damaged Google is something you pulled out of your azz.
Andy Rubin left. He was not fired. Nor did Google lose its preinstalled position on iOS due to Android. In fact this has worked out better for them because they can do an actual well designed app unlike the app Apple developed with their data. Obviously you see that Google dominates the top 10 apps across platforms right? They don’t need to be preinstalled as the situation is the other way around. People will seek out Google on iOS whether its preinstalled or not.
You can’t really copyright an API. If you were a developer you’d understand this a bit better. In a nutshell the first person to write a function called “Print” would stop everybody else from implementing “Print” in all other languages. The vast majority of developers were happy with the outcome of the Google/Oracle case because the opposite could have meant potential hell in the software world. Sorry but the idea that Android has damaged Google is something you pulled out of your azz.
Andy Rubin left. He was not fired. Nor did Google lose its preinstalled position on iOS due to Android. In fact this has worked out better for them because they can do an actual well designed app unlike the app Apple developed with their data. Obviously you see that Google dominates the top 10 apps across platforms right? They don’t need to be preinstalled as the situation is the other way around. People will seek out Google on iOS whether its preinstalled or not.
Lol? Losing its pre-installed position? Every single person I know in stratups right now uses google apps. most IOS people have at least bought a second device for android, or switched. its not the phone. its not the OS. its not the rip off scam known as DRM-tunes. Its the whole thing. search. apps. gmail. maps. google navigation. etc. Google is going long. I mean long long long. And it wont matter how much Apple tries to survive, its a matter of time. Also, android predates iOS by two years, and if making copyright scammers mad is something google is doing, well, thats a good thing. Copyright scammers and DMCA /RIAA/MPAA trolls are disgusting low life indefensible scum.
If Google isn’t in the hardware business why did they shell out $12 billion for Motorola?
Google ha salso been selling off key bits of that hardware business. Here in the valley I hear of many key execs leaving. Looks like their hardware play is slowing disappearing.
That one sale, proved to me Google didn’t have a plan. They just threw stuff out there and are seeing what works. Hard to work with a company like that, and even depend on it as Samsung does.
Watch what happens with Samsung over the next few years in mobile. They are on a good run now, but check back in three years. Maybe sooner.
There have been a few articles in the recent past about Samsung stating that it will be releasing phones using Tizen OS. That’s a large step away from saying that it will stop using Android, but it’s food for thought. The play to keep their options open suggests that they are unwilling to have their fate completely tied to Android in the mobile space. I would call that a solution to the problem you state, suggesting they’ve come to the same conclusion.
Yes we are tracking that and believe it will happen. See this
Thanks! Solid article, and I am left shaking my head every time someone tells me that the iPhone is inferior and falling behind and then proceeds to quote some random hardware spec to back this point up. It’s not about the hardware, only the most hardcore of geeks care in the slightest about megapixels and gigahertz. From a normal consumer perspective it’s ‘how does the software run on said hardware?’ The under-the-hood how’s and why’s of the experience are irrelevant, it’s the quality and ease of use of the experience that an average customer cares about. The play for the money then is about software+services+hardware as you said, it’s the ecosystem that engenders brand loyalty, not faster chips.
I shake my head every time someone tells me the iphone and it`s ecosystem is superior.and is not falling behind. That you bring up Apple`s services is pure comedy gold.Thanks.The best suite of services available for the iphone ( browser, email, maps, voice ) are all provided by Google. They are turning the iphone into a dumb phone. I agree with the theme of this article that presently Apple is in a strong position with their profits and market share. They have no financial issues on the horizon.
None of the Google solutions are better if you value privacy as a feature.
If you value privacy, don’t use an electronic device connected to a network.
Wow, where to begin…firstly, I’m not getting into a fanboy argument, and you misunderstood my post. I wasn’t getting into which was better, that’s purely subjective. I was saying that the argument that X phone is better than iPhone because of Y hardware spec is an incredibly ignorant one. Secondly, you don’t know the difference between software and services. Browser and email on a smartphone are not services, they’re software apps. The actual services involved there are the email providers and the data providers which are platform agnostic. The browsers are just apps. I’ve almost never had any problems at all with Apple’s maps or google’s maps (but have had a few with each) but google maps is available on iOS (and google voice) as well meaning there is almost no difference in that respect between the ecosystems. The main bundled services on iOS are iTunes+app store, iCloud, Siri, maps, Facetime. There are comparable services on Android of course, amazon mp3, gmail syncing + pocket for syncing web pages, voice search, maps and Skype or whatever chat app you want to use, but there is a gap there in usability for the common non-tech savvy user. You would have to know what apps to go get, navigate one of the Android app stores, (one area that I would say Apple wins hands down is quality of app store) and there is no uniform experience as they are made by different vendors. The point I was making is about loyalty and user experience in regards to interacting with the ecosystem, whichever platform wins that overall battle can command higher prices and count on consumer loyalty. What I’m really saying, is I believe that hardware specs are not going to have a strong correlation to future profits in the mobile space, while quality, ease of use, low barrier of entry, and design quality of the overall ecosystem will. Anyone can put the newest chip in their phones, and run a version of Android, and slap a UI on it. Getting customers to be brand loyal based on overall platform and experience is much trickier, and Google and their OEMs are definitely realizing that and gaining ground..but that’s the real race.
Also, that little juvenile thing where you started with saying you’re shaking your head because I started my post like that? Don’t be that guy.
I think it’s going to be very tough for Google/Samsung/insert OEM to catch up to Apple. Apple has been building their ecosystem for more than a decade, including a high touch retail presence. Android seems stuck in the smartphone market while Apple has created a mobile computing market, which it dominates, and I think that’s happening because of the difference in ecosystems. I’m not sure an open free-for-all ecosystem can ever match a curated well-managed ecosystem.
In addition, if I choose Apple as my vendor I have a complete computing solution, from desktop down to a computer in my pocket. That’s a very attractive offer, and consumers are voting with their wallets. Apple’s success cannot be denied. It may make some people angry, but to deny that Apple is succeeding is to deny reality.
What users care about is ease of use. They have no qualms about google services on apple hardware. That’s actually apples strength.
Like the Google maps that are flattening Manhattan?
The Google loving general press has ignored this, or course.
Also, an interesting quote from Steve Jobs to throw in the mix, I think it backs you up a bit on the whole software vs hardware thing.
What I don’t see mentioned in that post is that the Samsung threat is actually more dangerous to Google than Apple. Apple is in control of its destiny with hardware and software. Google planned to have a range of Android handset manufacturers, none with dominant market power, distributing their services and search ala Microsoft and the PC manufacturers.
Unfortunately for Google, the only manufacturer making money producing Android handsets is Samsung and their market power is growing very, very fast and the other entrants are in trouble.
Whether Samsung decides to pursue a fork, another OS or just use its position to try and negotiate revenue out of Google, this could turn into a major problem for Google.
As I noted in an earlier post, it’s ironic that Samsung’s dominance could turn out to be as big a risk to Google’s service plans as Apple’s.
I think a large part of the Motorola purchase was again fear based. At the time Motorola was suing a lot, and there was talk of them suing fellow Android players next or selling IP to Microsoft/Apple. I think Google was worried that would be tipping point against Android, if the Motorola IP was also brought to bear against it.
What have they achieved with those patents?
Many of the Motorola patents are SEP patents; Google has sued others on those patents and the cases have been dismissed.
In 1 word: TV
People spend hours every day in front of this big screen and Google (like other tech companies) is trying to put its services (and ads) on this big screen.
Motorola is pretty good at making cable/satellite boxes.
Motorola Mobility sold its set top box division to Arris in December, 2012.
Android’s purpose is to create open standards. That is where the value to the end user is: to not be enslaved to vendor lock in.
Android is dominating in market share. Android is dominating in end user value. And Android is dominating in hardware: the latest super phones are absolutely over the top.
Android devices are gaining more and more turing completeness, while Apple is redesigning their interface or something.
Android’s purpose was to protect Google from OS makers who can shut it down. Google’s business was that vulnerable. But now, It has a bulwark. Open standards? I don’t get it.. What Open Standard did Android create?
Well, the big one of course, the one that separates the men from the boys, is all the different methods for manually moving raw data and media to and from the device using standard protocols instead of proprietary syncing solutions. You can even shell in and manage files and apps from the command line if you prefer the speed and simplicity of that.
In many ways being able to reasign default applications, and seamlessly pass raw data back and forth between different applications and your choice of third party file browsers is a really, really, really stinking big deal.
Basically you need to imagine a smart phone that functions like a computer instead of a locked down appliance, and treats you like an adult instead of an Apple customer. That is Android.
And if you’re dissatisfied with the device configuration you can download the Android source code and compile your own rom.
yeah… thats what consumers want.” seamlessly pass raw data back and forth between different applications” Every single person that i know wants to do that…You and I (cause i actually know what you mean) are what? 0,5% of the market? I think android is just fine and ios also. But that is a bullshit answer. ”
mens from boys? ” really? i got a truck full of $50 watermelons to sell you.
I agree with TRENT_PALMER.
The average end user wouldn’t know what “seamlessly pass raw data back and forth between different applications” means, but she feels it when she sends pictures or loads music on an Android device.
You’re darn right they feel it. The first few days after I convinced my brother to switch to Android were filled with “Oh, wow you can do that with a smartphone!!??” moments.
Google isn’t about open standards any more, not in their core businesses.
Google engulfted the RSS market and when it was theres, they took it out back and shot it, telling everyone that the closed-standard, proprietary Google+ feed was the replacement. Google: 1, Open Standards: 0
Then, Google took the amazing XMPP open messaging protocol and ran with it for a long time, supporting it… up until they decide to unify their messaging behind a closed, proprietary protocol, abandoning XMPP, open servers and open standards. Google: 2, Open Standards: 0.
These are just the two most recent examples.
Google is not a champion of open standards when open standards get in the way of it’s business model.
Good points about XMPP, RSS, networking, etc. Google needs to remember that their best long-term strategy is to think 2 steps ahead of everyone else and continue to kick the ball forward on open standards.
Otherwise they risk ending up circling a dead-end cul-de-sac like Apple. It doesn’t matter how all-comprehensive Google’s system and services become, they can’t do it alone any more than Apple can. At some point they may need to aim for more mediocrity and chaos in order to maintain as much relevance as they can.
Or we, the users, run the risk of being engulfed by a new all powerful tech company that replicates all of the bad behavior of MS under the banners of Open and Do No Evil.
Yes, I drove by that dead-end cul-de-sac the other day, and I saw poor Apple sadly circling, raking in the majority of the profit in every market they enter. Clearly Apple is dooooooomed. #facepalm
The thing that separates men from boys is family, children, grandchildren, not how many tar switches they can remember.
Basically you need to imagine being loved and connected to people that really value you.
And if some tool you’re using doesn’t fit you, you return it and get a better one because you’re a man and have actually important things to do.
No, actually there was one arm processor shipped for every 4 people on earth in the first quarter alone. There simply isn’t enough proprietary software, and enough simplified interface to go around, but there is lots of power.
All this love and iPhone touch-screen nonsense will do is guarantee that your children and grandchildren are preparing themselves for a long productive career assembling shoes for the Chinese, because they won’t have the first clue how computers really work.
Trent, are you a software developer? No, you’re clearly not. Write some code then come blab about open standards.
The risks of vendor lock-in are definitely something that the average Joe should be concerned about in all areas of life: legal, medical, personal-finance, environmental, etc. You can’t narrow it down to just software.
Ah, so the measure is knowing how things really work. So, you built your own house, from the inside out, did all your own plumbing, electrical, HVAC, framing, etc. And of course you can take your car apart and put it back together, no problem, because it’s important to know how things really work. And you can assemble your own TV as well. Plus you built the highways you drive on, and you sourced, treated, and piped your own water to where you live, and you built your sewer/waste treatment system, and well of course you sew all your own clothes, and you make your own shoes. I could keep going. The point is we all use many things and systems every day without knowing how they “really work”, and most of those things/systems are closed, and nobody pisses and moans about it. But when it’s Apple, well, holy crap let’s yell and scream about open standards. Humans are hypocrites.
Did you build your own car or choose to rely on a proprietary solution? Why is that?
Do you think people are not being “treated like an adult” for buying cars that act as appliances that they can’t easily reprogram to act however you wish?
How is this any different? In both case one is extremely complicated and has little support yet offers the most flexibility and the other is the reverse.
The day is coming when you will wish you could root your car. Not to mention the chips inplanted in your brain. At some point vendor lock in will become a matter of life and death, and embedded systems are especially vulnerable, I guarantie you that.
What a dork…
Who does what you’re talking about? Not the majority of either platform’s users.
go ahead and do it man. I doubt you could even make sense of the build environment by yourself.
That is really great for a small subset of highly technically sophisticated users, not so great for the vast majority of users that are locked into the carriers or manufacturers flavor of Android. The vast majority of Android users are effectively just as locked down as any iOS user.
Tl;dr: You have a point about the openess, but it’s not as effectively a big point as you think it is.
Android is truly dominating only in the market that knows what Turing completeness actually is.
That does not include people that misuse the term to try to look smart.
It’s so fun to play with people like young Trent here. People who think Android adheres to some definition of “open standards” while evil Apple is “closed and proprietary”. Have you tried to find the source to Google Maps on github? Tried to insert code into Google’s advertising algorithms? I mean, if Google is so open, you should be able to do that, right? What Trent and others just seem unable to grasp is, Google’s revenue stream is advertising to users. Trent, you are not an Android phone user, you are used by Google Android. When you realize this, you will understand why Google gives Android away for free and allows much of the OS to be customized (but not, you know, the things that make Google money – Maps, advertising, etc.). But by all means dismiss Apple’s overwhelming dominance in mobile profit as “redesigning their interface or something”.
OMG people and this ridiculous “you are the product” crap while posting on a comment service where they are the product, on a free tech blog displaying ads that makes them the product 2 times over. Everybody understands how ad driven services work. We’ve had the major TV networks, terrestrial radio and free internet services LONG before Google came along. There is nothing to “realize”.
And as far as being “open” lets be real here. Sure Google has their core services closed. Maybe you can’t get the source to AdWords but you sure can get the source to the framework they use to build the AdWords system (GWT) along with other properties. You sure can get the source to the language they’re using to rebuild a lot of their internal C++ applications (Go). You sure can get the dependency injection library (Guice) and other helper libraries (Guava etc.) that they use to build their Java apps. You sure can count on them using JSON for communication with their services instead of some closed one off format. You sure can get the core of Chrome via Chromium. Now what do you see open about Apple besides Webkit? Buy by all means pull out the strawman “evil” argument and ignore that Google is much closer to the development community with open technologies than Apple ever will be.
Let me get this right:
Android devices, 30 percent of which are cheap Chinese knockoffs that use no google services, are the equal of iPhones?
Android phones, only 30 percent of which are using Jelly Bean, are the equal of iOS 6 that about 90 percent of iPhones owners use?
It’s the old Windows gambit: Take five PCs, cite the features of all as it it were one PC, and chortle endlessly about how much better that PC is than a Mac. Forget the fact it does not exist. Or would cost twice as much as a Mac if it did.
Same thing here: Only the HTC One has the build quality of any of the iPhones available; check the worth of broken phones on Gazelle; iPhones $50-125; Galaxies zip, zero, nada, ничего. But Samsung will bury the One. Good. Android.
We all pay what I call the Samsung tax. Except Samsung. Galaxies buyers are paying convicted crooks: http://www.independent.co.uk/news/world/asia/tax-evasion-bribery-and-pricefixing-how-samsung-became-the-giant-that-ate-korea-8510588.html
Android’s purpose is to create a profitable business platform for google. Google did not put this kind of time and money into Android to appease the open source crowd. That’s naive.
Precisely. Think Sega Saturn vs. Sony Playstation. Even if you’re taking a bath on the hardware, the real money is in the software (in this case, Google’s services and Apps, in the Saturn vs Playstation, it was Games).
Yes and this is just one of the many reasons Samsung is trying to diversify away from Android with Tizen. Just weeks ago Samsng CO-CEO said Tizen was not just another simple alternative.
“Imagine, for example, that Apple were a hamburger chain who made more money than McDonalds, Burger King, and Wendys combined, but only sold 5% of the total hamburgers. Would anyone seriously contend that Apple was “losing” the hamburger wars?”
YES! They not only *would* say Apple is losing the hamburger wars, they *are* saying it, over and over. The business press commonly takes market share as the indicator of who’s winning in business, as far as I’m aware.
There’s a real disconnect here, and I’m not able to explain it. A large group of people who report on business (and who are not dumb) have one view, and John Kirk, using what appears to be a series of logical arguments, has another view. I’m beginning to think that the answer to the question “What is the truth?” is “It depends on what your values are.”
Controlling the narrative is a big motive in our society. Regardless of facts or reality, it is the narrative that counts. This is an allusion to politics, as well as marketing products. We here in the TV saturated, anti-intellectual, dumbed down culture we live in are one of the most propagandized populations on the planet. Samsung and Google are playing hard to control the narrative.
“Market share” as a good simplistic talking point that totally ignores vital nuance, and truths.
It is fascinating that most attempts at competing with Apple are done with zero profit products. Competitors are literally giving their stuff away and are not having much success.
Seriously I think people’s expectations are aligned with the money they spend on a product.
If something is free, expectations are not very high. Apple asks premium prices but by and large also delivers a premium experience. That attracts an entirely different personality type than the something for nothing crowd.
I could pontificate about my own opinions, but why. All I can say is Thank You, and BRILLIANT, BRILLIANT, BRILLIANT!!! And you don’t even factor in intangibles like iPhone users overwhelming content usage and developer profits extracted from the iPhone user base. Both of which SERIOUSLY lag behind in the Android marketplace.
“The goal is to INCREASE, not decrease, the ratio of profits to market share.”
Not exactly. The goal is to increase profits AND market share. And if you can increase market share enough, then profits are guaranteed as your competitors can’t fund R&D (aka you get a monopoly situation).
You are correct that Apple is not dead. They have good product at great profitability. However, the reality is that market share is in a decline, and at some point (I am not saying it is now), that loss of market share becomes troubling.
Apple may be winning the war of profit to market share ratio. But they are not winning market share battle (increasing market share) and they are not winning the profit share battle (increasing profit share). That is a pair of troubling long-term statistics, especially if those trends continue.
70% of the profit share isn’t winning the profit share battle? What WOULD be, 99%?
So true. Apple could have 99% of the profit and these Android idiots would say, “Ya, but we still have 60% of the market share!!”
Consider there may be more than “the” market.
Perhaps there is a breakdown between the high end market, and the lower end one.
I am sure there are other examples, but I am a bit of a car nut, so here goes. Does BMW play in the same market as Kia? Certainly internet and app store behavior of the Android vs iOS users indicate two different types of demographics are in play.
Re: “The goal is to increase profits AND market share.”
No. The goal is to increase profits even if it costs market share in a growing market. It is not, OK to chase market share at the cost of profits. You can invest in buying market share if you believe that somehow you can turn that share into money somewhere down the line. That’s the gamble Google has taken.
The smartphone market is like a quart of non homogenized milk. The cream floats to the top. The top 25% of the quart has more cream in it than all the rest of the quart, by a long shot. Apple pretty well owns that part and the fact that everyone else is squabbling over the rest in a race to the bottom of the quart will have very little impact on Apple.
Once the dust from current hardware wars settles, future smartphone revenue will come principally from content and advertising sales. In that respect, the top 25% of smartphone users who are able and willing to spend will be of much more value than sheer numbers of users.
At any rate, as the author pointed out, loss of market share is meaningless if market expansion rate outpaces share shrinkage rate such that sales and profit continue to grow.
You can’t pay for groceries using market share.
“However, the reality is that market share is in a decline”
Hold on there Sparky. iOS marketshare is in fact not in decline. iOS recently reported record marketshare, both in the US and globally. What I think has you confused is iOS marketshare is less than Android marketshare.
This is, I think a great misconception. Yes, Android has seen tremendous growth, no one disputes that, but the oxygen in the room they are stealing is from RIM, MS, Symbian, not iOS. In fact, when iOS and Android go toe-to-toe, iOS wins. Look at the US, Australian and Japanese markets — iOS is clearly winning. Also, pay attention to India — Apple has just started getting aggressive and it taking marketshare against Samsung handily. Wait until there’s a lower BOM iPhone that Apple can use to really get aggressive with.
This is largely a copy/paste from a comment I just posted at Fortune – the real nugget of truth comes at the end of this long-winded rant:
Your theory of profit guarantees through monopolies is dubious in its logic and illegal in its execution. Not to mention that Google is really not looking for any attention, given its effective monopoly on search revenue. Also, Apple would need to be choked down to infinitesimally small market share to lose its cash flow (never going to happen with the number of loyal fans). Even then, in case you haven’t been watching, the company has nearly $150B liquid and available for investment. Google knows they can never starve Apple out of the market.
I don’t think anyone is saying market share means NOTHING, only that market share is drastically less important than profit share. The “we’ll worry about revenue later” model works for startups (see Tumblr), but eventually there has to be an incentive for a company to continue supporting a product. Google needs to monetize Android eventually, if only to silence investors. Samsung is making money with Android, but they are alone. None of the other handset manufacturers are making anything whatsoever, and Google itself has not figured out a way to generate meaningful revenue – let alone profits. Eventually (which I’ll grant could be weeks or could be years away), investors get sick of hearing that the money will come mañana.
To me, Apple’s biggest crime is actually realizing its potential. The constant talk of the need for the “next big product” is because we all think we can see the future of the existing lineup. Apple has achieved scale, and history says that growth slows dramatically when the market reaches saturation. Nevermind that in the case of Apple itself we can see a company which has thrived on wringing ever increasing profits from a minority share position. Nevermind that market share coalescing around Google won’t lead to the Wintel hegemony because the OS itself doesn’t mean what it once did.
By contrast, Google (and Amazon and to a lesser degree Netflix) is grabbing share. There is minimal profit, but they have somehow convinced investors to pony up for a much higher multiple based on some future opportunity which does not need to be eloquently articulated. It’s almost like the concept of potential energy from high school physics. Google is considered a coiled spring, and Apple a Slinky.
I would offer that there is also ample evidence to suggest that monetizing a product which consumers have come to expect as free is exceedingly difficult. Adding even a small fee to something which was once free can have dramatic negative consequences. If anyone can do it, Google is a strong candidate. But it is FAR from a foregone conclusion.
Apple on the other hand, is in the rather luxurious position whereby it has MUCH more runway than Mr Market wants to acknowledge. A move from 20% market share to 30% would represent a 50% increase for Apple. Not too shabby. “But those are Android customers!” So what? They are easily converted if Apple has a product to suit the market. Unlike Windows, Android doesn’t DO anything unique. It is not the only acceptable platform for anything, either in business or among consumers. Many don’t even care that they have Android, only that the phone was cheap enough.
Not only that, but GOOGLE WANTS IT THAT WAY. They don’t care if people use Android, so long as they use Google services. GOOGLE MAKES MORE MONEY FROM iPHONES THAN FROM ALMOST ALL ANDROID UNITS because iPhone users search the web. Google doesn’t fear a duopoly with Apple; they probably would prefer it over the type of regulatory scrutiny they will surely absorb if iOS goes quietly into the night. As long as mobile internet usage continues to proliferate, Google gets to keep fleecing investors into thinking that there is a monetization plan coming down the pike. Profits will grow, but owing almost nothing to the OS the company curates.
> if you can increase market share enough, then profits are
> guaranteed as your competitors can’t fund R&D (aka you
> get a monopoly situation).
So what you are saying is Apple can no longer fund R&D because of Android’s market share? You’re saying LG and HTC have no problem funding R&D because of Android’s market share?
In the high-end phone market (the only market in which Apple competes) Apple has the largest market share. Most of the money in the phone market is in the high-end phone market. It is manufacturers who can no longer sell high-end phones that are hurting for profits and R&D money.
Similarly, Dell/HP lack R&D money because the Intel Mac took almost the entire high-end PC market and pushed the average price of a Windows PC down to $400, barely above the cost of components.
Read the article again. Market share is not a proxy for these other metrics. Market share does not mean you are making profits at all, let alone in line for some magic future profits. The best indicator of future profitability is CURRENT PROFITABILITY. There is no need for voodoo. The most likely phone maker to be the profit leader in 5 years is the one who is the profit leader today. It is not guaranteed, but they are the most likely. There is no argument you can make to say that one of the unprofitable or low-profit phone makers is more likely than Apple to be the profit leader in 5 years.
You are interpreting his comments exactly backwards.
As far as google is concerned they have won, since they have a majority of devices serving mostly google services (remember they make money off usage and ads)
As far as apple is concerned, they also have wont since they sucked all the money out of the market which the pretty much “invented”. (I mean that the product existed mp3 player/smartphone/table but the market for that product was apples invention ipod/iphone/ipad)
Google makes most of it’s money of ads and almost zero from usage.
No that’s not true. You can’t be served ads unless you’re using a computer where you can see them.
Apple’s game is to get you to buy a computer, but Google’s game is to get you to use it.
Of course it is true. One person can be served hundreds of ads in a day. The price of each ad can vary from 10 cents to 25 dollars or more. They make a lot of money off one person, even more when they can aggregate and sell detailed demographic info on the viewer.
The same person is not going to go out and buy hundreds of computers in the same time period. Apple’s game is to create a longterm relationship with a customer. Google’s game is to offer as many ad infested “free” services as they can copy from the marketplace to the hapless bottom feeder who doesn’t want to pay for anything and then monetize that hapless bottom feeder buy selling out their info.
Sir, Apple doesn’t create a long term relationship with you. They impose vendor lock-in on you. Don’t kid your self, it’s all commodity hardware, and resolutely general purpose at the lowest level, but the walled garden is a prison. You are forced to purchase services from Apple based on the fact that your iPhone keeps secrets from you, and tells you what you can and cannot do.
Google on the other hand, simply offers a free service. They are entirely dependant on your satisfaction with your user experience from one minute to the next.
Looking forward to the 2nd article. Network externalities might be more important than sales in this sphere.
Apparently the author of this article has never heard of the term “loss leader.” Google is an advertising company. Android increases their profits over there.
Apparently you couldn’t read his last sentence in story before posting
I typically discount anyone that uses Daring Fireball as a reliable quote.
Daring Fireball is way more reliable than any of your trash.
He monetized his ability to be obtuse. I guess that is a thing.
commun5- Yup, DF is clever and sees through the dung. There are gods in this business and then grade school dropouts. Life’s too busy and short so best to stick with DF, TP and the few others who connect the dots.
I strongly consider re-thinking the way you do holistic market analysis.
My analysis doesn’t have a Valley bias to it, unlike others on this site.
our body of work is out there, and covers way more than Apple. You are welcome to evaluate it and make form a more educated opinion.
I wouldn’t be an effective industry analyst viewed as credible with the bias you propose. So read more of what I write and try to form an education opinion.
I didn’t name you and I didn’t say Apple.
*sigh. Authors on this site, which I am. Regardless, my work is out there and subject. Opine as you will.
That doesn’t seem to do much for the phone makers now does it? I don’t recollect seeing the “googlephone” in the list of hardware.
I don’t see him talking about how much Apple controls their supply chain, forcing the ODMs to take less per piece because they are the bully of the supply chain.
You do realize that Android is following the same trajectory that the PC world took from the early 80s on? This is the same argument that went on for 20+ years in the Mac vs PC discussion. It’s redundant and has been proven that it is a sustainable model for multiple generations.
Android is nothing like Windows. MSFT sought to create value for others, and Google seeks to create value for no one but themselves. I don’t speak with a sinlge Android OEM who likes working with them. And as we now see only one company makes money with them.
When mature markets mature, they always favor the vertical player. This is why Oracle is what it is with a closed system in a highly mature market.
History will not repeat itself and this market is large enough to sustain many players in many segments.
With the amount of hardware companies you will observe go out of business or sell off their hardware business you will quickly see how only a few can make money and this market for mobile and tablets will look nothing like the PC age dominated by one platform. That era was about a few hundred million units. This era is about billions. There is no way a dominant player dominates market share and profit share.
Expect these numbers like John’s article to continue, only the Android players will come and go.
Ben, I have heard about Google not being a player and therefore support for other parties not being part of their game but it has taken this discussion to sink in. How this will work out for Google in the long run will be interesting to see.
I have been vocal on Apple getting into Google’s game, search (mainly to protect our data), but I never see any interest in the possibility. Then the idea of voice search comes up hinting that may be where Apple gets its comeuppance.
Today read two articles on maps; AppleInsider looking at the screwy function of Google’s 3D having the same probs Apple had in its early play (and Apple compared as working far better juxtaposed against Google’s rendering) and another silly article (where? don’t remember) on how Google is beating Apple in maps. Iteration is where Apple seems to do best at the ‘O.K. Corral’.
I hope these two issues might eventually be addressed at TP.
Without doubt our Apple centric analysis continually reveals the challenges they have with cloud and cloud services. We will continue to address that as well in the big picture there.
Android is nothing like Windows
Android has all the weaknesses and none of the strengths of Windows. This is the point that the Church of Market Share acolytes simply refuse to accept: “Android” is not a cohesive OS distribution firmly linking disparate manufacturers. Specs aside, a purchaser of a Compaq Windows PC could expect nearly everything and anything he bought, be it software or peripherals, to function the same as if he bought a Dell PC or an HP PC. This is not the case with Android. There is no sprawling Android user base that a programmer can access with the simple effort of writing once and deploying everywhere. Screen sizes, processors, skins, hardware… All the variation that may be a strength on the “selling feature sets” side works against any all attempts to pretend that Android can be treated as a cohesive, addressable market.
You do realize that Android is following the same trajectory that the PC world
Wrong. Microsoft’s partners actually made money. For years, all the while riding stellar growth.
And they STILL make more ad money from iOS. So even Google is more profitable with Apple’s “tiny” marketshare…where will the madness stop?
Android is not profitable yet for Google. Google makes more money from iPhone users than from Android users. Samsung makes more money from Android than Google makes from Android. Google spent $13 billion on Motorola which has lost money every quarter since then. All that money has to be made back before Android becomes profitable.
If Google’s hardware partners go out of business because they can’t make money or sustain their ARPU then what happens to Google’s market share then?
Apparently the poster of that comment has never heard of the term “profitable”. The success of Google pushing more ads to users does absolutely nothing to keep it’s partners solvent. If using Android as a base OS for it’s phones does not make ,they will move on.
Very well written. Unfortunately, it is woefully misguided and, quite simply, wrong, on this particular topic.
As I’ve written elsewhere (One Blind Squirrel, which was reposted on ReadWrite), marketshare matters in technology, and Android’s ability to take massive share and outsell iOS at a widening pace is a harbinger of things to come at Apple.
Apple’s peak is behind it – influence, growth, revenue, margin, and profit are all in the process of moving down. And, Android’s marketshare is THE reason.
“marketshare matters in technology”
This isn’t the dot-com era anymore.
“Android’s ability to take massive share and outsell iOS at a widening pace is a harbinger of” cheaper manufacturers selling cheaper phones to cheaper customers. Not a great business or technology model.
Apple’s sudden transition to single digit growth and declining profit suggests otherwise.
No, it suggests a rotation into Apple’s lower margin items – iPad mini & last gen iPhone. And also Q1 vs Q4 comparison. Winter quarter vs holiday quarter. Yet sales are still up.
“For the March quarter, Apple reported 37.4 million iPhone units sold, up from 35.1 million in 2012, translating to a 6.5 percent year-to-year growth rate.”
Keep in mind, this single-digit year-over-year growth figure INCLUDES the beneficial impact from a full launch of iPhone 5, new carriers, and a slate of older-generation devices also in the market.
Agreed that higher proportion of sales from iPad mini is impacting margins… but so is a higher proportion of last-gen iPhones (priced at substantial discount) and lower-than-expected demand for iPhone 5.
Expectations (revenue, margin, and profit) for the business have been lowered, too — for all the same reasons.
There should be no doubt: Android is the worm eating Apple’s core.
Makers of Android devices would KILL for Apple’s business and profits. You didn’t understand the article or just didn’t read it. Android is for low cost devices sold to people who don’t care about quality.
You’re misunderstanding me. I agree that Apple does have a great business that many / most would kill for; at the same time, however, I believe it also to be true that Apple’s peak of influence, growth, revenue, margin, and profit are now behind the company, BECAUSE OF Android’s increasing marketshare / dominance / etc.
And, as for your comment that “Android is for low cost devices sold to people who don’t care about quality,” all I can say is that you couldn’t be more fundamentally wrong.
Growth is slowing because smartphone markets are finally becoming saturated, not because of Android per se. Apple has successfully captured the most profitable portion of the market — if they continue to capture that market, at zero growth, they will have a huge cash cow on their hands.
Next they will enter the middle market — $300/devices. Look at the US market — they are slowly grinding higher and higher marketshare, against top end Android phones — the majority of smartphones sold by ATT, VZ, Sprint were iPhones.
I don’t think they’ll ever go for the lowest portion of the market, there’s always someone who is trying to clear their shelves below cost.
And, as for your comment that “Android is for low cost devices sold to people who don’t care about quality,” all I can say is that you couldn’t be more fundamentally wrong.”
He is not fundamentally wrong. I think you need to examine your Android bias… just because you are some kind of Android Power User with a Galaxy III or IV or equivalent that is comparable in some small way with an iPhone does not mean that the majority (or even a significant number) of “Android users” are in any way choosing their Android phones proactively (as opposed to price, hype or whatever the salesman sells them), nor are they using them in any comparable way to the average iPhone (as usage stats and indicate). Any common-sense and logical consideration of the billions of Android phones on the planet will tell you this.
It’s about jobs to be done. The iPhone is used more, and for more types of tasks by anyone from pre-schoolers to 90 yr-olds, precisely because of the ease with which anyone can do all sorts of things they never imagined doing on a phone (selling items at a kiosk, editing movies, and what not).
First, most people on the planet haven’t cottoned on about the potential of a computer in their pocket vs a phone. Secondly, yes, most people ARE more concerned about proce than quality (or job to be done), especially when they think a phone is a phone. That will change. The iPhone will be a first computer for many people on the planet. That’s value for money.
Also, when you talk about “peaking”, you are acting like Apple is the old, incumbent has-been in this scenario, and that Android is the upstart that is taking out iOS before APple ever reached the peak that WIndows gained on the PC. Well, Apple has barely gotten started. The iPad is growing faster than the iPhone ever grew (which was faster than the iPod, which was faster than the Mac). Android now has Touch, and that is new; but Android is not new. It is a similar OS to Symbian and has merely replaced it as the default OS on anything and everything. IOW, it didn’t come out of nowhere. It is now merely the standby for every phone on the planet — those phones have to run something, and that’s Android. So? Again, market share in and of itself, is meaningless.
Let me know know what shares you’re buying so I don’t make the same mistake.
You can get your borrow from me.
> Keep in mind, this single-digit year-over-year growth figure INCLUDES the beneficial impact from a full launch of iPhone 5
Wait, the March 2013 quarter includes the October 2012 launch of the iPhone5? That’s a pretty long quarter.
The problem with claiming that marketshare matters is that there is no single Android marketshare. there is massive fragmentation with multiple Androids.
I understand you feel a need to defend what you’ve written even though there is no evidence whatsoever to support your conclusions.
What you and so many others can’t seem to wrap your heads around is the fact that the conventional wisdom does not apply here. The money is already where it is going to go.
Users know this, developers know this, smart investors know this…the only ones who don’t know this is a large group of people who are supposed to know (or are at least being paid to know).
Now, eventually, many years from now, Apple may actually fade to irrelevancy, but you and your friends will have been so wrong for so long that no one will care if you manage to live long enough to say “I told you so”.
I believe that Apple’s suddenly shifting growth / profit profile tells a different story than that which you seem to believe. I would encourage you to listen to it a bit more closely.
I certainly don’t possess a crystal ball and I have said before that eventually one of you guys will have to be right (the ‘blind squirrel” concept, as you well know), but so many of you have been wrong so many times based on some minor blip or some mis-perceived weakness, that I would encourage YOU to look at THAT a bit more closely and maybe don’t worry so much about being the first to sound the alarm but perhaps be a bit more circumspect in an attempt to actually be right.
The only reason market share was ever said to matter in technology is that it was used as a proxy for developer support. That turned out to be a false proxy. Developers don’t chase market share, they chase profit. So Apple leads in profit share *and* developer support.
> Apple’s peak is behind it – influence, growth, revenue, margin,
> and profit are all in the process of moving down.
No. That is not true. Yes, growth has slowed, but demand continues to rise. Apple’s revenue is not down. iPhone margins are not down. (Apple’s overall margins are down due to iPad and capital investments, but not iPhone margins.) Apple’s profit is also not down. In their most-recent quarter, they made the same profit as the year-ago quarter, but the year-ago quarter was 13 weeks and the most-recent quarter was 12 weeks. Their profits are up.
> And, Android’s
> marketshare is THE reason.
No, that is also not true. The one bad thing you can say about iPhone is that its growth has slowed. That is due to the saturation of the high-end phone market by iPhone. Apple has now sold an iPhone to pretty much every person on the planet who is willing to pay $500+ for a phone and $80+ per month for service, and Apple has now signed up pretty much every carrier on the planet who is willing to agree to Apple’s terms and sell a set number of millions of iPhones every year. In other words: they won. There are no other $500 phones left anymore. Apple owns that whole segment of the market. Of course growth is going to slow in that case!
What is needed now for Apple to re-ignite their phone market growth is to simply complete their lineup of phones across all price points, exactly like they did with iPod in 2004 when they introduced iPod mini/nano, and iPod shuffle. Apple is not yet competing at all in the $300 phone market and the $150 phone market. You might have been complaining about the demise of iPod in 2004 when there was just one high-end iPod. Well, iPod mini immediately outsold original iPods, and iPod nano went on to be much bigger than that, in units sold and in revenue and profits.
Similarly, in early 2010, you could have been complaining about Apple’s PC market growth. The Intel Mac doubled Mac market share between 2005 and 2010, but how was Apple going to gain further market share? In 2010, Apple already had almost all the people who were willing to pay $1000+ for a PC, and they did not sell any sub-$1000 PC’s. Well, today in 2013, Apple’s PC market share has tripled since 2010. How did they do it? Apple began to expand their PC lineup to cover all price points: they introduced a $500 PC called iPad. In late 2012, they continued that expansion when they added a $300 PC with iPad mini.
So to declare the end of Apple phone growth when they only have one high-end model is a bit premature. The phone analog to iPod mini/nano and iPod shuffle is not here yet. The phone analog to iPad and iPad mini are not here yet. And if you look at the last few years of iPods, they are gradually turning into phones right before our very eyes. One year, iPod nano got a touchscreen and little apps and the next, it got a phone-like vertical form factor and Bluetooth and Lightning. One year, iPod touch got a microphone, and the next it got FaceTime, and the next it got the iPhone 5 form factor screen and Lightning. How hard is it to put a 3G rig in there and turn iPod touch into a low-end smartphone and iPod nano into a high-end feature phone?
What will be interesting is the time it takes for Apple to lose its current lead. No doubt, Apple has peaked – but you are assuming it is only possible to peak once, and that seems unlikely to hold true. As long as Apple leads long enough to transition to the next new hotness, they will continue to be (as much as I hate the term) “winning.”
I would especially argue against Apple’s INFLUENCE having peaked, but since it is such a subjective measure there’s no such thing as an invalid opinion on that one. 🙂
One final point: marketshare matters (in any industry) but, as the article informs us, in a context-free scenario there is very little useful information that can be derived from such a metric.
Derek, most find it difficult to think outside the box, even when guided by great seers. But don’t give up. The seers at TP, like the Buddha, are patient and ever understanding of your plight.
What’s this “ability to take”??? Hello, Android is the new default OS installed by all OEMs on anything and everything.
BTW, if Android activation rates were ever to be believed, I think you will find that THOSE have peaked in the US some time ago, and that is quite the harbinger of things to come.
This is all fine and good…. but if you take your logic to an extreme, Apple could sell 1 iPhone for $100B and you’d say Apple is winning.
The real answer is both market share and profit share are important.
with regards to mac, it provides me no comfort that the mac is very profitable despite its low marketshare when I’m forced to use a terrible windows PC at work because it’s cheap. And everywhere I go I deal with the consequences of PC domination (ATMs crashing, friends/family needing support, etc).
So maybe from a pure investor standpoint, yeah – apple is doing great. But as a user, why should I care about apple sucking up a monster share of the profits? I care in that I want the company to be stable and around, that’s about it….
Guess what? Companies with healthier profits are more stable and stick around better than those that don’t. Take, for example, HTC.
If a company could sell a phone for $100B they absolutely would be winning. No doubt about it.
way to miss the point.
What point did I miss? If you could sell only 1 unit of a product yet utterly dominate an industry you have won. You work less, spend less, exert much less effort, and still walk away with the spoils. You’ve won.
… and if Google gave away 1 Billion phones for free and cornered, say, 99.9% of the market some pundit would claim Android was winning even though Google lost ~$200 Billion dollars in the process.
Poor user experience with “cheap” PCs has nothing to do with Mac market share and everything to do with companies who cater to people who have been programmed to equate cheap with inexpensive. Cheap is seldom inexpensive but cheap drives our consumption based economy and benefits sellers.
Apple’s PC market share has tripled over the past 3 years. Apple introduced a $500 PC (iPad) and $300 PC (iPad mini) and those are currently replacing Windows PC’s wholesale in every context, including Web/office terminals, point-of-sale systems and kiosks and bank machines. The Intel Mac drove Windows down to the $400 price point, where iPad is now murdering it.
The biggest Mac growth is in business PC’s. Business “power users” who set I-T trends have all been on Macs for years now. If you go into a typical office that is 100% Windows PC’s, you can switch 10–20% of those users to Mac and the rest to iPads, and not only will everybody be more happy and productive, but I-T costs will go down considerably.
Going forward, there will almost certainly be new Apple phones that are to iPhone as iPad and iPad mini are to Mac, and that will gain Apple market share in addition to their profit share.
Tripled from 2% to 6%… total domination.
I think you did your readership a disservice by delaying the second article. I believe your argument in article 1 is incomplete unless counterbalanced by the beneficial network effects/externalities that result from market share like credibility with developers (WebOS anyone?).
There is a credible long-game strategy in paying for market share especially since Apple had already claimed the high-ground and others were late to the game. Do you immediately charge up the hill to claim the high ground? Or do you solidfy and fortify the unheld low-ground and lay siege to the high-ground and chip away at it over time? Seems to me that with Apple entrenched at the top, a slow-steady war of attrition from the bottom was always better than a headlong charge uphill. With the low ground secured, slowly Samsung and HTC are learning to out-Apple Apple.
I look forward to the second article where you explain to your readership that if executed correctly, there may be some sense in the mad dash for market share, especially in a still rapidly growing market.
Many of HTC’s top management are jumping ship. Did you miss the comparison with Dell and HP?
Laying a siege means acknowledging that the defender is in a better position than the attacker. The standard tactics of open field battle diminish greatly in their importance. The weak point for the defender is their lines of supply; in the platform wars this means the developers. Forget the raw number of developers in play – how much money are they (as a group) making from each platform? For which platform do they develop first? How many others are trying to emulate them?
At this point in time, it seems inconceivable that Samsung et alia will be able to destroy Apple’s lead in the developer stakes. Perhaps in a decade Samsung will have sufficiently grown its capability to generate a platform and reward the developers that move there – but by then, will smartphones still be the battleground?
This leaves Google, and all the manufacturers that have outsourced their platform to that company. Google seems to already be downplaying the importance of Android to developers (as evidenced by the attention paid to it at the I/O conference), so I doubt it’s going to support the existing OEM partners (and, indirectly, the hijackers such as Amazon) by increasing the priority of developer profits.
I’m sure there are people at Apple concerned about the current trend (growing more slowly than the overall market – especially in profits – is almost never a good sign) but they have a strong position and can use the advantage of being the profit leader to benefit from a wider array of tactics and strategies than are available to their competitors.
Apple doesn’t just lead in profits. Apple also leads in software developer support, hardware accessory maker support, case maker support, music/movie producer support, and book publisher support. All of these things are what you are supposed to be gaining when you buy market share. If you buy market share and you don’t gain any of those things, they your buying of market share is pointless. That is why Apple has not yet had to go for market share. That is why they still only have high-end phones. There has been no pressure to go into the mid and low end yet for Apple. They have the only high-end device and they have all of the 3rd party support.
> With the low ground secured, slowly Samsung
> and HTC are learning to out-Apple Apple.
Not true in any way at all.
It took Apple 3 days to sell their first 5 million iPhone 5’s. It took Samsung 6 weeks to *ship* their first 5 million Galaxy S4’s, and Samsung sells in more than double the locations/carriers than Apple. And, Apple’s returns are 1% and Samsung’s are 20%.
The HTC One has been lauded for its Apple-like design. That is because HTC licensed Apple’s designs and manufacturing technology! It is no coincidence that it looks like it was made by Apple. But HTC is barely selling any units, is barely profitable, and will very likely be unprofitable next quarter, which no phone company has ever recovered from.
> With the low ground secured
The low ground is not secured. Android is not sticky. The vast majority of Android users only use voice calls and SMS texts, which are cross-platform. If they use apps at all, it is typically just Facebook and Twitter, Web-derivative apps that also exist on other phone platforms. If Apple ships a $300 smartphone based on the $300 iPod touch, many Android users will switch to it wholesale to get the much better iOS app platform, iTunes media platform, and much better Apple design and engineering. If Apple ships a $150 smartphone based on the $150 iPod nano, many Android users will switch to it wholesale. The main complaint from $150 phone users is that their phones are too big and too complicated and too hard to use. iPod nano is not big, not complicated, not hard to use.
Further, the low ground that Samsung and HTC have is also under threat from even cheaper Android phone makers like Huwaii and ZTE. So Samsung and HTC have not secured anything. Going forward they are under threat both from below by other Android makers and from above by Apple.
The truth is, what Samsung won is the old, pre-iPhone carrier-based phone market. They consolidated all the carrier phones into Samsung carrier phones. Samsung killed Nokia and LG and RIM, not Apple. Apple does not offer phones at the Samsung price points. Apple does not sell in most of the locations/carriers where Samsung sells.
JD, so many knockout punches and now you bring in the baseball bat and shovel. 🙂
I think you made some of my points for me.
You said :”Apple also leads in software developer support, hardware accessory maker support, case maker support, music/movie producer support, and book publisher support.”
Exactly! How does Android even begin to get developers and accessory maker’s onboard without a critical mass of market share? It cannot. Therefore, they accumulated market share by any means necessary until the Developers et al. needed to take them seriously. I remember all the old jokes about the deserted google app store when it first opened; it was a wasteland. Have you even seen Google Play lately? Pretty much everything you quoted is in their. The high-end apps, the movies/music, the books… Market share and the credibility it brings built that. The number of Apps exclusive to Apple only is reducing gradually. Some apps even publish first for Android now. Would not have happened without market share. Remember WebOS? Without Market Share Android could be on the same dust heap.
You said:”Apple does not offer phones at the Samsung price points.”
Where have you been the last year? This is no longer true. The unlocked Galaxy S4 is over $600. There are high end Android phones available at the same price points on contracts as iPhone 5 from most of the Carriers. You should have rephrased to “Apple does not offer phones at ALL the Samsung price points.”
This is a long game being played.
You said:”Android is not Sticky”
Well I am stuck. I bought an unlocked Nexus 4. I will probably get the Google clean Galaxy S4 in June. I have everything I need: Maps, GMail, Google Now, Google Voice etc. I have not had a single crash or hangup on my Nexus 4 ever. So saying iOS is the better platform means less and less as time goes by. Whenever I pick up my wife’s iOS device I never feel like I am missing something. In fact, I get frustrated that I can’t locate the right settings as quickly because of lack of familiarity, so I certainly won’t be switching and neither will the folks who chose Galaxy S3 and S4 over a comparably priced Apple because price was clearly not their driver.
Anyways, different strokes for different folks. I am just saying there could be a rhyme and reason for the market share grab and I hope that Article 2 articulates it properly.
To the Guy below who asks about if I know about Dell & HP. That is an Apples to Oranges comparison. Did they innovate? Did they have an ecosystem? Did they try to mimic Apple’s emphasis on design? They owned the PC space and then Apple came and made the PC nearly irrelevant. Remember pre-ipod Apple PCs were niche and Apple stock was under $40. Dell and HP did not use their marketshare to shape the future and paid for it. I think Google and some of its Android friends plan to make their market share a tool and an advantage eventually to shape what comes next, but it is all about execution. Will Apple have changed the game again by the time? Let’s wait and see. Dell and HP never saw the future coming.
Amazingly we have proof of this argument right before our eyes in HP and Dell. For years they fought to be the King of PCs – in market share. Look where that battle ended? Both companies are smoking carcasses as far as the PC business goes. Dell is trying to go private. HP can’t decide if it wants to stay in the PC business or not (yes, for now). Either way, the race for the bottom has been disastrous for both. But hey, look at those market share numbers! Woohoo!!!!
In the meantime, the pundits turn their gaze from the Dell/HP carnage and start applying this same crappy logic to Apple. “Google is WINNING!!!!!” Incredible.
But bagging on Apple has always been cool for these tools. This is nothing new.
Amazingly we have proof of this argument right before our eyes in HP and Dell. For years they fought to be the King of PCs – in market share. Look where that battle ended? Both companies are smoking carcasses as far as the PC business goes. Dell is trying to go private. HP can’t decide if it wants to stay in the PC business or not (yes, for now). Either way, the race for the bottom has been disastrous for both. But hey, look at those market share numbers! Woohoo!!!!
In the meantime, the pundits turn their gaze from the Dell/HP carnage and start applying this same crappy logic to Apple. “Google is WINNING!!!!!” Incredible.
But bagging on Apple has always been cool for these tools. This is nothing new.
Be very clear: Dell and HP are troubled because the PC market is (and has been) in complete freefall, not because they fought each other for marketshare at all costs. By no means am I defending Dell and HP — they had every opportunity to diversify their businesses and/or shift into more innovative segments — but to say it was a marketshare-driven failure would be entirely wrong / unfair.
To some extent it is, considering Apple’s Mac is making most of the PC industry profits with minuscule market share with a different strategy. Lenovo probably focus as much product differentiation & value addition as market share and hence they’re over-taking everybody.
And the end result is that we live in a golden age of computers. You can go out and buy commodity hardware, for a very reasonable price, that has cpu power by the boatloads and is capable of running dozens of different operating systems.
You can search Google other play a YouTube on just about anything with a power button now, without having to sell your soul to Apple so they can feed their lawyers more puppies and small children.
And yet no one wants to go out and buy “commodity hardware”. CPU power is meaningless to the new majority. So much for a golden age. Which is why the iPad is outselling laptops and desktops and has been for at least 2 quarters.
Who cares if you can search Google and play a YouTube video on anything? Ad infested search result pages and ad videos. Joy. Google’s customers are the advertisers, and ad consumers are their product. There is a reason that Apple rents more movies and sells more music than any other retailer in the US. Including Netflix.
I realize that a lot of people are overpaying for Apple products, but that doesn’t mean that they should be. It’s an extremely uninformed choice given the alternatives.
You’d be surprised how quickly, easily and cheaply you can get some Linux htpc’s up and running with plenty of power to play whatever you want while simultaneously streaming media files to your sensibly priced Android devices.
Self-direction and information are key here. It helps to search Google, you should try it sometime.
I think the value is in the eye of the people who buy the product. If Apple is so overpriced why are people buying their product? how come they rule the high laptop market, the mp3 market the all in one market?
The thing i don’t understand about techs is that they don’t get the normal consumer doesn’t want to have to root a phone to get it to work. Why can’t something work right out of the box? I don’t have the time to be goofing with something i bought to do a job
I admit have apple products because they work. i am using a windows phone now it is ok but the wifes iphone stomps it in every way. I have had 3 android phones in a couple years ago never worked right i want to use a phone not goof with it every day.
You may not think a BMW is worth the money when a toyota does same thing But the BMW buyer must find some value to what they or selling or he would buy the toyota
John, choice and the freedom to choose is part of the inner spirit that separate us from other life forms. Sadly, many of our species do not like the idea that others will not do as they do and follow their path of acceptance. I don’t know one Applefellow who wants to convert other’s to his/er choice. Strangely, so many, to whom choice is ‘anything’ but Apple, have the gnawing urge to convert those who are happy with the choice that conflicts with their choice and that disturbs them to obsession. I am sure there is some rationality in their thinking but it is certainly beyond my understanding. Obsession can be debilitating to good thoughts and inner peace. Patience, understanding and meditation are the keys to overcoming obsession.
Nice piece of writing
What I see is that Apple is getting dinged twice, where-as Google is only getting dinged once. Get dinged enough times and that’s when you get into trouble. 1. The more Android phones people buy the more profit Apple loses (Google gains – even though it’s a little bit per phone compared to what Apple gets). 2. The more Android phones people buy the more market share Google gets and Apple goes down.
If Android market share keeps growing and Apple market share keeps dropping – eventually Android will be more profitable, will have more market share, and have more people locked into the Android ecosystem. Add in number of apps and services being sold across that larger market share and it ends up being a better position.
Both models actually work quite well for both companies – just as it did with Apple and Microsoft in the PC world. Neither one is going to die anytime soon, neither one is “in trouble”.
Bloggers blowing something out of proportion? No way! 🙂
It doesn’t follow that Android gaining more market share will make it more profitable. There is no eventually, there’s a maybe. So long as Apple’s absolute numbers stay high and/or grow they are in a much better position because they have such large margins. A larger Android share doesn’t give them larger margins. In fact, it’s quite likely that as Android grows, margins will actually shrink for Android makers. We can use the PC industry as a proxy. As more manufacturers tried to buy share, most gave up margins and in many cases profitability entirely. IBM got out early, Dell and HP have considered it. It’s a losing battle.
As per the article: market share alone is meaningless. Apple lost market and profit share compared to 12 months ago and yet is still doing very well – the reason is because the raw numbers went up. Apple grew more slowly than the overall market, but they still grew.
That is the conventional wisdom at work…except it doesn’t and hasn’t. Why? The market has been growing so Android gains are not necessarily Apple losses.
Google doesn’t make money off of Android directly so gains have to be converted through ad revenue, which is not guaranteed.
It’s also pretty clear that Android users don’t buy a lot of apps. They may download a lot of free apps but that is not going to draw developers, who make way more from iOS apps.
Further, most Android phones are free, or BOGO deals which is why, other than Samsung, none of the other manufacturers are profitable, which, is not sustainable, which, means that many will eventually have to drop out, which, means a contraction of the Android market. No, I think if anyone is poised to lose serious ground it will be Android first.
The traditional benefits of marketshare have not materialized and if they haven’t by now, its a fool’s game to believe they will.
1. The more Android phones people buy the more profit Apple loses
Good Gravy did you read the article? That’s practically nonsensical trope number 1. No, a sale to Samsung is not a sale taken straight out of the hands of Apple.
And seeing as how you followed nonsesnical trope #1 with nonsensical trope #2 means you actually didn’t even get past the headline.
Worshipful, I blame the education system for churning out skim readers.
Great analysis. The press keeps missing the story about Android—it is a money loser for every manufacturer but Samsung. Samsung is to really be respected for dominating the Android market as they have. But, Apple needs to be thinking strategically. They need to pay attention to which market segments make Samsung the most profit and compete better in those market segments. By doing so, you increase profits and put the kind of profit pressure on Samsung that all other major Android manufacturers have failed to do. Come on Apple, cut off their air supply.
If you look in a bunch of school kids’ lunch bags you’ll see twice as many bananas as apples and oranges combined, and those bananas cost half as much. Bananas are clearly winning the handheld fruit war. The problem is that all bananas sold in the west are one particular disease-free variety. Except now there is a disease that does attack our favorite variety, and if not for good crop management we could very well see the end of the cavendish banana. Think it can’t happen? It happened before with the gros michel banana. Bananas and phones don’t usually have much in common. But the markets that work on fruit are at play in the phone market too. The mistake isn’t counting market share to pick a winner, the problem is picking a winner period. iOS and Android are both successful, Blackberry could make a come back, and Microsoft could also make gains. A new player will come into the market at some point (Mozilla, Ubuntu, Jolla to name a few wanna-be contenders). A lot of phones are sold with Android on them and Apple is making a lot of money selling devices with iOS. Those are both good things and both are “winners” right now. But much like with the banana that could all change very quickly.
dib, you had me up till ‘But’. . .
iOS is better for Google than Android.
Google makes more money from ads on iOS than ads on Android.
Last year that figure was 4X more money.
Google doesn’t make a lot of money on ads on those devices, Google makes money as consumers use the web more. Android users thus provide Google with over 5x more profit and revenue than iOS users. Google makes over $20 Billion per year on Android users at the moment.
Another important factor is what is the definition of a “smartphone” or a “tablet?” A Kindle Fire is just a media player, it is equivalent to an iPod touch not an iPad. Yet a Kindle Fire is included in tablet numbers and iPod touch is not. A lot of devices that are called “smartphones” are really just feature phones — the maker puts a bigger screen on there one year and now that phone is included in smartphone numbers for the first time. That is why if you look at iPhone in the context of the entire phone market, iPhone’s market share numbers have always gone up, but within “smartphones” it has sometimes gone down. If you look at iPad within the overall PC market, iPad market share has always gone up, but within “tablets” it has sometimes gone down. Consider the different message of saying iPhone’s phone market share went from 8% to 10% over the past year or saying that iPhone’s smartphone market share went from 20% to 18% over the past year. The latter is fundamentally disingenuous and is used to further the myth that Apple is struggling. People don’t go shopping for smartphones, they go shopping for phones, we should talk in terms only of phone market share for an accurate picture of who has what piece of the market.
But certainly, as you say, profit is the true measure of success.
I agree mosting with what you say, however what is not factored in to this is that as Andriod market share increases, developers will target that platform more and more. I don’t think this would be at the exclusion of iOS though.
The major part that you have ignored is “where the puck is going”.
The profit margins on high end hardware will begin to erode as the hardware market becomes more and more commoditized. Moore’s Law says the price of hardware will drop as technology continues to advance.
Wall Street has read the writing on the wall already (witness AAPL’s stock taking a huge hit). Right now, the profits are insane. As consumers become aware of the fact that low cost alternatives exist and are functionally equivalent to an iPhone, the piper will have to be paid.
Really? How does your theory explain what’s happened in the PC market where Apple is dominating profit share?
Apple is more than a hardware company. To evaluate them only as a hardware company is to do it wrong.
People pay for what they value. If what you said about low-cost alternatives were true then all we would have is cheap cars in the market. Yet we have classes of vehicles of all price ranges due to a large and highly segmented market that values different things not just price. Consumer market economics at play and it highly favors Apple’s model.
In the PC market, Apple is offering a competitively priced item made with high margin parts. The COST is higher than a crappy PC, but the VALUE is equivalent to a similarly specced high end PC.
An iPhone doesn’t have higher quality components than a Nexus 4. It’s not priced competitvely, and that makes it different than the PC market or the car market. When you buy a BMW instead of a Kia, you are getting something for the money. What are you getting extra when you buy an iPhone than a Nexus? (If you say LTE, I will laugh and laugh and laugh)
The value proposition for an iPhone is totally different than a Mac. For years, iPhones were much, much better than the android phones that cost half as much. Now? Not so much.
Its entirely subjective and that is the point. This is how the mass market works. Why do they pay $200 for jeans?
Although, from my subjective viewpoint, iOS is better, apps are better, better selection of apps, particularly long tail apps, hardware lasts longer, more dependable, support is convenient, hardware holds its value for resale to go to new hardware, better experience, better ecosystem, easier to use, better looking, makes my life simpler, less hassles. I could go on.
I study the mass consumer market for a living, and my firms historic track record, since 1969 studying tech, and the data we have, are all the things that feed to our confidence that Apple will be fine. The mass market is a fascinating area, and globally its getting even more fascinating and more complex.
For Apple to win, Google doens’t need to lose. The point of John’s analysis is perspective. Mature markets are segmented. Which means companies will compete in a segment. What we see is Android is weak in premium, and better in the low-end. That is fine, it’s just not a business many are poised to succeed with.
Again, you get more for your money with a $200 pair of jeans than a $40 pair of jeans. It’s not subjective to say that a BMW is faster, made of higher quality materials, and handles better than a Kia.
The fact remains that the value proposition for an iPhone has gotten weaker every year, and is trending in the wrong direction for Apple. The differentiation has been ease of use, more/better apps, less hassles. As Android conquers each of these obstacles, the perceived value of iPhones drops. It’s not like the PC market, where you are getting a good deal on superlative hardware. Not many people want to pay twice as much for essentially the exact same product.
There is a reason that the share price of Apple has dropped so much… What’s your hypothesis for this occurance?
Two things. And good discussion BTW I am glad we are having a smart one.
Not all segments of the market are pragmatic. That was my point from my previous comment. Some are and you pointed out their thought process. Some value other things that are as Dan Ariely stated predictably irrational.
Some people value comfort and familiarity and don’t want change because they are happy. Many have invested in Apple’s ecosystem and are comfortable. We can’t discount what kind of psychological value these things have that translate into value and willingness to pay for value.
As regard to the stock price, we have to be very careful to evaluate Apple the companies health with the health of the stock. The stock is performing as if Wall St. evaluates them only has a hardware company. Which is incorrect. We may not see the true value of their software as a business but it is the and we are increasingly seeing quarter on quarter growth as iTunes as a profit machine. More services must be on the horizon, in my opinion, for Apple to be able to fully monetize elements of their vertical system.
Wall St. insulates companies like Google and Amazon even though they do not return nearly the profit as Apple, because they believe Goog and AMZN have no competitors. I don’t believe Apple really has any real competitors due to their vertical system.
Look at Oracle in a highly mature market. Mainframes went vertical, horizontal, then vertical again. This is why we are seeing Goog, MSFT, and Samsung start to take steps to go vertical. Its where a cycle ends.
The elements of the market that are non-pragmatic are addressed through familiarity. With Android sucking up market share, it’s becoming increasingly difficult to entrench consumers into the Apple ecosystem. Without entrenched customers, the Apple advantage lessens. Witness the outside players (Sony Music, Microsoft, Google, Whats App) effectively teaming up against the lock-in that Apple is shooting for. They aren’t in it together, but they definitely know who the enemy is (the one taking up the lion’s share of the profits in the mobile space)
Essentially, Apple has made a lot of very powerful adversaries. They all have their powder still dry, and they all are gunning for the top dog in the market. No one who is paying attention to the numbers thinks the top dog is Google. Android is becoming unassailable due to their size, as the Windows ecosystem was before them. The big players are gunning for Apple (who are making the money), not Google.
Google doesn’t have to compete with Apple. They make money off the backs of both iPhone and Android. They make money off nearly all web services. They are like a little tick, slowly bleeding off money. They don’t really care about the platform as long as they aren’t getting locked out. Consumers are voting with their downloads, and Google is not hurting for customers.
If you believe that Apple has no competitors due to “vertical system”, then you should open your eyes. Every company that can is trying to stick the shiv into Apple’s back. They see where the money is being made, and they all want a piece of the top dog.
Apple had a truly revolutionary product, but have squandered their advantage due to greed and avarice . Past is prologue.
We don’t put much of our firms data into the public forum here at Tech.pinions. But one thing you should do is look at the overall usage patterns of Android vs. iPhone. Particularly in the US its staggeringly different. Even among the high-end and with a large sample size, you see drastically different usage.
This is because the vast majority of Android’s growth, over 60% is in the low low end. It’s also mostly outside the US. Our data shows extremely high levels of iOS share of compute time compared to Android users overall.
Second, most in the low low end are the absolute worse demographic to go after. This is why Google makes very small amounts of money from Android, and no profit, but also that is it not leading to value in their other businesses. Hence this is why they make more money of search on iPhone than they do on Android.
When you dig into the data behind the scenes as we do, and you study the history of computing, namely what has made products sticky, you don’t see it with Android.
It’s not like Windows in the new compute paradigm plain and simple. I’m not saying Android won’t continue to do well, its just that we need to face the fact that it is a low-end market share majority. That has implications to app developers, hardware, makers, service providers, etc.. And I talk regularly with all those as a part of our industry research it all points to the same thing. Frusration with Android.
When you build the vast majority of your market share with cheap consumers who only want cheap devices, you will get the share it has but economically and ecosystem wise, Android is not actually helping push computing forward.
Samsung has, on its own, without Google’s help, but they are rare.
My last point on this subject, is study Asian culture and management philosophy. Then envision a world where our consumer electronics industry is dominated by Asian companies and no American companies are in the discussion, iE Dell, HP, and Apple.
Let’s picture a world with that scenario.
These data are not meaningless (higher end market share, larger amount of time spent with the device), but should include the caveat “at this moment”. The data points paint a picture of where the puck is RIGHT NOW, not where it is going.
The mobile device market is not even close to mature (witness the continuing staggering growth of shipped handsets) and that’s part of the fun of prognosticating. No one knows what the magic formula is to succeed, but arguing that Android is not successful for Google because of “no profit” at this juncture is laughable. Profits are not the final word, Amazon is testament to this fact. Potential is worth a tremendous amount!
As far as the assertion that Android is not helping push computing forward, mobile computing is driving computing forward, and Google is fighting tooth and nail to maintain its stranglehold on the greatest app ever developed (the web). Android is a linchpin to Google’s dominance in the space. They are innovating as rapidly as they can and we are all the beneficiaries of their efforts.
Finally, “frustration with Android” is anecdotal data at best. This “frustration” isn’t preventing developers from targeting the ecosystem certainly. It isn’t preventing innovation in the hardware market. And it is most definitely not driving away consumers in droves.
Certainly not but is it driving the right consumer forward? I think we can’t ignore that nearly all of Android’s growth is in the low-end. Which is good for helping the market mature, but our data consistently reveals that mature smartphone users approach their devices very different. I wonder if Google doesn’t help mature the low-end then give rise to those consumers to make more educated decisions about the products they want because they know their needs, wants, and desires, and thus go more upstream.
Goog will want to create value there again, but realistically there is no hardware loyalty in Google’s universe. IF their services exist on all platforms all that matters is that you stay loyal to Google’s services. Which is really a strategy I can get behind anyway.
Yes, I agree the web is where its all going anyway. The frustration from the ecosystem is not anecdotal as we have all kinds of economic data suggesting that most in the Google ecosystem are having trouble making money. Part of this is their own fault but still it goes to my point that for whatever reason value is not being created across the ecosystem and at the edges.
The only “entrenched” consumers ARE Apple customers. No-one has any loyalty to “Android” whatever the flavour. Some like HTC, some like Galaxy phones, but maybe not for long. As soon as a new flagship phone comes out, or if the salesman pushes something different, they may get something else.
Of course Android is “sucking up marketshare”. It has to be repeated, again and again, Android is simply the default OS that OEMs are putting on anything and everything. Where is the mystery in that? It’s the flavor of the month after Symbian — OEMs have to put SOMETHING on their phones, right?
Android is on EVERYTHING from crap to Galaxies, and hey there is a lot more crap out there than Galaxies. But Android fans talk as though EVERY Android user has a Galaxy III or IV or equivalent. That’s just not the case. And usage surveys prove it.
Sure, the first experience most people on the planet will have with a “smartphone” will be an Android one. Chances are, their last experience will be an iPhone.
Yes, Google is a tick.
Yes, Apple is making money, but that doesn’t make them greedy: more likely efficient, with one good phone that holds its price. They project each model to sell however many millions to pay back development and capital expenditure, that determines margin. Guess what? It keeps selling to hundreds of millions more consumers for a further two years. Thus each unit begins to “cost” less and less to produce. This is simple economics. Few people seem to get it.
If others can’t turn a profit it’s because they can’t hit on a phone that people want without a total makeover every six months. They better start making better design and engineering decisions. Samsung has just about picked up some of these lessons from Apple and is a fast learner — just about every other phone maker is losing money. They would love to sell 30 million of one model every quarter — in their dreams.
Firstly, the claim that “the only” entrenched customers are Apple customers is laughable on its face. They may have more entrenched customers *right now* (which I don’t believe), but the whole point of the Play Store is to get people buying apps to lock them into the platform. People don’t want to switch from their iPhones as much for the apps as any other single reason. Apple knows this, which is precisely the reason they flaunted their numerical appstore advantage for as long as possible.
Apple has chosen profit over market share, time will tell if that was the correct choice. As it stands, the numbers are at very least troublesome to both investors (massive market cap hit) and to Apple themselves (the Forstall firing and complete iOS overhaul by Ive).
As the premium handset market matures further and prices continue to drop for high end hardware (a la $300 Nexus 4) there will be a squeeze. Samsung is going to feel it acutely, worse than Apple, but it’s not for no reason that Apple’s stock has lost its skyward trajectory.
It’s telling that so many people pretend that Apple will eventually fall based on reasoning that assumes consumers are stupid.
A very interesting thing happened in 2011 when all the market share talk for Android started.
The CIO of Clorox told employees that they no longer needed to have Blackberry devices for work. Clorox allowed their employees to choose their own smartphone (iPhone, Android or Windows Phone) and the company would pay for it. Essentially the price of every smartphone became $0 to these employees.
What happened? A whopping 92% of employees chose the iPhone as their free smartphone. 6% of employees choose Android and 2% chose Windows Phone.
It’s been two years since that occurred, but it would be interesting to see a similar experiment today. If the price were $0, which phone would consumers choose?
You can read about it here:
Personally, I’d choose an Android device. I didn’t get into the mobile OS game until the middle of last year, when my daughter won an iPod Touch from a school fundraiser. I spent the next year getting used to iOS, and thinking it was pretty awesome. A month and change ago, however, I decided I wanted to get my own device, so I started looking around at tablets. Price was a large factor, and I could not justify $329+ for an Apple tablet. I ended up getting a Samsung Galaxy Tab 2 for $170, new. There were things about iOS that I just wasn’t happy with – mainly the lack of ability to effectively multitask/have multiple apps running in the background. Android absolutely wipes the floor with Apple in this department. I could never go back to an iOS device again, at least not until it functions more like that. The built-in Alarm clock on iOS is very restrictive compared to Android’s native alarm functionality as well. I can set up multiple alarms and use custom ringtones without having to purchase another app. I was able to single-handedly replace every paid app that I had for customization/productivity with a free app from the Android marketplace that met or exceeded the performance of the iOS apps in one afternoon. Now, if someone handed me a free iPhone with no other options, I wouldn’t turn it down. But if both options were offered to me, there’d be no contest.
Superb article. It cannot be stressed enough that Apple’s success is not dependent on Google’s failure. If you use the internet, Google manages to get a piece — period. Google (not Android as such) is the exception in that it gave away services to command the market while slowly weaving in its ad structure. Google bought market share with free search and mail and browsing etc. and is now an empire of services reaping ad revenue from Apple and non-Apple users. They are not in the same business and are not (yet) direct competitors.
Apple and Google, and Microsoft for that matter are a perfect example of asymmetric competition. It’s what makes this market so fascinating to follow, for me anyway.
There are two different things in play so it is basically comparing apples to oranges. Google, it turns out, isn’t interested in the same kinds of profits that Apple is interested in. Take into consideration that Google isn’t really selling phones, they are selling eyes, their product is people to put in front of ads, not phones or devices per se. Apple is selling hardware. While the phone profit for Google is almost nil, they are making money on advertising and they will have collected an immense amount of data to be mined by marketers of all sorts and that is what they are selling, creepy as it is.
I try to stay away from Google and their “World’s largest and creepiest data base”, but because the internet has invaded our lives to the degree it has, their strategy may well work in the end or people may realize that they are being sold like they were Soylent Green and wind up putting the Google down. Either way, if Apple continues to make superior products, they will have nothing to worry about. There will always be people who are willing to pay to not be a part of the Googleplex. I know I do.
Google is selling a platform, Apple is selling hardware. Platforms are sticky when it comes to consumers.
Apple is also selling a platform. iOS, iCloud, iTunes, etc. Its more sticky than Android as all my firms and the other analyst firms continually point out.
Google’s platform is cheaper to get onto. Apple’s platform has more appeal.
Google is hoping that by getting everyone onto their platform, it will have a “quantity has a quality all it’s own” type of irresistible appeal.
If Google isn’t selling phones or in the hardware business why did the shell out $12 billion for Motorola? In fact, Google is in the hardware business but they suck at selling hardware.
Excellent article. But I think it raises the question of the value Google is getting from Android. Google is not stupid; they are clearly going after market share and they know they are not making money on Android in the typical way that profit is attributed to Android. So are we saying they are shooting themselves in the foot?
Regardless of actualized profit today, the data that Google is raking in from the market share they have acquired (even with Amazon and others’ forks limiting Google’s footprint within the OS) must have some value to them as data. Perhaps the ability to track users across their mobile experience (as long as they’re logged in to their Google account) is providing them enough data which they can realize as revenue in other parts of their business that may not be ascribed to Android itself.
I agree with the analysis here, but if taken at 100% face value (i.e. Android is in deep trouble) it suggests that either Google is dumb, or there is some unseen value Google is deriving from Android. Perhaps all they want to do is prevent an iOS-dominated mobile environment, in which case the money they are spending is probably having a very high ROI; simply because there are not many companies with the resources to be able to compete with Apple, as we’ve seen BlackBerry flounder their lead and Microsoft is arriving late to the modern OS party. A world without Android may very well see Apple with 75%+ market share (with near 100% profit share) which spells bad news for Google.
That imagined future doesn’t invalidate the conclusion that Android as a platform is “losing” to iOS when you look at each as a standalone business (which requires profitability), but it provides some justification for why it might appear Google hasn’t figured this out.
Google is OK, and nobody is suggesting they aren’t going to make it in mobile. Google’s main objective with Android (in my opinion) is simple: hundreds of millions of people who can’t afford iPhones are searching the web every day. That’s really it. They don’t care if Android makes money. They don’t care if OHA members make money on devices. They care that internet usage is growing rapidly. They feel that Google services, ON ANY PLATFORM, will draw a lot of eyeballs and subsequently allow the company to collect data and sell ads. Android is merely a means to an end. It’s an accelerant thrown onto the already raging fire of smartphone adoption.
“I agree with the analysis here, but if taken at 100% face value (i.e. Android is in deep trouble)…” – Josh Schoenwald
I never said that Android was in trouble. The Samsung part of Android is going great guns. Every other Android manufacturer is getting killed which is dragging Android’s profit/market share ratio down.
My point is that market share only analysis is flawed. Non-Samsung Android manufacturers don’t feel like they are “winning” just because they have market share and Apple doesn’t feel like it’s losing just because it lacks dominant market share. We need a different and better yardstick with which to judge how the various competitors are performing.
This article critiques how other sites rate Android based on market share while missing the bigger overall picture about how Android fits into Google as a whole. Google is in the advertising business, and controlling the smartphone OS market enables them to generate huge revenues through software. The actual profit margin on the operating system and hardware are only a tiny fraction of the pie.
The only downside to the analysis is that you don’t project Samsung’s profit share into the future. You freeze it in time. Two years ago its profit share was anemic. Now it’s nearly equal to Apple’s. Why? Because it has market share and, hence, more pricing power. Apple can dominate a smaller and smaller corner of the industry all it wants, and be immensely profitable in that niche. But just as Honda has much bigger profit share of the industry than BMW, so will Samsung dominate profit share in smartphones.
Because it has market share.
Keep checking back Matt, we have a number of columns planned that will highlight why we don’t believe Samsung’s growth is sustainable, nor their share of Android profit. We have some in our archive but we have more planned.
Android is actually the Anti- Windows. So no parallels what-so-ver can be drawn between the two.
And Samsung spends nearly $12 billion a year to market and subsidize their devices where Apple spent just over $1 billion on those same activities.
This is such a hugely flawed analysis.Google’s business model is not selling hamburgers, it’s selling ads in the windows of their burger joint. They couldn’t care less what profits they make on the burgers, as long as there are people lined up around the block.
In your truck analogy, Google simply sells ads on the side of the truck. Bigger the truck, the more ads they can place. Who cares how much $$ the farmer makes? Not Googles problem.
In this case, getting more marketshare is the end goal, as it strengthens and provided longevity for their CORE business, which is selling targeted advertising.
So from the perspective of who’s more succesful making a profit selling phones? Apple for sure. But who is the dominant platform going forward in 2013+? Well it’s Android, and that is mission accomplished for Google.
The OEM’s are bit players in this, who cares about them? If they can’t make a profit, a new OEM will take their place, it’s too crowded right now anyways and some of the smaller players need to go.
It’s not about OEMs, it’s about Apple v Google, and Google is killing it. At the least, they are doing far far better that most of the Apple faithful saw coming even 2 years ago.
If Google can’t help others make money, Android will be dead and abandoned in favor of something else. This is a business and economics discussion. Only one player, with a highly vertical supply chain, a brand, and the willingness to spend nearly a billion dollars on marketing is making money.
If Samsung has one bad year, it all changes and Android will take a huge turn for the worse.
If Samsung has one bad year, HTC will sell a truckload (ha! same truck) of Ones. Or, LG, Sony, Motorola, … or all of them.
Not so sure, there is a lot of animosity toward Android and Google right now by the vendors. I’m not saying something doesn’t take Samsung’s place and I certainly don’t think Apple will take that large share either. The point is Android is competing in a segment, mostly the low-end since that is where all the volume comes from. Samsung is the only competing in premium really with Android and having success.
These markets are highly segmented and Google’s partners need to make money. Right now only one is. I see the US carrier sales data and it confirms much of what I believe about Android. The rest of the world is very different but that should be viewed as an opportunity in an Apple centric analysis.
That’s the whole point. Google, Android and Samsung’s strategy appears to be market share at all costs, even if it means that the share of the market they attract is essentially the “fast food” crowd wherein price trumps quality.
The amount of money Google can charge for advertising is directly related not only to the number of users who might view an ad, but the likelihood that a view will result in a sale for the advertiser and even more importantly the profit an advertiser can extract from a sale.
By targeting the premium end of the smartphone market, Apple is able to pre-qualify high value advertising targets to its customers giving it the ability to charge accordingly.
That is one of the main reasons Google has been churning out iOS apps. Google wants to be able to offer Apple’s select customer base to its advertisers thereby increasing the value of its aggregate customer base.
The inverse, Apple offering Android apps is not likely to happen for exactly the same reason. Apple has nothing to gain by diluting the average value of the customers it offers to advertisers.
This is such a hugely flawed analysis.
You should have just stopped right there, as all you did was rehash the same stupid Church of Market Share rubbish that the article takes apart.
To some extent, you are correct about the OEMs place in this game, but Google is not faring quite as well as you are implying.
A substantial percentage of Android phones are generating almost no revenue for Google. They are the low end phones which barely function as phones, let alone as computers.
Google has invested upwards of $20 Billion on Android, yet as recently as last year, they said that they made more money off of IOS devices than they did from Android devices. I’m sure that has changed since Apple introduced their own map data, but the point remains. Google’s stated goal is to make $10 per year per Android device.
Apple makes that much (in profit) from its sales of Apps, media and services. Plus they make a boatload off of the sale of each device itself.
In my opinion, Android was a stopgap measure from Google to hold a place in the post PC world while they work on a better long term strategy.
yawn… repeating your point over and over only serves to bore your readers. it doesn’t make your point more valid. Business strategy involves more complexity than I’ve here.
Apparently the most recent commenters are relying on the recency effect to pimp for Google and Samsung after the majority of comments support the writer. Shawn, Nomecks, and Wisdomseed, you’re all wrong about Google ad dominance because Apple users, being more affluent, are much more likely to respond to targeted advertising within superior iOS apps. Matt, you’re wrong because Samsung controls the low end of the market where competition is greater, so they have no pricing power vs. HTC, Motorola, and other potential rivals in the longer run. Josh, you’re wrong because iOS apps replace Google apps and reduce Google’s ability to data mine. BBPost, you’re wrong because Apple is selling both hardware and a platform.
So, as I understand your theory, it appears that Symbian, which was responsible for most of the profits in the mobile arena in 2005, must now be the king of mobile.
Interesting. And well reasoned.
That king died.
And guess who killed him?
If they had been able to sustain their profitshare leadership, they just might still be king, but they got dethroned.
Nokia (Symbian isn’t really the issue here) was a victim of disruptive innovation, and Apple could certainly fall victim to it in the future.
However, given Apple’s proven willingness to disrupt their own cash cows (iPod – iPhone, iMac – iPad), they are somewhat more secure.
The Apple ecosystem (iTunes and App store, iOS and OS X, Macs and iPad/iPhone and, of course, the retail stores) is also an incredibly powerful tool to help stave off disruption.
Combine that willingness to self disrupt with the ecosystem, their cash reserves and economies of scale, and you have a pretty good recipe for long term success.
I’d also point out that Nokia is wisely going after the non consuming market with its new OS and line of phones. They have B&W displays, relatively slow processors and few bells and whistles, but they can go for a week on a charge and still provide access to the web-lite for banking and email. If they can pull this off, they will likely be around for a long time to come.
@Falkirk, you blew me away! Great article – super analogies, great formatting / quotes / sub-titles / graphs to bring the point home. The quizzes really got the reader participating.
The ‘price elasticities’ were my favorite insight you gave that NEVER gets discussed. Would be good to do a whole article on just that.
Congrats Falkirk, Horace Dediu better watch out…
Well-written, but not well-reasoned.
Firstly, the reason why Apple makes so much profit is because of the profit margin they place on their products. This increases the size of the global profit and so having a large profit share does not mean Apple is winning, but rather that Apple has simply made more money with less. Apple sells watermelons for 6 dollars that cost them 2 dollars. Android sells premium watermelons at 6 dollars with a cost of 3 dollars, regular watermelons at 4 dollars at a cost of 2 dollars, and subsidized watermelons at cost. Having a wide range of products enables Android to meet anyone’s price range and that is important, such that you can get good watermelon at any price.
This is where Android has won, by shifting the buyer’s perspective that you have to spend a lot of money to get good watermelon. The days when Apple can continue to sell a lot of watermelons at a high profit margin are coming to an end as more people come to the realization that, hey, you know what? That guy’s watermelons are just as good but cheaper, or are actually better quality at the same price. Sure, Apple’s watermelons are glass and aluminum outside but inside Android is just good or better as it continues to improve whereas Apple has stuck to the same things. And when Apple starts suing the other guy for selling round watermelons that taste like watermelons, they start to look ridiculous when it’s obvious Apple just wants to continue to seek expensive watermelons without competition.
Apple may have bigger profit share but Android now has a continuously bigger mind share and that is more important when determining future prospects.
That giant sucking sound is the point whooshing right past your head.
Can’t say the same for you, sound cannot travel in a vacuum.
I can’t say the same for you. Sound cannot travel in a vacuum.
“mindshare”?!? Isn’t your point that Android buyers just want cheap watermelons? If someone else sells cheaper watermelons, then they can steal your “mindshare”. If that’s the case, then it doesn’t sound like “mindshare” at all.
No, Android buyers made a conscious comparison between two businesses selling watermelons and decided that the Android’s watermelons are a better choice given the price. Sure, there can be other businesses selling cheap watermelons but Android is now at a level that it is never going away unlike others which might not have the traction to ensure their continued competitiveness.
The writer of this article is an economist so it makes sense that he would focus on the profit alone, and even call out those who don’t. But that does not mean that profit is the only meaningful thing there is.
I would change your sports analogy into market share being winning games, and profit being which team made more money in the league. The question the arises, who won? the team who won the championship or the team which made the most money. The answer to that depends on who we are speaking about. The fans would of course much rather the former, whereas an owner who cares mostly about profits (and not all owners are like that) would prefer the latter.
If a journalist, or a fan of a certain company, writes that a bigger market share means bigger profits, then he is clearly wrong. If, on the other hand he says that says that the company with the bigger market share is winning, than he is no more wrong than you are for saying that the company with the bigger profit is winning, you simply have different parameters for what is winning. Personally, I don’t care how much money my favourite sports team is making as long as it’s winning, do you?
EXCEPT! That I would content that the way post mature, very big consumer markets work.. That this is the one scenario where for my team to win yours doesn’t need to lose.
The problem is that in business Profits are always the end goal. Marketshare is only a transient goal towards profit share.
But the article isn’t talking just about business, it’s saying that profits are the only thing of any value and that is all that really needs to be written about. But there is no reason a tech writer should talk just about the business side of things. A tech writers job isn’t to talk just about the business side of things but to write about all the all the important things happening, and how many of each kind of phone people are buying is important regardless of the finances.
also, if all that matters is profits than saying that what those writers are saying is wrong is irrelevant. The writers response could simply respond that saying these things brings more views which bring more profit, and since profit is all that matters, lying is the right thing to do.
Wow what a load of crap. you are just shilling a different skewed view. iOS and Android are competing in different arenas, as how much profit per unit sold, how many units are active, how much revenue is generated per unit per carrier, how may active app downloads etc, etc… you haven’t answered anything just spread Applefanboy dreams.
We already know that iOS developers make more money, iOS devices dominant web usage and iTunes rules the roost for mobile media. As for the carriers they are nothing but leeches and they inhibit Android updates.
Very good analysis. Apple may not always excel coming off the block, but give them enough track and time, they alway come up ahead.
Look at the mp3 market which took 4 years to gain dominance. Once they captured 60%, they have dominated the market for a decade. With it, the crushed the music industry.
Look at the PC market, which looked hopeless. By sheer grit, tenacity, and 20 years they are the profit king with no signs that they will loose the title in the forseeable future. Ever so slightly there are still going market share
Look at iPad market where they are supreme.
Finally the smartphone market, they came from nothing to profit champion in 5 years. By their relentless product quality and development is they are steady, grinding away the market slowly but surely. They have the highest customer satisfaction and retention. The iPhone market will be like the iPad and iPod. If they did not have to contend with the carriers, they would have already won the game.
Your best writing yet. Thanks, John!
John, you make a great point. But I think it’d be even stronger if you looked at the whole ecosystems.
Almost all Dell, HP, etc desktop buyers put a copy of Windows on their machines, and Microsoft makes a pretty penny on those machines that capture so little of the value users put on those machines. Likewise, Google doesn’t have to care how much (how little) money LG, Sony, Samsung et al make on the handsets. (They hardly care how much money Motorola loses: note that Google turned to somebody else for the latest Nexus and Android devices they sell.) As long as they can get companies to keep making handsets, they’ll enjoy enough profits from mobile users to be able to re-invest into Android.
It’d make a more apt comparison to Apple, too, which implicitly profits from iOS that they “give away” with the iPhones and iPads.
From the business side (my profession), you want to see both profits that indicate how in-demand a company’s products are, *AND* enough growth that you can expect those profits to keep rolling in for the next five or twenty-five years. Google is making enough money to be winning share from Windows desktop software (Chrome) and devices (tablets and laptops). Google is moving on from Phase I of the mobile transition to directly challenge Microsoft, and they seem to have caught Redmond flat-footed.
This leaves the question open vis-à-vis Apple. There is a very interesting horse race ahead over the next 5 years, I predict. As chips get faster and software more refined, “good enough” will be easier. I’m quite sure Apple understands this, so we should look for some exciting new stuff from both companies in the coming years.
Good post. I’ve always said that android isn’t doing better than apple. Android is on like 500 phones and iOS is on 1. If iOS was on a ton of phones like android, apples market share would blow droid outta the water.
Great article. We also shouldn’t overlook the question of what me mean when one company/product does better than another. What is “winning”? It could mean business success–profit–which is what investors and the media often focus on (and get wrong, as this article shows). That’s not a measure I care much about as long as there’s the money to keep R&D and support going for a long time. Another measure of “winning” would be customer satisfaction: how good is the product? (Apple does well by that measure too.) Another could be to measure what people do with the devices. Another could measure how well vital partners (carriers, developers) are doing. You could also add up the number of different models sold (Android wins). All of these things matter in some way–but you have to remember WHY they matter. When an Android fan says Android is winning… what does that actually mean to them? If Android never received a new version for 20 years, but gained 5% market share even so, would that be winning?
(To me, the most logical way to look at “Android winning” or not would be to look at how well it is serving its developer: Google. Which highlights that Apple vs. Android is apples and oranges. Do you compare Apple to all other companies combined? To Google/Motorola alone? To “stock” Android/Play devices only? Amazon is part of Android yet also a Google competitor. So there’s no one simple comparison. If someone says one platform is winning, ask what measurement they mean–and why that measurement matters to THEM. It may turn out that it doesn’t…)
You make a clear connection between margins and fair share, and I agree. But one recent major component of the virulent anti-Apple bias of commenters on sites like ArsTechnica or The Verge (not to mention Engadget) is that Apple’s margins are the highest–so they must be trying to screw consumers. At the same time, Apple’s recent stock slide has largely been driven by concerns about their margins decreasing slightly, although remaining the highest in nearly every category.
They can’t win.
Yup, dwrecked, but de laughs all the way to the bank.
Would be interesting to know if the profit is before or after tax.
What a bunch of pointless crap. I’ll tell you who is winning…THE CONSUMER! We have more choices at every price point that never before and the hardware is better and more powerful.
Just goes to show how overpriced Apple products are. Not that there’s anything wrong with that, you price as high as the market will take. I actually think if they bring the next iPhone out for a nice round 999 they’ll decrease market share but significantly increase profits. Android / iPhone / Windows / Blackberry / Firefox who cares as long as it makes calls.
“Just goes to show how overpriced Apple products are.” – WheresTheArtPhone
Consumers, not your or I, decide what is of value and what is not. Clearly consumers see value in the iPhone as well as many other types of phones as well.
Because making calls is the least of “the jobs the device is being hired to do” (see Asymco.com for more on this concept). The iPhone is a computer in your pocket. And whatever any Android fan feels to the contrary, iOS is in a different class given its relation to OS X.
Quoting the author who is quoting an alternative hypothesis (i.e. this is not the aothor’s thinking:
“Imagine, for example, that Apple were a hamburger chain who made more money than McDonalds, Burger King, and Wendys combined, but only sold 5% of the total hamburgers. Would anyone seriously contend that Apple was “losing” the hamburger wars?”
This is pretty easy to debug. One store is a prime steakhouse and the other a burger joint. Steak has its place in dining lore because of its perceived value, just like lobster. (It’s a funny thing, though, and I hate to detract from the theme, but lobstah in Maine in summa is remahkably affoadahble.)
There are two credits I will give to the “bigger truck” theory, but I still fundamentally agree with the author
1) making more of something can significantly lead to cost efficiencies and/or it can lead to better factory utilization which can reduce the cost of manufacturing operations for “other” products that a manufacturer makes, which can be a positive for the manufacturer, but not a game winner *in the particular market that is being analyzed*. Realistically, this should covered in the “Economies of scale in the manufacturing process” discussion, but from a factory perspective, it might not be
2) “loss leaders” can turn around to be market strategies at a later date
This is all balanced by the fact that that is not the way that Samsung, in particular, is known to operate, and it does nothing to impede Apple’s profitability.
Nice piece of work, FalKirk. It’s good to see that your lawyering has not gotten in the way of your common sense.
Normally you are so succinct. This is a rambling, defensive sounding read. I totally agree with the point you make, but surely less is more John.
“Normally you are so succinct. This is a rambling…” – MG
It is really nice to hear that you think I am normally succinct. A very nice compliment and much appreciated.
I had a lot to say this time and I tried to say it all. I agree that oft times less is more. This time I tried to be comprehensive. I suppose that mixing up some succinct articles with some comprehensive is not a bad thing.
Thanks again for your feedback.
The truck story is good.
But, would Apple be happy if they are selling just 10 iPhones in a year and making 1000% profit on each one? Company like Apple cannot ignore losing market share. They may not be overly anxious.
They should be worried that iPhone’s No.1 position is being challenged. And more so in consumers’ mind.
iPhone was never the No.1..
Should apple be worried just because more people are buying cheap phone and the cheap phones also turn out to be “Smartphones”?
Apple should be worried if Samsung sells more s4 devices than iphone, or htc sells more htc one devices.
Apologies for I was not clear – No.1 as the most aspired phone. Not by market share.
We have many alternatives for iPhone in similar price range now. So I think iPhone is challenged on ‘the consideration set’ front.
It is not about just people buying S4 or One. Apple should worry if there is increase in no. of people opting other smartphones instead of iPhone. And I think it is happening.
*Apple should worry if there is an increase in the no. of iphone user going away to other __smartphones__
*Apple should worry if there is a decreasing in the number of new iphone users it gets normally
Apple shouldn’t worry if the people who bought nokia/blackberry are going for samsung __smartphones__
and it doesn’t.
Point 2 and Nokia/Blackberry point are dependent.
Apple is going to get non-iPhone users to iPhone. These people might be migrating from Nokia / Blackberry.
Also, if Blackberry Bold owner is going to choose S4 over iPhone, I think it is still related to Apple. A person with spending power almost equal to iPhone is not opting for iPhone. Isn’t that bad for Apple?
Also, your logic of cheap vs expensive smartphones will be going for a toss if Apple introduces cheaper iPhones… much like iPad Mini!
If Apple is really not worried about cheaper Androids, it should not come with cheaper iPhones. I cannot (don’t want to) predict future. But, it is likely that there would be cheaper iPhone out this year.
“Also, if Blackberry Bold owner is going to choose S4 over iPhone, I think it is still related to Apple.”
Right. I don’t think so. Apparently, Nor does apple.
Android’s dominance shows that the people are winning, and getting a much more powerful, extensible operating system as well. We live in a connected world now, that is why open source is the default.
OpenSource doesn’t matter. Android is not linux kernel. Linux kernel has atleast 20 companies, including microsoft for azure’s sake, contributing to it. On the other hand, Google is the only contributor to android (see below). So if Google bails out, android dies. Sure, there will be a *fork*. But you it will be bad like all the forks.. And Google has enough reasons to bail out, Android is not it’s business, advertising is.
Only google employees get @google.com address
Google’s Strategy in a nutshell: If we sell enough “Oranges”, people might lose their appetite for “Apples”.
And mobile is practically the only area of growth in the tech industry for the past few years. PC sales have been contracting.
Market share analysis is still relevant.
But not all market share is the same. Do you think an Android phone with a 320×240 pixel screen (the most popular Android screen resolution) imparts the same value to the Android eco-system as an HTC One?
Your information source may be a bit dated.
The most popular screen resolution is 480×800 with 37%
The second most popular is 640×960 with 25%
320 x 240 only makes up a mere 10% of Android phones
That data is based on Google Play visits. So it excludes the millions of Chinese (and other) forked Android phones that don’t have access to Google Play.
That is accessing the play store. I am referring to device usage outside the play store. My bet is very few low powered device ever access the Play Store.
So answer the question. Is a very low end device that counts as part of this massive market share as valuable to the Android Eco-system as an HTC One?
Yes, but the Gartner Research articles that refer to Apple’s shrinking market share place Samsung/LG at a combined 34% in comparison to Apple’s 18% market share for Q1 2013. Samsung and LG do not really produce “very low-end” devices.
Microsoft windows division profit should be added in percent of PC
operating profit pie chart, along with mac/dell/hp, that is missing and will change graph drastically.
This is because you assume mac os software comes free. Similarly android
profit at google can be added in iphone samsung profit chart, which is
The pundits have this to say about profits i.e.there is no certainty that Apple will keeps on making the profits in future.
But then I said what makes them think Amazon will be making profits in the future or for that matter google.
The point is, what are the chances that a company will continue doing something (developing android, in this case) that gives them no real profit.
RATIO OF PROFITS TO MARKET SHARE
0.41% All Android
A small error. The ratios of profit share to market share shouldn’t contain %. Profit share divided by market share is [%] divided by [%] and therefore is a dimensionless number. The % sign should be left away.
Thanks. You’re absolutely right. Appreciate your thoughtful correction.
I don’t like all the unnecessary fluff in the article but there is something in it. From a consumer standpoint it doesn’t really matter. When people on forums or in comment sections go head-to-head on these things it comes down to “Company X is doing better from a business perspective than company Y so anyone who uses products made by Y is clearly the fool”. I have used Windows Phone for a few years and it worked great, market share or profitability notwithstanding. I got an Android tablet with my new internet subscription (not the reason why I took it but there you go) and now I use Android. With the same ease I would move to Apple or back to Windows.
This discussion is interesting but not from a consumer’s standpoint. Yet it would take you less than a few minutes to find someone stating that their product is better because of market share or profits. These are concerns for the companies, not for me.
You keep refuting that Google won by calculating the earnings on hardware sales.
Google is selling Ads.
The insane thing about all these articles is that you pit a car manufacturer against a gas company that hands out the blueprints for cars for free to anyone who wants them. It’s like pitting a race horse against a cyclist.
You can argue until you’re blue in the face who “won” but in the end all this rubbish reads like people who argue about “fuck/kill/marry” or who’d win in a fight between Superman and Batman.
It’s completely ridiculous.
You could’ve saved yourself a lot of work by just saying “You don’t compare these two”. You can compare Facebook and Google or Apple and Samsung, but not Apple and Google.
Nobody would say that Facebook is winning against Samsung but that’s basically what you’re doing here.
Throughout the article, the author speaks nothing about Google. It’s just Android vs iOS devices. Not Apple vs Google. Check again.
The whole premise of the article is “Androids market share is literally a joke” and there’s a quote that reads ““The Mobile Battle Is Over – And Google Won.””
Kirk is arguing a straw man. He says that Apple didn’t lose because they rake in the money no matter what their market share, while the real argument about Google would be “The more eyeballs the better no matter what the profit selling the device the eyeballs are looking at”.
You can not say Google isn’t winning because Apple makes more profit selling hardware. That is not the point. Google is “winning” because they need control over the eyeballs. They could give a rat’s ass about profits on devices.
The whole argument reads like “Shell isn’t winning because Chevy makes the most profits selling cars” while arguing about who sells the most gas. All Shell cares about is whether their gas is in the Chevy or not. They couldn’t care less if Apple makes profits as long as they gain access to the user data Apple isn’t willing to give up. See maps.
Market share IS NOT literally a joke when you look at it from Google’s perspective. The only reason this article works is because you look at it from Apple’s side.
Basically BOTH sides are wrong here. Kirk is wrong about saying that market share doesn’t count because of profits and ReadWrite is wrong that Google “won against Apple”. Google can’t win against Apple as long as they don’t put out phones. You can compare Motorola with Apple and laugh Moto out of the building and then compare iAds against Google and laugh at iAds but you can’t compare iPhones with Google’s Ads.
The author quotes from rw only to point out that the tech blogs are speaking junk.
And yes, Android’s market share matters, just not how the tech blogs portray it. The tech blogs use the raw data about market share to convey that the apple is slowly fading away, which isn’t true. Android’s market share means that Google is not at the mercy of OS manufacturers anymore. Contrary to what all the tech blogs say, Google’s gains have zero effect on apple. It’s more like Google-vs-OtherGiantsThatCanPissItOff thing. Like microsoft, when it made MSN live search the default in IE7 (or something)
Google is not even playing the Smartphone OS game. It is merely using android as a protection again those giants that can do some tricks to throw it away. Apple is definitely not one of those giants.
Google is winning, Apple is also winning.
Exactly my point.
But my point also was that the headline of this article is “market share does not count” and that is just plain and straight wrong. It’s the same tech blog BS.
Market share DOES count.
I know that it looks like Kirk is explaining to the reader why Apple does not care about market share but in the end the whole article reads more like “No you are wrong about market share because profit is what counts”. Again, that’s the headline.
I am simply criticizing that Kirk sets up the reader for the same fallacies the tech blogs are using.
Not really. Google’s profit and business model is another discussion. Ads on mobile are not working out the way they did on the desktop. Google’s profits on mobile are not growing, probably dwindling. Google probably makes more per iPhone than Android phone. Google’s position on iOS is now precarious.
Apple’s iPhone business alone is more profitable than the whole of MS, let alone the whole of Google (desktop and mobile combined). I am pretty sure the smart phone profits discussed in the article do not include Apple’s iTunes business and whatever Ads fall under that (because that really would be comparing Apples and oranges since few OEMs make any money on Apps or ecosystem).
So, like the author said, hold you objections and stay tuned for the next article. Wait for the icing on cake, because I think Apple is licking its lips on that, too.
You are right. I am criticizing the article for falling short when it’s been made clear that there’s a second part coming up.
You have to understand that to me it’s pretty unsatisfying to see this article linked by a ton of people saying that it is “a great read” when to me it clearly isn’t because it stops right in the middle of explaining things. With that it clearly falls short.
The second part should’ve been here in the first place is my point I guess. I don’t quite get why it isn’t here. I feel as if I’m asked to say a cake that’s half baked is good. It clearly isn’t.
Like I said before, the feeble minded will take it and pretend it explains why Apple isn’t losing, and with that furthering the BS media linkbaiting.
I know this sounds harsh, I don’t really mean it that way. From what I can see I am almost certain that the second half (or part) will have great examples and good explanations why things are what they are, but honestly you can’t put this out there like this with a headline like that. It’s the same with Asymco. A nice graphic and a setence or two and people fawn over Horace as if he’s the next Jimmy Hendrix when, from a scientific standpoint, often enough there’s a bigger picture. More aspects. And you can’t just leave them out expecting your audience to be well red enough to fill in the gaps.
I know I am asking a lot but you have to understand. To me it’s very frustrating to deal with a readership that doesn’t question the material and with that heaps praises on articles that just stop in the middle.
To use a nerd example: that’s like praising Empire before Vader tells Luke what their deal is. It’s really great up to that point, sure, but imagine the lights going on right after Han gets frozen in carbonite.
For sure, there is a bigger picture. One that probably can’t be explained adequately in one article. But I fail to see your issue or point…
We have people who “worship at the church of marketshare”. The thesis here (and at Asymco) is that this is woefully inadequate to measure success or to claim that Apple is somehow on the way down. So, already we have people (particularly on the Android side, or those listening to the average pundit) looking at only half the picture, if that.
So, now, they get told right here in this article, hey, this is only half the picture, or not even that. But, that’s OK, if you want to talk about that half of the picture (marketshare), here’s why it is not so bad for Apple: Apple IS growing, just not as fast; Apple has loyal customers who spend more and do more on their phones; Apple has high-end segment sewn up; Apple doesn’t even sell cheap phones….etc.
But, there IS more to come. There definitely is a bigger picture (but it isn’t one that Fandroids want to hear): We can talk about ecosystem, developers, future strategy, business model, etc. etc. Stay tuned. That will probably show Apple in a good, if not superior position whatever anyone may say about marketshare. Don’t worry, we are going to look at every part of the picture.
Another part of the picture that Fandroids don’t want to hear is anything about profits! What’s really funny is that you are implying that here and on Asymco, the authors are trying to find one little thing, anything, that might possibly be spun to put Apple in a good light and trumpeting that in a distorted fashion, while leaving lots unsaid. Ha. Like, maybe, you would consider it dishonest to suggest that Apple isn’t “playing the same game” as others — by going for profitability before marketshare, say (you hear the whine all the time about these articles allegedly “comparing apples to oranges” and how unfair this is). You might say that is a convenient spin to attempt to put Apple’s situation in the best possible light,” catering to feeble minds” or something? Well, that is part of competing “asymmetrically” and that is what it is all about; and Apple does both Hardware and Software, so any number of comparisons can be legitimately made — just one more reason Apple defies being put in a pundit box.
The irony is of course, that a Fandroid will come right back and basically say, “but, but, it’s not Google’s (or Amazon’s) business model to make a profit.” LOL. Talk about blinders on and getting excited about only one part of the picture and having a feeble mind — welcome to the church of marketshare.
I think the problem with this whole disucssion is the term “Android”.
It both means “phones with Android OS installed” and “the Android operating system”.
Or maybe it’s basic math skills. To me, none of the things mentioned in this article is news. I’ve been criticizing “the news”, magazines, TV, radio basically since I was eleven for not getting that “50%” off right after a 100% price increase is 1 > 2 > 1. So the author here simply argues with the way the media works – and the human brain. We react to radical change and shifts. You can create two sensationalist headlines out of the 50 and 100 percent price change.
People can’t deal with percentages. They don’t understand them. But what’s worse is that most of them don’t even understand fractions. “Buy one get one free” is a 50% discount. How many customers do you think understand that? Or two cans of soda for every dozen you buy?
So many don’t understand the rule of three. Or understand how a pie chart can misrepresent the percentages if it’s in 3D and viewed at an angle. The examples are endless.
To me, everything in this article is a given. To me, it’s “common knowledge”. But it isn’t.
And that’s why I point out that this article could be easily misunderstood just because of the headline. The same people who click those idiotic articles linked here on the Apple side of the argument will take just the headline, link it, and pretend that because Apple makes more profits, it is them who “win”.
I know there’s going to be another article about razorblades but the handwaving links to “price elasticity” irk me. Or saying “pundits don’t understand”.
Those articles are linkbait. They create ad impressions. There are reasons for “not getting it”. For problaiming that XY is “winning”.
And on the economics side saying that just because we don’t know what the “price elasticity” of the iphone is we shouldn’t demand lower prices is, at least to me, not very consumer friendly. Or worker friendly. Everybody should basically agree that Android is “winning” so Apple finally starts discounting their products – a net gain for EVERYBODY. No matter how unknown the price elasticity is, you can’t pretend that with hundreds of billions in the bank that there’s not a net gain for society if products that are considered a neccessity are affordable for a larger percentage of society. The example I keep bringing up is the third world. The digital divide. One Laptop per child
Why not one iPhone per child?
On top of that the whole aspect of competition based on price is left out of the article. Sure, we don’t know the price elasticity, but it’s not that hard to take examples from other industries to deduct that it’s not always the better product that wins (see VHS/Betamax) or that you can destroy your competition by selling at cost. The whole example of that truck of melons resulting in other farmers going bankrupt because they don’t make ANY profits, can’t pay their mortgage and have to give up growing melons altogether is left out of the article. Which is understandable considering Apples cash reserves – but still. There’s a reason why there’s a “market share is king” paradigm. And simply pretending that there isn’t, that “market share is a joke” is hand-waving. Sure, Nokia had market share as well as Blackberry and it didn’t do them any good, but that was because of complacency. They didn’t think the iPhone was a threat and yes the article is right, market share isn’t a good metric to declare anybody the “winner” but my point is that PROFITS aren’t either. BB and Nokia had ALL the profits. The reason I am wary of Apple’s future is the way Google keeps innovating while Apple doesn’t. At least in the phone space (not so much in the tablet space – Android tablets are just so so bad. Windows 8 for tablets is a larger threat for Apple than Android if you ask me).
The article portrays an Apple that is healthy (or, to use your words, “not fading away”) because of revenue. But what’s the difference between the Apple of today and the Apple of the early 1990s where profits were all that Apple was interested in, with future product development stalling?
I am not saying that Apple isn’t improving – just yesterday I argued that Apple simply kept its pace while Google put so much effort into development that they managed to catch up and now are in the process of shooting past Apple when it comes to innovations. I switched from an iPhone to a Galaxy Nexus and now an HTC One because of the App interoperapability. And I didn’t buy the first iPad because it was too heavy, bought the 2, sold it as well soon after and now am a very happy camper with my iPad mini.
My point is that Apple manages not to “lose” right now because they keep putting out better and better products, which also is something that is completely disregarded all the time. IT again feels like VHS is “Winning”. Or Windows. No matter how great the improvements, retina displays and all, the news only count “market share” and to me that’s extremely idiotic.
The mini is the best tablet ever and Apple is crushing the whole tablet market right now. But it’s clear that they have a lower margin selling minis and that the price point of 329 isn’t ideal for both paradigms. The stock was almost certain to take a nosedive simply because of the basic math that a person can only use ONE ipad at a time, the mini is doing everything just as good as the 3 or 4 and… well – it’s HALF off (ok a third but still). Cook announced in October 2012 that the iPad MSRP dropped because they kept the iPad 2 on sale after the introduction of the 3. That’s something the market does NOT like. To me that’s also basic math, a given, but every single pro Apple pundit kept throwing their hands in the air because the stock kept falling after that October earnings call.
Because a stock price isn’t a representation of only the performance of a company, but also of expectations of future performance (see Amazon, also the tulip bubble in Holland in the 1600s or every housing bubble).
Ok I hope this was coherent enough 🙂 Sorry for rambling 🙂
Good comments you have and thanks for reading. I’m not sure if you have read or looked through any of our archive content but we address many things you have brought up. Its very hard to say everything in a single column and John’s was over 2,000 words so I’m shocked so many people read the whole thing. Or maybe they didn’t.
Anyway, from our overall perspective the business issue of all of this is what matter. Is Android pushing computing forward in a way that is creating value for the industry. I agree with you we can not compare the iPhone to Goole or Google’s business agenda, namely that they are simply an advertising company.
But I would posit that what they have done with Android, has been positive in terms of helping the smartphone market mature, but I would question whether I want an advertising company defining the future of computing for the masses. This is why I root for Apple and for MSFT and perhaps for something new. I am a fan of innovation and moving computing into tomorrow.
From what we see with our data and the struggles the hardware companies are having making money with Android, and with Windows for that matter, I am very concerned about our industry and innovation.
Google is not foreign to innovation but again they will do so with a much darker agenda than I believe people understand.
When you take the whole industry in with a big picture view, I think wrestling with implications about the future are important when critiquing companies. What kind of companies do want around in the future.
The beef I have had with Google’s tactics with Android is that it appears they desire to suck value from the ecosystem rather than create it. All they care about is themselves. Now not that all companies aren’t similar but I can look throughout the history of the industry and see companies who made money as they created value for others. Given the very harsh and real economic discussions I have with OEMS, developers, carriers, etc., I am always walking away sensing that Android is destroying value not creating it on the industry side.
If Android is what it is, HTC would not be about to go out of business, and Moto would not have been in utter financial free fall before Goog bought them. The companies who are succeeding and where over 60% of Android’s market share is held is with the low end. This is why Google makes more money on their services on the iPHone than they do with Android. Its not even close actually.
Also I’m not convinced Google believes Android is their future anyway. I think they believe Chrome OS is.
Anyway, keep checking back, we still have lots of great industry topics to cover with our daily columns. If you have time we have great stuff in the archive also. Hopefully its easy to find.
thanks for your reply, appreciate it!
“If Android is what it is, HTC would not be about to go out of business”
To be honest I don’t understand what you are trying to tell me. Samsung is making money with Android, and even though they spend billions on advertising I think there are completely different reasons for HTC not making money with Android, namely having alienated their customer base for years with crappy phones. I owned a HTC Legend. I got ONE OS update and didn’t manage to unlock the bootloader to install Cyanogenmod – so I switched to a Galaxy Nexus which got ruined by 4.2 and “Project Butter”. So I unlocked and installed Cyanogenmod and now it runs acceptable but still not fast. “The Verge” highly recommended the HTC One so I bought one and to my frustration the installed OS is 4.1.2 and there’s no update. That OS is half a year old.
The difference is clear. Samsung delivers good advertising, good hardware and the newest OSes on their devices (the S4 comes with Android 4.2). There’s a reason why HTC is failing and that’s updates, support and overall value retention if you ask me.
As for Moto: their battery life was shitty. Still is. And they got bought by Google for the patents so it’s hard to say they “failed”. Samsung is simply doing everything better and people buy those devices. In droves.
Android is no guaranteed money-maker – and why should it be? You still have to make a great product! Why SHOULD HTC and Moto have been revarded for the shitty products they relesed in the past, with the “new” phone lasting a mere day at CES this year before the “new new” phone was put on the market (Razr Max)
And Apple? They might be friendlier with my data – but honestly there’s nothing that’s beating GMail right now – and with the surveillance bunker in Utah the question is whether Google nowadays isn’t just ONE OF the organisations sifting through all my data, next to the NSA and Facebook.
Quite frankly I am scared by the digital utopia that was suggested at I/O last week but then again after 9/11 we allowed our governments to strip us of our rights already. How’s saying Google is evil helping? I don’t see it, sorry.
I have Ghostery and AdBlock Plus installed so Google, Facebook and Twitter can’t track me. I doubt you’re happy with that but how can I agree with you that Google is evil and then accept all those neat share buttons on the top right of this page?
The couple of comments I wrote basically criticize that so many people who read this piece won’t get educated on math, economics or what the difference between Google and Apple or Microsoft is basically because of the headline. All they want is the quick info “Is ‘my’ company winning and why” and then click one of those share-buttons. And that really really irks me. I just replied to a guy who told me that this article was about display resolution and size. What a slap in the face…
You hit the nail on the head with your 2000 words remark. Who really reads articles that long these days? Heck they even call it “long reads” on “The Verge”. I call it “article”.
I for one would’ve read the WHOLE thing, meaning the razor part included.
Your right that HTCs and others fault are self inflicted, but as I point out to the value creation, if Android is what it was intended to be, or at least what I assume what it was intended to be (not sure we really know all of Googs reasoning) then it would be returning the monetary value they want in terms of their ads or other services. yet they make more money on iOS than Android in terms of their core services.
I find this fascinating, and as a matter of fact I don’t believe Google wants Apple dead, quite the contrary, I think Goog wants Apple to stay around. I believe Goog wants MSFT dead, Redmond is the target not Cupertino.
My point about Goog’s agenda is simply that of how they make money. If they made money selling the software that would be one thing. But as I said I’m just not sure i’m comfortable in a world where everything is ad supported. Subjectively, I feel that agenda has serious compromises on user experience. Not everywhere, but definitely in some areas.
Also we don’t really push ads, so I don’t really care if you block stuff.. So do I 🙂 We don’t do this full time as we all have analyst jobs and companies to run.
Lastly, since you are strong in the Android camp, I’m wondering what you think of what I proposed yesterday in this article. http://techpinions.com/how-android-vendors-can-compete-with-samsung/16945
Keep in mind that sometimes I do things like that where I lob an idea out before my opinion or analysis is fully formed in order to get feedback from our extremely smart commenters here. I’d be curious on your thoughts on that article.
We pride ourselves on having the comments be a continuation of the content and columns we write here and we hope that the comments can be a value add to the content thus are critical to the experience. I appreciate your dialogue and respectful way you bring up disagreement. We love those types of discussions.
This is not about Google loosing. This is about Android’s market share does not mean Apple has lost. When 50% of Android devices are on 4″ screens and smaller (with a huge number of 320×240 pixel displays), market share alone is a pathetic and weak minded method to view the entire industry. That is the point if this writeup.
Please point out where the article talks about screen resolution or size.
But thanks for underlining a point I made in another comment. People don’t really read these articles. They have an opinion and are looking for articles they think further their preconceived notion.
Next time at least read the article.
I never said screen size was mentioned in the article. Why, pray tell, did you think I did?
Next time read my post.
So you basically explained to me what the article is about by stating something that has nothing to do with the article.
Please go troll somebody else.
Very sounds analysis from a business & economics standpoint. For me, it leaves out two arguments though: developer attention & consumer sentiment. This is not a stable market that will be the same in 5 years. Consumer sentiment can easily turn year-over-year. While Apple is doing an amazing job, the fact that their market share is dwindling and the press they are getting worsening, will lead to consumers opening their eyes to buying from the competition. In iPads the vocabulary is changing from ipads to tablets. In phones from iphones to smartphones. A decreasing marketshare could lead developers & consumers to detach from Apple and seek new love-brands!
IMO, It is still simpler to make an iphone app than an android app despite all the restrictions apple poses. But yeah, google does a really good job of attracting hobbyist devs.
You forget why Apple’s share is “dwindling”. The “smartphone” market itself is growing rapidly — in other words plain old “feature” phones are being replaced with “smart” phones very quickly. It has passed 50% in USA, for example. Pretty soon we won’t be discussing “smart” phones, because ALL mobile phones will be “smart”.
So, the thing is, Apple doesn’t sell any phones that aren’t “smart”. It has only ever sold the iPhone. Samsung, for example, sells all kinds of phones. To all segments of the mobile market. It’s Galaxy range is a relatively small part of its overall phone manufacturing and selling.
Now, here’s the kicker. Android happens to be an OS that can be installed on all kinds of phone, whether they are Galaxy and other iPhone-comparable phones or not. Really, Android is getting installed on anything and everything these days! It’s the new default OS that any OEM can use, in any flavor. Furthermore, many new phones get older versions of Android installed on them; so, Apple’s share of ALL phones is “dwindling”, (where Apple thought they could get 1% !). Oh, and despite the overwhelming and growing market share of Android (among ALL mobile phones, smart and non-smart alike), iPhones account for higher actual (not proportional) usage in things that can be measured, like browsing and buying things online! Wow, just another reason that Android marketshare is pretty meaningless.
“Apple’s share of ALL phones is ‘dwindling'”
Which is kind of a funny thought since, if you look at Verizon and ATT, iPhone is the only platform that has shown steady growth since introduction. The iPhone actually never dominated. Android for its part, grew primarily at the expense of Symbian and Blackberry. I remember Blackberry actually increasing share as the iPhone grew that first year. Then Android came out and that’s when BBY started to drop.
But I do think another part of this whole conversation is how the iPhone is deliberately distribution restricted compared to Android. Not all carriers sell iPhone. All carriers sell Android. When you look at figures head to head within the same carrier you don’t actually find iPhone dwindling at all.
Sorry, I meant Apple’s share of “smartphones” is dwindling, but of course its share of ALL phones is going up. Particularly since, again, “smartphone” segment is rapidly taking over all mobile phones — not least because apparently, just putting Android on something, however crappy the phone, seems to make it a “smartphone” by definition.
Developers will always follow the money not the market share. $9 billion and counting.
So, it doesn’t matter that your product is inferior, if you make more money than the competitor, you have nothing to worry about?
What makes you think apple products are inferior?
Of course, there are plenty of Android phones that are inferior to the iPhone.
But I honestly think that Android is superior to iOS, that Google will do much better than Apple in the long term, and that some Android devices are better than the iPhone.
Yes, I agree that _some_ android devices are better than iphone. Your argument that android is a better OS needs some supporting facts. Though, I’m not claiming iOS is better
As a software engineer, I find Android’s UsEx still inferior with noticeable lag in many UI interactions. I find Android’s multitasking design very poorly thought out and gimped for an embedded device running on limited resources. I find Android’s method of permissions for security a design that lends itself to rubber stamping from the user.
“So, it doesn’t matter that your product is inferior, if you make more money than the competitor…” – Bogdan Petrovan
The market decides what is superior and inferior and then votes with their dollars. Absent some artificial interference with the market, if a product is making money then it is, by definition, superior to those who voted for it with their dollars.
Well, carrier subsidies are the definition of artificial interference with the market, since they hide the real price of the handset. In markets where devices sell unsubsidized, Android phones outsell the iPhone by a huge difference. The fact that manufacturers can’t seem to make a profit out of it (save for Samsung) has nothing to do with the quality of the products.
Also, to quote Steve Jobs himself (1995):
“What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share.”
“carrier subsidies are the definition of artificial interference” – Bogdan Petrovan
I agree that carriers have distorted the phone market.
That is a great quote from Steve Jobs and I often think about it. However, you’ll notice that it was Jobs himself who set the prices for the iPhone and the iPad. Selling one product aimed specifically at the premium end of the market is not the same as abandoning market share. It just means that Apple has market share in the most desirable portion of the market.
I think Jobs’ genius was that he managed to corner the middlemen into accepting his terms thus offloading the burden of the margins on carriers, rather than end users. Without this move, Apple would have never managed to get so much market share. Jobs got the market share and the profit share, which is truly amazing.
My point is that Apple no longer makes the best products on the market (my personal opinion, which I don’t have time to argue right now). They just make the most profitable products. They may be winning from their own perspective, but it’s only a matter of time until the foundation of their financial success will crumble.
It’s even better when you have substantially superior product like Apple and still make more money. All you have to do is look at web usage data statistics to see Apple provides a much more capable system for the overwhelming vast majority of people.
I fail to see the correlation between web usage statistics (which are questionable themselves) and the capabilities offered by a device or operating system.
You are free to believe that the iPhone is superior, I believe otherwise.
If you fail to see why a device that is used more is actually “more powerful” than a device that sits idle, I can’t help you. Yes I have devices on both platforms. Android sits idle most of the time.
Sound advice SN.
If consumers aren’t using them for intended purposes, well… Sounds like a lot of smoke and mirrors over worthless features and capabilities.
Apple targets what users will actually USE. Android and manufacturers, like Samsung, are pretty good at throwing things against the wall to see what sticks.
What worries me about the usage statistics skewed in Apple’s favour vis-a-vis Android is that by market share numbers and activations, it should be the other way round.
There’s something disconcertingly weird about this and it does not concern Apple…
iPhone is not inferior though. Android is the worst OS ever. Windows Phone crushes both of them though. Really, name one good thing about Android.
What if I the market share is defined in another way
Suppose x=number of unit, y= rate per unit
According to the writer the Market Share will be
In case of Apple it will be less unit but high cost
e.g. Suppose x=2, y=8
Then Market Share=2*8=16
In case of Android it will be more unit but less cost
e.g. Suppose x=8, y=2
Then Market Share =8*2=16
Therefore the comparison is totally wrong
Totally agree. And moreover, Apple is literally rolling in money. A lot of cash money, which they could at any moment use for buying market share if they want to.
Literally. I don’t think it means what you think it means.
Buying market share as the author explains clearly in the article is a losing game, the “race to the bottom”, achieved by either selling at cost or actually subsidising the cost to the user.
This is Amazon’s game plan (in tablets and readers) at the moment, but then again, Amazon’s staple is the sale of content, and it has its sale of general commodities and goods at competitive prices to tide it over till its long game materialises profits. Good luck with that, I say…
Hmmm!…How many people using Android use Google search? And how many people must be clicking on Google ads on all the products on Android? I really wonder how that aspect of profitability is not taken into account and btw Google has been earning a lot of money through iOS phones too.
Google is slowly devouring Apple from inside out and the best part is ..You and Apple dont even realise that!
Oh, Tell me more about how Google’s profits affect Apple?
The whole point of this article is that Android’s market share and Apple’s survival are unrelated.
Welcome to the world of integration, my friend!..which Google is in process of perfecting! Your phone cannot exist on its own…just zoom out and see the whole picture. Android by cutting costs has let the mass experience the flexibility of Android through multiple brands of handsets. And if you wanna talk about how its affecting Apple’s profits, do some reading (http://news.cnet.com/8301-13579_3-57580992-37/apple-profit-slips-18-but-iphone-ipad-sales-stay-strong/) to come back and comment
But Again, My question was not “How is Apple’s profits affected?” But “How does ___Google’s____ profits (in advertising) affect Apple?”
You should read the article again. And Integration? Tell me Google doesn’t make the same apps for iOS? Tell me Google will stop making those apps for iOS?
And how do people using Google services on an iOS device impact Apple’s profitability? Apple still provides a much better thought Eco-system offering better integration with substantially less friction with use. Google sees the world as a web browser. Big whoop.
Very well said! This is the reality and the rest in pretty much baloney. The mobile wars are very different from the OS wars days of the 90s, where MSFT had the lion share of PROFITS as well.
Define irony: Complaining that one form of metric is misguided and biased whilst putting forth a form of metric which is even more misguided and biased.
I’m sorry, you got this totally, and I mean TOTALLY wrong.
Apple makes money from selling handsets. Google makes money from advertising. Thus, Google doesn’t really care if the handsets will make money, only the market share. Google sells handsets at cost price (the nexus line) just to get as many handsets into ppl’s hands.
Your basis for comparison is void – the business model is simply not comparable.
The point is, “Android’s market share is a joke, for apple”. The author writes it from Apple’s perspective. Don’t read it from Google’s perspective.
Android’s market share doesn’t mean that apple is losing and Google will make money from advertising irrespective of whether it is iphone or android.
Did you know Google sells handsets like the Razr Maxx?
Except all indications are those low priced handsets are not generating much, if any, ad revenue or increasing web engagement. Even in that metric Google does better on iOS than Android.
The title of this article discusses Android’s marketshare, which implies a comparison of all the devices on which Android is installed against all other devices with other operating systems in the same market space.
The headline on this article should have been about profitability comparing Apple iOS devices against its largest competitor, Android.
Given the current headline, all the other content in this article about anything apart from the operating system marketshare is outside that mission. Conflating profitability of device and app sales with operating system marketshare is misleading.
Adding in the tablet profit and PMP profit would be interesting and make this even more stark given the most popular Android tablets are sold at cost or a loss.
This article fails — assuming the true intent was assessing profitability of two different companies. GOOG and AAPL — in that it does not grok the fundamental differences between their business models.
GOOG is an information company. Its entire mission is based on servicing information. All services and small hardware offerings are intended to support the transfer of information.
AAPL is a hardware company; its software and service offerings are intended to support the hardware.
GOOG, in order to assure ready access to increasingly wide swaths of information, is based on open source software (OSS), and encourages FREE OSS (FOSS).
AAPL doesn’t do any free software; even its iTunes platform is released to non-iOS users on the premise that users will eventually buy entertainment/media through that platform, and ultimately choose to use that platform on AAPL hardware.
If we wanted to look at a hybrid, it would be Amazon (AMZN) which sells its lowest level Kindles at near-cost or just below. Kindle is a delivery platform for them to distribute digitized commodities, which syncs with the rest of AMZN’s business model to be the cheapest distribution service for products. AMZN’s model is like GOOG’s in that it’s agnostic about open source software in terms of applications for sale, but it’s like AAPL in that the Kindle is a locked-in, walled garden–only Kindle books permitted, competitor BN.com not allowed access, for example. It’s a nifty trick on AMZN’s part that they encourage users to pay for and subsidize part of the distribution network. It’s also a nifty trick that they employ economies of scale with massive data warehouses, renting excess capacity while assuring they have plenty of room for growth and nearly 100% uptime.
It would help if this author actually understood something about open source software business. A good primer is Eric Raymond’s The Cathedral and the Bazaar (open source book, available free online). AAPL is built on the cathedral, top-down, centralized model; GOOG prefers to live in the bazaar, where users can pick and choose. (The process of picking and choosing is in itself an information-generating process which can be monetized, after all.)
Without understanding that much of the software and services AAPL relies on are provided gratis under other business models including cellphone and tablet sales, it’s ridiculous to talk about marketshare. What marketshare are we talking about, really? Android (which is free and available widely) versus Apple’s iOS (which is not free, must be purchased with equipment)? It’s no wonder, then, why Android has such a large installed base–because free. Quite simple.
[Disclosure: I own both GOOG (since $317/share) and AAPL (since $37.50/share). Both long-term holds in kids’ college funds.]
Sorry, this is ridiculous. You are forgetting that Android isn’t being sold by Google. It isn’t really a product and is not meant to make money itself. Money is made from search, and to a much lesser extent, content (apps, games, music etc.), not the OS itself.
I don’t think Google care how profitable Android is, or whether more people are buying Apple, as long as search doesn’t drop away. Why the hell do you think Google made Google Now for iOS? Or Maps for that matter? If they had cared about the dominance of Android, they would have used those features as carrots to get people to buy the OS… But they didn’t, because Android isn’t meant to make money.
You are forgetting that Android isn’t being sold by Google.
And you are forgetting that the tech press regularly refers to Android as a monolithic entity, repeatedly claims Android is “winning” solely based on market share, and that the constant repetition of this has led some idiot writers to even flat out claim that “Android” is getting whatever profit is left over after Apple.
Why is it so difficult to grasp the fact that the writer has already laid out the terms of the discussion and explained exactly what his point might be? Do some of you even read the article before you start claiming the article is wrong?
This article is fun and your analysis isn’t flawed but your missing the point. Apple has made and will continue to make a lot of money with iOS and their mobile devices but Google isn’t a device maker and didn’t get in the space to make devices. Google made android to provide a solid alternative to whatever would be dominant in the market, RIM initially and Apple now, because there was no counterbalance. The competition in platforms drives the device market evolution and brings us to the place we are now where phones are computing platforms with more in common with PCs than the feature phones and “smartphones” (blackberries, win mobile) that precided them. What does this give Google? A similar place they have on the desktop more devices with internet access and WEB BROWSERS that people will use to make searches. Search is where Google makes its money not hardware and the more people searching on something that can do that well the more people they can get on Google search. That was and for the most part still is the point of Android to get people using the internet proper and searching with Google.
The differences between the two companies and their objectives are pretty obvious when you look at just them and not what “analysts” and the assorted tech junkies out their focus on.
As much as the big G puts into android they haven’t reduced focus on their core products adding new features to general search, maps, mail and their strange social long play contrast that with apple which has focused less on their former core products and have gone all in with mobile focusing on phones tablets and laptops to some extent. The shift that apple has undertaken is definitely understandable but as a power Mac owner leaves me looking elsewhere.
I think the market share of android and its growth and OEM buy in was unexpected at Google and with all that they found it prudent to defend and parade it like others parade their systems but it isn’t their long term play. It doesn’t matter if android makes money for Google and OEMs always play the volume game for Google it is about getting everyone on the internet and that is their sandbox. In the medium term the tail (android) may end up wagging the dog but for now I think they are still working with the same playbook
Get people on the internet from any place possible and get the Google search box in front of them.
Google is not a device maker? What do you call Motorola? Most of the rest of your piece does not relate to the discussion at hand.
If you’ve been paying attention they’ve been selling off Motorola piece by piece and my comment speaks to the simple fact that the profit for Google is remaining entrenched in search as the market shifts from all desktop to mixed computing. Profit from hardware doesn’t mean as much to.their calculations as other players and looking at market share and how much profit is derived from the devices in that market share is flawed. Google keeps making more money but in their core area and not from android. Why is that? Because they aren’t looking to make money their.
So Google has sold of the Motorola handset business? Opps. Guess not.
Google is a handset device maker after all.
About as much as Microsoft is a search company and apple is a set top box company. Sesrch, set top boxes and android + Motorola are business plays to defend or enter their brand into an area that all these companies believe are essential for their core properties and concerns in the long term.
In fact those ate good examples of what is wring this article.
MS spends a fortune on search and has gained a good amount of market share. Now if you compare the profitability of bing to Google search they are doing terrible, hell if you compare the profitability of bing to yahoo or any other search provider no matter what share MS has managed to achieve the terrible profitability of bing screams that they are a loser in search. But, losing money in search doesn’t matter to MS because they want to be out there, maintain brand recognition, steer people to their servicrs and stem the potential loss of software licensees. MS in search isn’t about search.
Apple TV, the perpetual hobby, doesn’t make apple a great deal of money. If you compare that little box to a roku or something apple isn’t winning in this space and their market share relative to others and per device profitability most likely aren’t that great (I haven’t checked so I’m speculating based on how they talk about it) but once again IT DOESN’T MATTER. (not yet at least) They are testing that market and positioning themselves to get in with an eye towards how to further integrate and core device sales. [I say this with the caveat that may find a way to make some iteration of apple TV as successful and profitable as their other devices.
Back to Google and android. Android doesn’t have to be profitable to get the results Google wants all it had to do was to get people on mobile using their services. You can see that android only really became a big deal to them recently when they realized that browser searches on mobile and the now defunct SMS search service wasn’t going to be enough to get them the results they wanted. They probably went in thinking about mobile like the desktop in that all you have to do on the desktop is give people a browser and most people would use Google to search for things and what is or kind of computer you had didn’t matter. Mobile is different and they realized that about when they decided to build quality iOS apps
As far as Motorola goes if you watched what was happening leading up to acquisition you saw that the number of suits against android were building, their attempts at mobile related patent purchases were being blocked and Motorola began to threaten other android manufacturers all bad things in the short run for them. Someone decided they needed to do something and they bought Motorola. They probably saw it as the least bad option considering the patents that Motorola claimed had value and the potential to recoup some costs by selling of parts which they have begun to do.
You don’t have like what I’ve put forward here but my opinion stands. The article is flawed the analysis is entertaining to read and rational but the two companies are trying to achieve different things.
They only bought Motorola for the patents that came with it as part of the deal, just in case Apple decides to go directly after Google. They’ll need some ammunition for the judge. If Google really cared about the hardware business, Motorola would be the sold Nexus maker, which it isn’t, and never will be.
Google’s number one missions is to sell ads. Period. And, they’ll do whatever it takes to make that happen. I wouldn’t be surprised if there was a secret meeting with top ad buyers in a back room after Google I/O to discuss how everything talked about will help generate more ad impressions.
Most of the rest of your piece does not relate to the discussion at hand.
Since the writer determines the “discussion at hand” and then proceeds with his analysis of said discussion, only someone who refused to read the article in the first place would make such a ludicrous claim that the discussion in the article doesn’t relate to the discussion in the article.
Something I did not see anywhere in that article is that Google is losing. So all the arguing that they aren’t is superfluous. Nobody said Google is losing.
I think the article brings into a bright light a wrong assumption that many people that grew up in the PC era are making: Namely that market share is the most important thing.
It also spells out extremely clearly what I’ve been thinking for a while – that profit share equals market power, whereas market share without profit share is a much weaker position. Java dominates servers – yet it made Sun no money, and now it’s making Oracle no money.
Apple could, at any point, decide to go for market share and bring out 7 flavors of cheaper iPhones. Depressing their profits, but pretty much guaranteed to sell in much larger numbers. They don’t do that right now, but they have the option – and having such an option is a strategic advantage. On the other hand, you can’t trade in market share for profit share.
I think Apple’s long game is very clearly to dominate post PC computers – namely the iPad. That’s where they’re going for market share relentlessly.
Great comment. Agree and in particular this:
I think Apple’s long game is very clearly to dominate post PC computers – namely the iPad. That’s where they’re going for market share relentlessly.
Goog’s model will work in smartphones, and certainly the low end. But I have my doubts their strategy works in true computing. Which the iPad is.
Apple makes a big profit by persuading a relatively small handful of computer users to pay a needlessly high markup for overated software.
Most computer users don’t fall for this, and instead choose the sensibly priced and solidly functional Android OS.
So, There’s Galaxy S4 and then there’s galaxy ace. Tell me galaxy S4 is overpriced?
About 70% of the embedded software engineers I work with recognize the substantially higher quality in OS design over Android and have chosen iOS over Android.
If you really believe that, you are a special kind of dim.
Nobody CHOOSES Android you moron! It’s given to them free! Anyone who cares about tech buys WP8. Android is useless for productivity and overpriced for a play OS.
Don’t forget to mention the difference in profit on apps and such, where Apple continues to wipe the floor with Android. Also you should investigate the expendable income of Apple users compared to Android users. Not that there is anything wrong with the Android users, I have several Android devices, and I love my Nexus 7, I also love my iPad, and to some extent my Surface tablet. But when it comes to purely economics, Apple owners spend more and have more money. Android is picking up market share in the users that can’t afford Apple products (of course not all Android owners can’t afford Apple), and that translates to less long term profits.
I believe that you still don’t get it. Market share is not a way to determine profitability but in the long run it will. It will move the population to the biggest market share and destroy the rest.
I don’t think you read the piece. How did your market share theory work out for HP, Dell, Acer, Asus and Apple.
This IS like the Mac/PC again. Windows with the Market share and Apple with ghe money.
I will go with the watermelon analogy. Both farmers get two different breeds of watermelon, with different taste and flavor. First farmer is selling the watermelon at $6 a piece (making $1 profit). The other farmer is selling his flavor for free. But as you mentioned he got a really big truck and managed to sell a billion melons (even for free, making people eat a billion melons is no trivial task). Now he has got everyone addicted to his flavor. Nobody wants to buy the other melon, which is by the by priced at $6.
And the second farmer wins the battle (as ReadWriteWeb says). Or at least he kills the first farmers business.
But wait, the first farmer never lost a customer to the second. It’s just that the second farmer made a few(a lot) more people to eat water melons by giving it away.
I think you’ve done a great job showing how little money is actually made selling devices on the Android platform.
However, I think the article may have been framed in a slightly misleading way. I don’t believe this is in any way a failure of Android, or of Google, which gives the OS away for free for strategic reasons. The failure lies with unimaginative manufacturers.
It would be much more instructive to compare Samsung and Apple, as you briefly did, than to compare Apple and the rest of the world. The article’s current framework is akin to suggesting that the low earnings of the majority of authors are the fault of the medium of the novel, which no one would believe.
I compared – or at least I tried to compare – mobile manufacturers to mobile manufacturers. Next week I hope to look at how best to measure other business models.
The article was not a criticism of Google or Android. It was a criticism of how we measure success. When it comes to manufacturing, market share is a flawed metric. “Fair share profit analysis” is a better way to measure success.
I definitely agree with you on the flawed nature of market share metrics when it comes to manufacturing. You explained that very well.
Looking forward to the next article.
Thanks you for your insights and the courteous way in which you expressed them. Much appreciated.
But if the strategic reason for developing and giving away Android was to avoid being faced with a mobile device monopoly with Apple (and thus be subject to demands for service revenue sharing) how is it working out for them.
Google dose not care about handset sales directly (Motorola is really an afterthought at this point…why no Nexus Motorola phone?), but what they do care about is ensuring delivery of their services. And, since they are effectively not a handset manufacturer, they need to ensure that their services remain bundled with a huge % of the handsets/tablets.
Of the smartphones that incorporate Google services, only those being manufactured by Samsung are producing profits for the manufacturer. And Samsung is rapidly gaining share as it puts its marketing budget behind its position.
That leaves the other smartphone manufactures who incorporate Google services in an unprofitable position (LG, HTC, Motorola). How long will they stay in this profitless market?
So Google’s strategic move could well end up with them facing a duopoly. Apple with iOS on the one hand and Samsung with Android on the other. In such a situation one or both of these mobile titans could start putting the squeeze on Google to share in Google’s service revenues, particular given that Samsung could threaten to fork Android, keeping all the developer momentum Android has generated (ala amazon), while deploying their own or competitors services.
Google needs a diverse Android manufacturer environment for its strategic move to make sense (and to justify its Android/Motorola investments) otherwise they’ll just end up facing a hostile duopoly rather than a hostile monopoly, one half of said hostile duopoly which they spent huge $$ to create.
I think it would be worth remembering that “information markets” have different characteristics to normal product markets. As Google knows, information markets frequently trend towards to monopoly which is why the oversight of information markets is so important to keep them competitive. We saw this with Apple and Windows before, where an arguably inferior product gained massive market share which later turned towards profitability. In any discussion of information markets, therefore, the extent of market share is a potentially important indicator of future profitability. Discussing Android should not necessarily include discussion of the OEMs which is a different topic and where the marginal costs of hardware sales etc can be very destructive. For Google, there are no marginal costs of sale associated with Android.
In the longer term what will happen if Apple and Android do destroy the others and then the strategic question for them will be how do we manage this market without government intervention.
An interesting point about Android compared to iOS is the extent that it will become a default operating system for new types of appliances where its Open Source genealogy will be important. Presently, iOS developers must follow the rules set by Apple and not make any rules.
Many existing and new standards that are 3rd party developer-led are finding their way onto the iOS platform, standards that are having a positive impact on Apple’s own technologies and policies.
AudioBus and JACK, for instance, are technologies that greatly facilitate inter-app collaboration for musical instrument, songwriting, practice, audio production and mastering apps. Apple has adopted the former already for GarageBand, a sure sign that the clamour from developers on the platform in general for more collaboration between ALL apps (not just Apple’s system-wide apps) is being heeded and developed for imminent release.
Then there is the massive “Made for iOS” eco-system of adapters, cables, stands, docks, routers, switches, astronomical, medical, musical, photographic and video, automobile and aviation/airline coupling systems, etc.
Already, Cisco, Juniper, Brocade and HP devices like routers switches and servers can be managed by direct serial or LAN dongle connections or remotely by Wi-Fi dongles through the use of iOS apps (see GetConsole for just one example) and are poised to revolutionise the world of field and telecommunication NOC operations.
When it comes to new appliances in exciting new technological fields, Apple’s eco-system is breaking far more new ground at the moment than any other OS out there.
Great analysis but I think the conclusions are too manufacturers centered.
You should mention that the system creating the bigger eco-system, aggregating the biggest number of developers, and the biggest number of projects (not only for apps) will be the system with the most likely to be still present in many years.
I think the long term of vision is necessary to see who is the winner. And the best vision is Android.
Android is made to be in other devices than phones and tablets. When a lot of industries will use Android the final point will be given.
“You should mention that the system creating the bigger eco-system, aggregating the biggest number of developers, and the biggest number of projects (not only for apps) will be the system with the most likely to be still present in many years.”
You should read some of the other analysis on this site that address this as well. So far, even in this context, the future is Apple’s. For developers, the money and the customers are in iOS, either as direct sales or ad revenue, never mind (from the developer perspective) that iOS is a far more cohesive ecosystem to develop for. I know Google keeps trying to address this, and frankly the hardware OEMs and carriers are the stumbling block there, not Google or Android itself.
I think this is not about easy access to dev, but easy access to distribute and monetize products (not just apps).
On iOS you have only usual models like paid apps, freemium, ads or complementary as a website. But for Android you can create infinite business model !
You don’t want to use Play Store, distribute the app by your self. You don’t want to develop for phone or tablet ? Not a problem you have TVs, domestic devices, watch… running Android. Your device is not available, not a problem put Android in an empty device and develop functionalities (like… glasses).
So the main interest in Android is that the system is made without limit. They took the good from Linux and made it popular and universal. iOS or Windows Phone Os are limited by the objectives from their owner companies.
Read: more opportunities to generate ad revenue. The more Google knows about you, and your location, the more they can generate revenue with targeted ads.
It is why Android is interesting, all I suggested is without Google.
A lot of business is made every dau with Android and without Google.
I don’t find it interesting for a company to target, track and sell as much information about me as possible for the sole purpose of making money with targeted ads. That’s why Android and Google services are “free” for users.
Apple makes money from hardware and software sales, not from selling user information to ad agencies. I’ll take a few less (and mostly unimportant) features for a little more peace of mind.
I don’t understand why you are so concentrated on Google. Like I said, a lot of company are making money on Android without using Google services, not even Play Store.
On iOS only Apple and companies selected by Apple can make money. The power of Android is that anyone can take the open source core and do anything with.
That’s a conversation I frequently have in the arts, believe it or not. The problem with no limits is that is often the biggest limit you can face.
In your illustration, sure you can create and distribute your own whatever without utilizing either Apps Store or Google Play, but then you need to have the infrastructure and capacity to make up for it. There is nothing in place to leverage. Even with the available infrastructures offered by Apple, Google, or even Amazon, you still need to be able to provide what those infrastructures don’t. And that is difficult enough for even large developers.
I don’t see that as an advantage for Android, much less one that will translate to future revenue advantages over iOS.
I think you misunderstood android eco-system. Just about apps, the alternative already exist. Few operators have their own store, or manufacturer like Samsung, or other actors like Amazon. They represent a significant number of downloads, it is a value for developers. And they offer different values for users : different payments system, more quality with selection, thematic stores, or just “non google” store.
Even in China where Google is not liked, China Mobile represent the biggest market with their own store.
Manufacturer Parrot created is own atore to distribut apps for his radio with android firmware.
As a developer you have to see outside the main way. As a user, you can request more power by selecting your provider.
OK, but that is not an “Android” ecosystem. It is a variety of ecosystems that may or may not interact and don’t add value to Android, only to the splinters (such as Amazon). As a developer for Android, you will have to decide which splinter will matter to you (which they should be doing anyway, if they are smart). So again, this gets back to the article’s point that _Android_ market share is meaningless.
“…I think the conclusions are too manufacturers centered.” – Jorodan
My analysis was entirely manufacturer centered. Having read the many comments, I wish I had made that plainer. I hope to address other business models such as advertising, razor/razor blades and platform building in next week’s article.
Thank you for your thoughts and the respectful way in which you expressed them.
It is my first time on your website, but I will try to follow your work.
If you can add in your study all the eco system, I think the conclusion will be different> I talk about :
– tablets and phones
– other entertainment devices (tv, watches, …)
– Domestic devices (fridge, wash machine…)
– B2B services
– B2B devices, like terminals for logitics
But it is a huge work.
All developers are on iOS first as of now. That’s because “actual” market share of iOS is 90%, and Android is 10%. This is what we see in app store sales. Android apps sell 1 for every 10 sold on iOS.
I could theorize about the reasons – for example huge numbers of low end Android phones that never buy anything, worse access to paying customers via Google Play – but in the end it doesn’t matter. What matters is the facts, and the facts are it’s 10:1.
With the way the platforms are positioned, I don’t think this ratio is going to change very soon.
Great point. You’d think it would be the other way around, since Android is a much larger audience. Sadly, as it’s been stated numerous times by many, Android owners must not do much with their devices.
That’s a prime example where market share means nothing, or actually creates a problem, especially for app developers. Why would a developer want to devote resources to get nothing in return? Not only are some developers wasting resources on Android apps, they’re finding a similar profit loss as Android as a whole.
Everyone loves “free” stuff, but Android owners are surprisingly bad. Most of them have never heard the VERY old saying “you get what you pay for.” If they have heard it, they certainly don’t understand what it means. It’s one thing to find the best bang for the buck, but it’s a completely different thing to take the cheap for the sake of being cheap. Most people have no idea how to calculate the true value equation. It’s really quite sad.
A lot of users are not users why a wallet.
Distributing more and more devices to people with few capabilities of payments is not useful for apps, is useful for all the eco-system because you are creating habits.
This strange discrepancy between the market share of Android (activations) and app store sales market share (paid downloads) would actually go a long way to explain the Web traffic statistics that see iOS devices dominating there.
This is a sure indication that owing to its free nature, Android is also becoming the OS of choice for feature phones that are little more than voice and text communications devices, with little developer input.
I wonder if Microsoft would ever consider it worth their while to go after those Android licensees worldwide – could be a nice little earner, and yet another source of concern for the future of Android as a financially viable platform.
Like I said… with ios you don’t have other opportunity than apps if you are not Apple. It is why Android is interesting, you can do a lot of more, not just apps. I think a complete analysis should study all the eco-system. But I think it is not really possible.
Another piece of rampant fanboism !
Did you forget this (or conveniently left out) the fact that Apple’s profit share|market share fell from 73%|9% (Q1 2012) to 57%|18% (Q1 2013). While Samsung’s rose from 26%|29% (Q1 2012) to 43%|33% (Q1 2013).
Put another way Profit share/market share index for Apple fell from 8.1 to 3.16 year over year.
While Samsung’s rose from 0.89 to 1.3 year over year.
Does this mean something to you ? Probably not !
Just wondering, how the ECONOMIST with the knowledge of price elasticity that you are, missed this nugget!
That certainly illustrates a success for Samsung. But that does not illustrate a success for Android and is actually the _only_ success story for Android as all the other OEMs continue to tank.
“Did you forget this (or conveniently left out) the fact that Apple’s profit share|market share fell from 73%|9%” – Vikash kumar
I specifically addressed this point. Your analysis is off because your numbers are off. Here is what I said:
“Further, in 2012 Q1, Apple held 23% market share and 74% profit share. This means that each 1% of market share was equal to 3.22% (0.74/0.23) of the sector’s profit share. Apple’s market share to profit share ratio remains almost identical, which means that Apple has maintained its pricing power. Not only that, by focusing on just a few smartphone models, Apple has become the low-cost manufacturer in smartphones as well.”
That illustrates a success of Samsung but not a failure of Apple or success of Android.
Another piece of rampant fanboism !
Only a “fanboi” believes that actual facts and numbers are “fanboiism”.
I believe the quarters compared reflect different release cycles. Q1 2012 was a blow out with the 4s. Q1 2013 was already 2 quarters into the 5 release. Let’s check the numbers again one quarter after the release of Apple’s next phone.
John, were you born yesterday? Were you actually around in the 90s? There was a company that took a majority of the desktop profit share yet they almost ended up bankrupt! And if it wasn’t for the company that went with the biggest market share they would be out of business today.
In fact the only reason why Mac now takes a big portion of profit share is attributed to the iPhone rise in the last 5 years, and not Mac itself (“market share” of iOS, hello?) and if that continues to shrink, their Mac sales will shrink too. Also, let’s not forget that if it wasn’t for apps becoming Webified and adding ability to run windows on Mac, there would be no Mac profit share right now, Mac pretty much came back from the dead. Profit share is very shortsighted strategy, yes you make shareholders money now but you lose out in the long run. This is about platform where third party software will empower it, not only the things you build in that platform.
Market share means a lot! Profit share is useless to the average person, in fact it is a bad sign when you buy something knowing you are over paying for it.
Market share means that once you hold the share for a long time people will target your platform first. Ever wonder why everyone builds iOS apps first and Windows apps first? Its not profit share that’s driving this, it is market share for developers who want the largest audience. Developers are slowly moving towards building Android first apps, and this will seal iOS fate like the Mac of the 90s unless Apple brings a game changer.
I think you just invalidated your own argument. Why would developers target iOS first when Android clearly has more market share and has for several years?
It probably has something to do with that little thing called fragmentation that Google talked about at I/O.
Unlike Microsoft with Windows, Google took a very wrong approach with Android from the beginning, and it isn’t making any strides to fix the real problem.
Proper device OS updates: You get your Windows updates direct from Microsoft. Android updates are at the mercy of too many middlemen before they land on devices, if ever. Apple knew this from the beginning when working on the iPhone. They stripped the carriers from majority control and bloatware by taking charge of device updates. Easy, customer-focused product updates without carrier bloat turns into happier customers, who will most likely remain loyal. It’s a small part of the real freedom iPhone users enjoy that Android users (other than Nexus devices) can’t enjoy, a bit of freedom from cellphone carriers.
Android can never enjoy the same update freedoms of iPhone simply because it isn’t Google who’s striking the deals with carriers. The Android phone manufacturers are the ones responsible for doing that. And, when you read the article above, Samsung is the only one who POTENTIALLY has enough power to persuade carriers, but that’s not going to happen. Carrier branding and bloatware are just part of the Android experience, for better or worse. Android phones (non-Nexus) on prepaid carriers do NOT EVER get OS updates after they’re sold. They don’t care. They made the sale, and got your money. Now, pay your phone bill and shut up. Meanwhile, iPhones on prepaid networks get updates the same day as everyone else.
To this day, the iPhone is still the ONLY phone sold that never sees carrier branding or bloatware.
One not-so-little factor in this complex multi-sided equation that hasn’t really been included in the interesting math here:
With the exception of Google-Motorola, every other Android hardware vendor and software user (both civilian and military) is paying a substantial licensing fee to – wait for it – Microsoft.
I strongly suspect that the article’s author is keeping this back for a later discussion of the Google and advertising revenue aspects of this complex argument, but it is highly relevant here since this is a discussion of the issue from the standpoint of hardware vendors.
You do realize that unit market share and user base is not the same thing, right?
So although the Android unit market share has been dominating iPhone’s share, the user base has been mostly iOS for years. The user base has just caught up on the Android side and companies are switching their strategies now. It is not like you build apps overnight, it takes months and sometimes years to scale the team and build apps.
But once these companies switch, Apple needs to work hard to change that momentum.
We’re you alive in the early 2000’s? There is this company that was taking the bulk of he profit in personal computers and laptops before the iPhone was released. Makes your entire post moot.
Profit share is useless to the average person, in fact it is a bad sign when you buy something knowing you are over paying for it.
You could not have screwed this up any more if you tried. You have failed utterly to comprehend the discussion. Please stop posting about this subject.
Nobody is making Android first apps. Really. Name one.
MMMM Facebook is now Android first.
In fact Facebook Engineers are given Android phones now, not iPhones
That “First” thing hasn’t worked out too well for HTC and AT&T.
I don’t think you understood what I said. I wasn’t talking about the silly Home app.
I am talking about the main app, Facebook makes changes on Android first now, then releases them to iOS… A major shift from a year ago
Excellent. Now there are TWO apps that are Android first. At this rate we’ll dominate before anyone knows it!
Google’s investment in Android isn’t to make money but to reach as many people as possible through advertising. So, yes, they’re winning.
Except they have lost the 1 bilion+ potential phone buyers in China, together with phones Huawei and ZTE sell abroad. Just a rounding error, I’m sure.
Interesting? Sure. Surprising? No. Apple has the best margin, true. Apple earns lots of money, true. So, the company is making the profit race, so far, BUT the apple user NOT. He/she buys low cost phones at high prices. Can Apple easily lose the race? Yes, quite fast, because at that moment where Apples loses the last part ok the market share (sold units), they will earn exactly zero (even less).
Apple can only survive, if their products stay unique and are bought with no regard to the price.
So, I would not kick the authors of all those articles too much. Economic science knows several ways to success. (In this case “Perceived”) quality leadership (Apple) is only one way. Cost leadership (Android) is a different.
The top selling Samsung phones cost the same as an iPhone. Because they are actually pretty good phones and Samsung has done a good job differentiating them from the Android pack.
How is cost leadership spelling success for any non-Samsung Android maker?
Selling every phone you can make at as high a price as you can is just good capitalism. If in the future Apple feels the need to sell more phones for market share they have a huge buffer in their operating margin to reduce prices, reduce profit and sell more phones. Android can’t do that because they’ve already got their price as low as they can go. Best they can do is reduce manufacturing cost (cheaper builds) and reduce prices again, or sell at a loss.
As it stands now, Apple reducing price and profit to gain market share would be stupid capitalism. Just a slight reduction in profit last quarter (while selling more phones and tablets and making more revenue year-over-year) ’caused quite a hit on their stock price. Clearly stock holders don’t want them making less profit.
and are bought with no regard to the price.
And yet another person who wants us to fear for Apple’s future based on ideas predicated on assuming consumers are stupid.
Look, let’s spell this out for you: consumers have already decided Apple’s prices are not excessive. Your opinion of those consumers is completely and utterly irrelevant.
Open markets are more efficient. The fact that Android doesn’t push customers into a technological monopoly means that by definition the margins will be thinner since there is open competition within the brand. The thinner margins are a win for consumers, competition, technological innovation, and capitalistic ideals.
It’s just another aspect where Android is winning.
Saying that Apple is winning because they capture more of people’s money is like saying that dictators are winners because they get more political power. In some way it might be true, but is it really a good way to measure why system is best and which on is ‘winning’?
Great article–definitely helped me to gain a new perspective on how I’m going about my profit share and market share in my marketing company. Thank-you!
Terrific article. Many times the world we live in is focused on symbolism over substance. Beautifully articulated. Many giant companies who have short term thinking would be wise to read this twice.
Market share is more important than this article appears to acknowledge. Whoever has the most market share has the most data.
Imagine that there are two car companies in the world. You own company A and someone else owns company B. You sell your cars at price (or perhaps at a loss) and have 80% market share. Company B sells their cars and makes a substantial amount of profit on each sale but has 20% market share.
Now imagine that you get all the gas money when your cars fuel up. See why market share matters now?
Google Play apps and user data from Android users are why market share matters to Google.
In the long run, Google wins this mobile battle over Apple.
No, whatever platform is used the most has the most data.
That’s what market share means 🙂
No, they don’t. Google makes more off the ad data of iOS than it’s own platform.
The direct correlation of data gathering to market share is unsupportable.
Whoever has the most market share has the most data.
Yes, I remember that line in Google’s financials where they made billions off of data.
Except if Android phone manufacturers go broke or move, they won’t be sending anyone any data, will they?
Now imagine that you get all the gas money when your cars fuel up. See why market share matters now?
Unless you are a physicist trying to explain quantum entanglement, do not use analogies.
You know nothing about tech and business. Anyone who claims that Google is winning or will win the mobile battle is a complete and utter moron. Microsoft is the real winner in the long run, they have won every market they entered.
Microsoft HAS won every market they entered, though. Think Windows, Office, Xbox, etc.
You see to be conflating market share of companies and profitability of companies (e.g. Apple, Samsung, HTC, Google-Motorola, RIM, Nokia) with the market share of platforms.
It doesn’t really make any sense to compare the profit of Android to the profit of Apple — Android is a operating system that happens to be made by Google, but there’s no profit in it on its own; the profit is in either the services / apps or the hardware.
Now, it’s very fair to say that Apple is kicking Samsung’s ass in profit. But that’s not what your article was about.
And the market share, simply talking about install base, is very important to some people — specifically anyone deciding which platforms to release products (apps, advertisements, games, mobile experiences generally) on.
Do you think developers and advertisers chase market share or money? Do you think an Android phone with a screen of 320×240 pixels (the most popular Android screen resolution) adds as much value to the Android Eco-system as the amazing HTC One?
“And the market share, simply talking about install base, is very important to some people — specifically anyone deciding which platforms to release products (apps, advertisements, games, mobile experiences generally) on.”
Primarily advertising. Android is an advertising engine, and is its sole purpose. It’s been stated many, MANY times before, Android owners don’t BUY apps. I’ve seen this mentioned MANY times from developers of both platforms.
The iOS vs. Android argument always ends with the Android user saying “there are more “free” apps on Android…” I’m not opposed to finding a bargain, but I’d rather pay a little something for an app that is hopefully ad-free, versus dealing with an ad’s intrusions and (proven) effects on performance and battery life of ad-supported apps.
Great, clear and rational analysis!
Very poor article. iOS is a product that you sell with devices. Android is an open source project. Don’t know why we would say that one wins over the other.
Then why do we see it repeated over and over and over in the tech media?
because many mobile manufacturers have chosen to equip their HW with it.
Because it’s the only OS they don’t have to pay for, and they can alter it any way they see fit. Cellphone companies like Android, since the openness allows them to add and subtract features as they see fit (read: money), so they LOVE it when a manufacturer shoves in some glitz & glimmer to attract customers (read: useless features for the sake of having that extra feature, not meaning it’s useful or people will actually use it. Look at how much internal memory is hogged up in the Galaxy S4 because of this.).
Android is an OS based on revenue generation, in this order:
3) Cellphone companies (AT&T, Verizon, Sprint, T-Mobile etc.)
4) Device manufacturers (as shown above, not much there)
5) App developers (it seems too many Android owners want and expect “free” apps)
Anyone who denies this is really eating too much of Google’s tainted jelly beans, or eclairs, or ice cream sandwiches or… you get the idea.
Android isn’t actually open source. Google dictates its direction, it is not fed by a community contributing to its overall progress like a traditional open source solution.
Second, he is not comparing the two, this discussion is an economics one and a business one.
Very poor reading comprehension.
Don’t know why we would say that one wins over the other.
Tell it to the analysts.
It’s worse than that. The market share data is also suspicious.
Google constantly gets undeserved good press.
So to you, a football team has 400 yards passing, 300 yards rushing and 2 touchdowns is winning against its foe that has 250 yards passing, 100 yards rushing and 5 touchdowns?
Did you figure in all the ad revenue google gets from Android?
Or the means in which Google is using to make that revenue? Of course not. Why would ANYONE point out Google for what they really are or what they really do? They buy the focus to be discussed about Android and products/services, not its intended purpose.
I still haven’t found an article that really tells the Google (and Android) story for what it is. A pure engine for generating ad revenue. The only real winner is Google for selling advertising and delivering ad impressions.
“Did you figure in all the ad revenue google gets from Android?” – Dave4321
No. I really didn’t discuss Google at all. This article was focused on the mobile manufacturers. I hope to discuss other business models in next week’s article.
Are you trying to predict which platform will be more influential in the world, or are you trying to keep score among various phone manufacturers? The questions are linked, of course, but for most people only the first one matters.
“Are you trying to predict which platform will be more influential in the world, or are you trying to keep score among various phone manufacturers?” – paco cornholio
Good way to frame the question. I think that this article was mostly focused on the latter since I felt that people were “keeping score” using the wrong metric.
I would agree that Android manufacturers will suffer a worse fate than PC manufacturers. Margins are collapsing for all mobile device makers, and carriers will prove tougher competitors than PC distribution networks ever were.
This should leave Apple (if not Apple’s stock price) in a strong position – it will be just about the only manufacturer with the resources to put into building unique products, albeit at lower margins than they’ve seen so far – but only for a while, since services will become more important than either hardware design or UI for both distinguishing the product and generating revenue (Take Google Now, extend the time horizon it addresses, then think of the marketing opportunities….).
The Android OEMs will all be selling their products, as Andy Grove put it, by the pound. Maybe Samsung buys ARM (!), but is there really an opportunity to build another Intel here, especially when the first Intel is still in the game?
Excellent article. I agree with nearly everything that you said.
But, and I am sure you saw that coming, there is one *huge* aspect of market share that you are overlooking in this whole thing. Something, that is fairly unique to smartphones, tablets, and products like them. Theses devices do not exist in a vacuum. If you were talking about an oven or a pair of shoes, then I would agree with you 100%, but there is the entire aspect of developers that has to be accounted for in this equation.
My first computer was an Apple computer and I loved it. I used it throughout my high school days and for the first year of college. However, in my second year of college I started getting into my major classes instead of general ed, and I very quickly found out that the programs that I needed for my major simply didn’t exist for the Mac. So, I bought a Wintel computer, and that is what I used for next decade. I eventually found my way back to Apple as I grew older and found that the programs I needed were now available for the Mac, or I could dual boot for the few that weren’t.
Long story short, the best built piece of hardware and the most elegant OS in the world is equivalent to a really nice paperweight if the programs needed aren’t available. And programs are developed primarily by third party developers who are not associated or beholden to any platform. So, how do these developers decide which platform they should develop for? One big factor is market share. The more people who operate a platform means a larger potential customer base. Thus, in a way, a large market share can actually lead to more and possibly exclusive programs which might lead to a platform win. It is for this reason that I don’t think Apple can afford to just cede the market share race. One of their competitive advantages is the quantity and quality of the apps available on their app store. If they lose those developers then they will lose a major competitive advantage that could lead to them losing in the long run.
Another interesting factor in all of this is the inclusion of Android players like Amazon. Amazon makes their money from selling product. To them the device is a loss leader to try and get more people into their ecosystem. For them, the market share is far more important than any profits that they make from the device because they will make up the loss in quantity or sales, just not the quantity of sales of the Android device.
It would be like the farmer selling the watermelons at a dollar loss, but also selling a knife to cut up the watermelon at a dollar profit and napkins at 50 cents profit. In the end they will lose money on the watermelons but make money on the residuals that accompany the watermelons. Therefore, the bigger the truck the more money they do make.
Good comment Mike. Over the past few years of columns here at Tech.pinions we have done deep dives in many of the areas you bring up.
The one thing I’ll point out, is that even if market share is what it is, developers are still chasing the money. Right now every new startup I see being funded in they valley is an iOS first software company and Android eventually or never. All the VCs here who look at the numbers know that making money on software on Android is very hard.
When nearly all your market share is on the low-end segment so low price phones, as Android is, it yields very different customers. Specially ones who don’t engage or really drive value the way consumers of mid-high devices do. This is a very significant issue.
So here in silicon valley I do not see developers chasing market share, I see them chasing the platform they can sustain a business with. Right now that is iOS.
SPeaking to that, it is telling that Google makes nearly 4x on iOS in revenue services like search, ads, etc, than they do on their own platform. Even Google knows where the money is.
Android is just an alternative to MS for OEMS who need an OS to run because Apple does not license their software. A low cost iPhone would be a dream come true for Google.
“It would be like the farmer selling the watermelons at a dollar loss, but also selling a knife to cut up the watermelon at a dollar profit and napkins at 50 cents profit. In the end they will lose money on the watermelons but make money on the residuals that accompany the watermelons. Therefore, the bigger the truck the more money they do make.” – Mike Knopp
Good analogy. I’m going to discuss many of those issues next week.
Great article! Thank you!
First of all, “the old saw” that is used for the basis of this horribly one dimensional “analysis” is an ignorant misunderstanding of profit margins and sales volume, just like the analysis itself is an ignorant misunderstanding of the true nature of Android (and I’m not talking about some altruistic view of open source software.)
Android’s business model follows nearly every other consumer offering by Google: access is free because the real, ongoing profit is in the data that is generated.
Appropriately, the comparison the author is trying to draw is like apples to watermelons…
We actually don’t disagree. John’s analysis is one of many and if you look at our archives you will see we have addressed many things you brought up. There is just only so much you can write in one article and I’m guess many reading this have not read the breadth and depth we have covered in the past here at Tech.pinions.
The bottom line is, if Android, from a market share discussion, was healthy by way of revenues then why do people, even Google, have trouble making money from it. Samsung does yes, but it is because of way more than Android that they do.
Google makes way more money of iOS in relation so their core services with a fraction of the market share of Android. From a business and economic and sustainability discussion this is an important point.
While it makes a shocking headline (of which there are plenty), it doesn’t excuse that just covering direct revenue leaves the discussion incomplete and readers potentially uninformed.
Keep in mind this is part one of a series. You can’t cover all the topics in just one column and make it readable. As I said I and others have dissected the revenue and the business and economic side of this discussion quite a bit in past columns.
I see that now. However, the closest the introduction to the series comes to addressing the distinction Android (and, by extension, Google) demands is the ” “razors-and-blades” reference. This is comparable to Apple’s model, but not Google’s, which is akin to “we’ll give you the razors AND blades cheap or free in exchange for your marketable data.”
Here we go again.
Just for you and everyone else who thinks atoms are little marbles and space-time is a rubber sheet…
If you are still talking about watermelons (or any analogy) after reading the article, you have failed to comprehend the article. It’s really that simple.
An analogy is a way to provide a common understanding but if you feel there was a better way to accomplish that, I’m all eyes.
Excellent article. Just one small suggestion: the PC profits pie chart is incorrect. Since Apple sells the OSX with every Mac, it includes the profits of that as well. Therefor, it would be fair to include MS in that chart. Or remove the OS profits from Apple’s share (which I don’t think you can since OSX is not sold separately).
In which case, the pie looks very much different.
Talk about a flawed analogy. The watermelon story confirms your biases nicely, but it doesn’t approximate the tiniest bit the present state of affairs nor the stakes for Apple. Instead, what you’ve got is Farmer One selling $5 watermelons for $7. Farmer Two’s selling $5 melons for $4. Farmer one has convinced people that his are worth more, but to most folks, they look and taste about the same. The result is that more and more folks are opting to buy Farmer Two’s melons instead of Farmer One’s. It doesn’t matter that they’re both selling more of them each quarter (for now) because every time Farmer Two sells a melon, it’s one that Farmer One isn’t selling.
It looks like Farmer Two’s watermelons are losing him a buck a piece on the melon itself, but it turns out that Farmer Two’s kind of a rube, one of many stand-ins trying to make up the losses on volume. The REAL Farmer Two is a big guy pulling the strings back at the farm, and he makes his money because, as part of the watermelon transaction, the rubes are turning over their house keys to the Real Farmer Two, and giving him permission to rummage around, take whatever he thinks is worth something, and sell it to someone else. In this way, he makes back his “lost” dollar, and more. It doesn’t even matter if the stuff he’s taking out of those houses is worth much, because he’s got an entire set of rubes on the other side of the deal (the advertisers) that are convinced it’s worth a lot.
One thing’s for sure, Farmer Two’s junk collection obtained from the melon-buyers is worth more the bigger the pile gets. And another thing’s for sure, those who are investing in Farmer One’s melon truck aren’t just paying for the profits on current melon sales, they’re paying for future sales and future profits. As those sales disappear to Farmer Two’s truck (no matter what the state of profitability there), those who are invested in Farmer One’s melons, and stand aside cheering because, for now, the profit margins are higher, well, they just may be the biggest rubes on the roadside.
“Farmer one has convinced people that his are worth more, but to most folks, they look and taste about the same.” – agronomics
Now your biases are showing. The market says otherwise. iPhones consistently retain their pricing power.
“…every time Farmer Two sells a melon, it’s one that Farmer One isn’t selling.” – agronomics
There is little evidence to support this. Apple is selling its wares at near capacity. In a growing market, many parties can be simultaneously growing their unit sales.
“As those sales disappear to Farmer Two’s truck…” – agronomics
There is little evidence to support the conclusion that Apple’s sales are dissapearing. They are growing nicely, just not as fast as Androids. And since many Android phones are cheaper, this should not be much of a surprise.
I like your handle, by the way.
Analogies aren’t arguments. They are lead ins, simple sketches, hooks to get a basic point across.
Again, if you are still talking about watermelons after reading the article, you have failed to comprehend the article.
Great piece, as always, John. But to be the Devil’s advocate, IYO, do Samsung and Amazon make the case that profits and margins don’t matter (based on their P/E’s)? Or do we just have to wait longer for them to end in tears?
“… do Samsung and Amazon make the case that profits and margins don’t matter…” – JDSoCal
Samsung has both margins and profits. Not as good as Apple’s, but good.
Amazon is a different beast altogether. They’re playing a whole different game. Either Jeff Bezos is the smartest man in the world or else every Amazon shareholder is about to find out how very, very stupid they were to invest in Amazon.
Samsung’s smartphone profits exceed Apple’s, the giant Samsung smartphone profits subsidize all over money-loosing endeavours by Samsung Electronics, Samsung Display, Samsung Component etc. Same for Sony, LG, all the profits and growth for them are in their Android. They all loose giants amounts of money selling only components, only HDTV displays etc, they can subsidize all those losses and justify all those losses simply showing the impressive Android growth and using most of the Android profits to make sure their Android growth continues as Apple’s market share collapses.
Incorrect check your data. Apples smartphone profits were 15 points or so I believe higher than all of Samsungs profits of both non smart and smartphones. I have to check my data to confirm how much more it was but it was certainly higher.
Samsung has caught up and gained in the profit share area but it is due to their transfer costs of semiconductors and displays. This is the beauty of a vertical business in that you can transfer profits across units to add across divisions for margin growth. Both Apple and Samsung can do this. Look at capex also.