Author: Ben Bajarin

If anything, John’s column on Android’s market share has stirred a good discussion around the market share vs. profit share debate. Some may argue that this discussion isn’t relevant to end consumers who really don’t care. To that I agree. As an industry analyst these things are of interest to how I study the industry. Data around market share and profit share help shape my perspectives relative to what companies, platforms, and technologies have the best chances of succeeding going forward. Although I agree that end consumers don’t care about market share or profit share, there is a group who does and should care–developers.

Developers Control the Future

Marc Andreesen boldly proclaimed in a 2011 essay in the Wall St. Journal that software is eating the world. He is, of course, correct and in the reality where software is eating the world, software developers control the future. Software developers are the heart of a platform. As long as a healthy software development ecosystem exists, a platforms future is not in jeopardy. Therefore, what interests me in the platform discussion, is what platforms are developers interested in and where is the most exciting software development taking place. I believe wholeheartedly the answer is iOS.

Here in Silicon Valley, where I live and work, I meet many new startups weekly. I talk with venture capitalists investing in the software revolution monthly. The major theme and trend I pick up on in these discussions is iOS first and Android eventually. Most VCs I speak with have invested in many iOS only app startups and they seem to have no problem with this from a business standpoint. Many have also invested in companies making software for iOS and Android but told me that the companies priority was iOS. From my viewpoint iOS is the hot ticket item. And it seems like developers agree. This years Apple World Wide Developer conference sold out in record time, faster than Google I/O for the first time. And it did this despite Android’s 75% smartphone market share.

Below is a chart showing how many minutes it took for each developer conference to sell out. ((I plotted since 2011 since starting that year each conference sold out in less than a day. Each year prior took days not minutes))

iOS also appears to be the best business bet for a majority of software developers. Distimo released a very interesting study this month highlighting some key metrics related to both the iOS and the Google Play Store. In a section of the report called The Apple App Store is Most Beneficial, Distimo point out:

“The daily revenue (In the US) in April 2013 generated by all applications in the top 200 grossing in Google Play was $1.1M, while the daily revenue of the top 200 in the Apple App Store (both iPhone and iPad) was 4.6 times higher at $5.1M. The vast majority of applications in those two top lists contained free applications with In-App purchases and this business model automatically generates the most revenue in both stores. The higher revenue share in the Apple App Store compared to Google Play was also characteristic for long tail applications and did not apply solely to popular applications.”

As impressive as that US centric data is, I think two clarifying points are necessary. First you will notice that Distimo specifically points out that the Apple app store revenue includes iPhone AND iPad. Why does this matter? First because there are disproportionately more iPad specific apps in the Apple App store than there are tablet specific apps in the Google Play store. In fact, I would be so bold as to say that there are so few tablet specific apps in the Google Play store that it barely showed up as a blip, if at all, in the Distimo app IQ tracking solution.

Second, this breakout which includes iPad, shows how attractive iOS is from both a smartphone standpoint and a tablet standpoint in terms of opportunities to make money for software developers. ((It is clear the iPad is a strong component to the strength of the Apple app store. Unless Google fixes this with tablet apps, the imbalance will remain))

Now, the above mentioned data was US centric, where we know the iPhone is dominant. So how about the rest of the world? Distimo makes the following observation:

“The Apple App Store was still the larger market compared to Google Play in April 2013 in terms of total revenue. However, Google Play’s piece of the pie has increased significantly over the past six months. While only 19% of the combined revenue came from Google Play in November 2012, this share went up by eight percentage points to 27% in April 2013. The Japanese and South Korean markets were the main contributors for the growth in Google Play’s revenue share.”

Distimo makes a point that the Play Store has increased, and indeed it has. However, they also explain the answer.

“The Japanese and South Korean markets were the main contributors for the growth in Google Play’s revenue share.”

One word. Samsung. One question. Sustainable? ((I will be doing a deep dive on my thoughts on Samsung’s sustainability long term as a part of a new service we are launching soon. Sorry for the shameless plug))

Focusing on Android Software Development

Indeed, John’s column spurred quite the response from those in the church of market share. Of course Android is relevant and it’s not going anyway any time soon.

The question is can developers make money and sustain a profitable business developing for Android. Interestingly this is exactly what the Distimo report set to find out.

In the report Distimo highlights several developers and apps that have found more or at least equal success in the Google Play Store vs. the Apple App Store. The primary examples were game developer Mobage.

“In April 2013, Mobage generated more than $5.1M in Google Play in April 2013. The Apple App Store total revenue during April 2013 in the U.S. was $5.6M, which was slightly higher. This equates to a revenue share of 48% for all Mobage apps in Google Play in April 2013, while 52% of revenue came from the Apple App Store (iPhone and iPad).”

Not bad. Mobage has several popular games, Blood Brothers and Rage of Bahamut being two of the main ones. As you can see for this developer Android is a significant contributor. They are also a large publisher with games with strong brand cache.

The other Android highlight was Final Fantasy III.

Again a game with serious brand affinity. As you can see Android is not a lost cause for developers. However, it does seem there is a template which is required to follow in order to make Android development worthwhile.

Conclusions

Android is a viable market place. However, as we see, it is also highly regional and more often than not success is being found by large developers with name brand apps. Therefore app developers need to be very targeted about the region and strategic about the business model that will work in that region.

The Android market is filled with successes but it also favors the larger more established app developers whose software has a strong and established brand to leverage. [pullquote]iOS presents the greatest opportunity for the entrepreneur app developer[/pullquote]

The data and the evidence constantly coming to light showcases how developers large or small are profiting from iOS development. But in my opinion, iOS presents the greatest opportunity for the entrepreneur app developer. The small to mid-size developer. The person who writes apps in their spare time and has a dream to quit their job and start their own business creating apps. This is where some of the most exciting software development is coming from. This is where the companies of tomorrow will be born.

So here is my advice to the smaller independent and garage software developers looking to build or continue to build their software development business. Follow the strategy being employed by the many silicon valley app startups. Start with iOS, build the business and the brand, then as the business grows expand. It would be foolish to ignore Android. It would also be foolish to start there. ((This is of course my opinion and you are welcome to disagree))

I have given this advice to dozens of app developers a month who seek my feedback and opinion. And I am told I am not alone in this opinion. Many remark that this advice is also given to them by their mentors, advisors, and investors (if they have them.)

It is of course true that developers can make money on Android. The Android market will continue to develop and grow. But can it attract and be a viable marketplace for the small software startups? Or for the long tail marketplace which is clearly in Apple’s App stores favor at the moment. I will agree and end with the conclusion Distimo makes in their report:

“We draw the conclusion that although the majority of applications still generate more revenue in the Apple App Store than in Google Play, there appears to be a great opportunity in Google Play in terms of revenue – and (as noted in previous publications) localization is the key.”

Google has activations, Amazon doesn’t release any numbers, Microsoft touts licensees sold. Truly knowing the success of a device or platform is hard when companies selling the devices or supporting the platforms don’t share with us actual sell through numbers. I am rarely interested in how many devices or software licensees are sold into the retail, carrier, or OEM channel. I am interested in how many people are actually using these devices and have personal ownership of them.

Take Amazon for example. Why Amazon gives no indication as to how many Kindle products (namely the Fire) they are selling is beyond me?. If it is doing remarkably well wouldn’t you want to tell people this. Especially if you want developers creating applications for your Android fork. You would think if developers knew what their total addressable market would be on Amazon’s platform, that it would be helpful and lure them if the number was attractive.

Then there is Google. They proclaim Android figures by way of activations. No one truly knows what that means but now Google is changing the methodology to report only those device which activate Google services, namely the Play Store, rather than just an activation of any Android device that pings their servers. There are many more millions of Android devices access to Google service, which now makes it harder than ever to know how many Android devices are sold and actually in the hands of users. At least Google’s new reporting more accurately reflects devices in use, and using Google’s services, but even then we have some discrepancies. John Kirk points that out here.

Samsung is a little better. But only at times. Some quarters they will tell us how many specific device models they sold. But then sometimes they won’t specify sales of specific device models and just lump all devices together and tell us how many smartphones they sold.

Now I turn to Microsoft. The buzz last week around the fact that they had sold 100m copies of Windows 8. On this point, I must highly recommend an article Charles Arthur wrote in the Guardian where he built upon my Tech.pinions colleague Patrick Moorhead’s methodology for calculating actual Windows 8 devices in use.

Moorhead combines the NetMarketShare figure from April, which shows a 4.2% share, with the 1.4bn installed base to come up with a figure of 58.6m machines presently running Windows 8. That’s an average of less than 10m per month since it went on sale – which doesn’t feel like a lot, especially since the run rate for Windows 7, once it got into its stride, was 20m per month.

100m copies sold. Not yet in use. They will get there by the end of the year. If they don’t we have a real problem.

Then, in an attempt to counter some of the hard hits they took this past week, Microsoft’s Corporate Vice President of Corporate Communications Frank Shaw wrote an interesting blog post. One quote stood out in particular.

So let’s pause for a moment and consider the center. In the center, selling 100 million copies of a product is a good thing. In the center, listening to feedback and improving a product is a good thing. Heck, there was even a time when acknowledging that you were listening to feedback and acting on it was considered a good thing.

Frank is right. Selling 100 million copies of anything is a good thing. But as Charles and Patrick point out, there are far less than 100m copies in the hands of consumers. Furthermore, I would ask Frank a question about these 100m copies sold. What choice do the OEMs have? If you want to make a PC, and you are not Apple, where else can you get your operating system? The answer is no where. OEMs are bound to Windows if they want any chance to hit sales numbers. So realistically they are going to buy whatever Microsoft sells them. Harsh reality but its true. And yes Frank, listening to feedback is a good thing. I’m just worried Microsoft is not listening to all the RIGHT feedback.

Microsoft will continue to sell 100s of millions of copies of Windows each year by default. The OEMs have no viable alternative. Maybe this will always be true, maybe it won’t, time will tell. Maybe Chromebooks will be the alternative. Android clamshells certainly aren’t the answer. But I can tell you one thing I am extremely confident about. Microsoft and their partners worst nightmare should be if Apple ever decided to get price competitive with their Macs.

Giving all the facts with regard to sales numbers that reflect their actual use by customers is the only way to be genuine and forthcoming. Consumers either want your products or they do not. By telling us how many of them are actually buying them, using them, and not returning them, is the only metric for us to truly gauge whether your company or its products are actually viable and growing true market share.

I can only conclude that by not giving us the whole story, that the whole truth is not as rosy as its made out to be.

Extra Thoughts:
– Keep in mind most of those 100m copies were sold to OEMs making PC, hybrid, and convertible hardware, all who hope to sell them through the retail channel for actual customers to use.
– Of course by Macs being price competitive I mean in the sub $599 range. That is where the Windows volume is and will be.
– There are other companies who aren’t specific when it comes to numbers, I just mentioned the ones with the biggest spotlight on them.
– It should go without mentioning but I will anyway. Good or bad, Apple is the only one who gives real sell through numbers.

Something very interesting is happening in the publishing world, or at least something I think is interesting. The rise of quality digital screens like the iPad and Kindle, along with the ease of distribution through app stores, has opened the door to new breeds of digital magazines. Before such devices like the iPad or Kindle, the production cost of a printed quality magazine made the barrier to entry quite high. While production costs still exist they are far lower and thus opens the door to new players doing interesting things.

In the tech world, sites like Engadget with Distro or The Next Web Magazine are examples of tech sites doing interesting things with their brand. There are two, however, I want to point out and make some observations on.

The first is The Magazine which was created and released by Instapaper creator Marco Arment. I jumped on the premise with the first edition of the Magazine and I have loved everyone. Marco points out in his forward that when The Magazine started it was geared to be about technology related subjects that tech geeks found interesting, written by tech writers. But then, Marco points out, they evolved and broadened the scope to all good writers, writing interesting stories. That is exactly what The Magazine is. Its a return to quality long form writing across a range of subjects. The Magazine is one of the few apps in my Newsstand where when a new edition appears, I make time to read it in its entirety the same day.

Yesterday Jim Dalrymple took on a magazine endeavor all his own called The Loop Magazine. I have the great privilege of contributing an article to the launch edition of the Loop Magazine and I encourage you to check it out. I read the Loop Magazine all they way through and it is going to be another must read for me. [pullquote] Apple was on the forefront of desktop publishing and they are again on the forefront of the next publishing revolution.[/pullquote]

What we are witnessing, I believe, is the evolution of publishing. I’m not sure I would fully consider what has gone on with blogs as the future of publishing. They certainly played a role in bringing digital publishing to where we are but I don’t believe we are where we need to be. The Magazine and The Loop Magazine offer up insight as to how publishing could evolve. I’m loosely calling this term “Magging” until I come up with something better. These are not blogs, but they are highly curated–and highly edited–platforms for quality long form content. This can lead to the discovery of new authors or content sources in which readers can get more from the author through books, media, or other forms of content. Perhaps some of those authors will launch “mags” of their own. This is the opportunity of this new medium. Interestingly Apple was on the forefront of desktop publishing and they are again on the forefront of the next publishing revolution.

What I like about this trend is that it opens the door for many of these digital “mags” to exist and serve all kinds of readers of all interest levels. I sincerely hope Marco, Jim, and all others who go down this road are extremely successful. The world needs good writers and story tellers. Many criticized the blogs and predicted they would kill quality curated editorial content. Andrew Keen made this case in his book The Cult of the Amateur. I was on a panel with Andrew many years ago regarding this subject and we had a fierce debate. Let’s hope that the return to long form writing, and the business models that can sustain them, proves to be the anti-thesis of Andrew’s premise. Hopefully this trend will lead to the cult of the professional.

I have written and spoken often about my conviction that the role of the PC is changing. The personal computer as defined by a desktop and clamshell form factor was, for many years, the only PC in our lives. Now we have tablets and smartphones in our lives and they have usurped the value the market once attributed to traditional PCs.

On Friday I outlined how the traditional PC, by definition of desktop or notebook, used to be the benchmark for the health of the technology industry. Every year we looked at PC sales as an indicator for growth. This is why many in the media and pundits made such a big deal at all the recent news that PC sales have been slumping. On the surface it seems like a big deal but in reality it is simply a sign of the paradigm shift the technology industry is going through. One where ultra mobile devices like tablets and smartphones will define the future of personal computing.

A Shift in Value

When I was first learning to do consumer market research, one of the things I found most interesting was to discern where the consumer mindset found value. There is a great deal of mindset diversity in the consumer market as value is percieved differently across many segments and sub-segments. The key to understanding price points fundamentally lies at understanding what is valued and what is not.

It is my conviction that the traditional PC is not longer valued the same way that smartphones and tablets are in todays market. In fact I would argue that the true consumer market never really valued the PC in the first place. They valued the Internet the PC form factor brought them.

I say this because of the many observational studies we did in the 2003-2005 time frame where focused on consumer sentiment around desktops and notebooks–all Windows based. In these studies and rounds of consumer interviews several themes kept emerging.

The first was that most consumers did not feel knowledgeable about how to use their PC. It was clear there was a huge computer literacy gap between the early adopters and majority. Because of this many did not use very many applications on their PC regularly. Common tasks were browsing web, email, light gaming, word processing, instant messaging, etc. Light computing tasks were being done by heavy computing hardware. This is why I continually make the claim that in my opinion the traditional PC vastly over serves the mass markets needs with computing devices.

The other theme that seemed to emerge during our studies was that the PC had a very much love/hate relationship with many consumers. We heard many times about extremely frustrating experiences with technical problems or other issues that stood in the way of a delightful experience with PCs. I can’t tell you how many times I heard the phrase “sometimes I want to throw my PC out the window.” Think of the scene from Office Space and the copier, which they hated and later destroyed. This was a common theme I picked up discussing computing with the mass market.

There were experiences which were valued by the mass market in which the PC brought them. Things like email, the web, new ways of communicating, learning, etc. But the problem for the PC is the majority of experiences which are valued by the mass market are not unique to the desktop or notebook form factor. In fact some are vastly better on other devices.

The Appliance Mentality

All of this adds up to what I am calling an appliance like role for PCs. Appliances play important roles in the lives of consumer but not all of them play every day roles or even central roles. They have a specific set of uses and are used only when needed. Similarly the PC in the form of a desktop or notebook will likely be in a majority of homes. However, it will play a role and only be used as necessary. For this reason consumers will hold on to them longer, something they are doing arleady. But also will buy them more with a budget mindset not paying premium prices. This is why the coming low-cost revolution we see happening with PC prices fits right in line with this trend.

Of course the PC will always have value to some key markets but not the majority. This is why I think the “PCs are trucks” line of thinking is apt. Trucks are valued to some but not all. Those who know they need a truck for work or something else, know it and are willing to pay for it. This is where the premium price category will stay strong for many vendors.

Upgrade cycles are the culprit. Consumers don’t feel a need to upgrade, or its simply inconvenient or too difficult to move their data or programs. Whatever their reason it is clear that the desktop and notebook are pshchologically more like an appliance in nature. This means upgrade cycles are simply going to be longer in the 4-5 year range.

The bottom line is the PC simply has a longer shelf life. This is the new normal.