If Jeff Bezos Is Serious About An Amazon Phone He Better Take Out His Wallet

Over the past several weeks, rumors of an “Amazon Phone” have become more persistent, if no more credible. The rumors stick, of course, because Amazon has years of experience designing, developing, selling (and I assume servicing) personal mobile computing devices — the Kindle line of eReaders and tablets. In addition, Amazon operates its own Android app store, has a very successful cloud infrastructure platform, and manages one of the larger direct-to-consumer smartphone channels. Add to this the company’s robust digital media ecosystem — books, music, movies and more — and it’s easy to understand why so many believe Amazon can and will make its own smartphone.

There’s only one problem: every time we might use an “Amazon smartphone” we most certainly are (via their cloud, apps, payments platform, rumored smartphone sensors and integrated services) visiting Amazon.

And Jeff Bezos has taught us that every time we visit Amazon we should demand and we should receive a whole host of free goodies. This alters the entire Amazon smartphone equation.

Free Free Free!

A famous Bezos quote is “there are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second.”

I won’t call Bezos a liar, the quote is accurate. Only, it’s not complete. Bezos and Amazon often do charge less than the competition. They are like WalMart in this regard. Where they are different, however, is in making that (slightly) lower price even more appealing by throwing in a feast of freebies.

Amazon Prime, for example, is damn near a steal for my family — just on shipping costs alone. There’s also the many free streaming movies we get for being Prime “subscribers.” We get free books on Kindle, free Android apps, free cloud storage for our many digital belongings and much more. Then there’s all the sales taxes we’ve saved by choosing Amazon instead of buying local. I shudder to add those up.

The modus operandi of Amazon isn’t “cheap” or “low price.” Rather, it’s using other people’s money — including some from Wall Street — to subsidize the company’s most favored customers.

I am happily one of Amazon’s most favored customers.

But I have no intention of getting an Amazon smartphone, however. Not unless Bezos hands me a great deal more freebies than ever before.

All Amazon All The Time

Matthew Panzarino of TechCrunch recently provided details on the rumored Amazon smartphone(s).

Amazon is planning two devices, the first of which is the previously rumored ‘expensive’ version with a 3D user interface, eye tracking and more.

Another feature said to be planned for the device, but not yet locked for release, is an image recognition feature that lets users take a shot of any real-world object and match it to an Amazon product for purchase.

Count me as highly skeptical on any of this. An actual value-enhancing 3D screen — before Samsung, Apple, Sony, LG or Motorola? Eye tracking and image recognition that really works? From the company that is primarily a web commerce and services concern?

Worse, the company suggests they may charge us for their smartphone! Recall, Amazon publicly told AllThingsD: “we have no plans to offer a phone this year, and if we were to launch a phone in the future, it would not be free.”

If it’s not free, what could be the actual selling point? Better hardware? Better software? Better ecosystem? That seems extremely unlikely. Lower prices? Between iTunes and App Store pricing and Google giveaways, how much lower could Amazon go?

Answer: they’d have to start paying us to use the device.

It’s the opposite of free!

This is not so far-fetched.

The Opposite of Free

Smartphones are profoundly altering commerce. We use them to buy, to research what to buy, to see what is available to buy — at this moment, at this exact location, and from whom. We use our smartphones to complete the purchase, to make the payment, to store our coupons, to ask our friends for recommendations.

Amazon wants badly to capture and monetize as much of this action, and as many of these steps, as theoretically possible. Give Bezos his due for thinking in such grand terms.

Everything Google does, for example, is to get us to provide more of our personal information, which they can then monetize. Everything Amazon does is to get us to make more of our purchases through them. An Amazon smartphone would no doubt be designed for just that.

Which, from a user’s standpoint, sounds absolutely dreadful.

An Amazon smartphone could only work if Amazon paid us to use it.

Amazon is a Tiger. Jeff Bezos the Tail.

In a recent piece in BusinessWeek, Bezos and Amazon are reverentially lauded:

Today, as it nears its 20th anniversary, it’s the Everything Store, a company with around $75 billion in annual revenue, a $140 billion market value, and few if any discernible limits to its growth.

I’m less sure of that last bit. Admittedly, I use Amazon regularly. The reasons are clear:

  1. the sales process extracts only minimal pain
  2. the products are available within only a few days
  3. the prices are reliably low
  4. all the free stuff the company throws in with every purchase

Just one of those goes away, however, and I will look elsewhere — possibly even make my purchases elsewhere. Which means there is at least one very obvious limit on Amazon’s growth: if the rubes who are subsidizing Amazon’s most favored customers ever rebel, us most favored customers just might go elsewhere.

I can’t say when or if that will happen. But, I can say that if the Amazon smartphone is not free, as Amazon says, then it will have to compete with other devices. I simply do not believe Amazon can win on a level playing field.

I could be wrong. There may well be an Amazon smartphone on the horizon. It may turn out to be great. Time will tell.

But I am certain of this: Jeff Bezos better be ready to pull out his wallet if he’s serious about entering the smartphone wars. I will make him pay a fortune for my business. I suspect we all will.

Do Android Or Windows Phone Have Any Hope Of Defeating iPhone?

No.

Neither Android nor Windows Phone, apart or in concert, have any hope of defeating iPhone. None. For the foreseeable future, iPhone will remain the world’s most popular, most profitable smartphone by a wide margin. The best apps, the first apps, the most popular accessories, the lion’s share of the industry’s profits all will belong to iPhone.

Indeed, I think the gap in profits and mindshare will only widen from this point forward. The iPhone is simply too good, Apple too rich, iPhone hardware too advanced, the iOS ecosystem too robust, integration across devices and platforms too seamless, retail footprint too large, customer satisfaction too high.

Mobile First

iPhone’s dominance is also partly the result of the right strategic bets. Apple has successfully re-positioned itself as a mobile first entity. Android and Windows Phone not only lag behind iPhone from a financial, technical and platform perspective, their masters — Google and Microsoft — still underestimate just how profoundly mobile will remake computing, work, play, commerce, interactions, our lives. Their smartphones suffer accordingly.

Google, which makes nearly all its money from (stationary) web advertising, continues to focus its efforts on getting more users on the web more of the time. Wise, but not enough. As I have previously shown, the person-to-web relationship is no longer central to the connected user. With smartphones, apps and services such as AirDrop and iBeacons, for example, we will witness a radical jump in person-to-person, person-to-group and device-to-device interactions that bypass the web entirely, never once to cross a Google server or gateway.

Likewise, Microsoft is still designed for a world where the “desktop” is at the center of an ever-expanding sphere of computing devices and services. This is fail. As Ben Bajarin has shown, it is smartphones, not PCs that will serve as the hub of our mobile, social and highly connected lives.

Apple’s iPhone is simply too far ahead of the competition everywhere that matters.

But, there remain opportunities — very big ones, in fact.

As I have written in the past, do not be misled by those who insist that Apple can magically go down-market whenever they wish. This is false. Apple’s skill set, cost structure, corporate expertise and branding all prevent this. Thus, Windows Phone and Android vendors can fight it out over the low-price, low-profit market.

There are several additional paths to take. These can all benefit from non-Apple innovation.

Form Factor

Apple now controls the most robust developer platform for personal computing. No one on the planet foresaw this happening, not even Steve Jobs who initially radically underestimated both the disruptive power of the app and the near-limitless potential of the iPhone.

Therein lies the opportunity.

Apple is now beholden to its developer community. The iPad and then the iPad Mini, the iPhone and then the iPhone 5, all have very specific display sizes in large part because these work best for the nearly million apps available. You may pine for an iPhone “Note” but the fact is Apple cannot offer us a wide array of display sizes because this would harm the performance and presentation of existing apps.

Android and Windows Phone should therefore radically expand their efforts and develop devices that embrace all manner of display size and form factors (e.g. these massive Microsoft ‘tablets’). The upcoming “bendable” LG smartphone and the extremely popular large-display Samsung devices reveal the potential of this market.

Similarly, iOS cannot well support physical keyboards. Mobile devices with physical keyboards — including, yes, the Surface — will remain in high demand for years to come.

The Integration of Things

The shockingly rapid transition from iOS 6 to iOS 7 only hints at the potential power of Apple’s platform. With hundreds of millions already on iOS 7, app developers, payments platforms, makers of accessories and hardware companies all know that building for iOS, unlike all other platforms, is a near guarantee that their service or device will function properly and have access to the most lucrative market.

There is another path, however, one which Apple may simply be unable to support: everything else in our lives.

I want my smartphone to serve as my identity, my credit card, my house key, car key, to manage my heating and cooling, monitor my home when I am not there, control my washer and dryer, serve as my television remote, connect with my medical devices (e.g. blood pressure monitor), track my dogs, offer me instant access to the subway and thousands of other activities.

Given the obvious limits on Apple’s marketshare and hardware development, Android and Windows Phone need to position themselves as the go-to platform for the Internet of Things. Apple and its hardware partners cannot be everywhere.

Government Intervention

Smartphones connect us with content, with the web, with one another, and with an ever-expanding array of devices and services. They are the center of our lives. Not the PC, as Microsoft envisioned. Not the web, as Google still believes. The smartphone is the last thing we see at night, the first thing we see in the morning. The odds of some new tech marginalizing smartphones any time over the next decade, say, are extremely remote.

A far more likely pitfall for Apple’s iPhone is government intervention.

No matter your political bent, the long history of government from at least the beginnings of recorded history clearly reveal that wherever there is a great deal of money, government will be there.

Apple has a great deal of money.

Expect new rules on how this money is taxed, how it may be spent, and a bevy of new and potentially inexplicable regulations on what Apple must do to satisfy each nation’s (or region’s) many and varied constituencies. Also expect nations to directly and indirectly limit Apple’s sales in favor of national entities.

How such intervention might impact Apple and iPhone is simply unknowable at this point. I nonetheless expect ongoing and potentially significant government intrusion upon Apple’s business, at least from China and the European Union, possibly even the US.

I suspect that government intrusion, more than the marketplace, more than any new technologies, more even than industry collusion, will impact Apple’s and iPhone’s continued success the most over this next decade.

Windows Phone And Android Hate

“Bitterness is like cancer. It eats upon the host. But anger is like fire. It burns it all clean.” 
― Maya Angelou

I want Windows Phone to succeed. More than that, I want Android to fail. I hate Android.

There, I said it. Yes, I am a market analyst, detached, and I have absolutely no stake in the success or failure, rise or fall, of either Microsoft or Google, $MSFT or $GOOG, or Apple, for that matter. I simply do not like Android. I refuse to hide this fact.

I think Android is a pale, poorly executed imitation of Apple’s iOS. I have real concerns about the ethics of Google’s ex-CEO as he simultaneously served on Apple’s board. Google’s scale and de facto search monopoly allow it to undercut competition and stifle innovation in local-mobile services. That’s no good. I can’t stand the way they use terms like “open” the way fast food chains label yesterday’s hamburgers as “fresh.”

Nor can I ignore their duplicitous stance on patents.

Most of all, I am suspicious of Google Android’s business model, which is built upon the capture, store, sift and sell of an ever-increasing amount of my increasingly personal information, all of which is then bundled and sold off to countless unknown people and businesses.

With Google search, Google Maps, Google Android, Google Wallet, Google Play, Google Chrome and Google+, Google knows where we are, what we are buying, who we are with, what led us to that purchase — and has documentary evidence of it.

Forever.

I don’t want this.

As everything goes digital and as everything digital collapses inside the shimmering smartphone screen, I see no justification for anyone cheering on Android.

I am not fueled by animus, however. I want the new Microsoft – Nokia to succeed because the world benefits if Windows Phone becomes a viable third alternative to iPhone and Android.

A Great Disturbance In The Force 

Yes, I think Apple currently makes the best smartphone and operates the best smartphone platform. But, for sundry reasons Apple will not and cannot stop the global spread of Android. Should Apple release, as is widely expected, a low-cost global iPhone “C”, and if rumors of deals with DoCoMo and China Mobile are all true, it’s still likely that the very best Apple will achieve — ever — is well under 30% of the global smartphone market. Likely, 25% is their ceiling. I don’t want Google to own 75% of the smartphone market as I believe this would be harmful to innovation and a long-term threat to personal privacy norms.

Where Apple will not succeed, Microsoft now can. Pushing Ballmer aside and acquiring Nokia suggests an acceptance of the new world they must now compete in. No, it will not be easy to take on Android. It is unlikely they will succeed. Still, the company that once seemed like the Evil Empire is now more like an aging Annakin Skywalker — and our last, best hope to slay the Emperor.

There are many arrows in Microsoft’s quiver: Windows 8 + Nokia design + Skype + Bing + Office + Outlook + Nokia imaging + Windows Media — plus security and server tools for businesses of all sizes. Microsoft with Nokia also has the necessary global footprint.  Taking on Android is not a suicide mission.

The Circle Is Now Complete

The greatest barrier to success, however, is that Microsoft remains of a world that no longer exists. Smartphones represent a transformative shift in computing – like mainframes to Minis and Minis to PCs. Companies optimized for PCs are, I believe, more likely as not to fail in this new age. Of course, Google is also optimized for PCs. That’s where nearly all its revenues come from, still.

Nokia, however, is optimized for mobile if not quite for this new age of smartphones. Moreover, they possess still another strength that Google does not: the user is also the customer.

This is critical — and little understood by most mobile industry pundits. Smartphones are with us all the time. They are in our hand when we awake and when we fall asleep.  They are our most personal objects, containing our most private data, and the thing we touch more even than our own children. Carriers and IT units may be major channels for smartphone sales but unlike with PCs, the user will be the ultimate arbiter. These devices are simply too personal to allow others to decide what we choose.

Nokia possesses yet another strength, and one not well understood in the United States. The company truly knows how to make quality devices at amazingly low prices.

Nokia-Asha-311

The pre-Microsoft Nokia lent me various “Asha” phones to test: the dual-SIM Asha 310, and the cute, colorful and long-lasting Asha 501. I also tested the  Nokia 105 feature phone. I was legitimately struck by the functionality and usability of each of these phones, particularly on a per-dollar basis. I would not buy any of them — which means I cannot recommend them. That said, these phones can be had for $25 – $100, a truly amazing feat of engineering, design and manufacturing. In many parts of the world, most do not have the luxury of turning their back on a sub-$100 device like I can.

Analysts that confidently predict Android will forever dominate the smartphone wars on cost alone have likely never used a very-low-cost Nokia device. Similarly, those analysts that are convinced that Android will win because Google offers its services and applications for free badly under-estimate the value of functionality, reliability and security that is built into Microsoft’s software.

The Force Is Strong With This One

Microsoft and Nokia can deliver this to the world:

Low-cost, secure, functional smartphones that seamlessly integrate across multiple devices (e.g. smartphones, PCs and game console), that satisfy end users and businesses alike, that can incorporate Yammer, Skype, Xbox, Outlook and Office, and which provide a hedge against the overwhelming force that is Google Android. That is a powerful combination.

Admittedly, the numbers at present are not terribly good, as this recent Kantar market survey reveals.

screen-shot-2013-09-02-at-10-17-10

Despite its current meager share, the Windows Phone platform is growing. Moreover, the smartphone market itself is only in its early days. Analysts who suggest otherwise are dead wrong. The vast majority of the world does not have a smartphone yet — though almost certainly will within the next few years. In addition, smartphones are becoming more used and more useful for all  users with every passing day — for work, school, play, home, life. “Free” and ad-driven business models like Android may ultimately fail to satisfy the requirements users demand for these truly critical devices. What is critical in your life that you don’t expect to pay for?

I Sense Something. A Presence I’ve Not Felt Since…

When Microsoft effectively acquired Nokia, the company made no secret of their intent:

To accelerate its share and profits in phones. To create a first-rate Microsoft phone experience for its users. To prevent Google and Apple from foreclosing app innovation, integration, distribution and economics.

I am hoping they succeed. It is within them to do so. Their fatal flaw, it seems to me, is do they have enough faith in themselves to do what is right, to achieve what I contend is possible, and build for the future, not the present? After all, the reason Ballmer was so successful and yet ultimately failed is that he chased the easy money, valued Windows profits above all else, and refused to acknowledge the potential for complete market disruption.

Nokia is likewise guilty of this. In a recent interview, Frank Nuovo — once the Jony Ive of Nokia — told the Australian Financial Review that Apple, not Nokia, re-invented the mobile market despite Nokia’s massive head start, because “all of our user testing pointed to the fact that no-one wanted touch phones.”

And yet now all of us have one.

The world can change, and quickly.

As can you. It’s time to let go of your anger. All has been burned clean. Begun the Smartphone War has. Microsoft is now on our side. May the force be with them.

The Very Googley Motorola X

I’ve spent the last week with the Motorola (a Google Company) X. As many who read my columns will know, I prefer iOS to Android and I make that clear. However, when it comes to Android devices I like the stock–Nexus–Android devices the best. Which means, I knew I would like the Motorola X when I first heard about it. However, my desire to experience the device was not because it is running stock Android. It was because I wanted to see if Motorola, the Google company, added any unique differentiators with the software. And they did.

Better Than Stock

What surprised me was that the version of Android on the Motorola X and their new Droid lineup is BETTER than stock Android. It looks and feels exactly like stock Android, but the additions the Motorola software team (I mean members of the ex-Android team) added are very good and feel like features that would come with stock Android on flagship Nexus devices. Yet that is not the case, they are coming on Motorola devices and no one else’s. Not even Nexus devices. At least I am assuming they are not. Time will tell if these great features make it back to the stock Android kernel. But I doubt it.

I kept saying to myself that many of the key new software features felt very Googley. In fact the whole device just felt very Googley. Which is a good thing. Unless you are a competing Android OEM.

So what features make me say this? There are a few. The first is called Motorola Assist. Motorola has had some of these features at a basic level before. But they have now all gotten much more Googley. Take a look at the screen shot below.

motoassist

That is the screen for the Motorola Assist feature. It looks very Googley. There are many design similarities to Google Now which is a feature of the latest stock Android build. The features of Motorola assist are also pretty slick.

First, if enabled, when driving it will know you are driving and when a call or text message comes in it will alert you via a voice prompt and allow you to answer a call, deny a call and respond with text message, or offer to read you the text message that arrived. Very nice hands free feature while driving with some good contextual automation built in.

The other that was quite nice and worked much better than I thought was the avoid interruptions during meetings feature. When this feature is enabled the service will be aware of your calendar appointments and auto send text responses to anyone in listed in favorites and let them know you are busy and will get back to them. It also keeps your phone silent of all notifications during this time. My wife LOVED this feature since I tried it by blocking off time when we went to dinner on my calendar and our time remained interruption free. This is similar to the iOS Do Not Disturb feature but is automated based on your calendar appointments.

Information at a Tap

The other addition I liked was Active Display. On the stock Android devices, I am a fan of the lock screen widgets. I use this primarily for email. So I can quickly see if I have important messages that I need to respond to without unlocking the phone. Motorola has added some smarts at the hardware and software layers to add to this feature. The home screen on the Moto X will pulse off an on when you have a notification waiting for you. You can simply tap on the icon and get at a glance any recent emails, text message, or missed calls and then choose to ignore or swipe to unlock the device and respond. This is information at a tap rather than a glance but is very nicely done.

Screen Shot 2013-08-29 at 5.52.26 PM

The key to this is that Motorola specifically added some hardware and software features to make use of a low-power processor just dedicated to this feature. This way to look at these notifications on the home screen you can do it without waking the CPU or the whole screen. Since the information is just in black and white the screen and touch features can be used with just the additional low-power core.

The other thing the low-power core can do is look for movement of the device allowing me to just pull it out of my pocket and the screen is already on showing me the time and any notifications without me having to press a button. Very useful feature.

Always Listening and Touch-less Control

The last feature I will dive into is the always listening feature. Also using the low-power core is a feature where the device is always listening for the key word “OK Google Now.” When you say this phrase you can then automate any number of features. You can tell it to call someone, text someone, schedule a meeting, set an alarm, etc. You can do many of the same things you can do with Google Now on many stock Android devices as well as Siri. The difference is that you can initiate the whole process with your voice without having to press a button.

This is the feature that is of extreme interest to me. I’ve always wrestled with the question of what we can do with our devices when they can hear us. Meaning that we can interact with our devices without having to initiate the function physically but rather verbally. We are just scratching the surface in this thinking and when we can train our computers to understand us better and provide fully automated value for functions hands free via voice, I think we will be in some interesting territory.

Measuring Success

From my view as an analyst, I think about how we should measure success for Motorola with this product. We could focus on the hardware which is very good. Motorola has made the most usable 4.7″ screen for one hand operation I have used yet. Or we could focus on the customization trend. Which I think is very interesting and a compelling differentiator for the Moto X. We could also focus on their efforts to make this device locally. I applaud their efforts to build this device in the US and again feel that will have a certain appeal.

For me, however, the way I’ll measure success for Motorola is not in how many devices they sell this quarter or next. Or what market share they gain or don’t gain. For me I will measure success if these devices help establish credibility again for Motorola as a hardware company and specifically a smart phone brand. Brand is everything in my opinion. Motorola had a good one and they are an American success story. I sincerely hope they can re-establish themselves as an innovator, thought leader, and a credible brand. From what I have experienced wit the Moto X, I think they are on the right track.

Other Things I Liked Worth Mentioning

  1. Battery life was better than average. Motorola touts 24 hours and although I never tested that claim, I routinely used my phone from 6:30am and plugged it in around 10:30pm and the battery level never went below 30%
  2. Motorola Connect was a nifty feature where by installing a Chrome plug-in you could reply to text messages on the PC as well as choose to ignore a call and respond with a text message all on the PC through the browser plug in. Very clever Google.

iOS App Store vs. Google Play: Key Stats and Important Observations

I’ve come across a few stats regarding the iOS App store and the Google Play store that are more than just a little interesting. If you follow the industry closely then you are aware of the narrative that gets circulated that iOS garners heavier user engagement than Android. There are many data points to support this but the below picture outlines where things stand today.

Slide 1

All of this is important to understand in context. What all data, like the above, showing engagement is tracking are identical tasks. Yet if you evaluate each platform you realize not all time spent on the device are identical tasks. The ones above are common, yet what we don’t know is how much time is spent on other apps and more importantly how much time is spent browsing or shopping in the app stores. This is why I’m more interested in data showing app stores sales and related behaviors than anything else.

I recently came across a new report from Distimo which tracked both Google Play and iOS App store revenues across many different regions. Below is their data of total revenue of each app store in each country tracked.

Screen Shot 2013-08-15 at 8.07.16 PM

So many interesting observations need to be made from this chart. The first is related to the United States.

What this chart shows, and many other data points I’ve acquired point out, is simply how important the US is from a revenue standpoint for developers and for each platform. One could argue that the US is the most important strategic battle ground in many different ways. The US has just over 313 million people of which 191 million currently own smartphones. In Smartphones, Android has a slight market share lead over the iPhone with approximately 95 million users on Android and approximately 88 million on iOS and the rest with either BlackBerry or Windows Phone. ((I say approximately because I know I’m close with those estimates but possibly not exact))

The second is related to Japan. Japan is clearly the second largest app marketplace in terms of total revenue. Japan has 127 million people of which 45% own smartphones. This brings Japan’s smartphone install base to approximately 57 million. iOS has 33% OS share in Japan with just over 18 million iPhone users. Android has 66% market share giving us 37 million users in Japan. The iPhone in Japan is the single best selling device followed by Sharp, then Sony, then Samsung. I highlight this data so you have context when looking at the App store sizes and revenues.

South Korea has an active Smartphone install base of 50 million of which 70% own smartphones. Out of the 35 million smartphone users 90% use Android or 31.5 million people. The bulk of the additional 4.5 million consumers in South Korea use iOS.

Now with those data points in mind, let’s consider the following:

Japan and South Korea are Google Play’s largest revenue generating regions with significantly less Android users in each region. In Korea, and this is fascinating, 35 million Android customers outspend 95 million US customers in the Google Play store. Please don’t forget Samsung is based in Korea as well as LG and both run Android. Now back to my first point. Not forgetting that the US is a critical battle ground for App stores, what about South Korea? Put yourself in Samsung’s shoes. How much leverage does this give them against Google? Google, from a Play revenue standpoint, can not afford to lose South Korea. Yet Samsung is toying with the idea of usurping Play store and developer revenue from Google. And the scary part is that Samsung can do this just for their home country and bring in a pretty penny. Although I believe they have much more grand ambitions that just conquering their home country, which should have just happened by default if you know anything about Korean culture.

the iOS app store shows strong resilience in all the markets in which it competes. With the battle that Both Google Play and iOS are in at a global level, notice what country is not in the chart. China. Google Play will likely never be in China, yet Apple is still planning their attack.

The data also points out that the Google Play market grew 67% in the past six month’s. Mostly thanks to Samsung mind you. During that same period the iOS app store grew 15% yet the Apple app store generate two times more revenue. Much of this thanks to iPad, and keep in mind without any real help from China..

So here again we see the narrative that although Android has a larger install base, from an app economy it has the weakest position. With that we factor in the interesting question Ben Evans raised the other day:

“If total Android engagement moves decisively above iOS, the fact that iOS will remain big will be beside the point – it will move from first to first-equal and then perhaps second place on the roadmap. And given the sales trajectories, that could start to happen in 2014. If you have 5-6x the users and a quarter of the engagement, you’re still a more attractive market.”

He is just making the point of engagement and not around app store spending. So let’s look at the graphic provided from Distimo on App store growth.

Screen Shot 2013-08-15 at 8.57.47 PM

Note that the Apple App store has remained relatively flat while The Play store is trending up. So the question then revolves around whether the trajectory of the Google Play store will catch up with the Apple App store. I maintain that it will not, since the iPhone and iPad are not standing still and the iPhone is still doing remarkably well in every region. Also if you look at Google Play’s biggest markets currently, Japan and South Korea, they both have smaller populations and South Korea already has remarkably high smartphone penetration. So one could argue that the room to grow in order catch up is simply not there given the timeline needed. And as I point out Google has no ‘Play’ in China (pun intended).

One market to watch with regards to Google Play is India. Per capita it is one of the largest growth sectors but this will also take time to manifest in Google’s favor from an economic standpoint. Android is doing well in India but those customers are not spending or investing much in ecosystems at the moment.

With the picture I just painted you can see what it makes sense strategically for Apple to begin to build out an current generation iPhone line of products in order to target different segments and different price points. It is all about getting customers in the door so they can invest in your ecosystems value chain.

Customer Acquisition and the Entry Level iPhone

From an industry and market standpoint, a lower-cost iPhone certainly has the potential to shake up the market. In what ways we can only speculate but there are a few points about an entry level iPhone that are worth discussing.

The Cost to Acquire a Customer

This is basically how I view any product Apple prices below a premium price point. Any move Apple makes to go downstream is a strategic move to acquire customers who seek value but not at premium price points and get them into Apple’s ecosystem.

If Apple was just a hardware company and that is all, then it would make sense to have a discussion about how fast they can go downstream in order to compete globally. But Apple is not JUST a hardware company. They are a hardware + software + services company and each part plays a critical part to the whole experience.

To analyze Apple correctly we need to understand how the hardware plays into the software which plays into the services. Therefore we look at an entry level iPhone as a way to acquire new customers Apple finds valuable. I make this point specifically because I don’t believe a customer who just wants a “cheap” product is the kind of customer Apple wants or one that adds any value to a computing ecosystem. I say this because these customers don’t spend much if anything in app stores. These customers just want the cheapest data plans possible. These customers are unlikely to spend money on additional services, etc. [pullquote]The fallacy those who think price is all that matters fall into is believing that all consumers value the same thing.[/pullquote]

This is why Apple will never compete with anyone in a race to the bottom. Those customers are simply not valuable in the grand scheme of things and arguably not worth competing for. And luckily those who just want cheap are only a percentage of the overall consumer segment. The fallacy those who think price is all that matters fall into is believing that all consumers value the same thing. It is incorrect to believe that its hard to compete with free. It is easy, all you do is create a better product, experience, or solution, and market it to those who will value it.

So the philosophy of an entry level iPhone pricing is as such: the lowest price Apple believes is necessary to capture the type of entry level consumer who is still valuable to their ecosystem.

Horace Deidu, posted on his site Asymco in May, that iTunes customers spend at a rate of $40 per year as an average. Certainly in some cases, like mine, people spend more than $40 per year, and certainly in some cases people spend less. A person who just wants cheap would not spend nearly as much if anything in Apple’s ecosystem. But the key point for Apple and an entry level priced iPhone is how low does it need to be to still acquire a customer who will spend money and add value to the ecosystem. Apple could take a margin hit in order to acquire said customer and still make up that margin hit on the hardware and then some over the lifetime value of that customer. This is why the services (iTunes, iCloud, and future services) are so important to Apple’s long term strategy.

Redefining Engagement

Some additional necessary thinking was shared by Benedict Evans today with is post Defending iOS with Cheaper iPhone. Lots of good thoughts in this post as usual from Ben but one in particular is worth fleshing out.

“If total Android engagement moves decisively above iOS, the fact that iOS will remain big will be beside the point – it will move from first to first-equal and then perhaps second place on the roadmap. And given the sales trajectories, that could start to happen in 2014. If you have 5-6x the users and a quarter of the engagement, you’re still a more attractive market.”

This is a very interesting point and worthy of thinking and discussion. Engagement is an important metric but we must first back up and ask whether all engagement is equal? For example are even the most “engaged” people on iOS and Android doing the same things? In some cases, like in working professionals or premium customers, the answer may be yes but I’m sure there are also many cases where the answer is no. The other challenge with using the engagement statistics most promote publicly is that they all exclude important metrics. For example we don’t know how much extra time iPhone (or iOS) consumers spend on the device browsing the App store or shopping for music. The same is true on Android. This would be some key stats that would shed more light on engagement and said users value to an ecosystem. ((of course, engagement on tablets is so disproportionate on iOS vs. Android. And on this point, it may never be equal.))

If we just measure engagement by things like talking on the phone, texting, browsing the web, doing email, playing games, etc., then on the surface we can make an observation that at some point this these will be equal by sheer volume of Android. Simply because these are common tasks. What needs to be added additionally for a holistic ecosystem analysis is how much time is spent additionally where things (and all regions) may not be equal.

Regardless, even if the level of engagement does become equal taking Android 5-6x (or more) the customers to reach the same engagement, both platforms will remain and will be a focus for developers.

Lastly…

This is a point I have not seen made yet that I think is very interesting. As much as Apple will benefit from getting new customers with an entry level iPhone that benefits their ecosystem so will Google. We know Google makes more on iOS than Android and interestingly an entry level iPhone will likely help Google’s bottom line as well. When you dig through the numbers on how profitable iOS is to Google’s search revenue, Google may be the biggest cheer leader for a lower-cost iPhone.

The questions around this are interesting. If a lower-cost iPhone does shake up the market in Apple’s favor globally would Google put even more emphasis on iOS? Would Apple even let them? Will Apple do more strategically with Siri to usurp search or other value from Google?

Services are a critical part of the end game for many industry players. Google was always fascinating to me because they are a services company first who worked their way backwards into software, and now hardware with Motorola. Apple came from it the other direction starting with hardware and software and now investing heavily in services.

Strategically, so much is going on in the market that will define the next decade or more of computing.

“Android Dominance” Is An Oxymoron

Alarm Bells Should Be Ringing At Apple: It’s Getting Absolutely Creamed By Android, Which Now Controls ~80% Of The Smartphone Market ~ Jay Yarrow, Business Insider

No, it’s not.

Definition of an oxymoron:

A figure of speech in which apparently contradictory terms appear in conjunction

Fact #1: No version of Android dominates mobile OS market share.

“Android Dominance” is an oxymoron. No single “slice” of the Android “pie” is equal to the 93% of iOS users who have upgraded to iOS 6. iOS 6 is the world’s most popular mobile operating system.

iOS_Android_fragmentation-640x281
Source

Fact #2: Historically, iOS customers have been quick to update to the latest OS version. ((iOS 6 Adoption At Just Over One Week: 60% For iPhone And 41% For iPad | TechCrunch))

Fact #3: Apple’s iOS users have even more reasons to rapidly upgrade to iOS 7.

iOS_7_UpdatesiOS_7_Only

A recent developer survey revealed that 95% of developers are updating their apps for iOS 7.

More importantly, 48% of those developers intend to make their updated apps work only on iOS 7.

With so many new and updated apps working only on iOS 7, iOS users are going be strongly motivated to upgrade to iOS 7 as soon as possible.

Fact #4: OS Versions matter.

Apple, arguably, has higher-quality apps because developers still focus on iOS first. The reason they focus on the App Store is that it generates more revenue than Google’s Android store, and users are more engaged. However, there’s no reason to believe this will continue. ~ Jay Yarrow, Business Insider

[pullquote]People who look only at overall OS numbers without taking OS versions into account are missing the “trees” for the “forrest”[/pullquote]

Yes, there is.

Pundits, like Jay, can’t seem to understand why Android leads in market share but iOS leads in usage, engagement, developers, income and everything else that makes a platform strong. ((Why The iPhone's Usage Advantage Over Android Remains So Important. The latest evidence confirms it: iPhone users are far more engaged with their devices than are Android users.)) ((Why Google’s Android is Losing the Battle to Apple’s iOS)) ((Apple iPhone users use their devices 55% more than Android users)) (("Both in apps and overall smartphone usage, iPhone owners rank higher than owners of Android handsets. After surveying both U.S. and European smartphone owners, researchers not only found owners of the Apple device more frequently use apps, but conduct more tasks suitable to smartphones, such as browsing the Internet. This despite Android’s advantage both in number of handsets out there and in sales. The dichotomy just reinforces our Android in a Drawer theory, which says many owners of the Google-powered devices see their handsets as just a spiffier version of dumb feature phones, ignoring most of what makes smartphones smart.")) ((Apple’s iOS continues to dominate with nearly 60% Web usage share vs. Android’s 26%)) ((Apple Continues To Dominate Mobile Video Viewing, With 60% Occurring On iOS Vs. 32% On Android)) (("Sandvine says that the iPad accounts for more home traffic than any other device, at more than 10 percent; and it says that if you added up all of Apple’s devices (iPads, iPhones, Macs, etc.), the company ends up with more than 45 percent of home broadband usage.")) ((Why FRONTLINE Isn’t Doing Android — Yet)) ((BBC – we have an Android development team that is almost 3 times the size of the iOS team)) ((Why there aren’t more Android tablet apps, by the numbers)) ((Android’s consumer strength hasn’t translated to enterprise, where Apple still dominates)) ((Apple rules the skies with 84% in-flight share vs. Android’s 16%)) ((Apple’s iPhone may have kept 400K customers from leaving T-Mobile)) ((screen-shot-2013-07-23-at-10-21-49-amSource)) ((Google shares were down as much as 5% in after-hour trading following a report of second-quarter net income of $3.23 billion compared with $2.79 billion a year ago. The overall revenue figure came in at $14.1 billion. The main reason for Google’s perceived weakness: less-than-spectacular mobile ad sales.)) ((app-revenue-q12013 Source))

Let me help you out. There is no paradox. The latest version of Android does NOT lead the latest version of iOS in market share. People who look only at overall OS numbers without taking OS versions into account are reversing the traditional proverb – but still making the same proverbial mistake – by missing the “trees” for the “forrest.”

Fact #5: Android hardware and software is split into many, many pieces.

  • 11,868 Distinct Android devices seen this year
  • 3,997 Distinct Android devices seen last year 
  • 8 Android versions still in use
  • 37.9% Android users on Jelly Bean

“And by the way, this is the most ideal state of Android. It only includes a version of android which talk to the Google play store so it doesn’t include things like Kindles and Nooks.” ~ Tim Cook, WWDC (113:30)

android-fragmentation-3

Android, for all its popularity, remains a messy, fragmented, less-than-ideal experience for a normal consumer. ~ Jay Yarrow, Business Insider

Ah! And finally we get to the crux of the matter.

Fact #6: It is iOS 6 – not any single version of Android – that is the most dominant and monolithic mobile OS in the world.

“iOS 6 Dominance” is not an oxymoron – it’s a fact. And it is iOS 7 that promises to extend the dominance of Apple’s mobile platform into the foreseeable future.

It’s impossible to look at the landscape today and believe that developers will still be iPhone-focused in five years unless Apple does something drastic to change its competitive position. ~ Jay Yarrow, Business Insider

I sorta hafta to disagree. And reality hasta disagree too. It’s not only “possible” to believe that developers will still be iOS-focused (notice how Jay conveniently ignored iPod Touches and iPads in his OS comparison?), it’s probable too.

You don’t agree? You’re an oxymoron who says that only total OS numbers, not OS versions, really matter? Sorry, I can’t hear you. The facts are shouting you down.

Marissa Mayer Neuters The Cowboy Coder

“All the speed he took, all the turns he’d taken and the corners he’d cut in Night City, and still he’d see the matrix in his sleep, bright lattices of logic unfolding across that colorless void…” 
Neuromancer (William Gibson)

I suspect we are on the cusp of a transformation in how engineers and computer programmers are hired, valued, rewarded, promoted. The line was drawn when Yahoo CEO Marissa Mayer effectively killed off telecommuting. With this, she also dispatched the last of the cowboy coders from the Valley.

The cowboy coder has long been the stuff of pop culture mythos: vain, skilled, belligerent, cool. The dark character-artifice presented in film, books and television. Machines rule our lives, everyone’s lives, excepting, we were told, these Silicon Valley cyber-riders who expertly manipulate the algorithmic levers of the world’s digitized power centers.

Supremely valuable to the company he deigned to work for, far superior than the prototypical office “drones” who showed up dutifully for work every morning, the cowboy coder lived by his own rules, his own creed, his exceptional talents.

Thanks to Mayer, he is no more.

Cowboy Coders Dethroned

Without making headlines, coding prowess – long the princely, priestly lifeblood of Silicon Valley – was dethroned.

Here’s Mayer in February:

To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. (emphasis mine)

Translation: Meatspace trumps cyberspace.

Here’s Mayer in April:

People are more productive when they’re alone, but they’re more collaborative and innovative when they’re together. Some of the best ideas come from pulling two different ideas together.” (emphasis mine)

Translation: Conversation trumps coding.

Connections Equal Profits

Power and value now flow not from coding but from creating and enabling connections. Connections equal profits. To create deeper, lasting, more profitable connections with customers requires deeper, more meaningful connections amongst the workers.

Cowboys are loners – and they do not play well with others.

Make no mistake, this phenomenon is not restricted to Yahoo, nor to female CEOs. Recall that the big Facebook-Waze merger was scuttled because Facebook wanted Waze’s people – it’s coding talent – to relocate to Facebook headquarters. Translation: The Valley’s most valued social media company understands that far-flung coding greatness cannot equal the value that arises via physical proximity.

Earlier this month, Steve Ballmer made it similarly clear in his Microsoft re-org that collaboration trumps all:

Collaborative doesn’t just mean “easy to get along with.” Collaboration means the ability to coordinate effectively, within and among teams, to get results, build better products faster, and drive customer and shareholder value.

669px-The.Matrix.glmatrix.2

In-person, cross-company interactions that arise from an army of lesser skilled but far more sociable programmers trumps world-class coding.

Which begs the question: how should coders be valued? Who is “best”? Who achieves “most”? What skills are critical? Who gets promoted? It’s still too early to know. I suggest, however, that we look to the iPhone for guidance.

iPhone Changes Everything

The iPhone changed mobile and mobile changes everything.

Consider that last quarter Apple sold 50 million personal computers. Only 4 million were Macs. The remaining 46 million were iPhones and iPads – mobile computers.

Mobile now rules the computing landscape, and unlike their desktop predecessors, mobile “PC” applications are not optimized for intensive processing, use or focus. Rather, they are constructed, rail by rail, across very distinct tracks – all of which are required for success:

  1. Mobile
  2. Location-aware
  3. Social-collaborative
  4. Touch-based
  5. Cloud-connected
  6. Rapid (“bursty”) use
  7. Native code
  8. Highly visual presentation
  9. Entertaining
  10. Personalized

In this new age of computing, an application can only succeed by effectively traversing multiple domains, multiple stakeholders, disparate content sources, and numerous touchpoints. Think: Yahoo’s mobile applications team working with Apple, licensing content from Weather.com, integrating Yahoo’s user database information with Facebook and Twitter APIs, and coordinating this with Flickr, all just to create the new, free Yahoo weather app for iPhone.

Those who expertly develop, sustain and integrate relationships across the pillars will be well rewarded. Horizontal trumps vertical.

The cowboy coder, working alone, magically conjuring his binary alchemy, a master of a single application or system, is now more of a cost center, inhibiting the development of the far more valuable horizontal connections that determine success.

Coding Is Relationships

It’s time to consign the detritus of the cowboy coder to the dustbin of history. Moving forward, personal (mobile) computing must deliver social, visual, delightful, real-time, collaborative experiences.

For good or bad, coding has gone uptown. Everything is digitized and everyone has a computer. The new “best” coders now arrive for work each morning from inside comfy, anointed busses. From their gleaming office they eat the finest foods, they wear a badge and their cube has a number, well-earned. The products and services they build are for everyone to use.

Laudable – but boring.

The cowboy coder is dead. It’s time for a new programming hero to step forward.

Images courtesy of Wikimedia

We Took Grandpa’s Keys Away. Now We Have To Take His iPhone.

Is there any more magical device than the iPhone? With this amazingly light, utterly beautiful device, we can call and text, email, video chat, play games, watch television, read the great books of history.

We tweet and Facebook. We buy and sell stocks. We set our home alarm, monitor our blood pressure, pay our bills – all with a few swipes of our fingers.

Perhaps this is simply too much power to possess by someone on the verge of senility.

Some of us have already had the discussion over taking away a parent’s car keys. Soon, we may all need to decide if we should take away their iPhones, iPads, Kindles and Androids.

The very technology that connects them with the world, with their grandchildren, that entertains and enlightens them, may – regrettably – become more than they can properly control.

Forget Nigerian email scams, what of FaceTime video scams? Will your aging mom or dad accept calls from anyone? Might they give away – to that friendly man on the screen – their banking information? Their Social Security number?

Will your father or grandmother, say, in their current mental state, tweet pictures of themselves – to Facebook or Twitter – that are entirely inappropriate?

Who will they text? Will your daughter in high school be troubled by the increasingly irrational emails her grandmother is sending her?

Will grandpa leave the device open, allowing hackers complete, unfettered access?

That Zynga game that your dad spends so much time with – will he spend hundreds or thousands of dollars on in-app upgrades?

Your mother has repeatedly posted embarrassing information about her adult children on Facebook. How do we make her stop?

How will we take away our dad’s iPhone, or our mother’s iPad?

How do we initiate this conversation?

How do we cut off our loved ones from connectivity and all the joy it offers? These are difficult questions but we may have to face them.

Tech companies are designing smartphones and tablets to make it increasingly easier to connect with search, the web, friends and family. Should we demand tech companies also build devices that are harder to use – at least for some?

Is it right – or necessary – to require Apple, for example, to build in a set of “anti-accessible” controls such that we can limit the functionality, use and time our parents and grandparents spend on their devices? Will Silicon Valley create a start-up that uses biometrics, for examples, or other identity tools to ensure a device is “locked down” when we are not around, or that only the “good” gets through, and no bad can get out?

It seems that tech companies, from Samsung and Apple, Google, Amazon and Facebook, ought to bear some responsibility to ensure that the powerless elderly aren’t handed a truly powerful device without any consideration as to the potential harm it may cause.

With smartphone or tablet in hand, everyone and everything becomes instantly accessible, all over the world. The frightening corollary: Everyone and everything now has instant access to your parent’s (virtual) front door. At some point, you may be forced to take away the keys – for their own good.

You should not have to undertake this rather depressing familial obligation all on your own.

Image courtesy of ThinkProgress

Do The Math: iOS 6 Is The World’s Most Popular Mobile Operating System

In fact if you do the math, you would find that iOS 6 is the world’s most popular mobile operating system and in second place is a version of Android which was released in 2010. ~ Tim Cook, WWDC 2013 (1:13:55)

http://www.youtube.com/watch?v=SRmjUzcpLO0

Okay, let’s do the math.

Total iOS Sales vs. Total Android Activations

We know that there are approximately 600 million iOS sales and 900 million Android activations.

Now all we need do is multiply the total sales/activations times the version percentages claimed by iOS and Android.

iOS_Android_fragmentation-640x281

Source: Is iOS Fragmenting? Not Nearly as Much as Android.

“And by the way, this is the most ideal state of Android. It only includes a version of android which talk to the Google play store so it doesn’t include things like Kindles and Nooks. ((In addition to excluding Kindles and Nooks, Google’s statistics exclude the millions of Android devices in China and other regions that don’t use Google’s services. Google is inflating their total activation numbers by counting them all and inflating their Jelly Bean numbers by only counting units that contact the Google Play Store.))~ Tim Cook, WWDC (113:30)

The Math

558 Million (93.0% x 600) iOS 6 (Fall 2012)
329 Million (36.5% x 900) Android Gingerbread (Winter 2010)
297 Million (33.0% x 900) Android Jelly Bean (Summer 2012 and Winter 2012)
230 Million (25.6% x 900) Android Ice Cream Sandwich (Fall 2011)
043 Million (04.8% x 900) Android older than Gingerbread
036 Million (06.0% x 600) iOS 5 (Fall 2011)
006 Million (01.0% x 600) iOS older than iOS 5

Analysis & Commentary

[pullquote]iOS 6 is the world’s most popular mobile operating system[/pullquote]iOS 6

— Tim Cook was correct: iOS 6 is the world’s most popular mobile operating system.
— iOS 6 leads second place – Android Gingerbread – by ~229 million users.
— iOS 6 leads Android’s most recent version – Jelly Bean – by ~261 million users.

And if you look at the customer’s of each operating system that are using the latest version, it’s not even close. ~ Tim Cook, WWDC 2013 (1:13:40)

[pullquote]75% of Android users and only 7% of iOS users are on non-current versions of their respective operating systems[/pullquote]

— 75% of the Android ecosystem is on the non-current versions of the operating system.
— 7% of the iOS ecosystem is on non-current versions of the operating system.

Gingerbread
Google reports that, as of June, the largest segment of Android devices are still running version 2.3 Gingerbread (36.5 percent), which was released in the Winter of 2010.

More than a third of android users are using an operating system that was released in 2010. ~ Tim Cook, WWDC (1:15:25)

Jelly Bean
Only 33 percent are running the latest major version, Android 4.1 Jelly Bean, which was announced last summer alongside Apple’s debut of iOS 6.

Ice Cream Sandwich
Another 25.6 percent are still on Android 4.0 Ice Cream Sandwich, which was released the same month as iOS 5.

Android older than Gingerbread
Another 4.8 percent of Android users use software older than Gingerbread.

iOS 5
Only 6 percent are still using last year’s iOS 5, the last version supported by the original 2010 iPad, 2009 iPod touch and 2008 iPhone 3G.

iOS older than iOS 5
Just 1 percent of Apple’s App Store visitors still use a version older than iOS 5, released in October 2011.

Do Versions Really Matter?

Android advocates claim that fragmentation isn’t really a problem. What nonsense. Ignoring the deleterious effects of fragmentation doesn’t even pass the smell test. ((Definition of “the smell test”: A cursory test of something’s authenticity or legitimacy ~ Dictionary.com)) It stinks to high heaven, both of cognitive dissonance and hypocrisy.

— It’s terrible for users who don’t have the latest features and the latest security updates.

Now this isn’t just bad for users, but this version fragmentation is terrible for developers. ~ Tim Cook, WWDC 2013 (1:13:45)

— It’s terrible for developers who want to use the latest APIs – who want to take advantage of the newest tools, techniques and technology – but can’t because they have to support years old operating systems.

— It’s illogical. If being on the latest version of an operating system doesn’t matter, then why even do newer versions?

— It’s partisan. It violates’s Kirk’ first law of objectivity ((I feel fairly certain that this will come back to haunt me.)):

“Would you maintain the validity of your contention if the positions were reversed?”

Please. Arguing that operating system versions don’t matter is the same as arguing that reality doesn’t matter. Every piece of data available supports the hypothesis that iOS is the stronger platform, despite Android’s numerical superiority. That either means that activation numbers don’t matter as much to a platform as pundits contend they do, or that Android’s activation numbers need to be discounted.

Or both.

Discounting

Definition: discounting, verb, Deduct an amount from (the usual value of something)

Even if you think that raw numbers are the essence of a strong platform – and you really shouldn’t – you have to agree that older versions of iOS and Android must be discounted ((Other discounts should be applied as well, such as engagement, usage, demographics, security, ease of access and use, etc.)) if we are to make a proper comparison of the two operating systems. The problem is that the discount rate is unknown. ((Or, at least it’s unknown to me.))

If, for example, you:
— Disregard the versions of iOS and Android that are older than 3 years; and
— Discount iOS 5 and Ice Cream Sandwich by 25%; and
— Discount Gingerbread by 50%; then

Your revised and re-calculated numbers would look like this:

558 Million (558 x 1.00) iOS 6
005 Million (006 x 0.75) iOS 5
563 Million iOS Total, After Discount

297 Million (297 x 1.00) Jelly Bean
173 Million (230 x 0.75) Ice Cream Sandwich
165 Million (329 x 0.50) Gingerbread
635 Million Android Total, After Discount

Of course, the problem is that I just made these discount numbers up out of my head. I showed my math so that you can change the discount numbers and do your own calculations. If anyone knows a way of obtaining a truer, more objective discount number, I would be grateful if they would share it with us in the comments, below.

Appendix

iOS 6.1.2 is the Most Popular Version of iOS Less than One Week Following Launch

Why Android Updates Are So Slow

Google engineers: We’re trying to fix Android fragmentation

The Orphans of Android: “I believe there are a lot of Android devices from months and years gone by that are sitting in drawers at home or are being sold on eBay.”

Fragmented Android drives big dev to Apple: “(The (BBC) Trust found a series of quite logical reasons why Android lagged iOS when new features were added to iPlayer, mostly surrounding the “complexity and expense” of developing for Android.

The company also noted a couple of other logical reasons why developers dealing with limited time and budget would opt for Apple’s mobile OS:

— Engagement is higher on Apple devices
— Android is fragmented
— Android development is complex and expensive

Comparing The Market Share of Android Phones To The iPhone Is A D@mned Lie

Disraeli is reputed to have said that there were three kinds of lies: Lies, damned lies, and statistics.

“Lies, damned lies, and statistics” is a phrase describing the persuasive power of numbers, particularly the use of statistics to bolster weak arguments. ~ Wikipedia

Comparing the market share of Android phones to the market share of iPhones is a damned statistical lie and it should never be done. Here’s why.

Venn Diagrams

If you drew a Venn diagram of “all iPhones” and “all iPhones that ran iOS”, they would be one and the same. Here is another example of such an overlapping Venn Diagram:

helpful-venn-diagram-for-the-ladies-18244-1267403205-248

Source: thehighdefinite

— If you replace “Male friends who joke about having sex with you” with the words “all iPhones”; and
— If you replace “Men who would have sex with you if you showed the slightest interest” with the words “all iPhones that ran iOS”…

…you would ruin a perfectly good joke. But you would also have a Venn diagram that accurately represented the overlap between “iPhones” and “iPhones that run on the iOS operating system.” All iPhones run on iOS. But the opposite is not true. iOS is more than just iPhones.

On the other hand, Android phones are made by many manufacturers. About 40% are made by Samsung and the other 60% are made by Motorola, Sony, HTC and a variety of different hardware manufacturers. Why then do we lump all Android phones together and count them as one?

The only legitimate reason to group all Android phones together is in order to suggest a causal relationship between the number of Android phones and the strength of the Android platform. But is there such a relationship?

[pullquote]Comparing Android’s phone activation numbers to the iPhone’s sales numbers is akin to comparing fish to whales and concluding that fish outnumber mammals.[/pullquote]

The Folly Inherent In Comparing Android Phones to iPhones Instead Of Comparing Android To iOS

Comparing Android’s phone activation numbers to the iPhone’s sales numbers – and concluding that Android outnumbers iOS – is akin to comparing fish to whales and concluding that fish outnumber mammals.

Fish MAY outnumber mammals, but not nearly by the margin that fish outnumber whales. And Android devices do outnumber iOS devices but not nearly by the margin that Android phones outnumber iPhones. When making comparisons, one needs to compare like to like, otherwise, it skews the results.

There have been over 900 million Android devices activated and over 600 million iOS devices sold. And – if Flurry’s clientele is representative – the total number of active Android devices may only exceed the total number of active iOS devices by little more than 10% (see chart, below).

ios_android_chart1

Source: Flurry

Comparing an operating system to an operating system; comparing all active devices to all active devices; comparing like to like; ((And don’t even get me started on the limited VALUE that Android’s market share brings to their platform. Android’s market share is literally a joke.

And if you are going to compare Android phones to iPhones, then it would be wiser and fairer to compare premium Android phones – such as the Samsung Galaxy S4 and the HTC One, etc. – to the iPhone.

And if you REALLY want to contend that market share translates directly into platform strength, then it would be far better to compare operating system VERSIONS against competing operating system VERSIONS, rather than simply lumping all of an OS’s versions together, totaling them, and pretending that they were of equal value to the platform.)) – now THAT is the proper basis for a comparison.

You do not compare an entire class of things to a subset of another class, and you do not compare phones that run the Android operating system to a subset of devices (iPhones) that run on the iOS operating system ((By the way, the exact same logic holds for comparisons of Android tablets to the iPad. Those comparisons are just as wrong as comparisons of Android phones to iPhones and they are wrong for the exact same reason – a class should never be compared to a subset of a class if your goal is to compare the two classes. Hardware models should be compared to hardware models. Operating systems should be compared to operating systems. Hardware models should never be compared to operating systems and vice versa.)), otherwise, you are likely to get is a skewed result…

…and a damned lie…

…or (-shudder-) a “Chart Of The Day.” ((A “Chart Of The Day” pretends to be based on relevant statistical data – but it often is, basically, the same thing as a damned lie – only worse.))

Legitimate Reasons Vs. Bogus Reasoning

There are legitimate reasons to compare fish to whales and there are legitimate reasons to compare Android phones to iPhones.

images-60Mammals and Fish Venn Diagram

But if you’re actually trying to compare fish to mammals or the Android operating system to the iOS operating system, such a comparison conceals – rather than reveals – the truth. It is deceitful, dishonest, untruthful, false, duplicitous, mendacious; hypocritical, untrustworthy, unscrupulous, unprincipled, two-faced, double-dealing, underhanded, crafty, cunning, sly, scheming, calculating, treacherous, Machiavellian, sneaky, tricky, foxy, crooked, fraudulent, counterfeit, fabricated, invented, concocted, made up, trumped up, untrue, false, bogus, fake, spurious, fallacious, deceptive and misleading.

In other words, it’s a damn lie.

Google, Motorola, and the Future of Android

To hear both Sundar Pinchai, head of Android and Chrome at Google, and Dennis Woodside, CEO of Motorola Mobility, tell it, Motorola is just another Android OEM despite being a wholly owned Google subsidiary. This may be technically true at the moment, but it cannot be true for the long run. And just what Google does with Motorola has huge implications for the future of Android.

Business realities alone say the current arrangement cannot last. Motorola is a hole of at least $10 billion (purchase price plus cumulative losses, less the gain from the sale of the set top box business) in Google’s balance sheet. Although there was speculation at the time of the acquisition that Google was really after Moto’s patents, the standards-essential patents ase subject to fair, reasonable, and non-discriminatory licensing worth much less than many believed. Sooner or later, Moto has to start paying its way.

Woodside himself suggested, perhaps without intending to, that the relationship has to change during an appearance at the D11 conference a couple of weeks ago. Competitors, he noted, are earning 50% margins on smartphones. ((Of course, the only profitable competitors are Apple and Samsung.)) “We don’t necessarily have the same constraints,” he said. “One of the areas that is open for Motorola is building high-quality low-cost devices. The price of a feature phone now is about $30 0n a worldwide basis. The price of a smartphone is about $650. That’s not going to persist.”

The difficulty is that Apple and Samsung, by virtue of their enormous volumes and tightly controlled supply chains, are already the low-cost producers. Motorola is not going to beat them on the cost side. So to underprice them, as Woodside is threatening to do, will require sacrificing gross margins, perhaps selling phones at a unit loss. For a business unit already losing money by the bucket, that would seem to be a suicidal course.

Unless, of course, someone is prepared to subsidize this raid on the business models of Apple and Samsung. And that someone would have to be Google, which certainly has the deep pockets needed for this fight. Taking on Apple, while difficult, doesn’t pose huge problems for Google. Over the past few years, the relationship of the companies has deteriorated from best buddies to frenemies to all-out competitors.

Samsung is a very different matter. The Korean giant is second only to Google itself in importance in the Android ecosystem. It is by far the largest seller of Android handsets, from the iPhone-challenging Galaxy S 4 to low-cost units for emerging markets. And it has to be watching the Google-Motorola relationship with an extremely wary eye.

For now, Google and Samsung are co-dependent. That fact is what lies behind Google’s much trumpeted arms-length relationship with Motorola. But the relationship will be severely tested if Motorola goes at the heart of Samsung’s Android business model. (Microsoft’s OEM partners were very unhappy when it went into hardware competition with the surface and surface Pro, but at least it did not try to undercut their pricing. And, for better or worse, poor Surface sales have largely spared it fallout from entering the competition.)

Samsung has options if it comes to view Google as a competitor in a way that makes the current Android arrangements untenable. It could fork Android, going forward with its own flavor of the operating system and its own services, home-grown or developed in partnership with other players,  in place of Google’s. It could accelerate the development of Tizen, the Linux-based mobile operating system it has sponsored along with Intel. Or, far less likely, it could  move to Windows Phone (unlikely, I believe, because while this might be the easiest course to execute, the fact that it is trading one gorilla dance partner for another will make it unattractive.)

The defection of Samsung from Android would put tremendous strain on Samsung, Google, and the Android world. Software has never been Samsung’s long suit. It can afford to buy a lot of talent, but changing a hardware company’s culture to support the software effort required is very difficult. Android would become largely a Google/Motorola business. The viability of all the profitless Android phone makers is dubious, let along their ability to provide leadership.

If all these hypothetical strategies succeed, we could see a very different phone market: Apple would continue to be Apple, mostly riding above the fray. Samsung  would be slugging it out with Googlerola. And Microsoft and BlackBerry would be trying to squeeze out some gains from the confusion.

 

Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

Author’s note: Many of the commentators aren’t even reading the article but, instead, are basing their comments on the article’s title alone. Let me throw one final analogy into the mix in the hopes of clarifying my position:

Apple is in the dairy business and Android is selling meat. Apple has the cream (pun intended) of the milk-producing cows but Android has far more cows that produce far less milk, but far more meat. Both are winning because they are selling different things, but pundits think that Android has won simply because they have more cows.

Apple has the profits. Android has the market share. And they’re both doing great.

Now back to the original article…

“My belief, though, is that what Google is winning with Android is a booby prize — overwhelming majority share of the unprofitable segment of the market.” – John Gruber

The Platform Business Model

“A computing platform includes a hardware architecture and a software framework…where the combination allows software to run. … A platform might be simply defined as a place to launch software. ~ Wikipedia

The advantage of a platform business model is that once the platform is established, others do much of the work to make the platform valuable. It’s like setting up a marketplace ((I never understood why Google changed their store’s name from Google Marketplace to Google Play. I thought that “Marketplace” was the ideal name. Oh well.)). Once it’s set up, the vendors do most of the work. The platform provider benefits either by taking rents or by taking a commission from each sale or by using their access to the customers gathered by the marketplace in order to sell some complementary product or service of their own.

The Mostly Misunderstood Network Effect

“In economics and business, a network effect…is the effect that one user of a good or service has on the value of that product to other people. When network effect is present, the value of a product or service is dependent on the number of others using it (emphasis added).

The classic example is the telephone. The more people own telephones, the more valuable the telephone is to each owner. This creates a positive externality because a user may purchase a telephone without intending to create value for other users, but does so in any case.” ~ Wikipedia

This is key, so please forgive me for repeating it:

“…a user may purchase a telephone without intending to create value for other users, but does so in any case.”

In other words, every user adds to the value of a phone network – even if they have no intention of doing so – JUST BY BEING ON THE NETWORK.

It is this understanding (or misunderstanding) of the network effect that makes so many mobile computer industry observers confident that:

— Market share alone creates the network effect;
— Android has market share; therefore
— Developers, profits and all the other benefits associated with the network effect MUST necessarily follow where Android’s market share leads.

Screen Shot 2013-05-23 at 10.15.59 PM

Source: Benedict Evans, On Market Share

The high priests of market share contend that since Android HAS won the battle for market share, the network effect makes it inevitable that Android WILL win the war for mobile phones.

Derek Brown, ReadWrite:

In the world of technology platforms, ubiquity matters (a lot) when developers, manufacturers, etc., are considering future products/solutions.

Google Chairman, Eric Schmidt:

“Ultimately, application vendors are driven by volume, and volume is favored by the open approach Google is taking…. ((“(M)y prediction is that six months from now you’ll say (that Android apps are beating iOS versions to market…)” ~ December 7, 2011))

Matt Asay, ReadWrite

Over time, those developers are going to move to where the market share is. They have to.

John Gruber, The church of market share:

It’s an article of faith in the Church of Market Share that Android is nearing a tipping point where its market share lead will inevitably turn into a developer share lead, too.

So is it true? With Android holding such a commanding market share lead, do developers, and then users, and then profits, and then, ultimately, all smartphone users – including iPhone users – have to convert to Android?

No, of course not. Here’s why.

Phone Networks Are Not The Same As Computer Networks

— In a phone network, the value is in the phone owner.
— In a mobile computing network, the value is in the app, not the mobile phone owner.

— In a phone network, the more phone owners there are – the more people you could call and be called by – the more powerful the network effect and the more valuable the phone network becomes.
— In a mobile computing network, the more developers there are – the more apps available for consumption – the more powerful the network effect and the more valuable the computing network becomes.

— In a phone network, there is no difference between a phone owner and a phone user – they are one and the same.
— In a mobile computing network, there is a HUGE difference between the mobile phone owner and the mobile user.

— In a phone network, the phone owner begins contributing to the platform the moment they buy the phone.
— In a mobile computing network, the mobile phone owner doesn’t begin contributing to the platform until they voluntarily decide to participate, either by buying apps or content, consuming advertising or contributing data.

— In a phone network, the phone owner’s mere PRESENCE makes the phone network more valuable.
— In a mobile computing network, you don”t measure the value of a mobile phone owner by their mere presence, you measure their value by their PARTICIPATION.

Presence, without participation, adds no value to a mobile computing network.

It is fairly easy to simply add up all of the mobile phone sales and activations for a particular operating system. It is also fairly meaningless. The trick is to discern how much those mobile phone owners are participating and the value that their participation brings to the network.

Most mobile computing industry observers are measuring the wrong thing, the wrong way:

It’s not about counting the customers. It’s about having the customers that count.

Android can count more customers than iOS can, but they don’t count for much. The ranks of Apple’s iOS owners are filled with credit card carrying cash cows. As a result, Apple’s platform profits are udderly enormous. The ranks of Google’s Android activations are a lot less cash cow and a lot more Bull. ((Being a bad customer is not at all the same thing as being a bad person. I, myself, am a great Crispy Creme Donuts customer but a very poor customer for exercise equipment. That doesn’t make me a bad person, just a bad customer.))

It’s hard to milk a Bull. Dangerous too.

How Do You REALLY Measure The Success Of A Platform Business Model?

You measure the success of a platform in three ways:

1) The health of the platform – is it self-sustaining?
2) The wealth of a platform – the amount of net profits acquired from the platform.
3) The stealth of a platform – does it serve an ulterior purpose?

The Health Of A Platform

By any meaningful standard, Apple’s iOS platform is robust, healthy and rapidly growing.

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Take a look at the two pie charts, below. From Q1:10 to Q4:12, Apple’s share of the smartphone market grew from 16% to 22%. But during the same span of time, the pie itself QUADRUPLED from 55 million units to 219 million units!

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Source: KPCB, Internet Trends

Further, “smartphone share” is not even the right way to measure the market that Apple is competing in. The more relevant market is the “mobile phone market”, not the “smartphone market”.

“… there is no such thing as a ‘smartphone market’. Or rather, talking about the ‘smartphone market’ is like talking about the ‘3G’ market or the ‘colour screen phone’ market: you’re picking out a sub-segment that is going to grow to take over the whole market. And ignoring the growth.

The whole mobile phone market is converting to smart. Apple is taking the high end and Android is taking the rest. Both are growing very fast, and Android is growing faster. But what matters is phone share, not smartphone share. ~ Benedict Evans

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Source: Benedict Evans, On market share

Finally, the “mobile phone market” is still not inclusive enough. When we’re comparing operating systems, we need to compare ALL of the devices in the operating system, whether they be MP3s, phones or tablets.

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Source: “Apple Q2 2013 hardware sales: By the numbers

“Cumulatively, Apple has sold almost 375 million iPods, over 356 million iPhones, and nearly 140.5 million iPads since the respective products were first released. In 23 quarters, Apple has sold almost as many iPhones as it has sold iPods over 46 quarters, and sales of the smartphone are likely to overtake the aging media player during this quarter if the respective sales trajectories hold true. Put that another way: the iPhone has sold twice as fast as the iPod did.” – Apple Q2 2013 hardware sales: By the numbers

I would only add that the iPad has been selling THREE times as fast as the iPhone did.

When one looks at the WHOLE market for iOS vs. the WHOLE market for competing operating systems, the metrics supporting the health of Apple’s iOS platform are so overwhelming and so voluminous that it was difficult for me to even find a suitable method for properly displaying them. Ultimately, I resorted to simply sorting them alphabetically, by category, in the extensive appendix, below. I dare you to read the associated links in the appendix and then tell me that the iOS platform is anything but healthy. No, wait…”I triple dog dare you.”

If the purpose of a platform is to be self-sustaining, then Apple’s iOS platform is as successful as it gets.

Open Trade-Offs

Android is no slouch ((By which I mean it is one of the greatest computer operating systems ever.)) as a platform either, but Android is based on an “open” philosophy. Open is not inherently good or bad, it is a tradeoff. It has many advantages but it has many disadvantages too. The same open policies that make it easier for Android to gain market share are also the same open policies that make it inherently harder for Android to maintain a strong platform.

— An open policy towards carriers encourages rapid dissemination of devices but it also permits the carriers to take unwanted liberties with Android’s core services and allows them to shirk their responsibilities with regard to operating system updates.
— An open policy towards manufacturers allows for rapid hardware iteration but it also creates rapid hardware fragmentation.
— An open policy towards the sales of applications leads to a wide variety of apps but it also leads to a wide variety of piracy, cloning and malware too.
— An open policy towards the operating system allows for rapid feature iteration but it also allows competitors to split off a confusing variety of competing operating systems and App Stores too.

The BBC Trust:

…a couple of … logical reasons why developers dealing with limited time and budget would opt for Apple’s mobile OS:

— Engagement is higher on Apple devices
— Android is fragmented
— Android development is complex and expensive

The Wealth Of A Platform

Google is profiting from their Android platform via advertising, app and content revenue. However, as I pointed out in “4 Mobile Business Models, 4 Ways To Keep Score“, none of these revenue streams add up to very much.

Google could also be benefitting from their Android platform via the gathering of mobile computing data. This is the big “get out of jail free card” that Android advocates play whenever it is pointed out that Google is not directly profiting from Android. “The data alone”, they protest “is invaluable.” Hmm. Unless you can draw a direct line from the data being gathered to the profits being made – and you can’t – data, in lieu of profits, seems like a very poor consolation prize, indeed.

Apple too is profiting from their iOS platform via advertising, app and content revenue. However, that revenue – a few billion dollars – barely registers on their books. The vast majority of Apple’s iOS revenue is generated from the platform’s related hardware sales. (See: “Android’s Market Share Is Literally A Joke“.)

The Stealth Of A Platform

I have stated that you measure the success of a platform by its health and its wealth. I am, however, keenly aware of a third way to measure the success of a platform – an exception to the rule that is so large that it might swallow the rule altogether.

What if Google had an ulterior motive in Android? What if Android was actually a stealth weapon designed, not as a profit making engine but, as an engine of destruction aimed at Google’s mobile phone competitors?

If the purpose of Google’s Android platform was a defensive action designed to destroy Google’s adversaries and ensure that Google’s advertising and services would run on every meaningful mobile platform, then I will grant you – based on the evisceration of Palm, webOS, Windows Mobile, Windows Phone 8, Nokia’s Symbian, MeeGo, Blackberry and Linux – that Android may well be one of the most successful computing platforms of our time or of all time. ((However, that is not the end of the story for Android but, perhaps, only the end of the beginning of the story. As Android splits into different self-serving streams – like the Amazon Fire and the various Chinese Android variants – will Google’s Android ultimately be seen as having successfully salted the lands of its enemies while simultaneously sowing the seeds of its own destruction?

“We often give our enemies the means for our own destruction.” ~ Aesop))

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Source: “Apple 2.0, Which is more valuable to Apple, its market share or its brand?

Apple Is Like DisneyWorld And Android Is Like A Chain Of Amusement Parks

Apple is playing the “give away the rides for free once you’re in the park, but charge for admission to the park” game. The purchase of Apple’s hardware is the golden ticket ((A Willie Wonka reference? Really? How many metaphors can this author mix together?)) that gives one entrée to their park. Google is playing the “give away the rides for free to attract customers to the park but make it up in revenues generated from the sale of ads and concessions” game.

Apple’s platform model is stronger – for now – because they get their money up front, at the point of admission to their walled garden. ((As an aside, DisneyWorld has much lower “market share” (total people in attendance) than do the tens of thousands of existing worldwide amusement parks, but does anyone ever claim that DisneyWorld is “niche” or “vulnerable”?)) Google’s platform model is weaker – for now – because it requires people to voluntarily buy the concessions and consume the advertising, and – for now – a lot of Android patrons are choosing not to buy and to just go along for the free ride.

Neither Android nor iOS is going away. Both platforms have different inherent strengths and weaknesses and instead of fruitlessly trying to decide which operating system is going to win EVERYWHERE, we should be focusing our efforts on determining WHERE, specifically, each OS is likely to win.

— Android will take the low end of the market.
— iOS will take the high end.

— Android will continue to grow like a weed.
— iOS will continue to grow like a well tended farm.

— Android will continue selling a mind-numbing array of diverse products.
— iOS will continue selling three year old iPhones as if they were new, because iOS’ value is found primarily in the platform, not in the device itself.

— Android will continue to rapidly iterate their hardware and their operating system.
— iOS will continue to relentlessly integrate their hardware with their software and their platform ecosystem.

— Android will appeal to third-world nations, emerging markets, tech aficionados who admire the virtues of “open”, those who require more options, those who require more diversity, and the cost conscious.

— iOS will appeal to more established nations, maturing markets, non-technical users who admire the virtues of easy and intuitive, those who require more security, those who require more consistency, those who require more integration, the quality conscious, and those who fear Google’s ad-supported business model.

— iOS will appeal to Enterprise, businesses, governments, institutions, organizations, and other entities that require more structure, security and control. ((As one who lived through the Windows v. Mac wars, the irony of Apple’s iOS becoming the favored operating system of the Enterprise is not lost on me.))

Where Do We Go From Here?

Am I criticizing Google or Android? No, I am NOT. Android has some fantastic hardware, a rapidly iterating operating system and a brilliant and innovative company backing it. It’s a clear success story.

What I’m criticizing is the nature of the debate. Market share is not only not the best way to measure success, absent context, it is one of the worst. [pullquote]Just because Android has a winning platform does not mean that Apple doesn’t have a winning platform too. And vice versa.[/pullquote]

It would be a monumental mistake to underestimate the strength of the Android Platform – but it would also be a colossal mistake to underestimate the power of Apple’s iOS too. The truth is that iOS and Android are the two great operating systems of our time and it looks like they’re both going to remain great for quite some time to come. One platform rules market share and one platform rules profit share and – in a rapidly growing market (see graphic, below) – there’s plenty of room for both business models to survive and thrive.

slide-41-638-1

Source: KPCB, Internet Trends

And The Gold Goes To…

3d small people - rewarding of winners— In mobile hardware manufacturing, Apple is the clear cut winner with Samsung coming in a strong second.

— In mobile advertising, Google is the big fish in a small, but growing, pond.

— In content sales, it’s difficult to judge, since the competitors are actually playing very different games. If you judge by revenue (and I don’t), the winner is Amazon. But if you judge by profit, you’ve got to give the nod to Apple…for now.

— In mobile platform? It’s much easier to say who has lost and that would be anyone not named “Apple” or “Google”. But so far as “winning” goes, Apple is already “winning” the only gold that matters to them (profit$) and Google’s Android has already “won” Google a seat at the mobile advertising table, which is the only gold that matters to them. They both sound like champions to me. But then, of course…

…the games are still far from over.

Read Part One of John’s column entitled: Android’s Market Share Is Literally A Joke

Read Part Two of John’s column entitled: 4 Mobile Business Models, 4 Ways to Keep Score.

APPENDIX

Adoption: iOS 6.1.2 is the Most Popular Version of iOS Less than One Week Following Launch
Adoption: Apple’s iOS 6 now accounts for 83% of all iOS-based traffic in North America
Adoption: The Orphans of Android
Adoption: “An OS that is 2 years and 2 months old controls over 45 percent of the Android ecosystem. An OS that is 1 year and 4 months old controls another 30 percent. 75 percent of the entire Android ecosystem is still on the non-current versions of the OS. It’s 2013.”
Advertising: Why 75 cents of every dollar spent on mobile advertising is spent on iPhone and iPad
Advertising: Apple’s iOS Mobile Ad Metrics Dominates Android
Advertising: iOS leads Android in mobile ad revenue
Advertising: iPad Still Dominates Tablet Ads
Advertising: iPhone Still Ranks Far Above Samsung Galaxy Line In Mobile Ads, Says Velti
Apps: Where’s Twitter Music For Android? Why Today’s Tech Companies Are Still Going iOS First
Apps: Walt Mossberg: How Apple Gets All the Good Apps
Apps: The Data Doesn’t Lie: iOS Apps Are Better Than Android
Apps: Why Android Takes Forever to Get Cool Apps
Apps: Games: Why Game Creators Prefer iPhone to Android
Apps: Games: Game developers still not sold on Android
zdnet-good-technology-mobile-report-q1-2013-620x389
Business: “Apple’s iOS still dominated the enterprise mobile circuit with 75 percent of total device activations last quarter.”
Business: Google Android’s enterprise problem
Business: Study Says iOS Still Trumps Android at Work
Business: Fortune 500 Companies Moving to iPad Hits 94%
Business: Apple’s iOS continues to dominate the mobile enterprise
Business: Apple may have sold up to 4 million iPhones to businesses in Q4
Business: “Gartner: By 2014, Apple will be as accepted by enterprise IT as Microsoft is today”
Business: Forrester Report Says Apple Will Sell $39 Billion In Macs and iPads To Businesses Over Next 2 Years
Business: Bad news for Android: enterprise share dropped in Q4
Business: More Data Showing iOS, Especially The iPhone, Still Killing It In The Enterprise, At Android’s Expense
Business: Over 80% of organizations plan to support iPhones and iPads
Business: Apps: Why companies are still deploying iOS apps first
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Source: “Who’s Winning, iOS or Android? All the Numbers, All in One Place
Commerce: FAB.COM: More Than A Third Of Our Visits Are Now Mobile–And 95% Of Those Are iPhones And iPads
Consumption: Data: Study finds iPhone owners to be more data hungry than Android users
Consumption: Video: NPD Group: iTunes owns the internet video market
Consumption: Video: Apple Continues To Dominate Mobile Video Viewing, With 60% Occurring On iOS Vs. 32% On Android
Consumption: Video: Apple users watch 2X more video than Android users
Consumption: Video: Watching a Video on Your Phone? You’re Probably Using an iPhone, Not an Android.
Demographics: Android Owners Aren’t Real Smartphone Owners
Demographics: Age: Sorry, Samsung, iPhone Is Not Your Mother’s Smartphone
Demographics: Age: 48% of U.S. teens own an iPhone. 62% plan to buy one.
Demographics: Age: Nearly Half of Surveyed U.S. Teens Using iPhones, Over One-Third Using iPads
Demographics: Age: Greater percentage of Generation Y own iPhones than any other age group
Developers: Android fragmentation predicted to squeeze out independent developers
Developers: Apple And Google’s App Stores Now Neck And Neck – Except On The Metric That Matters Most To Developers
Engagement: Why Aren’t Android Users Actually Using Their Handsets?
Engagement: Validating the Android engagement paradox
Engagement: iPhone users found to spend more time on their handsets
Forks: Google’s penetration of Android
Forks: Google Shuts Down Its Shopping Service in China
Fragmentation: Fragmented Android drives big dev to Apple
Fragmentation: Google engineers: We’re trying to fix Android fragmentation
Loyalty: Survey Suggests, Loyalty, Upgrade Frequency, Says Raymond James
Loyalty: Survey shows iPhone loyalty still beating out Android
Loyalty: Apple Has The Most Devoted And Loyal Computer Users [Report]
Loyalty: Survey: Apple to Eclipse Android by 2016
Loyalty: Android’s Leaky Bucket: Loyalty Gives Apple the Edge Over Time
Malware: Mobile malware exploding, but only for Android
Malware: Malware On Mobile Grew 163% In 2012, Infecting Around 32.8M Android Devices
Malware: 99.9% Of New Mobile Malware Targets Android Phones
Malware: Spam: Nearly 60K Low-Quality Apps Booted From Google Play Store In February, Points To Increased Spam-Fighting
Reliability: Apple’s iPhone tops smartphone reliability ratings by wide margin
Retail: Apple retail revenues per visitor reach new record
Retention: The iPhone’s Greatest Weapon: Retention
Retention: Android’s Leaky Bucket
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Source: Apple’s 500M user accounts second only to Facebook, viewed as key driver of future growth
Revenue: Canalys: Apple dominates with 74% of worldwide mobile app revenue
Revenue: Apple: App Store Now Makes Over $1 Billion In Profits Per Year
Revenue: iOS App Store accounts for nearly 75% of mobile app download revenue
Satisfaction: iPhone dominates in customer satisfaction
Satisfaction: iPad tops in satisfaction among tablet owners
Satisfaction: J.D. Power: Apple iPad ranks highest in tablet customer satisfaction for second consecutive time
Satisfaction: J.D. Power: Apple ranks highest in smartphone customer satisfaction for 9th consecutive time
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Source
Security: ACLU to FTC: Mobile carriers fail to provide good Android security
Shopping: Online: Apple’s iPad dominates online shopping traffic & revenue generation
Store: iTunes: NPD: Apple’s iTunes accounts for 67% of TV downloads, 65% of movies
Support: Apple tops Consumer Reports survey on PC tech support
Trade-In: Study finds Apple’s iPhone retains more value than top Galaxy models
Trade-In: Galaxy S4 announcement spurs trade-ins of other Samsung phones, not iPhones
Updates: Why Android Updates Are So Slow
Usage: You Spend a Lot of Time With Your Mobile Device at Home — Even More if It’s an iPad
Usage: Apple’s iPad expands lead in tablet use at the expense of Amazon, Android, Microsoft Surface
Usage: Apple devices dominate in-flight Wi-Fi usage
Usage: Apple iPad continues domination with over 80% usage share in U.S. and Canada
Usage: Apple rules the skies with 84% in-flight share vs. Android’s 16%
Usage: Apple’s iOS continues to dominate with nearly 60% Web usage share vs. Android’s 26%
Usage: Apple’s iOS ups massive lead over Android in U.S. Web traffic with 69% share in April
Usage: Apple iPad dominates website traffic tablet share
Usage: Apple iPhone users use their devices 55% more than Android users
Usage: Safari jumps to 61 percent of mobile browser share
Usage: Android might own 75% of the smartphone market but all the action is still on the iPhone
Usage: Why The iPhone’s Usage Advantage Over Android Remains So Important
Usage: 5 Apples for every Android on Gogo Inflight Wi-Fi networks
Usage: Apple’s growing dominance of the mobile Web
Usage: Android’s Web share slipped in May, despite 10 million Galaxy S4s
Usage: iPhone owners are on their phones 53% more than Android users
Usage: The Android Conundrum: People Buy More Phones And Do Less With Them
Usage: Apple Is Destroying Android In Mobile Web Usage–Which Begs Key Question: Who Uses Android?
Usage: Apple Is Destroying Android In Mobile Web Usage–Which Begs Key Question: Who Uses Android?
Usage: Is It Time To Conclude That Android Gadgets Are Bought By People Who Don’t Actually Do Anything With Them?
Usage: Apple Continues Its Mobile-Browser Domination
Usage: Apple’s iPad Dominates Tablet Web Usage with 82% Share.
Usage: Android users: More of them than fanbois, but they don’t use the web
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Vertical Markets: Doctors Are Choosing iPad Tablets Over Other Devices, Survey Says
Vertical Markets: Hospital Calculates The ROI Of An iPad At 9 Days
Vertical Markets: Why Android is losing in aviation
Vertical Markets: As medicine goes digital, Apple’s iPad is top choice among doctors

Are the Latest 10”+ Android Devices DOA?

I’ll admit it, I have a love-hate relationship with Android. I love it as a phone choice, love it on 7” tablets, but think it provides a lousy experience on anything 10” display and above. I’m not alone as Android has captured 75% of the smartphone market but hasn’t had big success in the 10” and above category. Companies like Acer and Asus are now venturing into some very dangerous territory and some of their new Android products risk ending up like previous 10”+ Android devices. I’d like to begin with some Android tablet perspective.

It’s hard to believe that up until a year ago, Android had no tablet market to speak of. Android tablets had really been defined by market debacles like the Motorola Xoom. Samsung cranked out some interesting, high-res 10” tablets and Asus delivered some inspiring detachables, but none of them sold very well. Then came Google IO 2012 and the introduction of the Nexus 7, which redefined the volume tablet market. As Apple and Amazon followed with their new 7-8” offerings, the entire tablet market swung toward smaller screens and cheaper tablets. Even though there some excitement around the Nexus 10, on the whole, 10” Android tablets continued to sit, uninspired. What’s going on here?

The challenge with 10” Android tablets is all about apps, which goes all the way back to the first Android tablets. In fact, there are so few tablet apps that there isn’t even a way to segregate the app store to do a decent count of them. That’s when you know very few apps exist. This is a bit of a chicken and egg problem and Google hasn’t yet dug itself out of this hole yet. So why aren’t devs creating apps for the Android 10” platform?

Devs right now are confused about the Google large display ecosystem. I say “Google” and not “Android” because some devs see what Google and partners are doing with Chrome and need to first decide between Chrome and Android. They see Chrome notebooks selling well on Amazon but they are not seeing big optimism on 10”+ Android devices. Developers are confused and when it gets to the point of lock-up, stick with the safe bet, iPad.

In the end, it’s the consumers who suffer. You can install a 4” Android app on a 10” tablet, but many times it gets stretched to the point where the app is unusable. Imagine how that 4” app looks on that 20” display. Well, about twice as bad as the 10” display. All kidding aside, it is the consumer who feels the pain after they get home and try it out and expect an experience that just works. For users who stay in email, the browser, and a few optimized games it’s probably fine, but for those users who use many apps, the experience will be suboptimal. This brings us to the new Acer and Asus SKUs.

Acer has launched a 21.5” all-in-one with Android 4.0 (ICS) with a very slow OMAP 4430 that’s in the Kindle Fire tablet and Google Glass and 8GB of storage. Given what is under the hood, I can only imagine how anemic this system will be, regardless of the lack of apps. Asus has launched the “Transformer Book Trio”, a 12” two operating system (Android/Windows), dual architecture (Intel Haswell/Intel Clovertrail), tri-modal UI (Metro/Desktop/Android), and tri-modal physical (tablet/notebook/desktop). This is clearly not for the technology weary as bundles nearly every possible confusing variable to a general consumer. Aside from these variables, like the Acer AIO, it will stretch many 4”-designed apps to 12”, providing a less-than optimal user experience. Let me close in on answering the original question.

Are the latest Android 10”+ devices DOA? Yes, they are until Google can motivate application developers to create more Android apps that work well, and not stretched from 4” to 10” to 12” to 21”.

 

 

4 Mobile Business Models, 4 Ways To Keep Score

The hundred meter dash, archery, weightlifting and the long jump are four very different Olympic sports with four very different methods of keeping score. The hundred meter dash is scored on speed. Archery is scored on accuracy. Weightlifting is scored on strength. The long jump is scored on distance. You don’t judge the participants in the hundred yard dash by how much weight they can lift. That would be the wrong way to measure them.

“…looking at ‘smartphone share’ or ‘profit share’ or ‘platform share’ all tell you something about the industry, but all three metrics mislead you if you try to treat them as a way to see who’s ‘winning’, because ‘winning’ means different things for Apple, Samsung or Google. After all, Google may well still make more money from searches on iOS than it does from searches on Android.” ~ Ben Evans, On market share

Hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms are four very different business models and they have four very different methods of keeping score too.

You don’t take the metrics used to measure one business model and apply them to another business model. That would be the wrong way to measure them.

Each business model demands its own specific forms of scoring. The goal should be to devise, discover, or discern a form of measurement that properly and accurately reflects how a business is performing in the business model in which it is participating.

Biathlons, Triathlons and Decathlons are all unusual Olympic events in that they group together several disparate sports and then determine an overall winner. Think of Apple, Google, Samsung, and Amazon as Olympic teams that compete with one another in the four interrelated mobile business models – hardware manufacturing, advertising, “razors-and-blades” content sales, and platforms – a sort of Quadrathlon. Each team has its strengths and its weaknesses, each team wants to win the events that they’re best at and maximize their score in the other events in order to win the overall Quadrathlon.

Let the games begin!

Hardware Manufacturing

Last week I tried to explain how using only market share to analyze mobile hardware manufacturing was not only the wrong way to keep score of that business model but that it was actually obscuring the real score.

“The truth is that focusing on market share as the primary metric is the only way to paint the iPhone as anything other than a roaring success.” ~ John Gruber

I suggested an alternative measurement known as the “Fair share profit analysis,” in order to generate some perspective but, truth be told, the only real way to accurately “score” who’s winning in hardware manufacturing is with net hardware profits. When it comes to selling mobile hardware, do Apple, Samsung, HTC, Motorola, etc. really care what their market share is? No they do not. That’s the top line, a means to an end. The only thing that matters when they are selling mobile hardware is profit. That’s the bottom line, the end for which the means were made. Market share is all well and good but only if it brings home the profits. Keep your eyes on the prize – and profits are the prize.

So who’s winning the medals in the olympic sport of mobile hardware manufacturing?
genuity
Source: “Who’s Winning, iOS or Android? All the Numbers, All in One Place

Awards Ceremony: Apple walks away with the Gold (both figuratively and almost literally), Samsung takes the Silver and no one else even medals. The Bronze podium stands empty.

Advertising

The only proper way to score advertising is net advertising profits retained. Market share and platform may be used to garner advertising revenue but they are only the means and they should never be confused with profit, which is the end.

Today, there are three great truths in mobile advertising:

1) Google is killing it in mobile advertising.
2) Google is killing it in mobile advertising…but mobile advertising is still relatively small; and
3) The vast majority of Google’s mobile advertising revenue is generated on the iOS platform, not the Android platform.

1) Google is killing it in mobile advertising.

Google dominates the mobile search market with 93% of US mobile search advertising dollars, according to eMarketer. Facebook is at No. 2.

2) Mobile advertising is still relatively small.

The mobile ad market alone stood at roughly $4.1 billion at the end of last year, up from $1.5 billion at the end of 2011. Google, currently has more than half the mobile ads market with annual revenues of around $2.2 billion.

Just to keep things in perspective, mobile ad revenue only accounted for 9% of all online ad revenue last year, although the percentage of mobile ads vis-a-vis other online ads is rapidly growing. And mobile ad revenues paled in comparison with mobile hardware sales. While it took an entire year for ALL mobile ad revenue to reach $4.1 billion, Apple alone, and in 90 days, and in what many considered a down quarter, brought in revenues of approximately $31.4 billion just from iPhone and iPad sales.

3) Google is making its advertising money on iOS, not Android

“(I)t’s Android’s large market share that is the winner for Google. The more Android devices being used, the more Google services with Google ads are being used.” – Virtual Pants

Actually, not so very much. Most of Google’s advertising dollars are generated by iOS’s relatively smaller market share, not by Android’s massive market share.

MoPub-Ad-Spend-Share-Jan-Feb-March

Source: MoPub

Take a good hard look at the chart, above. The iPhone ad spend doubles the ad spend share of ALL of Android. The iPad almost matches ALL of Android BY ITSELF. And even the lowly iPod has one-quarter of the ad spend that ALL of Android does. Market share is all that matters? I don’t think so. That’s like arguing that acreage is all that matters in real estate. The size of the lot does matter in real estate but location, location, location matters more, more, more. And market share does matter in mobile advertising but it is the location of the market share that matters even more.

Apple’s iOS Mobile Ad Metrics Dominates Android

Why 75 cents of every dollar spent on mobile advertising is spent on iPhone and iPad

iOS leads Android in mobile ad revenue

Apple’s iPad dominates online shopping traffic & revenue generation

iOS Still Top Platform For Monetising Mobile Ads, Opera’s Q1 Study Finds, iPhone Also Beating Android For Generating Ad Traffic

iPad Still Dominates Tablet Ads With iPad Mini Gaining, Velti Finds

“My belief, though, is that what Google is winning with Android is a booby prize — overwhelming majority share of the unprofitable segment of the market.” – John Gruber

When it comes to ad revenues and profits, we shouldn’t be counting Android as a single entity anyway. Ad revenues don’t help Android, the platform. They help specific digital stores. Ads going to Amazon, Google, and the various stores in China and elsewhere need to be broken out separately, not lumped together.

Awards Ceremony: Google wins the Gold and they win it going away. But they receive their Gold medal standing on the Apple iOS platform, not the Android platform.

Silver and Bronze? I’ll let you decide if it’s Facebook, Yahoo, Microsoft’s Bing or someone else. They’re all so far back that it doesn’t much matter now anyway. That may change over time but we’ll have to wait and see how this market develops.

“Razors-And-Blades” Content Sales

“(T)he razor and blades business model, is a business model wherein one item is sold at a low price (or given away for free) in order to increase sales of a complementary good, such as supplies…” ~ Wikipedia

The “razors-and-blades” business model is tricky to score.

— Hardware revenues and profits mean NOTHING in the “razors-and-blades” model. In fact, it’s not unusual to LOSE money from hardware (razor) sales.

— Market share means both nothing and everything in the “razors-and-blades” model. It means nothing because it doesn’t actually generate any profits but it means everything because it is a prerequisite to generating profits. In fact, the only reason you’re giving away your hardware in the first place is to acquire massive market share which, in turn, will hopefully lead to massive profits.

— Ultimately, the only way to measure the success of the “razors-and-blades” model is on the net profits generated by the sale of the complementary goods (razors). In mobile, the complementary goods are content such as music, video, books, etc. and apps. Amazon also has the added advantage of being able to sell everything from their sprawling retail catalog.

As I tried to explain in my tersely titled article: “Selling The Amazon Kindle Fire and Google Nexus 7 Is As Silly As Selling Razor Blades To Men Who Love Beards“, the “razors-and-blades” model makes no sense in this market space. At least it makes no sense to me. In the “razors-and-blades” model, the complementary sales – whether it be blades for razors, or ink for inkjet printers or games for gaming consoles – must be proprietary and must command a premium price. That’s the whole point. Give away the razor, make it back – and more – by selling the blades at a premium.

If you’re selling content, you want to be platform agnostic so that you can sell as much content as possible. This, in my opinion, should be Amazon’s strategy.

If you’re giving away hardware in order to sell content, then you want that content to be tied to your hardware product so that you can monopolize the sale of the complementary product and command a premium price.

In the mobile space, the complementary sales ARE NOT proprietary, they ARE subject to competition and they DO NOT command a premium price. Amazon and Google don’t sell content that is any different or superior to that being sold by Apple and other content providers and their content isn’t being sold at a premium. In fact, Amazon often sells their merchandise at a DISCOUNT which – in the “razors-and-blades” business model – is completely bat-manure crazy. ((Then again, we all know that Jeff Bezos is crazy like a fox.))

So who’s winning in the “razors-and-blades” business model? Why, surprisingly, it’s Apple and it’s Apple in a runaway.

Google Play now at 90% of iOS app store downloads; iOS still holds a 2.6X revenue lead

Despite growing competition from other tablets, Apple’s iPad still accounts for a whopping 89.28 percent of e-commerce website traffic, and also rakes in more money on a per-user basis than any other platform. ~ Monetate

Distimo reports that iOS App Store revenues were 430% larger than Android during 2012. ~ Apple F2Q13 Earnings Call

“…iTunes inclusive of Apple’s own Software generates as much as 15% operating margin on gross revenues. That’s over $2 billion a year.” ~ Asymco, So long, break-even

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Source: Canalys

Apple sells their content, not in order to make money but, in order to make their hardware more attractive so that they can sell ever more hardware and make ever more profits. With regard to tablets, Apple is playing the OPPOSITE game that the Amazon Fire and the Google Nexus are playing. While Amazon and Google subsidize their tablets (razors) in order to make money on the sale of their content (blades), Apple should be subsidizing the sale of their content (blades) in order to make money on the sale of their hardware (razors). But that’s not how Apple rolls. Instead, Apple sells their hardware at a premium AND they sell their content at a premium. That’s not supposed to happen but that’s just how good the Apple ecosystem is.

It’s like a walk-on winning the Olympic marathon while everyone else is stuck in the starting blocks.

You can say that it’s elitist or arrogant to argue that iOS users are better customers than Android users. But you can also say that it’s the truth. ~ John Gruber, Church of market share

One last thing. If Amazon and Google have an incentive to sell discounted hardware and premium content and Apple has an incentive to sell premium hardware and discounted content, one of those business models is going to fail and it’s going to fail hard. Since Apple is, so far, successfully selling premium hardware AND premium content, I’ll let you be the judge of how this is going to play out.

Awards Ceremony: I’m tempted to award all three medals to Apple just for having the sheer audacity to win a game that they didn’t even enter. But I guess Apple will have to console themselves with just winning the Gold.

And the Amazon Fire and the Google Nexus tablets? Disqualified for not understanding the rules of the game that they were playing.

Remember, Amazon and Google sell their hardware at cost. They don’t make a penny off those sales and they might even be taking a loss.

Market share? Yes, they have taken some minor market share…in a market where they are GIVING AWAY THEIR MERCHANDISE. And market share is not how you score in the “razors-and-blades” game. While the press and the pundits fawn over the market share of the Amazon Fire and the Google Nexus, what they’re entirely missing is that in the “razors-and-blades” business model, market share should be a GIVEN. I mean, honestly, if you can’t obtain overwhelming market share when you’re giving away your product at cost, then you should be ashamed, embarrassed, abashed, chagrined, humiliated and mortified ’cause you’re doing something terribly, terribly wrong.

You win the “razors-and-blades” game by scoring the most content profits. All those Amazon Fire and Google Nexus market share numbers that the analysts are always going gaga over? Meaningless. They should be removed from the count. They’re probably not hurting the sales of the other available tablets and they’re not helping the bottom lines of their makers either. There is zero proof that Amazon and Google’s hardware giveaways have led to increased retail sales which, after all, in the “razors-and-blades” model, IS the point.

And if you’re going to prophesy that market share alone gives Google data that will someday, somehow, be worth something to someone, then you need to go back and re-read how the “razor-and-blades” business model is scored.

What we desperately need in analyzing mobile computing is far more attention paid to profits and far less attention paid to prophets.

Next Time

Next time I will finish with the “mother” of all business models – platforms – and do the medal count.

Google’s Android Activations Are A Lot Less Cash Cow And A Lot More Bull. And That’s OK.

Read Part One of John’s column entitled: Android’s Market Share Is Literally A Joke

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.

The author would like to gratefully acknowledge the contributions of Ben Bajarin and Steve Wildstrom. All the great ideas, that you agree with, were theirs. All the bad ideas, that you disagree with, were mine.

Android’s Market Share Is Literally A Joke

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.

The Joke

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%.

tablets-q1-2013

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.

screen-shot-2013-04-16-at-4-16-4.16.46-pm

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.

slide-11-638-1

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?

Price Elasticity

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.

Summation

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
3.12% Apple
1.30% Samsung
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

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.

How Android Vendors Can Compete With Samsung

The initial title of this article was going to be “How HTC can compete with Samsung.” Then I decided to branch it out and make a point that is relevant for HTC but also for all Android handset vendors looking to compete with Samsung.

The public learned this week that HTC is losing key personnel at a rapid rate. Through friends of mine that worked there ((They no longer work there)), I had a sense this was coming for a while. For the past few years I have been watching the numbers of all the handset vendors and HTC was one that concerned me the most given the trends.

Unlike many other Android handset competitors, HTC only has one business, selling smartphones. Samsung, LG, Motorola etc., all have many other businesses to help them deal with growth or declines in other areas. Chinese competitors are simply focused on the low-end for the time being, but HTC is geared to play in the mid to high-end arena. Which is close to no mans land when employing HTC’s current strategy.

That is why in 2010, I wrote an article stating why I felt Microsoft should buy HTC. ((I still feel this is a good idea and likely)) I had concluded at that time HTC was in trouble. If I was them, or any other mainstream Android OEM looking to make a dent in Samsung’s 95% of the Android profit pool ((It is impossible for Android handset makers to survive competing for only 5% of the profit pool)) this is what I would do. [pullquote]deeply embed every one of their core services as if they literally own you[/pullquote]

I would surrender to Google. Stop trying to differentiate through software or UI value ad-ons and just simply make extremely elegant and innovative hardware, running the latest and greatest stock Android OS. Be vigilant about Android upgrades making sure your devices are always up to date in every area. Work closely with Google to deeply embed every one of their core services as if they literally own you. Focus on making great, elegant, affordable hardware and let Google take care of the rest. This way you can get a portion of the ad-revenues, and other service revenue sharing Google offers, and you have built your device and integrated Google’s services in a way to maximize Google’s revenue potential and yours. Be a Nexus device, without officially being a Nexus device.

This logic is absolutely counter to a market where one needs to stand out through differentiated software experiences. The problem is only Android competitor has successfully done this. I have championed against the Android sea of sameness and now I recommend pursuing it aggressively. People like HTC devices. Carriers like HTC devices. ((With a few exceptions of course, like the First)) As Avi pointed out on Monday, other than the iPhone, HTC devices hold their value longer, this is good for carriers. HTC makes great hardware and can still do well by focusing on great design and unique hardware innovations. They simply need to let go of the software and work closely with Google to ship the latest and great stock Android on their devices.

This is a template that could work for HTC but could also work for others. The bottom line is the current strategy being employed by Samsung’s Android competitors is not working. Stock Android is very good and arguably always the best Android experience ((As much as I applaud and appreciate the attempts to differentiate Android, I prefer stock Android every time)). If needed there is room to add some better apps, like a better exchange email app for example, but don’t change the interface and leave the rest to Google.

Microsoft is Missing Apps the Same Way They Missed the Early Internet

It seems odd to me that Microsoft of all companies is so drastically behind the curve when it comes to apps for Windows 8 and Windows Phone. When you think about it, Microsoft of all companies was in the best position to create a better software buying experience, via an app store than anyone. Windows had 97 to 98 percent market share for the bulk of the PC era and software played a key role in that dominance. Why was there no Windows app store until the end of last year? ((Updated: There was a Windows Marketplace but came no where close to the app stores I am talking about)) It just makes no sense.


Similarly, Microsoft was in a growing position in smartphones with Windows Mobile. They had tinkered with software stores but the experience never really gained significant traction. Companies like Handango helped fill the gap but again much of what existed then is gone now.

The most robust third party mobile developer network I witnessed when I joined Creative Strategies 13 years ago was the Palm developer community. In fact, the Palm developer community in terms of passion, excitement, and quality of applications being developed, reminds me a lot of today’s iOS developer community. Microsoft never enticed the same commitment and passion for their mobile platforms as the Palm community, even when they gained share and Palm itself began shipping Windows Phone. Despite their efforts Microsoft is still today struggling with weak developer interest.

As I think about this situation that Microsoft is in, it reminds me of the situation they were in with Internet Explorer for so long. They missed the boat on leading the Internet revolution and now again they have missed the boat on leading the app revolution. All while they were in the best position to lead in both.

The Network Effect

Both Palm and Apple achieved the network effect.

In economics and business, a network effect (also called network externality or demand-side economies of scale) is the effect that one user of a goods or service has on the value of that product to other people. ((Alpheus Bingham and Dwayne Spradlin))

The economics in turns of monetary opportunity for developers, as well as the critical total addressable market achieved by both Palm and then with Apple, created a strong network effect. This is still going strong for Apple today.

Interestingly, despite Microsoft’s position in PCs, I would argue they never achieved the network effect. ((Happy to debate this point.))

You may have noted that I did not include Android in the network effect discussion. While it’s true Android has the lions share of the smartphone market, we also know just looking at Android’s market share does not singularly indicate the strength of a platform. Engagement is consistently reported as lower on Android than iPhone and developers are continually facing economic challenges of making money with Android.


Being in Silicon Valley I get to meet and talk with a lot of software startups. Android to many of these software companies I meet with is treated as a secondary priority. Rarely, do I meet with a company creating software for Android first or only. If this platform was doing well for the masses then I would imagine we would see more exclusive applications and I would see more software startups getting funded for Android only development. This is simply not the case. Android is benefiting from the network effect of iOS, however, as developers are generally taking their iOS first apps to Android eventually. Android has achieved a degree of the network effect by default, and on the heels of the iPhone.

This network effect is a key area that is driving both iOS and Android. This network effect has created long tail applications.

Long Tail Developers

Chris Anderson helped popularize the concept of the Long Tail with his book called The Long Tail: Why the Future of Business is Selling Less of More. (link) The concept in short is that there is value found in having large quantities of something (apps in this case) which appeals to smaller groups of people. Another way of describing would be simply to say having a successful long tail model means having massive quantities of niche content. [pullquote]Popular apps may be the most profitable but long tail apps are often the most discoverable[/pullquote]

A successful long tail strategy, the one that I would argue creates the highest degree of loyalty to a platform or service, is one that has all the mass market goods (the popular items) but also and large quantities of goods that appeal to smaller groups of people. When we apply this theory to apps only iOS and to a degree the Google Play store are in the discussion. Popular apps may be the most profitable but long tail apps are often the most discoverable.

Imagine being a Windows Phone or BlackBerry user for a moment. Your friends or family members are all talking about the new apps they discovered or are using, for things like health and fitness, education, gardening, sports, etc. They all rave about these great apps that they love and are adding value to their lives. These apps don’t exist on your platform and probably won’t for a long time if ever, unless a critical mass is acquired. Which, of course, is not going to happen without long tail apps and long tail app developers. Its a chicken and egg problem.

Or imagine your kids sports team starts using an application to help manage schedules and parents assignments, but it only exists on iOS or Android. Your favorite grocery store, market, magazine, favorite brand, etc., comes out with an app, but it’s only available on iOS or Android. Your kids schools offer mobile apps, but they are only on iOS or Android. The workout video series you just bought has an app but it is only on iOS or Android. I hope you see my point.

Windows Phone and possibly BlackBerry may get the popular apps from the big developers, but where the platform really suffers is in the long tail apps and content, which is the driving strength for the mass market with iOS and Android. Only iOS and Android are attracting long tail developers at the moment.

Developing a critical mass of long tail apps and the developers who will continue to make them, is the biggest single hurdle I believe Microsoft, BlackBerry, and any other platform that aspires to enter the market. Without them, these alternative mobile operating systems will continue to struggle to find customers for their products until the same long tail apps make it to their platforms. If they make it to their platforms of course.

Google’s Android And The Path Not Taken

Yesterday, Google held its I/O keynote address. Ben Thompson of “stratēchery” has written an excellent article entitled: THE ANDROID DETOUR. I highly encourage you to take the time to read it. I’m going to re-state and build upon his thoughts here.

1) In 2007, Apple introduced the iPhone. Google’s then CEO, Eric Schmidt was a member of Apple’s board and an honored guest at the iPhone presentation. It appeared that all was right with the worlds of Apple and Google – Apple was going to do its hardware thing and Google was going to do its services thing and a new era of mutually beneficial cooperation was about to begin.

2) In 2008, Google introduced Android – a direct competitor to Apple’s iOS – and the Apple/Google alliance quickly began to unravel. Schmidt soon left Apple’s board, Steve Jobs later vowed to go “thermonuclear” on Android and the Apple/Google alliance was over almost before it had begun.

3) It’s clear that pre-iPhone, Google was initially aiming Android as a Blackberry and Microsoft Mobile competitor, but as soon as the iPhone appeared on the scene, Google’s Android focus dramatically shifted. Assuming that competing with Apple was the right strategy, Google should be given all the credit in the world for pivoting as rapidly as they did from their original plan to creating a legitimate iPhone competitor.

4) As an aside, I also give Microsoft lots of credit too. When the iPhone initially appeared, Microsoft didn’t foresee the danger it posed. But soon afterwards, they not only recognized the danger but they acted and acted decisively. They took the radical step of abandoning Windows Mobile altogether and initiating their new Windows Phone 7 platform. It was a bold move, but as history as shown, it was one year too late. Windows Phone 7 (now 8) has never gotten any traction and it languishes in third place, just above the rapidly fading Blackberry OS.

5) I think I could make a pretty compelling case that Google should never have made Android a competitor to Apple’s iOS. By doing so, they destroyed a promising alliance and, perhaps, took a long, long, detour down a path that they never should have taken. But that’s all moot now. We’ll never know how that alternative reality would have played out, so there’s little point debating it.

6) What can’t be debated is the effect that Apple’s iOS and Google’s Android have had on the incumbent smartphone competitors. Palm and WebOS were wiped out. Blackberry was devastated. Nokia was humbled. Microsoft Windows was abandoned and replaced by Windows Phone 7.

Pundits often frame the smartphone/tablet wars as a battle between Apple’s iOS and Google’s Android, but in reality, those two operating systems – with Apple descending from above and Android rising from the below, crushed the existing smartphone competitors between them.

comscore-q1-2013

There is little proof that Android has ever made any significant income for Google, but if the destruction of their enemies was Google’s aim, then there is no doubting that the Android strategy was eminently successful.

7) Google’s I/O keynote barely even mentioned Android or any kind of hardware at all. If there was a common theme, it was about service unification between Chrome and Android.

Instead of an updated Nexus 7 tablet or a new Chromebook model, Google spent three hours during Wednesday’s keynote to discuss services and feature upgrades for both Chrome and Android.

If I could describe #io13 in one word it would be “unification”. Same features, services, UI and experiences on Chrome and Android. ~ Kevin C. Tofel

I think that Ben Thompson is spot on with this analysis:

“Services are where Google excels, and it’s where they make their money. It’s why they make the most popular iOS apps, even as their own OS competes for phone market share.

Apple, on the other hand, makes money on hardware. It’s why their services and apps only appear on their own devices; for Apple, services and apps are differentiators, not money-makers.”

“Apple invests in software, apps, and services to the extent necessary to preserve the profit they gain from hardware. To serve another platform would be actively detrimental to their bottom line. Google, on the other hand, spreads their services to as many places as possible – every platform they serve increases their addressable market.”

8) The battle for mobile is over. Apple’s iOS and Google’s Android reign as a duopoly and Microsoft and Blackberry hang on by the skin of their teeth. Google is free to put its web services on Android and iOS and to ignore the Blackberry and Windows 8 operating systems. Android has ensured that Google’s services are freely accessible on the only two operating systems that matter. The Android strategy was a success although, perhaps, at great cost. Google’s I/O keynote is living proof that Google is now re-focusing on their original mission of dominating web services.

The Definitive Answer Guide to Which Smartphone You Should Buy

Forget all the rumors of an Apple iWatch. Ignore the surprisingly good reviews of Google Glass. Neither of these will come close to replacing your smartphone. Not for many, many years; probably never. The question is not whether  you will buy a smartphone – you will. The question is: which smartphone should you buy?

I am here to help. Don’t worry, I promise this will be painless.

I’ve traversed two decades in the telecommunications industry and have spent ridiculous amounts of time over the years testing and sampling various smartphones across just about every single platform, price point and form factor. If it means anything to you, I even own a MeeGo. Looks great, but unfortunately it works about as well as your four-year-old netbook.

Let’s begin.

Dear Brian…

Which smartphone should I buy?

The iPhone 4S.

Perfectly designed, flawless to operate, affordable. Apple offers the best, most robust, most pleasing ecosystem of apps, games, content, payments, customer support, product integration and accessories. I cannot say exactly how many billions Microsoft, Google and others have spent over the years attempting to equal the iPhone’s operating system – iOS – but I can say that none have yet met the challenge.

Apple’s iPhone repeatedly tops the competition in customer satisfaction ratings. iPhone users are much more likely to stick with iPhone compared to Android users. That should tell you all you need to know.

Done! That was easy.

What? You have more questions? My singular advice simply not enough? Fine. What else?

Why not iPhone 5?

There is a reason why the iPhone 4S continues to sell so well around the globe: on form and function, ecosystem and compatibility, the 4S offers the best bang for the buck of any smartphone on the market, bar none.

Yes, the iPhone 5 is a great device. It has superior hardware specs to the 4S. In my opinion, however, it feels too delicate. It’s design is not perfect. iPhone 5 is too long and narrow. For many people, particularly women, they can’t control the entire screen with a single swipe of the thumb.

iPhone 5

I hate Apple!

No, you do not. Besides, Apple, just like Nokia, Google, Samsung et al is a giant, for-profit corporation unaware of your existence. This is not about them, this is about you – and the best smartphone for you. Get the iPhone 4S.

Don’t care. I refuse to buy an iPhone!

Fine. Buy an HTC One, it’s a good phone.

You’re saying the HTC One is better than the Samsung Galaxy S4?

No. I think the S4 is slightly better. But if you buy the S4 all your friends will think you did so only because of all those Samsung commercials.

Not a Droid or LG?

No.

Shouldn’t I just wait for the latest model?

I cannot recommend that which does not exist.

I read that Android has surpassed iPhone. True?

After years of slavishly copying iPhone, the Android UI inexplicably remains almost willfully confusing. This is compounded by the greed and short-sightedness of carriers and handset makers. However, Google nearly makes up for this with great search, maps, Google Now notifications and other services optimized for Android. Plus, many handset makers like Samsung put amazing hardware into their devices. If you simply cannot bring yourself to get iPhone, an Android is a suitable alternative.

What about all the “phablets” I keep hearing about? Should I get one of those?

No.

But…

Do not be swayed by that big screen – even if you can hold the device in one hand comfortably.  Smartphones are not televisions. You take your smartphone with you everywhere. You use it constantly. A phablet is almost certainly not right for you. Form is a primal factor in choosing the right smartphone and the phablet form is an evolutionary dead-end. The one thing it does well – offer a very large display – simply cannot overcome all that it does bad. Phablets are too big, too wide, too heavy and not optimized for the role they attempt to fill: a multi-purpose, always-on, fully mobile personal computer.

I’m going to buy a phablet anyway. I like the big screen.

If you insist, then I recommend you get the new Samsung Galaxy Note II. You will regret this.

You obviously hate Windows Phone.

How Nokia could have blown through two plus years of development and delivered only the Lumia 920 and the 928 (soon), is beyond my comprehension. Windows Phone deserves a far better flagship device.

But I do not hate Windows Phone – the operating system. It’s a beautiful, reasonably intuitive, highly customizable UI that delivers real-time updates probably better than any other platform. The problem, though, is that Microsoft simply made the wrong UI choice. I suspect they will never recover from it. Singular, static apps really do work better for smartphones – as iPhone has proven repeatedly – than the “live tiles” format that Windows Phone adopted.

My daughter loves Facebook. Should I get her one of those HTC Facebook Phones?

No.

But she really loves Facebook.

Get her any other (non-Windows Phone) phone listed here. I promise you, she will be fine.

I think you’re wrong about the iPhone 5.

The iPhone 5 was a very clever attempt by Apple to build a device with a larger display – as the market demanded – while maintaining all the benefits of their app ecosystem. Apple can and will do better.

I cannot afford any of these devices.

Whatever smartphone you choose, assume you will have it for between 1-3 years. The cost of the device itself will almost certainly be less than the cost for voice, data and texting services. Plus, you will buy apps, music and other content, and accessories – such as a car charger, stereo speaker and case – for your smartphone. Factor all of these costs into your decision.

If you still decide to go with a low-priced device, get last year’s top-of-the-line Samsung: the Galaxy S III. If you can get a refurbished model, this is a truly great buy. If you cannot afford this, I would encourage you to not buy a smartphone at all. Get a quality feature phone with a physical QWERTY keyboard. There are many options available.

My company doesn’t allow me to use iPhone or Android.

Delta doesn’t allow me to have my smartphone running during take-off. That’s never stopped me.

I can’t possibly type on that touchscreen. I need a real keyboard.

You will learn.

I refuse.

Then, wait. Very soon you can have a BlackBerry Q10. I think you will be impressed. (Note: do not get the BlackBerry Z10)

Blackberry_Q10

Which carrier should I go with?

That I cannot help you with. They all have their own unique set of faults.

Apple Is Playing Chicken With The Mobile Carriers

“The game of chicken, also known as the hawk-dove game or snow-drift game, is an influential model of conflict for two players in game theory. The principle of the game is that while each player prefers not to yield to the other, the worst possible outcome occurs when both players do not yield.” ~ Wikipedia

800 Android Carriers vs. 240 iPhone Carriers

“The narrative has been focused on the consumer demand, and the narrative needs to shift to the operator…” ~ Horace Dediu, former in-house analyst for Nokia

Android sells devices through almost all of the world’s 800 carriers while Apple sells the iPhone through only about 240. (Only about 500 of the world’s global operators have the network capabilities needed to handle the iPhone, but that number is quickly increasing.)

The reason for the discrepancy between the number of carriers supplying Android and the iPhone is that Apple prices their phones above $600 and places sales quotas and other requirements on the carriers before they are permitted to sell the iPhone. Potential partners must determine whether taking on these obligations is worth the benefit of offering the device.

Examples of holdouts are China Mobile Ltd., the world’s biggest phone company, and NTT DoCoMo Inc., Japan’s largest mobile carrier. On the other hand, other companies are succumbing to Apple’s demands. T-Mobile added the iPhone to its lineup in April and they announced that they have sold 500,000 iPhones in just under a month. And U.S. Cellular (USM), had long contended that the iPhone cost too much, yet last week they announced that they had agreed to sell $1.2 billion worth of handsets over three years, after conceding that their failure to carry the iPhone was costing them customers.

Are The Carriers In Control…

Adam Satariano of Bloomburg reviewed the current carrier impasse and concluded:

“Apple Inc. (AAPL) is missing out on a chance to court as many as 2.8 billion new smartphone customers, many of them in Asia, as wireless-service providers balk at conditions imposed by the iPhone maker and drag their heels in signing on as partners.”

“Carriers are starting to question Apple’s pricing strategy and are supporting multiple other platforms,” said Shah at Strategy Analytics. “They no longer need Apple.”

…Or Is Apple In Control?

The unasked question here is: If Apple is losing the opportunity to sell more iPhones because of their onerous conditions, then why does Apple continue to impose those conditions? The unstated answer should be – but apparently isn’t – obvious.

Clearly Apple – unlike the vast majority of tech pundits and Wall Street Analysts – does not see a pressing need to acquire additional operators at any cost. Of course Apple wants more customers, and that’s only going to happen if Apple expands its carrier base. However, unlike most of the rest of the world, Apple feels that they can patiently wait until the carriers come to them and meet their terms. Does that make Apple arrogant and out-of-touch with reality or does that make them master negotiators?

Four Realities That Favor Apple: Capacity, Real Growth, Retention and Profits

First, Apple was at their iPhone manufacturing capacity for much of the holiday quarter. It doesn’t make much sense for Apple to increase the number of addressable customers until and unless they have the capacity to provide those new customers with product.

2013-04-2413-33-31-v1-620x630

Second, as you can see from the trajectory of the chart of the iPhone’s cumulative sales, above, Apple is still enjoying significant real growth in the sales of their phones. This truth is often obscured and overshadowed by market share numbers.

Third, as markets approach saturation in the U.S. and Europe, retention and churn become far bigger issues and when it comes to customer satisfaction and retention, Apple has it all over their competitors.

Notice how Apple started with only AT&T in the U.S., and then slowly and methodically ground down the opposition of the other carriers until Verizon, then Sprint, then T-Mobile, then U.S. Cellular and many other small carriers caved in as the churn caused by the iPhone crushed their sales and then caved in their profits.

Fourth, Apple takes in 57% of the profits in the mobile industry with only 8% of the sector’s market share. That is some serious leverage.

Apple is Enigmatic But Still Susceptible To Analysis

I contacted Apple to see what their actual negotiation strategy was but, oddly, they were not very forthcoming. Go figure. Tim Cook has failed to return my several calls (or even had the courtesy to lift the current restraining order against me) and my $605,000 attempt to have coffee with him failed when it was discovered that I had used a stolen credit card. C’est la vie.

So we’re going to have to use analysis (i.e., guesswork) instead. My best guess is that Apple’s strategy is to go after the whales and ignore the minnows. (The minnows will fall all over themselves to jump on board once the whales are lined up, anyway.) Apple only has so much capacity to manufacture phones as it is and they’d prefer to expand first in those markets that count and count the most.

Further, Apple is a damn patient negotiator. While the rest of the world is screaming at the top of their lungs that Apple has to “DO SOMETHING”, Apple is patiently waiting for the carriers to realize that they can’t compete without the iPhone in their mobile portfolio. And based upon the capitulation of Sprint, T-Mobile and U.S. Cellular, Apple may just be right.

So who will win this game of Chicken? Right now, Wall Street and a whole lot of investors are betting against Apple. But if you look at the history of Apple’s negotiations with the music labels, with AT&T and with all of Apple’s recent carrier acquisitions, you can see that Apple has played – and won – this game before.

Only time will tell us which side will blink first. But me – I’m not betting against Apple.

Are Google Apps On iOS A Trojan Horse Or A Concession to Apple’s Dominance?

Grin And Bear It

Aside from Google Maps and Google Now, many users would sooner tap on Gmail, Google Chrome, and Google Drive than the apps Apple would much rather you use, and the result is completely antithetical to Apple’s insistence of a controlled ecosystem and specific apps within a walled garden.

Google apps are besting the iPhone’s default software, and Apple has to grin and bear it. ~ Mike Schuster, USA Today

Apple has to grin and bear it? Do they? Or is it actually the other way round and Google is the one who has to grin and bear it?

App Revenue

Apple’s iOS ecosystem is crushing Google’s Android in dollars generated from App sales.

“Cumulative app downloads have surpassed 45 billion and app developers have made over $9 billion for their sales through the App Store, including $4.5 billion in the most recent four quarters alone. Canalys estimate the sales from our App Store accounted for 74% of all app sales worldwide in the March quarter.” ~ Apple Earnings Call

According to a new report from app analytics firm App Annie, the iOS App Store has maintained its lead in terms of monetization, earning around 2.6 times more revenue in the last quarter. During the holiday season – when users are receiving, activating and then filling new smartphones and tablets with apps – that lead was even higher, with iOS generating roughly four times more revenue.

app-revenue-q12013

Ad Revenue

Whenever it’s pointed out that Apple developers make far more income than do Google developers, Android advocates quickly point out that Google is an advertising company and that they and their developers make their money through advertising rather than through the sale of Apps. Only here’s the thing…

… 75 cents of every dollar spent on mobile advertising is spent on iOS, not Android.

“…iPhone, iPad, and yes, even iPod touch ad rates are much higher. While Android smartphones draw $.50 CPMs (cost per thousand impressions), iPhones pull in $.65 to $.88 CPMs, iPod Touches do $.74 to $.98, and iPads do between $.82 and $1.16.” ~ Venturebeat

screen-shot-2013-04-18-at-10-26-24-am

As you can see from the chart, below, what’s utterly amazing is that the iPad alone makes almost as much advertising revenue as all of Android put together.

screen-shot-2013-04-18-at-10-31-48-am

Convoluted Logic

I have heard it said that Google’s excellent iOS software is a Trojan Horse that will make it easier for iOS users to switch from iOS to Android. But I fail to see how Google’s efforts to improve their iOS software – and therefore improve the iOS experience – either harms the iOS platform or makes it more likely that iOS users will leave the platform.

Google is not creating iOS Apps out of the goodness of their hearts. They make money when people use their apps and consume their advertising. And right now, the bulk of the app money and the bulk of the mobile advertising revenue is being made on iOS. If Google wants to stay in the game, then they’ve got to deign to play on Apple’s turf. It’s as simple as that.

Google “Plays” With Android Activation Numbers

“…there are now 1.5 million Android devices being activated every day, Google Chairman Eric Schmidt said Tuesday. That’s led to more than 750 million Android phones currently in use.” ~ Erica Ogg, Gigaom

Google changed their methodology to only count user visits to the Google Play store when determining which versions of Android are in use. So exactly how many of those 1.5 million daily activations and 750 million overall activated units have actually connected to the Google play store?

Google isn’t saying.

Now why do you suppose that is?

Google’s New Android Math Doesn’t Add Up

Smartphone-Sales-to-End-Users-Feb-2013-Gartner

According to Gartner, Android sold 144,720,300 units in the fourth quarter of 2012. But let me ask you this:

Who cares?

Does Samsung care how many “Android” units were sold? No, they do not. They only care about how many of their devices they sold.

Do the various Android manufacturers in China care how many “Android” units were sold? No, they do not. They only care about how many of their respective devices they sold.

Does Amazon care how many “Android” units were sold? No, they do not. They only care about how many Amazon devices are being used to direct traffic to their web site.

Do Android developers care how many “Android” units were sold? No, they do not. They only care about those Android units that their software can address and, even more specifically, they only care about that portion of the addressable market that is interested in purchasing their product or downloading their product and consuming their advertising.

Does the Google Play store care how many “Android” units were sold? No, they do not. They only care about how much is purchased from the store.

Why Do We Count Android As A Single Entity?

“Android” is not a single entity. So why do we add all of the “Android” numbers together? We do it because we assume that higher numbers mean a stronger platform. We use it as a proxy for the strength of the platform. But it just ain’t so. Total numbers mean nothing. The only numbers that matter are those that strengthen the platform.

And do you know who agrees with me? Google.

Android’s New Math

Google reported that the number of Android units using Android versions 4.1 to 4.2 jumped from 16 percent a month ago to 25 percent this month. Impressive, no?

Google-ChromeScreenSnapz001

No.

The reason for the big jump was that Google changed the way they count the numbers. Previously, devices were counted when they checked in to Google’s servers. But Google is now only counting user vistits to the Google Play Store. Google argues that the data more accurately reflects users “who are most engaged in the Android and Google Play ecosystem.”

I agree. This is a better way to count the meaningful numbers rather than just the gross number of Android activations. However, did you notice the inconsistency in Google’s new math?

One Of These Is Not Like The Other

Google hasn’t recalculated and lowered the total number of Android activations.

In other words, when it comes to telling you how many activations they have, Google uses devices that check in to their servers. But when Google wants to tell you which versions of their operating system are in use, they only count user visit’s to the Google Play store.

Hmm. So we now know that versions of the Android pie are divided into different sized slices but what we don’t know is just how big that pie is. Exactly how many of the 144,720,300 units sold in the fourth quarter of 2012 are actually accessing the Google Play store?

We don’t know. Because Google isn’t saying. And until they do, those total unit sales and activation numbers have little meaning in determining the overall strength of Google’s portion of the Android platform.

Android’s Total Numbers Conceal Rather Than Reveal

“Android” shouldn’t be counted as a single operating system any more than Europe should be counted as a single country. Heck, Android doesn’t even have a “common market“.

If we’re going to use numbers as a proxy for determining the strength of various operating systems, then we have to use meaningful numbers. Perhaps we should be comparing the units running the latest version of iOS with the latest version of Android. Perhaps we should be counting the Amazon, Google, and the various Chinese portions of Android as distinct and separate entities. Perhaps we should even be counting that portion of the Android phones that run Facebook Home separately too.

What we most certainly should NOT be doing is lumping all Android sales and activations together and pretending that they’re one and the same and that their total numbers are advantageous to all of Android’s separate participants, such as Samsung, HTC, Amazon, Google, developers, etc. If an activation or a unit sale doesn’t count towards the strength of the whole operating system, then it shouldn’t be totaled. Totaling Android’s numbers together doesn’t make sense because there isn’t a single, unified Android platform.

Numbers should be used to reveal, not conceal. And Android’s numbers aren’t revealing its strengths, they’re concealing its weakness.