Without question the mobile platform wars are over. iOS and Android have both won and have won in very different ways. Granted, with an eventual total mobile addressable market of over four billion people, there is room for more than just two platforms. However, when it comes to the largest installed base/ecosystem, I’m confident it will be iOS and Android for quite some time.
Android’s installed base will be larger than iOS — probably three times as large when all is said and done. But it is becoming increasingly clear each platform will be made up largely of very different customers. I outlined the beginning of this in the article last week about Google/Android and the next billion smartphone users but I want to dive into this a little deeper. My overall thesis is Apple will own the large majority of the most profitable customers and Android will dominate the the non-premium segments. Their strategies dictate this reality.
Two Different Strategies/Philosophies
Apple puts a premium on the experience. Everything they do — hardware, software, and services — will revolve around their strategy to make the screen smart. They will use their integrated operational posture to align everything from their custom built SoC, to the internal hardware and components, to uniquely tuning iOS to the hardware, and couple cloud services as the glue to tie it all together. This will continue to attract buyers who value such things.
Google is focusing on smart cloud. While they view hardware as a necessary part of their ecosystem, it is better for Google if the value is to be found in their smart cloud rather than the hardware itself. To put it simply, Google’s strategy is dumb glass + smart cloud. Apple’s strategy is smart glass + deep cloud integration/synchronization. This is the clear departure in hardware philosophy the two companies will take. And it will dictate the types of customers each ecosystem has.
Dumb Glass + Smart Cloud
As Google dominates the landscape for devices outside of the premium segment it has implications on the customer base on Android and the business models that surround the Android ecosystem. The most pertinent is my earlier point that, for Google, it is better for them when value is in their smart cloud and not in the hardware. Google wants to push the hardware cost to zero because it is easier for them to get more eyeballs to feed their smart cloud. This changes the dynamic of the ecosystem. It makes it harder for the value chain to make money, thus altering the business models within the ecosystem. It will certainly help get billions of new eyeballs, but all with a lower average revenue per user as a whole. This is why the overall business around the Android ecosystem is destined to change. Money may not be in apps, or even in-app purchases any longer. Money may be in ads — not much but at least some. Money may be in services, like micro-transactions on payments or other digital and physical goods. Wherever money is found in the Android ecosystem, it will differ greatly than how money is found in the iOS ecosystem.
Highlighting my thesis again, Apple will control the large majority of the premium segment. They do today with nearly 70% of the premium market in every category they compete and there is no reason to believe this will change. In fact, with much of what Google is doing strategically, they are making it easier for Apple to control the high end of the market. What we don’t know is how big this market is in terms of the total users in the ecosystem. Even though they have 800m iTunes accounts, their monthly active user base is lower than that. Apple’s monthly active users for iOS is likely between 500-600m — roughly half of Android. We know Apple can and will continue to grow this base. What is unclear is what number this base can grow to assuming their current pricing strategy holds. Regardless, Apple will maintain their near 70% share of the premium smartphone and tablet market and may very well grow it as well. When it comes to the premium segment, it is only Apple and Samsung and with Samsung facing pressure from every area in mobile, continuing to compete in premium will be tough. Samsung is tasked with the challenge of differentiating Android from the low end — a task Google will make continually difficult.
The fundamental point to all of this is Apple owning the majority of the most valuable customers. Owning this segment opens up an entirely different set of business models. Ones that appeal to those willing (and able) to spend money on hardware, software, services, accessories, content, and more. And in many cases lots of money on these things. The most innovative hardware always commercializes in the high end and then makes its way to the rest of the market. This means some of the most innovative advances in hardware will happen on iOS first. Already, some of the most innovative software/apps happen on iOS first since it is a known fact iOS is where money can be made by the ecosystem. This will not change so long as Apple dominates premium. As long as there is room for hardware innovation, it plays into Apple’s favor to continue to own the high end.
One last point on this. Just because Apple is focusing more on the smart glass, it does not preclude them from also including smart cloud in the future.
Divergence in Business Models
All of this wraps up with the key realization the business models for the value chain, meaning the developers, hardware companies, service companies, etc., will look very different than the business models in the iOS ecosystem. Which leaves me wondering if, since we will see different monetization tactics in each ecosystem, will we also inevitably see entirely different and separate players in each ecosystem? (Beyond hardware of course)
Apple’s ecosystem, being made up largely by premium customers, opens up the opportunity for the value chain to compete for share of wallet. Android’s ecosystem, largely made up by the non-premium/mid-low end segment of the market, means the value chain must compete for share of eyeballs — and against Google.
One ecosystem has massive volume and the other the most profitable customers. Both are valid, both will demand different strategies. The next ten years are going to be fascinating to analyze.