Well, that was a heckuva week.
Google sells Motorola for billions less than they paid for it. Apple sells millions fewer iPhones than nearly everyone expected, then directs guidance lower. Facebook becomes a mobile first company, for real this time. Amazon investors prove they don’t quite have unlimited patience. Yahoo remains last decade’s news. Microsoft probably has a new CEO, one with zero connection to Nokia. Oh, and they now make better commercials than Apple.
What we learned from last week’s machinations is that everything we think we know about the smartphone wars is completely, utterly false — or worse, meaningless. Barely a fortnight ago, on this very site, I told you: “The smartphone wars are not over.” Nothing has been settled, least not the future. After last week’s fun-bumpy-tweet-filled ride, does anyone still dispute this?
Know this: The current market for smartphones, and all they are subsuming, transforming, re-making, inspiring — which is in fact all of the things — is itself under threat, betrayed by its own relentless innovation and rapid success. Yet, far too many analysts and bloggers stubbornly cling to the fiction that somehow, smartphones can alter every market they touch while continuing on a merry upward slope unscathed by their own destructive deeds.
The most basic assumptions about this market are nothing more than faith-based analyst alchemy.
Time now to kill the dominant fictions in the smartphone wars.
The Death of iPhone
Fiction: Apple owns the high-end of the smartphone market.
If you are making assumptions re iPhone (or Android) sales growth based on an imaginary perceived share of a market that is already on the cusp of disrupting itself, then you are making faith-based decisions. It’s that simple.
As I wrote months before last week’s earnings announcement, if Steve Jobs was alive he would never approve the iPhone 5c. The 5c is a rare self-inflicted wound, the elevation of profits over values. Only, that is not the cause of Apple’s weakness in their iPhone business. The trouble is the smartphone market itself, which I am beginning to suspect does not actually exist. Bear with me.
The persistent belief among analysts that as much as 90% of the current mobile phone market (nearly 5 billion users) will transition to smartphones is a religious ideal, nothing more. Repeat after me: There is no total addressable market (TAM) for smartphones. The very concept is a fiction. Indeed, we may already be within months of Peak iPhone, a year or two from Peak Smartphone. For billions of people, voice, robust SMS/MMS services, and perhaps some form of digital identity is more than they will ever need. What can Apple provide them? Even at, say, $300, nearly everyone on this planet cannot afford and will never need an iPhone.
It gets worse.
I carry my smartphone with me all the time and use it for far more than I can list here. For the majority of that time, however, I don’t actually need a “smartphone”. What I really need is something like a credit card-sized piece of glass that supports rare but necessary voice calling, possibly video calling, can display a virtual keyboard for texting, and includes a mag-stripe (and/or chip) for payments. Create this and the smartphone market is gone, reduced to the equivalent of the dusty home desktop PC. Given the rapidity of innovation in this market, I should reasonably expect to have my (truly) smart card by no later than mid 2016. No iPhone necessary — in barely two years.
Tim Cook must know this. This is likely one reason why Apple stockpiles so much cash. When you’re dependent upon a single product line, iPhone, for about 60% of your revenue, and that market may vanish in a few years, then your focus necessarily shifts to maximizing profits of that product line and funneling those profits into entirely new offerings.
Apple doesn’t release many new products. I suspect that is about to change in a very big way. Expect to see several new products and product lines from the company over the next year alone. Some designed for nothing more than padding iPhone margins. Others, desperately in search of that next big thing.
The Death of Android
Fiction: Android is unassailable
Google cut itself free from the anchor that was Motorola. They strong-armed Samsung into more closely following the sanctioned Google Android playbook. Wise moves.
I sense fear.
Yes, Android dominates smartphone market share. Look closer. What many call ‘Google-free’ Android, AOSP, now garners a solid second place — and is growing at a rate much faster than ‘real’ Android.
AOSP is the “open-source software stack for a wide array of mobile devices with different form factors.” It can power Amazon’s Kindle line, or smartphones made for use in China, for example, where Google search, map, Play and other services are not terribly popular and not welcome by the government.
Does this matter?
Absolutely. Google no doubt believes that AOSP is a necessary sacrifice. It’s availability ensures the rapid spread of the “Android” template and prevents iPhone or Windows Phone, for example, from garnering another new user. It seeds the future for ‘real’ Android — and it is hoped, heavy usage of those most profitable Google services. Except, this is false.
The fact is, the rapid, global embrace of smartphones has altered the entire value proposition of web search and web services — Google’s bread and butter. AOSP may presently be little more than Android without the Google, but it could ultimately become a fully-fledged ecosystem alternative in its own right, one that directly competes against Google on everything that matters to them, and not just in China, but in Japan, South Korea, Brazil, USA, everywhere.
Thus, while I suspect last week’s moves by Google signal the company’s preparations to launch an assault on the Chinese market, it may already be too late. The world’s biggest market for data and smartphones can do just fine without Google. Which means: everyone can.
It gets worse.
Extremely popular mobile services may now have a vested interest in supporting AOSP’s growth. Popular social messaging apps such as Line, WeChat or WhatsApp no doubt noticed that Google made its Hangouts service the default messaging app for Android Kitkat. They won’t sit still for such bullying. What’s to stop them from integrating their service and AOSP and offering a low-end smartphone in the developing world?
In the short-term, perhaps none of this happens. In fact, I expect Google to best Apple as the world’s most valuable tech company, possibly within a few weeks. Save the celebrations. Google’s value arises strictly from it’s ability to capture more of our habits, more of our actions, and monetize them across a near-endless supply of strangers and brands. What we are learning, however, is that despite the rapid spread of Android in all its forms, there are effective alternatives to Google services across every smartphone platform — even its own. Little wonder, then, that Google is moving quickly into moonshots, driverless cars, the connected home, consumer hardware, health and more. Such moves are driven by fear, even if they are shrouded in boilerplate Silicon Valley boasting.
The Rebirth of Facebook
Fiction: Unbundling Will Kill Facebook
Like that persistent meme that teens are abandoning Facebook, the idea that Facebook is being unbundled to death — via messaging apps, social picture apps, Christian dating sites and the like — is simply false. Facebook is benefitting from the unbundling trend.
In fact, after badly stumbling on mobile, after the laughable dung heap that was Facebook Home, the brief marriage to HTML5, and the spats with Apple and Google, Facebook is doing better than ever. More than half its revenues now comes via mobile — no smartphone OS necessary.
This is in large part because the company is embracing the unbundling strategy, shrewdly leveraging its billion users and their extant Facebook identity and eagerness to share everything. That some people want to share only some aspects of their lives with only some others at some times and places, via text or image or video, is fine — every 1 and every 0 feeds the growing Facebook engine.
Let a thousand apps bloom. Facebook will be there.
Barely a year ago, analysts were convinced Facebook was doomed given its utter dependence upon iOS and Android. Now, a case can be made that smartphones, once thought as the device to bring the developing world into the global sphere of the Internet, is already on the cusp of being disrupted. In this new world, it is Facebook (and our Facebook ID) that will connect us all to one another.
The Dogs of War
What I think last week’s official numbers and clever machinations reveal is that the “smartphone” market, which most still believe is a pitched battle between iOS profit share and Android market share, is, in fact, merely the initial wave in a coming tsunami, one that will deliver highly personal, nearly ubiquitous and ever-engaging computing and connectivity to all who want it and nearly all who do not, and in forms we have yet to imagine. Hardware profits and OS marketshare, be damned.
The smartphone itself may be no more than a fleeting, ten-year-blip in computing history. There will be no 30th anniversary for the iPhone. Android will betray its maker. Owning your own smartphone ecosystem does not matter. Everything is in flux. My verse is the destruction of everything — and the great tech companies of our day happily, foolishly oblige.
As Jim Morrison said, “no one here gets out alive.”