The Android Schism

I find it helpful to view certain tech industry moments as phases. These phases have some foundation in technology and the market’s maturity cycles. The PC industry went through a number of phases leading to where we are today. Mobile similarly has gone through its early phases and is now entering maturity both in technology and market/end customer phases. However, where the PC phase ended and is, for the most part, not changing much, mobile is entering uncharted waters.

It is interesting to observe that the PC industry took computing only so far. Everything from size of desktops and notebooks (with their genuine lack of mobility), the complexity of the user interface, the need to learn to type efficiently and master the keyboard and mouse (to be PC literate), and high price points, has reached a total installed base of about 1.5 billion. It is important to note not all of the 1.5 billion PCs are owned by individuals. The individual owners of PCs in use is much lower by likely a few hundred million. The consumer portion of this number is in the 800m range. So, if we look beyond the business market, the PC took computing to just short of a billion people. The PC has peaked, reached maturity, and settled as a specialty computing product. To use a possibly worn out analogy, the PC is a truck.

Turning to mobile, we see a different computing picture emerge. By achieving a smaller form factor (one truly able to be easily carried everywhere), dramatically less complicated user interface, and dramatically lower price points, the smartphone is bring computing to the masses in a way no computer before could have hoped to achieve. In doing so, the unique/individual owners of smartphones in use is nearing double that of the PC and will rise much higher. However, even within that context, a very important observation needs to be made.

For the most part, this first phase of mobile grew from a somewhat technology literate/savvy customer. The vast majority of smartphones over the past decade have been sold to people who owned or were familiar/literate with a PC. Smartphones, for the most part, have reached saturation in developed markets like the West, Eastern Europe, and more developed regions in emerging markets like tier 1,2, and 3 (the more developed) cities in China and India. In fact, as I look at the regions of emerging markets where smartphones have the higher installed bases, it maps very closely to specific areas of those markets where PC penetration is high. The next phase of mobile is about bringing computing beyond those who are tech savvy or have PC literacy. But first, some points on the current smartphone market.

The First Phase

Benedict Evans is known for stating that, in this phase, Apple and Google both won and this is true. However, I’d revise this statement to say Apple and Google both got what they wanted. Apple sealed up the top end, most profitable customers in this first phase of mobile — 400-500m of them by now. Android got a global critical mass of customers, which supports a certain type of business model. Google’s Android has approximately a little more than 1 billion global users. China’s versions of Android has roughly ~450-500m and the iPhone has approximately ~425-450m of a global installed base of smartphones of over 2 billion. ((While some percentage of smartphone owners today have multiple sims, and in some cases multiple smartphones, the individual/unique owners of smartphones has to be nearing or just past 2 billion). I created this chart, which I detailed (among other things) for our Insiders on the smartphone market in a report. It is a picture of how I visualize the platform share within the smartphone price ranges of the first phase.

Screen Shot 2015-02-07 at 8.01.27 AM

As you can see among the top end of price ranges, Apple has the majority and their share appears to be increasing. Android has the vast majority of the rest. The bottom is left intentionally blank since, at this point in time, we do not know nor should we make vague assumptions about the OS which will dominate this next phase of mobile. How we got to where we are today in smartphones has been clear. Apple and Google/Android both got what they wanted and what happens during this next phase, the subsequent filling out of the empty part of the above chart, is going to be fascinating.

The Next Phase

To illustrate this next phase I’ve made this chart.

Screen Shot 2015-02-07 at 11.58.55 AM

This is the historical and future projection of internet users. I make the observation that, over the next 5-6 years, we will add more Internet users than in the previous 30 years. This will be driven mainly by two things. The conversion of approximately 2 billion feature phone users to smartphone users, and smartphones costing less than $100 (in many cases less than $50). This is the foundation of the schism I see happening for Android.

Google has a base of rapidly maturing customers (just over a billion of them) who will continue to expect innovation around the platform in areas they consider valuable. Areas around cloud, imaging, sensors, and so much more. Android’s current user base is increasing in their sophistication. As computing advances, so should Android for this customer set. Yet, in this next phase, Google is going to also want Android to appeal to a first time smartphone user, say a farmer in Africa, for example. So the question is, how does Google evolve Android to cater to both their most sophisticated, demanding, and profitable existing customers, and a first time customer in Africa who is absolutely not PC literate and may not be literate at all? This creates a fundamental problem at a platform level and at a business model level, for Google. This is why I say we can’t make assumptions about which platform will win with the next two billion. The user base in question is using feature phones today. They make calls and have type literacy around 10 key and or radio/TV dials. This is the extent of their technical literacy with electronics. It is in addressing this next phase of mobile where I believe the Android schism happens.

Could it be an Android fork like Cyanogen has the most potential in this next phase? Could it be Windows Phone has an opportunity? Or maybe a web platform version like FireFox OS, that simplifies everything to web apps? Or perhaps Google figures it out, or comes up with something completely different than Android to address this new set of customers. The point is, we have no idea. It is a green field. It is uncharted territory for computing.

However, a question I’ll leave hanging: Is there opportunity for a new platform in the areas Google chooses to not address and, if so, is that user from the first phase or do they exist in the second phase?

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

1,008 thoughts on “The Android Schism”

  1. I think that you are really raising two questions:
    1) can Google create a version of Android that is simple enough for new users and has enough functionality for seasoned users? I’d say, maybe.
    2) would the next version of Android seriously over-serve new users? Almost certainly.

    1. I think over-serving is a consequence of network effects and economies of scale.
      Say one could save $30ish on an entry-level smartphone (out of $100 for an Android ONE handset, there are cheaper …mmm… non-ONE ones -sorry-). That comes at the cost of a barren ecosystem, probably a lackluster OS, not to mention weaker hardware since that’s the whole point of the exercise.
      That equation can probably be made to work in spite of carrier costs overshadowing handset costs in that scenario, but it would need to work fast and on a large scale to justify the investments (designing the hardware, the OS, building the ecosystem), and Android is trying to preempt that via Android ONE (free HW design, free ecosystem, free OS). MS/Nokia and Samsung are still making good sales with their pre-smart phones (Symbian and whatever Samsung’s are)

      1. I think we all have family members who are severely over-served by existing PCs. They would literally be better off with a “Fisher Price” simple operating system rather than an OS that only partially shields them from complexity that they cannot manage.
        The next 2 billion mobile customers may well prefer the simple OS over the complex one even if it is the same price. I think there is an opening for Cyanogen if they play it well (although the a16z podcast seems to suggest they prefer to focus on clever stuff).

        1. Indeed.
          Old people around me love Metro and Android vs desktop Windows. Both use similar UIs (home screen + home key, though Windows likes a Back button) and full-screen apps. Many seniors around me have switched to their tablet as their main computing device.
          Cyanogen is just an Android mod, it doesn’t really deviate, and when it does, it’s towards the geek demo indeed. I think Windows Phone is a better Android alternative for newbies, if you’re unwilling to put in the time to configure Android for newbies.

          1. In the end, these are just shells running on top of an OS. There’s no good reason in my mind why a user can’t choose what suits them. Better yet, ship with the simple shell, but permit more advanced ones.

            Of the many reasons Apps get disallowed, one is because the hardware can’t handle it. Saying it’s too complex, too bad of an experience, only disingenuously masks that case.

          2. “Cyanogen doesn’t really deviate” – yet!

            Perhaps expect disruption from Cyanogen in the future. Already have distribution & agreements with OEMs.

            Also expect competing services to better serve localized regions where Google cannot.

  2. I think the high vs low-end dichotomy is a manufactured debate:
    1- High-end vs Low-end is mostly a hardware thing. Screen, camera, casing, CPU/GPU, battery, storage, RAM… OSes (and ecosystems) have handled those performance and features disparities for decades.
    2- Apple is proving that high-price is not so much a function of high-end, but of branding, ie it’s mostly casing+branding dependent, not really performance+features. Perfect job for Android’s OEMs.
    3- Apps in general, and even Android in particular, are flexible and can be tailored for different experiences suitable for different user profiles (and different hardware). My elderly mom’s Android’s home a 6 big buttons, a huge font and keyboard, no sliding motion required anywhere. Launcher, keyboard, icons/widgets, voice recog, even Google’s cloud services can be used or not, replaced, re-skinned…
    4- Whatever Google does can be extensively tweaked by OEMs. Samsung added windows, pen support, KNOX, user accounts, a proprietary connector, their own apps and stores for everything, a custom Launcher,…; other OEMs have added per-app permission management, made gaming consoles, … It’s easy to add anything, it’s easy to morph the OS for unintended devices, it’s even easy to replace and/or hide parts of the OS’ and ecosystem’s capabilities. The only rule are: don’t break compatibility, and include Google’s apps (those don’t even have to be kept as defaults, mind you, just to be there somewhere).

    The branding thing is an issue, because once you realize you can get the same capabilities in an uglier case for 30-50% less (and that case will more often than not be hidden in a protector), the rational brain kicks in and the race to the bottom begins.
    But there is no other, specs/functional issue.

    1. Whether is a manufactured debate depends on who it matters for. Since I talk with so many in the component ecosystem, it is a concern, that they have no area for premium parts. The Android hardware landscape is becoming a very tough one to monetize hardware. Hence my thesis the Android ecosystem turns into one lead by service providers not hardware companies.

      My point about these new customers is not just how apps can be flexible, or UI tweaking, so much as it is the services. Where Google believes Office or MS services vastly over serve the mass market, so does it make sense that Google’s service vastly over serve the needs of the next few billion. Facebook’s services, however, are right in the sweet spot. Of course their needs will mature, or at least some of them, but we are about to bring on board to the Internet billions of people who have very little income, and are most valuable to their carriers and few others.

      The overall point I wanted to make is to simply state we can’t assume Google wins this next billion plus. We are in uncharted territory, their business model is in uncharted territory. Perhaps what works with the next two billion is fundamentally opposed to Google, or maybe it isn’t. I’m just stating the economics of this next few billion is going to challenge everyone in the mobile industry today in new ways.

      1. Ben, given the large markups Apple takes over BOM , and on the other hand the lower and lower markups android companies are beginning to take on phones(for ex. xioami) , isn’t the BOM of apple
        s devices similar to the BOM of some android devices at the $300-$400 range? Or at least isn’t it the direction the market is going , with new business models like xiaomi(and others who copy it)?

        1. While I don’t do exhaustive BOM analysis, I follow some parts of it closer than others. With Apple this is truly a bit hard to calculate, since they spend CapEx on proprietary processes related to manufacturing. So those costs are not associated with just plain component costs as they are separate. So while the actual materials/components may be similar if you added in proprietary processes they would actually by higher but by how much I am not sure.

          Xiaomi’s BOM is usually very close to the price of the hardware. But BOM is going to down to make decent black plastic rectangles (smartphones) which allows people like Xiaomi, and a host of others soon as well, two utilize a non-hardware centric business model. I’m increasingly convinced Apple is the only one in position to monetize the hardware, amongst other things.

          1. absolutely.

            Those new entrants replicating Xiaomi & others will compete directly against Xiaomi & others on the low end.

            They don’t compete in the high-end

          2. You raise an interesting point about CapEx for new manufacturing processes at Apple. My general impression(and i could be wrong), that most of Apple’s unique manufacturing is used towards more appealing design ,not towards better functionality or UI, because Apple can monetize such things well(and it also greatly helps its brand, one of the tools of creating a luxury brand image is by claiming access to unique/magical creation processes).

            But usually if we’re talking about better functionality ,some other company will come with a way to make Apple’s technology, in time. For example i think cypress is now working on a fingerprint sensor that works well as Apple’s. And corning just recently introduced a glass that they claim equivalent to sapphire.

            But if possible , i would be interested in hearing more on what parts you see as having problems .

            I generally agree with you that Apple could be the only one that might be able to monetize the hardware, but it doesn’t rule out someone selling a $200 phone at BOM cost(which is exactly the iphone 6 BOM) while earning revenue somewhere else. Or does it ? Do you think the $200 price point going away ?

          3. Yes.

            Except it doesn’t compete.

            It’s on the high end.

            What is the BOM for Luis Vuitton handbag?

          4. Logan, the issue here isn’t competition on the final customers. The issue here is whether android component makers can sell their components in high enough price to create high-end components.

            Since what goes to components makers is the BOM price ,it makes sense to compare the BOMs.

          5. Apple spends a lot on, among other things, chip design, as opposed to just ‘appealing design’. Because of this, other manufacturers do not have access to Apple’s custom processors. I had earlier suggested that you look at Ben’s other article. He lays out the case that without sufficient high-end customers, other chip manufacturers will not be able to spend the resources necessary to develop competing processors.

            For example, if Samsung cannot sell enough high-end phones to justify a large enough scale order for high end chips from Qualcomm (or from themselves), then Qualcomm cannot reasonably justify the R&D expense to develop a comparable chip to Apple’s since there will be no market for it. Pretty soon, Apple winds up as the only designer of high-end processors and, correspondingly, the only consumer of high-end processors. It becomes a self-reinforcing cycle for Apple. Unfortunately, for other companies, it becomes a negatively reinforcing chicken-and-egg cycle.

            Apple spent a long time in the negatively reinforcing cycle where no one would pay much attention to them due to their small scale (i.e. IBM and low-power Power PC chips). They understand the ramifications of this cycle quite well. They have now figured out how to use it against their competitors.

          6. The biggest problem I see here may be Apple’s ability to design such a device. Apple always says that they design products that they themselves “want to use”. Nobody who works at Apple would “want to use” this ‘Apple phone’. They are not in the target market.

            To design this product, the designers would have to capture the mindset of an illiterate African dirt farmer. I’m guessing that this would be a pretty atypical mindset for Silicon Valley. Still, it could be possible to do.

            Also, Apple prides itself (rightly so) on its accessibility features. This phone could be very profitable (from the scale of reusing older iPhone components) and provide accessibility to the impoverished and literacy challenged. All the while, helping them move up the chain to being able to use afford and use your flagship iPhone.

          7. I’m not understanding your argument. Yes Apple goes after the high-end – products they themselves want to use.

            They’re not going to go after impoverished or “illiterate African dirt farmer”

            Why would they?

            Why do you think Apple would want to or why do you want Apple to target that market?

          8. I’m making an argument that I had not even considered until I read Glaurang-Quena’s post below. It is definitely far fetched. It is also not Apple’s ‘normal’ high-end target market. But, his post got me thinking about a lot of Apple’s stated goals, things like wanting to change the world and delighting their users. As stated many times, they have no desire to make junk, or to make something ‘cheap’ (though the iPod shuffle clearly shows that they don’t mind making an inexpensive quality product that targets a particular market).

            Everyone assumes that to target this market Apple has to make a ‘cheap’ version of the iPhone with neutered functionality. Based upon Glaurang-Quena’s post, I’m suggesting that they actually design a phone targeted at the particular needs of this market, not a specifically reduced functionality iPhone. The functionality required by an illiterate peasant/farmer/etc. would be very different from the versatility of the iPhone. I think the biggest challenge here is how do they achieve the mindset of the target customer well enough to actually design this product. They normally make products that they want to use. They would NOT want to use this product. It is not remotely for anyone who works at Apple. But, it needs to be useful, understandable, even delightful to use for its target market.

            Due to its limited requirements, it could use older Apple components that would in no way impair its functionality but that would be quite adequate for its needs. This would keep the BOM very low. Because the functionality would be so specifically targeted to the customers needs, no one capable of using and affording an iPhone would ever consider using this phone in its place. But as mentioned in the article, this market would be both over served, and underserved, by an iPhone. The iPhone would NOT have whatever special functionality that was developed to address the needs of this market.

            I seriously doubt that Apple would ever even consider doing something like this. But, I think that there would be a serious upside for them to do it. Here’s my naive side of this, Apple does things because it’s the RIGHT thing to do. But by targeting this 2 billion person market specifically, they do the right things and not only make a lot of money (yes, nothing’s a lot compared to the iPhone), they build up a lot of goodwill by helping people move up the chain to where an iPhone is both affordable and makes sense.

            Imagine that you’re extremely poor and need a mobile. All that you can afford is the cheapest of handsets. This phone has no special functionality to address your needs. It is targeted as being the cheapest thing that the manufacturer can get away selling. Now, imagine Apple comes along with an inexpensive phone that is explicitly targeted to your needs. It bears little resemblance to any ‘modern’ smartphone. But, it is clearly targeted to the needs of an illiterate peasant (and, yes, I have no idea how to do this). It’s not a hand-me-down, or bottom of the barrel mobile. It is a clearly targeted inexpensive device. As it starts helping you improve your life and business, and as you start moving up in the world, however slightly, you’re going to know which manufacturer thought of you and didn’t just try to pawn off their old stuff onto you. When it makes sense, you’ll be aspiring to an iPhone.

            This whole idea is quite a stretch, and it’s probably just idealistic nonsense, but it doesn’t seem so far out there to me to not be possible. I also think Apple could make quite a bit of money off this market segment while grooming them to move up and buy an iPhone thereby making a lot more money.

          9. Has anyone considered that the subsistence farmer in Africa/India/Peru might not need an iPhone, that maybe the next iteration Apple watch at $200/150 would fulfil all their requirements?

          10. I am making the argument that they do NOT need the current iPhone. But, I do not think that an Apple Watch type product would suffice. Since, we’re assuming that a substantial portion are illiterate, pictures, and therefore a larger screen would be required. At some point, this would likely be their entertainment device, too. Also, they need the best battery life that they can get. My proposal was that they need a phone tailored explicitly to their needs, not just a cheap phone.

          11. Eric, my reply was about manufacturing processes, not components. But processors belong to components and the way to judge them is by looking at BOM cost(bill of materials) , like i said in my previous reply to ben, and with regards to BOM cost ,the BOM of iphones is similar to some android models(which sell for lower than the iphone, but still it’s no problem for component makers because they get their BOM cost).

          12. I think that you’re missing my point: an equivalent processor will not be available to Apple’s competition AT ANY PRICE. Therefore, even with the same BOM cost, it will not be for equivalent components and therefore the end products will not be equivalent.

      2. That doesn’t have much to do with Android though, Android never has been, and isn’t being steered towards, a walled garden approach. Android is about Google having a fair shot at showing their ads and building their internet properties, which an MS+Apple duopoly would certainly make much harder, and Android probably does ease, but only a wee bit (it didn’t make Google Plus a success, and Hangouts isn’t taking the world over by storm either.).
        Same as Google “only” has 3 of the 10 billion+ MAU internet properties (can’t find that source anymore), we can assume they’ll have quite a few misses for the next layer of Internet properties, the one targeting that last 2 billions.In this age of Disruption everywhere, Google is staunchly applying the tenet that each service has to stand on its own merits, ie Android is not a buffer against other properties’ Disruption, it’s an open gate so there can be competition.
        So Indeed, serving the next billions requires different devices, a different OS, different apps, and different services. Google could mess it up, but I’m not sure how Google they could be better positioned to tackle that challenge right now, with devices only a shade more expensive than the barest ones (and costs spread much wider), a modular OS that can probably simply be skinned for the illiterate, as can its apps, and an excellent experience building (cloud) services.

        1. Actually Google Android is moving toward closed-source. Each year with every new release.

          You’re missing that Google’s services are the monopoly – especially on android (also dominant) the question is – will it last. Do they over-deliver for most. And can/will there be new services that will complete against Google services – for the next billion users.

          1. I’m curious:
            1- what’s closed source on Android now that wasn’t closed source before ?
            2- What is no longer following the “local = AOSP, server-based=GMS” guideline ?
            3- What Google services are a monopoly ?
            Of course there will be services that will compete vs Google services for the next billions, like there are for the previous billions.

          2. 2 flavors of Android:

            Google Android w GMS (Closed)
            Open Android (AOSP) Open – more & more deprecated by the year

          3. I reiterate the 3 questions. Any answer ?

            As for you dichotomy, you’ve got it wrong: there’s 2 *parts* to Android: the local part (OS +Apps), which is AOSP, and the server-based part, which is GMS (the S actually means Services).

        2. I agree with you on your comment above. At the same time, I’m not sure that your argument is relevant to the issue that Ben is bringing up.

          Ben has said that Android has been a success for Google so he is in agreement with you. Also I don’t think that anybody seriously thinks that Android is a buffer against other properties’ disruption; instead I think it is actually the other way around. The threat of losing Google Play Services is what prevents OEMs from forking Android. And I agree that from a technical and market adoption standpoint, Google is in a very good position to capture the Next Phase.

          The problem is the money. OEMs aren’t making much money by selling phones and they will make even less as they target the Next Phase. That’s hard to argue against as it is showing up in the financials for each company. Also it’s unlikely that companies are willing to pay advertising dollars to show ads to the low-income Next Phase, although whether this will continue into the long-term can be debated.

          The question as I understand it is, will Google keep on going after the Next Phase even if it doesn’t make financial sense for them? Or will Google find a better way to monetise the Next Phase of users? Or will someone else come along with a new approach? Furthermore, by chasing the Next Phase of users, will it jeopardise the appeal of Android for high-end users?

          Since I think we are actually agreeing on the first part, I think we should argue about the second.

          1. OK, let’s do it:
            The marginal cost of going after the next phase is very low on the hardware+OS side. Even if Google need to illiterate-ize Android on top of localizing it. The hardware is already here.
            Monetization is more of an issue, Media/Apps and Ads won’t bring that much from the very poor. It seems supplying services, ie banking, payment, messaging, trading… is important, and Google are not in that local to hyperlocal game.
            As I explained in my original post, and don’t think going after the low-end precludes going after the high end. The most glaring issue is branding, giving up on Android Silver is a weird move (probably kowtowing to OEMS who want to go it alone ?).

            In the end, the low additional cost kinda makes up for the low rewards ? And locking down the low end might be valuable, to prevent the resurgence of Windows or the emergence of another ecosystem ?

          2. Except going after the next phase & even more low-end is not cheap at all from a services point of view.

            With little to zero (closer to zero) chance of getting a return on investment. (Already really low with Android & GMS as it is currently)

          3. I basically agree, although I have a few doubts about a single platform spanning low-end and high-end.

            As you say, as things stand, Google’s efforts for the Next Phase seem to be defensive.

            I’m interested in what Google’s financials will look like this year (will growth continue to slow down?), and will that prompt them to focus on revenue generating activities, instead of playing defensive games over low revenue potential customers, or going after silly “moonshots”.?

  3. I predict that in under 5 years, Google will jettison Android like it has so many other prodcuts. At this point, Android is no longer able to keep pace with iOS – not just in terms of features, but especially interms of benefits leveraged from the ecosystem – 64 bit, Touch ID, and Apple Pay are three examples of Google falling far behind. Also at this point, Google is no longer capable of managing the platform due to fragmentation. That the number of people running the latest Android OS can be meausred in signgle-digit percentage points means that Google can not capitalize on premium features at the top tier that depend on having up-to-date devices.

    The point you make in this article adds more weight to my wager. Creating an OS that appeals to sophisticated high-end buyers is mututallyl exclusive from creating one that appeals to unsophisticated buyers in 3rd world countires – the next 2 billion Internet users. Android can not straddle these disperate worlds. If Google doesn’t pick one, it will fail at both. And with the data coming out of 1st world nations, I’d say Google has completely lost the battle for the high end to Apple.

    Android no longer passes the sniff test for a product in Google’s stable. Despite the user base, which I don’t think matters to Google in any way, there’s nowhere near a return large enough to justify the investment.

    So I’m sticking with my prediction that within 5 years from now, Google will wash its hands of Android. They will herald the moment as a major contribution to the open source community [where Google will dump Android] and move on to some other head-fake business model designed to capture the essence of people’s private lives with honey-pot products and services.

    1. 1- fragmentation is a false problem. Targeting Android 4+ nets you above 90% of users, and libraries + the very design of the OS let your apps adapt within that range, and even outside of it. Also, Android is modular, so having an old version of the OS doesn’t mean you have an old version of GMS, Chrome…
      2- all other examples point to the contrary though: MacOS and Windows serve users from the very IT-averse to the expert. So does iOS, too: buying an expensive phone doesn’t mean you’re an expert. In my experience, actually the contrary.
      3- w/o Android, Google would be dependent on MS and Apple to keep feeding through their searches, maps, Cloud, media, payment… requests. Those two are, on the contrary, trying to keep a growing share of those revenues, so Android is more than ever needed to feed Google’s core business.

      1. Fragmentation is not a false problem. It’s exactly why Google couldn’t get Wallet off the ground after three years whereas Apple Pay eclipsed it in only a few months. Wallet is nowhere while Apple scoops up the whole of digital payments.

        Tim aptly points out that Windows and Mac OS are unknowns to the next 2 billion people and both iOS and Android are not suitable for computer illiterate people and illiterate people in general.

        Android is not achieving what Google designed it to do – to convert their ad platform to mobile. I would argue that Android is nowhere near feeding enough to Google to justify its cost. And now that the high end is lost, that’s only more accute.

        1. Fragmentation being the cause of Google wallet’s failure seems a leap of faith. What’s the reasoning ?
          I wasn’t saying AmcOS and Windows help understandion iOS and Android, I was saying a single OS can serve users on a wide spectrum of computer literacy. As for just plain old literacy, I’m farily confident it’s merely a matter f tweaks: Android for itself can do off-line speech recog and synth, complicated text-driven apps and tools can be swapped out for simpler, for visual ones… That scenario certainly does require tweaks, I don’t think it requires a brand new OS, ecosystem…
          Android is achieving keeping Google in the loop in spite of other ecosystems being increasingly closed, curated, monolithic, proprietary. It is a defensive move, but it is succeeding and probably bringing money, not costing money.

          1. You can’t see how hardware fragmentation and software fragmentation prevent Google from rolling out a digital payment service across their devices?

            Same goes for 64 bit

            Same for AirPlay

            Same for Continuity and Handoff

            Google can’t compete against these Apple technologies because it can’t deploy them acrosss its user base. Google can’t rely on the existing base to raise up new pillars in its ecosystem. Competing with any of these Apple technologies means Google is doing it on a sliver of their installed base while Apple relies on 80 or 90% of its installed base.

            The features that will differentiate iOS from Android going forward are going to be more and more ecosystem centric. Android can’t compete with that.

            The Apple Watch is a prime example. It’s aimed at iPhone 6 and 5S users. Apple can capitalize on a huge part of its base because they’re up to date with the latest OS and modern hardware that’s standardized. Fragmentation of one’s own product line prevents other manufacturers from releasing products dependent on up to date technologies – there just aren’t enough people using them to make the investment worth while.

            It’s a nasty self-fulfilling feedback loop for Android.

          2. Your prime example of Android fragmentation hampering Android is smartwatches, which have been out on Android for over a year, and Apple hasn’t yet released ?

          3. Stay tuned as the Apple Watch defines the category and dwarfs the sales of all other smart watches ever sold combined. And for the record, Apple Pay is bigger than the Apple Watch. It’s not a prime example, but just one of many.

          4. Do I need to point out that you yourself called it “a prime example” in “The Apple Watch is a prime example.” ?

          5. Utterly weak argument there. Up until this one, I thought you were dispassionately discussing the subject.
            Okay, yes, Android smartwatches have been out over a year now. How do they work? How have they sold?
            I guess being out over a year is some sort of victory?

        2. The point regarding Wallet is spot on. And Apple’s ability in this regard has its history in the decision from the very start to not allow third-party to mess with its operating system and hardware. It could have been one of the most important decisions Apple ever made, especially now in regard to mobile payments,

          1. And I guess a platform neutral form of payment is just that hard to do…
            The required deals to pull it off are much harder, but that’s not tech.

        3. Fragmentation wasn’t the cause of Wallet’s failure. That was Google’s lack of leverage against the carriers vested in ISIS/Softcard who blocked it. Wallet shipped on so few devices that it didn’t even get the chance to fail.

          1. I would say that is part of the fragmentation Android suffers from, not just software or hardware issues, but also carrier imposed restrictions. That is one of the strengths of Apple’s platform, how they keep the carriers (largely) in check so that iPhones across carriers are pretty much all capable of the same things.

            Joe

      2. I agree that fragmentation as an issue has been over-played, particularly from a cell/smart phone consumer position. The cell phone industry has made consumers suffer from fragmentation for so long, it is actually the norm and consumers are used to it. It is a PITA from a developer position, but that’s the cost of doing business on Android.

        Where I am seeing it become an issue (but still not to the extent most critics want to paint) is some apps need 5.0. My brother just experienced that with a Ryobi internal wall inspector. It works on iOS 6.0 or better, but only Android 5.0 or better. His one year old Android phone is worthless for this project.

        Maybe as more developers start demanding the latest Android OS, more cell phone makers AND carriers will get off their duff and stop making “The Latest Android OS” a “feature” to sell more phones. Or at least offer and speed up OS updates.

        Joe

        1. You bring up a great example. Yes, it’s an issue.

          It’s still hardware/software requirements as with anything else having to do with computers. Does Android 5 have features that are absolutely required by the Ryobi App? If so, fine. If not then the fault lies with Ryobi. In either case the fault does not lie with your brother.

          Do we say iOS is fragmented, by the same token, because the iPhone 4 won’t support Siri? TouchID on the 4S?

        2. Tim Cook has repeatedly referred to Android fragmentation publicly, where his remarks are highly scrutinized and certainly not off-the-cuff. But what the hell does he know, right?

          1. To me, the question isn’t “is Android fragmented?” It clearly is, in many ways and for many reasons. The question is for whom is it a problem and to what extent? I just think it is less of an issue for most users and more of an issue for developers, but neither perspective is stopping Android from selling like M&Ms.

            Joe

          1. I saw that, too. I’m not sure why and I take him at his word, he’s been dealing with technology longer than I have, this is not true for his device. I noticed on the compatibility chart there are a lot of Android devices listed as “Testing”. And one device listed as “Incompatible”.

            But isn’t all this what one would expect from fragmentation?

            Joe

          2. Yeah, asked for more detail. He has 4.2.2, but the app won’t show up. When he force displays the Ryobi app and tries to launch it, he gets a message that says something like “not compatible with your Android device”.

            Joe

          3. Thats a pain, some devs are very strict about only whitelisting very few phones. A frequent workaround is to root the device and replace its build.prop with one from a supported/famous model.

  4. “However, I’d revise this statement to say Apple and Google both got what they wanted.”

    I don’t think Google got exactly what they wanted. I don’t think they foresaw or desired the massive leakage of Google ad views and app revenues that came with the emergence of AOSP and other forked versions of Android.

    This of course was a result of the puzzling decision to open source Android instead of keeping it closed but free. A decision that they’ve ever since been trying to walk back. I would chalk it up to a costly, overexcited moment of unsustainable idealism.

    1. First, AOSP is mostly in China, where Google aren’t present to start with, so they’re not “leaking” anything over there, on the contrary they’re adding users and OEMs for their OS and ecosystem: Chinese OEMs add Google services for non-China sales. That’s over 50% of AOSP.

      Second, outside of China, AOSP is mostly on models than don’t meet Google’s hardware requirements (radios and sensors: BT, GPS/GLONASS, gyro, compass,…). That’s a bit of a loss indeed, but there has to be a floor somewhere. Interesting market signal though.
      The other main AOSP source is mods like CyanogenMod. They all provide a direct link to install GMS alongside their variant of AOSP.

      Third, adding GMS to AOSP models is mostly a matter of installing an app or a package, takes about 1 minute, either from your OEM’s appstore (my Chinese Huawei had GMS right in its Huawei AppStore, install like any other app), or from the same repo you installed your modded AOSP ( http://wiki.cyanogenmod.org/w/Google_Apps for CyanogenMod and derivatives, which is most of them , same install procedure as CM itself: get zip file, run it through install tool).
      Everyone around me including myself who buys AOSP phones direct from China installs GMS first thing.

      I think the one sore point is Amazon, but there’s still ways to get most Google apps/services on those, and if they hadn’t gone with AOSP, they’d have baked their own OS, which is a worse outcome for Google.

      So I don’t know where all the doomsaying comes from. The strategy is working as intended. The big issue is Google’s absence from China, *that* would be worth discussing.

  5. Is the cellular bandwidth in the third world actually there to support the projected growth in smart phone usage in that part of the world?

  6. I think we’re going to see a bifurcation of what counts as a smartphone. More expensive phones that can do everything we expect an iphone or Samsung phone do do, and less expensive phones that are not just cheaper and have crappier specs, but that have fundamentally different capabilities.

    1, how much hardware does $50 to $100 buy? How much storage does it get you for apps, how much RAM. Does it include a camera? What about sensors — accelerometer/compass/gyroscope/etc? The more the OEMs cut down the specs in order to make a phone to sell to
    very low income people, the harder it’s going to be to get an
    experience that’s anything like the Android we know.

    2. How can OEMs find ways to keep their first world customers from buying the phones intended for the 3rd world. Crappier specs will only deter those who look at specs. But if one phone can install anything, and the other one can only install a very limited selection of apps, or none at all, that would make a clear break between the kinds of phone.

    From those two considerations, we come to: Just what is a smartphone? Does it have to have a camera? Does it have to have an app store? Or can it just be a device that accesses the internet, and allows using certain key internet services — messaging, email, web, maps, a few other things?

    Which led me to this thought — maybe we shouldn’t write off Apple when it comes to the sub-$200 phone business. Suppose they decide to launch, not a cheaper iphone, but an “Apple Phone” — an ipod shuffle version of the iphone, something that basically provides the capabilities of the original Iphone and IOS 1 (no app store). Built in apps only, very limited in their hardware demands, so there’s
    no need for fast CPUs or lots of RAM or much storage. No camera, or a
    very limited camera with no video capability that doesn’t use much
    storage. No retina display, so it doesn’t need lots of GPU. Put an A4 or A5 chip in it (made with modern processes so it uses a
    fraction of the power and costs a fraction as much as the original). Built with Apple’s usual attention to aesthetics and quality. They partner with whatever internet services are popular in each target market and add those apps to the included bundle, so you get all the internet services you’d be likely to want built in.

    I suspect they’d sell zillions of such phones, and make a fortune doing so. The only thing keeping them from doing something like this, I suspect, is Jobs’ aversion to making a “piece of junk” phone.

    1. Why does it have to be a”piece of junk” to provide the functionality that you describe? The iPod shuffle has very limited functionality, particularly when compared to the iPod touch, but it is in no shape or form a “piece of junk”. It also is in no shape or form an iPod touch.

      Your proposed Apple Phone could serve the same function: very limited access to the Apple ecosystem while providing basic, necessary functionality in an elegant manner such that it clearly is NOT a “piece of junk”. Anyone who would want and could afford an iPhone would never settle for the Apple Phone and its limited functionality, and therefore it would NOT undercut the iPhone at all, even though it would clearly be more ‘affordable”. Even better, the iPhone would still be aspirational to anyone who purchased an Apple Phone and should not affect the iPhone’s aspirational quality for other types of phone buyers.

      I think you’ve hit on an interesting idea!

      1. “piece of junk” was Jobs’ line, not mine. Jobs in 2008, on netbooks: “We don’t know how to make a $500 [laptop] computer that’s not a piece of junk; our DNA will not let us do that.”

        Apple went after the bottom tier of the MP3 player market with a scaled-back ipod. They haven’t done the same for iphone, and I think basically the only reason they haven’t done so is that Jobs didn’t want to – he didn’t want to use a shuffle-like phone, so Apple didn’t build one.

        1. Yes, I knew that you were quoting Jobs. Still, I think that you may have hit on a useful idea for addressing the next 2 billion. You described a product that could be a very differentiated Apple product, address a need for a large market, act as a feeder product for the iPhone, and have pretty close to NO cannibalizing effect upon the iPhone.

          As you suggested, Apple could supply the bare essential of Apps while everyone else could only make web apps. With Apple’s design and software skills, they could make an amazing lower-tier phone that no one who could afford an iPhone would ever consider as a suitable substitution, yet would make that lower-tier market crave having a real iPhone as soon as they could afford one. Your suggested Apple phone would be the aspirational mobile of this lower-tier but accessible, in the same manner that the iPhone is to the mid and upper tiers.

          Everyone expects Apple to disrupt the upper-tier. With your Apple phone, they could disrupt the lower-tier, too!

    2. So you are proposing an Apple Phone to be the IBM PC Junior to the iPhones IBM PC? Or 386SX to the 386DX? Then nobody will buy it. A gimped version of a full feature computing device that is explicitly marketed as the gimped version of a full feature computing device is not long for this earth. People in the third world may have low incomes but like any human being they still have pride, self-dignity, and yes, vanity. You sell them a product that comes with the message “this is designed exclusively for you because you are poor” –that’s a guarantee of market indifference.

      And come on, you know that Apple will never ever make a “poor man’s Apple”. And they shouldn’t because it diminishes one of their most precious assets, their stature as The Aspirational Product in high tech consumer devices.

      1. “Then in the end nobody will buy it.”

        That’s what lots of pundits said about the Ipod shuffle — a gimped version of the full ipod (no screen, no ability to choose which tracks to play next). They were totally wrong. I think a dramatically less expensive phone ($200 instead of $600), marketed not as an Iphone but as a basic kind of internet-connected phone made by Apple, would sell very well. Just like the shuffle sold very well.

        I think The only thing holding Apple back from doing something like this is that Jobs didn’t want to do it, and, the current Apple hasn’t yet re-evaluated or revisited many questions that were decided by Jobs to determine if maybe he was mistaken or biased against something that would in fact make sense for them to do.

        1. Yeah, but the Shuffle is much smaller than the iPod and has its own unique and actually appealing use case. It’s seen by customers not as a cheap iPod but an iPod with a different form factor and use case. Different enough that the customer doesn’t think of it is the iPod designed for poor people. Yes, it’s all about customer perception.

          What is the appealing use case of the proposed Apple Phone — an Apple phone that won’t do a lot of things that Android smartphones at that price will do? It’s only appeal as I see it is “You get an Apple-branded phone cheap!”

          Look, there is no clear dividing line where you can say “cross this and consumers start to think that this device is a lame poor man’s version of the original”. I think the product you propose crosses that line, you think it doesn’t.

          1. I always thought of the Shuffle as an iPod accessory, or an iTunes accessory maybe. It was my extra iPod for when I wanted something really small and just needed to take some of my music with me. I never saw it as a cheap product, but rather something additional I bought along with my iPod and Mac.

          2. While it had many uses, the shuffle was ideally targeted to running, cycling and other forms of exercise where lots of music was desired but where small size and mass were critical. By focussing on these goals, they were able to provide something tiny with virtually no interface and simultaneously satisfy a fairly large market.

            It wouldn’t surprise me if some of the minimalist thinking for the shuffle’s interface help contribute to the process when designing the interface for the Apple Watch: “What do we have to be able to do? What’s the most minimal that we can do in an elegant way to accomplish it?”

          3. Could not the watch become essentially the iPhone Shuffle? Unless you are going full bore gold luxury, it is expected to cost less than an iPhone.

            Joe

          4. Yes, the Apple Watch subsumes the shuffle as part of its functionality. From apple.com’s description: “And when you leave iPhone at home to go for a jog, listen to music directly on Apple Watch.”.

      2. I think Glaurung-Quena’s onto something. Don’t think of it as a “gimped version”. Think of it as a fairly challenging design exercise to make a very specifically targeted device for exactly the needs of the lower-tier. These needs would be very different than the needs satisfied by the iPhone, and as such, neither device would be a suitable substitution for the other one. This distinction would negate any cannibalization of the iPhone market. And, with clever design and functionality, this ‘Apple phone’ could be accessibly aspirational for the lower-tier with out negatively affecting the aspirational nature of the iPhone.

        1. You don’t think of it as a “gimped version”. I grew up in the third world and I guarantee you, such a thing will be seen as a gimped, a poor man’s version. The people who attach no status to the Apple brand name will think “Why should I buy that when the Android over here which does a lot more things goes for the same price.” The people who know about the stature and prestige of the Apple brand will think “Why would I buy this poseur’s Apple and subject myself to endless ridicule from my friends?”

          1. You may be right, and I may be naive to think otherwise. I think that it would be extremely hard to design correctly because it should NOT be designed as a “gimped version”. It should be designed very explicitly with the target market segment in mind. The view should NOT be what can we remove from an iPhone and still sell it. It should be clearly designed to address, as I’ve stated in comment elsewhere here, the needs of an illiterate African dirt farmer (or the effective equivalent elsewhere). It would have to provide effective usability to its target market. This would be a very hard design project because the designer likely has never lived in that world. If Apple could create a useful tool for this market, it would be so different from an iPhone, and hopefully so much better than the other phones targeting this segment, that there would be little latitude for viewing it as a “gimped version”. Again, I’m likely being too idealistic and dreaming a b it too much.

          2. Did you just propose that Apple develop a line targeted at illiterate dirt farmers a.k.a. peasant farmers?

          3. I understand that this sounds pretty “off the wall”, and it probably is! 🙂 But Tim Cook says, and I think that Apple believes, that they really like to make a difference. Talk about “Think Different”!

            Think about the design challenge to make a truly useful device for this market. Not a placeholder, or dumbed down product, but a device actually designed for the needs of its target market, an aspirational device for an illiterate peasant farmer, but one that is actually useful and beneficial for them as opposed to just cheap. And, a target market of 2 billion customers, some of whom will move up to the next tier and remember which company made something for them.

            OK! You win. I’ll ask my therapist about it! 🙂

          4. Not sure what experience of industrial design or indeed commerce you have, but if you look at the range of iPods for example, could you advise which ones are “gimped”. Each model has a different use case. Is this not the proposition for all mechanical products that come in ranges? Think Merc/BMW even cookers and fridges.

    3. Such low end phone will need to be priced competitively with phone with a very low profit margin – which assures it’s low profit margin and this will reduce apple’s general profit margin – and wall street usually punishes companies stock price because of this. And apple really care about stock prices, like most companies – since it helps them get good employees.

      So no , i don’t see apple doing that.

  7. Yes we are in uncharted territory, and I think the best approach is to first identify our “North Star”.

    The North Star may be technical literacy as you touch on in this article. However, I think that this is more of a debate about PCs because the touch interface on smartphones is a) simpler to use, b) does not depend on keyboard literacy (10 key literacy is sufficient). I suspect that anybody who is OK with feature phones should be able to grasp smartphones quite easily.

    Absolute literacy, I think, is kind of a lost cause at this point. Let’s hope that the utility of smartphones further encourages individuals to learn and governments to provide basic schooling.

    The North Star may be revenue potential, as you are mentioning in some comments. I think that you mentioned in a tweet that farmers in Africa are only valuable to their telecom company. This may suggest that telecoms will regain power in the Next Phase. Additionally, I think you have shown us that e-commerce penetration as a percentage of total retail can be higher in some emerging countries, compared to developed ones. This may suggest that e-commerce giants like Alibaba will dominate in smartphone platforms.

    Whether or not Google is overshooting its customers in the Next Phase is closely related to the revenue potential of its services. Ultimately, even Google has to pay the bills and the revenue comes from advertising. Hence the potential size of the advertising market as a whole in emerging markets may be the North Star.

    The North Star may be bandwidth. In particular, bandwidth consumption of native apps vs. web sites. However, when you actually use a browser like Opera Mini that compresses your HTML/CSS/Javascript to 1/10 of the original size, you start to wonder whether this will remain relevant in the mid-term.

    The North Star may be the Open vs. Closed argument. This is however, in my opinion, only secondary. Primarily, it is about which player in the value chain has power. If Google retains power, then Closed Android will win. If however, Google loses power to players like telecoms or e-commerce giants, or maybe other service providers, then Open will win. That Open may be AOSP or Firefox OS.

    I personally think that understanding revenue potential of each player will help us make sense of the Next Phase. I would appreciate an article that would inform me of the revenue and profitability potential of advertising, e-commerce, telecoms (including now messaging platforms like LINE, WeChat), and banking in the emerging markets. I expect the ones with larger profits to expand into smartphone platforms.

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