Why Android’s Market Share Is No Threat To Apple’s iOS Platform

on November 29, 2012
Reading Time: 5 minutes

iOS Is Winning The Profit Battles

Everyone concedes that Apple’s iOS is currently winning the mobile profit battles. However, many pundits still contend that Apple is losing the mobile wars because Apple does not have the most market share. How can this be? In almost every industry in the world it is profits – not market share – that matters and profits – not market share – that matters most.

Tiffany’s does not care how much costume jewelry their competitor’s sell. Nor do we judge the sales of cars, blue jeans, steaks or any other good or service soley by its market share. Companies like Best Buy, Radio Shack and K-Mart stand as stark testaments to the fact that the one with the most stores or the one that sells the most low cost items is seldom the one with the best prospects.

Does Platform Matter More Than Profits?

Ah, but apparently in a platform war it is platform – not profits – that matters most because it is platform – not profits – that inevitably leads to profits. And it is market share – not profits – that matters most because it is market share – not profits – that inevitably leads to platform victory.

John Koestier of Venturebeat puts it this way:

“As Android hits 75% market share, can anyone tell me why this is not Mac vs PC all over again?”

Dan Lyons, writing for ReadWrite, goes even further:

If this sounds familiar, it’s because we’ve seen this movie before, only in the original version Apple was losing out to Microsoft in personal computers. Now Google is using the same game plan in smartphones: Come in late with an alternative product and gobble up market share by licensing the OS to loads of hardware makers instead of trying to do everything yourself.

Look, when three out of four phones sold worldwide run your operating system, I think it’s safe to declare victory.

And Henry Blodget attempts to spell it all out:

The reason market share is important is that mobile is a “platform market.” In platform markets, third-party companies build products and services on top of other companies’ platforms. As they do, the underlying platforms become more valuable and have greater customer lock-in.

Building products and services for multiple platforms is expensive, so platform markets tend to standardize around a single leading platform. As they do so, the power and value of the leading platform increases, and the value of the smaller platforms collapses.

iOS Is Winning The Platform Battles Too

Only there’s one little problem with the theory that market share matters most in a platform war. By every imaginable measure and in every way that conceivably matters, it is iOS – not Android – that is winning the platform wars. And it isn’t even close.

A computing platform is made up of any number of attributes. Some examples of those attributes are:

adoption of operating system updates; accessories; advertising revenue; app primacy, quantity, quality and profitability; business adoption, BYOD, commerce; consumer assurance, entrustment and confidence; content revenue; control of the platform; credit card numbers; culture; demographics; developers; ease of use; eCommerce; ecosystem; education adoption; engagement; enterprise adoption; government adoption; in-app commerce; integration; lock-in; loyalty; monetization; profits to developers, content providers and publishers; popularity with teens; re-sale value; reliability; repeat customers, retention; safety; satisfaction; security; shopping; stability; stickiness; store quality; switching costs; trust; usage; video views; web traffic.

In every platform attribute listed, it is iOS – not Android – that is leading and in many cases it is iOS that is dominating.

Market Share Does Not Equal Platform

The pundits got it halfway right. Platform matters. But market share does not equal platform. Not by a long shot.

How can this be? The equation of “market share equals platform” is the foundation of the Network Effect – the idea that the value of a product or service is dependent on the number of others using it. Only here’s the thing. In computing platforms, it’s developers and dollars – not units and users – that count towards market share.

This just isn’t that hard. The two basic realities that matter most to a platform are that developers get paid to develop more and better apps and that consumers get incentivized to buy more apps and pay more for those self-same apps.

When the facts do not fit the theory, you either question the facts or you question the theory. The theory that “market share is all that matters” is flawed because the opposing facts are incontrovertible:

1) Developers are deveoping for iOS first;
2) Developers are making more money via iOS;
3) Consumers are downloading more content and apps, engaging in more eCommerce and consuming more advertising via iOS; and
4) Consumers are spending more on the content, apps and items they buy and the advertising they consume on iOS.

The Network Effect that John Koestier, Dan Lyons and Henry Blodget are banking on is alive and well. But it is iOS – not Android – that is reaping all of its benefits and rewards.

Why Android’s Market Share Is No Threat To Apple’s iOS Platform

Again, from Henry Blodget:

The biggest and most important difference between the PC market of the 1990s and the mobile market today is that many of the most common smartphone “apps” are available on all phones, regardless of platform. These include:

Phone
Email
Web
Texting
Popular games and apps

What this means is that you’re going to get most of your smartphone functionality regardless of which platform you use.

Ironically, spot on.

The pundits – including Henry Blodget – have it exactly backwards. You don’t HAVE to have a great platform to be successful in mobile. Android is living proof of that. Remember, when Android first emerged, it was iOS that had a 200,000 app head start. If platform was all that mattered – if we were re-living the PC v. Mac wars – then Android would have played the role of the Mac – or worse, the Amiga – and never have emerged from its nascency.

The bottom line is that there are really two smartphone markets. Android is an excellent smartphone. iOS is an excellent platform. Both can, and do, co-exist. And therein lies the answer to the seeming paradox.

The Right Diagnosis But The Wrong Prescription

Let’s re-review Henry Blodget’s argument:

The reason market share is important is that mobile is a “platform market.” In platform markets, third-party companies build products and services on top of other companies’ platforms. As they do, the underlying platforms become more valuable and have greater customer lock-in.

Building products and services for multiple platforms is expensive, so platform markets tend to standardize around a single leading platform. As they do so, the power and value of the leading platform increases, and the value of the smaller platforms collapses.

Henry Blodgett’s diagnosis – that platform matters – is entirely right. His prescription – that market share cures all ills – is entirely wrong. Android can continue its unit and user market share dominance without impinging on iOS’ platform dominance because it is developers and dollars that are the only market shares that really matter.

— It is iOS – not Android – that is attracting the third party companies to build products and services on top of their platform.
— It is iOS – not Android – that is becoming more valuable with greater customer lock-in.
— It is iOS – not Android – that developers, content providers, advertisers and eCommerce sites are standardizing around.
— And it is Android – not iOS – that is in danger of having the value of their smaller platform collapse.

Conclusion

Don’t get me wrong, Apple has plenty of things to worry about. But a flawed theory regarding platform and the Network Effect isn’t one of them.

Let’s stop focusing on market share without context and let’s start focusing on what matters. Market share does not necessarily equal profits. Market share does not necessarily equal platform. And in the long run (and in the short run too), market share that doesn’t ultimately lead to profits is meaningless.

Anyone can get market share. All you have to do is give away your product at cost or, better yet, for free. But you can’t beat Apple’s iOS just by losing money. Somewhere, somehow, sometime you’ve got to make a profit. Let’s stop pretending that market share is the bottom line or the only thing that matters. Profit and platform matter. Let’s focus on them, instead.