The problem is the word 'beat' in the title. Markets aren't zero-sum. Apple has thrived over the past decade by focussing on rich margins and on expanding markets, rather than by competing for a bigger sliced of a fixed-size pie.
There's no reason Apple and Android can't both "win" in the phone market. But we'd need to define "win." For Apple it would mean selling a lot of devices and making a good profit on each device. For Google it would mean, uh, some kind of complicated bank shot where more people click on AdSense ads from their phone. (It's hard to see how they'd even know if they won.)
But note that Google would be fine with a future in which the iPhone is still very popular, as long as it doesn't completely dominate the market. (People do a lot of Google searches from their iPhones.) And Apple would be fine with a future in which Android owns the low end of the phone market, i.e. the low-margin commodity devices that are given away free or very cheap with low-end plans.
But of course, stories like "It's X versus Y in a cage match to the death!" are very appealing, even when they're wrong.
Really "win" just means "able to sell lots of stuff and make a profit". Nintendo realized this a few years ago and actually was profitable with the gamecube even though it didn't come close to outselling the PS2.
There is a cage match, and it is for developer mindshare. Google's java clone environment vs. Apple's Obj-c solution.
This was the whole thrust of his article. Code for Android because pretty soon they will be dropping them from blimps for free.
The crucial bit for a developer is how do you make any money on a platform where cheap is the prime consideration. There are more Android units out there than iOS devices, yet iOS devices yield something like 92% of the dollar sales of applications. This is the most important figure to a developer who wants to eat, and yet in his analysis it is strangely absent.
There is a cage match, and it is for developer mindshare.
But that too is non-zero-sum. The number of hours spent on phone software development is increasing rapidly. If Apple continues to sell a substantial number of iPhones, and Android users start buying apps for their devices too, there's no reason there can't be two viable markets for phone-app developers. (I'm not saying it's inevitable that Android will become a viable platform—I'm just saying that, even if it does, its growth won't necessarily come out of Apple's hide.)
I am not optimistic about the success of droid phone store solutions. Much money can be had by individuals coding for app stores on their own, and most individuals will not target both platforms (in my opinion) so they go where the money is.
The fact of the matter is that droid users do NOT buy apps for the most part. Some do, but most do not.
There is also a desire to own the iPhone as a status symbol / fashion accessory. Nobody buys an iPhone clone running Android because it is cool, they get one thrown in for free with their contract.
Considering the number of my co-workers who have been raving about their HTC Desires for the last 6 months, I think you should be careful with your generalizations.
* There are more Android units out there than iOS devices, yet iOS devices yield something like 92% of the dollar sales of applications.*
Android's only outselling iOS in the US, and only since October — iOS still has a 4:1 or 5:1 edge on installed base.
That'll shift over time, of course, but I don't know anyone who expects the iOS/Android revenue split to follow it in short order. Who buys apps for a phone that was dropped out of a blimp?
I don't know about phone apps, but in online games, some of the really big winners that you don't hear too much about are the games that are "free" but then make money off of micro-transactions. Once you get a huge install base, there are all kinds of ways to make money. Perhaps it's a valid analogy.
Apple will always be the Maserati of smartphones — leading-edge, trendy, stylish, downright awesome.
I understand this is hyperbole, but I would have said BMW or Mercedes rather than Maserati. BMWs and Mercedes are know for being classy, solid, expensive, comfortable cars. While there aren't as many on the road as Fords, they are definitely "daily drivers."
Where I live, Maserati is nowhere near even 5% of the market.
This highlander, zero-sum-game view of the smartphone market is good for page views but horrible for real thoughtful analysis. Microsoft seems to be betting its Windows Phone 7 strategy on converting feature phone users to WP7 smart phones. It is going to be a long time before smart phones are zero-sum.
What would be interesting is how tough it is going to be for different app types to switch between devices and what the store situation is going to look like in the next couple of years. Those are more interesting questions when considering what a developer is going to do.
For example, OpenGL ES is standard on iOS and Android, but I believe it is not on WP7. This might be a big hurdle for smaller companies and not allow the development of WP7 versions of some games.
"Apple will always be the Maserati of smartphones — leading-edge, trendy, stylish, downright awesome."
I have a tough time believing any article that takes the Apple Mac strategy and assumes it is the same for iPhones or iPads. It ignores the iPod pricing. It also ignores what the current management team has done with a new device entering a new market. I think the big lie about this type of comparison can be found in the lack of iPad competitors with the same features at a lower price point. The days of Apple not being able to get the best component prices ended in the iPod era.
Agreed! And, I'm disappointed at where he didn't go, namely he didn't mention that during Jobs' exile, Apple's strategy was to make more and more money off fewer and fewer customers, by selling weak products at high prices.
Jobs has brought back an emphasis on building strong products and expanding their market share, in part by relentlessly driving prices down even when anyone with a spreadsheet can see that they could capture more revenue today by keeping prices high and selling fewer units.
The OP really didn't address the fact that while Android will be ubiquitous, hardware manufacturers will not get a free pass to compete with Apple on price as PC manufacturers did during the exile.
Also, the author missed the biggest point of comparison: Mac market share is still insignificant. But Apple's share of the profit is reputed to be larger than the top three PC manufacturers combined.
hardware manufacturers will not get a free pass to compete with Apple on price as PC manufacturers did during the exile
Good point. It reminds me of one of the things Jobs said about 7" tablets not being able to to meet the larger iPad on price. It sounded daft at the time, as the screen is surely the most expensive component, but then here comes the 5" Dell Streak at $550 and the 7" Galaxy Tab at $400 with contract.
Technically only with subsidy: $499 (iPhone 3GS 8GB), $599 (iPhone 4 16GB), or $699 (iPhone 4 32GB). Still not sure if that means as much as it should.
In the UK, the iPhone is only £10 cheaper. Probably they set the prices to meet the US magical prices that end in 99 but translate for foreign markets before rounding.
I meant to put the actual (small) difference in my original post, but forgot to back and edit it, so it actually seems like I'm arguing the opposite of what I intended.
... into bullshit territory. I had to endure a pre-OS X desktop at my first job ('96?) and it was absolutely terrible. When it wasn't crashing hard (requiring a complete reboot) it was barely usable. That was compared to Linux of the same era which was rock solid and lightweight. If pre-OS X was 5% of the PC market, that was 5% too much.
Best thing Jobs did was to throw that entire codebase away.
I don't know about that. I think the Mac market share is pretty good where it's at right now. Certainly it doesn't need to get any bigger.
It's big enough that people need to consider Mac users as a part of their user base. And, it's small enough so malware producers and scam artists stay focused on Windows.
As a Mac user, I don't really see what I'd have to gain from an increased Mac market share. And I don't really see what's in it for Apple either; I mean, they're doing "ok" as it is. Certainly Apple could increase its market share quite a bit by compromising more, but that's just not what they do.
Basically, "Apps" where the big thing that held people to Windows. When people built these apps, non Windows platforms were lucky to get a look-in. But then the focus shifted to the web. Webmail, Google, Facebook, Flash etc. made Mac and PC more interchangeable for many folk, and let people downsize to netbooks and now tablets.
Now people think that iDevice owners are locked in to their "app" purchases. But the same thing, the web, now gives HP/Palm, Nokia/Meego and WinMo 7 a shot, maybe even leaving room for more, maybe an Android fork.
This winner-takes-all view of the market, perpetuated by the cliché of referring to an upstart as a "[market-leading product]-killer" is pervasive as it is unhealthy. No one's product has to kill anyone else's product for a market to evolve.
I tend to think this paranoia and view of the world as winner-take-all traces back to Windows' (and Office's) utter domination, which seems to me quite anomalous in this industry. Most areas of the industry are full of good competitors that each have relative plusses and minuses.
I think the term "beat" is used loosely...Will there be more Android devices than iPhone's....certainly...but there are more Kia's on the road than Lexus' and I'd hardly say that Kia won the car battle...
That's not really a useful comparison, for several reaons. Toyota and Nissan were, at one time, the "Kia" of their day. Up until recently, Hyundai was known for nothing more than producing worthless junk and today they're producing a very well received (and relatively inexpensive) luxury car. The world changes. I just bought a Samsung Captivate which is not quite an iPhone4 but I'm quite happy with the minor downside for the ability to swap in batteries, avoid iTunes, be free from censorship etc.
The thing about articles like this is that the authors are not interested in a real analysis of the situation. It is just unvarnished cheerleading.
"Android" is always going to sell more units than Apple's phones, because Android phones are much cheaper for the cell phone stores to buy and sell. They are to the phone store as the Promaster lens is to the camera store. Comparing meaningless graphs like percentage of market share is deceptive, and it is clear from his analysis that he doesn't actually want the people who skim his little blurbs to actually understand what they are seeing. If he did, he'd show a graph of the dollar turnover of the various app stores.
Short version: you can roll into any phone store in the world and pick up an iPhone clone, and it will be cheaper for you, and more profitable to the phone store.
Refute if you can.
On the edit: typing this on my iPad and yes, a soft keyboard, while pretty good, still isn't good if you a re a touch typist. Corrected for spelling errors.
By the way, this is about the millionth blog post I have seen like this. They could be machine generated for all I know.
"Android will take over because they sell more phones, therefore one should code for an Android app store and platform."
Something to ponder: Are the people who get Android phones (with the exception of a few Java or Linux geeks), because they are cheaper or "free" with the contract, the kind of people you want to target as your customer? Cheap people aren't flashing their cash.
Another point to ponder: Oracle is targeting Google's Java (ok Dalvik, but it if quacks like a duck...) that has been thrown onto every iPhone and iPad clone out there. And Oracle will win their lawsuit, because a jury will simply say, if it walks like a duck...
Is this a safe platform to code for? Maybe, but it is a gamble. Apple is facing a whole horde of jackals and vultures who want a scrap of meat, but they are much more vertically integrated and this includes the development environment, the language, the processor cores, you name it.
The smartphone segment suddenly had exploded — up to 50% of all new shipments were now smartphones, and in another year it will be closer to 100%.
You may laugh at that last statement, but it is more likely to happen than not, and all because of Android. I realized this when I saw the LG Optimus, an Android smartphone now on T-Mobile for $30. Thirty bucks for a smartphone.
That's like saying Mercedes are going to take over the world because the first instalment is only £500...
The LG Optimus costs £175 without a contract. That's very much a mid-range phone. Show me a smartphone that actually costs $30 and I'll take that prediction seriously.
As far as I can see the cheapest Android smartphone you can buy on amazon.de costs €155. (It’s said LG Optimus in pink [0].) That still doesn’t make the $30 comment any less stupid but also shows that a phone with no contract and Android can be had for less than a third of the price of an iPhone without contract. (A 8GB iPhone 3GS costs €519 in the German Apple Store.)
As the lion's share of phones are bought with a contract, this is a point that deafens my ear.
You buy your iPhone along with signing up for the contract. The networks throw in one of the Android iPhone clones for free with your contract. Very few people actually buy an Android phone, in the ultimate analysis, because there is no premium factor in having what amounts to a clunky, limited, and undesired iPhone lookalike with a slow GUI and hardly any apps.
In the PC world, it's a mistake to argue whether or not Apple can beat Windows because it doesn't try to. Apple competes with Dell, HP, etc., not Microsoft. Apple can't beat them all combined but it can definitely beat many, maybe all, of them individually in terms of profits.
It's the exact same with phones. Apple doesn't need to sell 95% of the smart phones out there. It can and will make a bundle just selling 10%.
Apple (OS X) can't beat Windows (Microsoft) but it's not because Apple is not/was not trying.
Apple does compete with Microsoft and would love to be the dominant OS. If they were, their profits and market share would be stratospheric. They're doing extremely well selling just 5% of PCs but can you imagine how well they would be doing if they were selling 95% of them?
The same applies to phones. You're right that they would do well selling just 10% of phones but the goal of every company is to get 100% marketshare.
Clearly, that's not going to happen but let's not fool ourselves: Apple and Google are in a cut-throat race to be the dominant phone OS (in marketshare terms) because the number one is more handsomely rewarded than number 2, in any market, and both companies desperately want to be number one.
If Apple were trying to make OSX the OS with the highest market share they would license it out. They are clearly not pursuing that strategy. If they wanted to sell the most computers in total, they'd lower prices to compete with Dell, HP, etc. They do neither.
I'm sure they'd like to see their market share rise, but their business plan in computers is to own a small but high markup slice of the market, knowing that in doing so they will not be the volume leaders.
Apple is doing well out of their 5% marketshare, because they have an expensive 5% of the market. If they were to serve 95% of the market, they also have (at least) the cheapest 45% of the market.
If it's a battle between manufacturers, Apple have already won.
Out there in the grown-up business world where CEOs don't wear trainers to board meetings, they have a saying - "sales are vanity, profit is sanity". The dot-com delusion of losing money on each sale and making it up on volume remains to this day.
While the margin on an android handset is low and falling, some analysts are suggesting that the per-unit profit on an iPhone is actually increasing. Android manufacturers have very little opportunity to defend their margins, because they have so little room for differentiation other than price and performance. That is one reason why we're seeing things like HTC Sense and MotoBlur.
HTC are very profitable at the moment, which is the best evidence for why you don't want to manufacture Android handsets. Remember where HTC started - making cheap, generic WinMob devices that were house-branded by networks. They broke the back of other WinMob manufacturers by viciously competing on price. They are now facing competition in the Android market from the likes of ZTE who are employing exactly the same strategy.
Here in the UK, you can buy a ZTE Blade for £99 ($160), prepaid with no contract. It's a handset with an 800x480 OLED display, a capacitive touchscreen and Android 2.1, upgradable to 2.2. Great news for consumers, terrible news for manufacturers. I have absolutely no idea how an Android manufacturer could defend against that.
I read an NPD report recently that stated that although Apple had less than a 10% share of the PC market, they had over 90% of sales over $1000. The average Windows PC price was $515, versus $1400 for the average Mac sale. I know which business I'd rather be in.
Are you on the board of Apple? Are you a shareholder?
Then why do you care?
Seriously, why does Apple's profit margin have any relevance to you, a consumer? I would really like to know.
See, I care about relative marketshares as a developer and as a user because that decides application reach, and application availability.
Profit margin of vendors....why would I care? Seriously, why, aside from some pathetic flag waving?
Some of the Android makers make low margins because they are essentially recovering from collapse, at least in the smartphone market. Motorola, SE, LG...was there some proprietary scenario where they would be rolling in loot right now on a proprietary platform? Seriously, do you think that? Is anyone stupid enough to think that?
If Motorola didn't adopt the Android last minute rescue, they would have been done. LG...SE...what option was there for them, given the entrenchment of the iPhone and the network lock in effect of the app market that was quickly becoming unipolar.
And delusions that Apple is immune to competitive forces is the sign of fervent blindness. Even Apple is warning that their margins are completely unsustainable, because no longer do you pay whatever it costs because that's the platform with the Facebook app and the Twitter app and the Foursquare app...but now you actually have options.
Why should a consumer care if a vendor is profitable?
Because profitable vendors offer many advantages to consumers: 1) better support, 2) more R&D for future innovation, 3) better product (result of better r&d, better parts, etc).
I've been buying Apple products for about 25 years. They tend to hold up well, have good support, and continue to offer me great new innovations.
Have you ever tried getting help from a vendor that you know is selling something at 5% margins? Good luck to you...
The customers of our startup(s) also want us to be profitable, because they buy into our vision and want us to succeed, and if a company isn't profitable, it dies, and everyone involved (customers, owners, employees) loses.
>Have you ever tried getting help from a vendor that you know is selling something at 5% margins? Good luck to you..
Dell has incredibly good support (and if you want wipe your arse support, you can pay for it and get it). Their products are also shockingly well built. Seriously, Dell servers are just brilliantly put together.
They manage to combine small margins with a decent product. Everyone wins.
On the R&D front, Apple is a marginal investor in R&D. The iPhone 4 software is great, but the hardware -- it's a collection of off the shelf products. The same stuff that goes in that 2% margin no name device.
Which of course is true for Apple desktops as well. Apple once tried to do their own thing, and it didn't turn out so well. So now it's the same commodity parts that you would find in every discount bin white box brand.
They said their margins would be lower next quarter in their earning call because of the change in the mix of products. They had advised the exact same thing for the quarter just posted but beat their advised estimate.
Looking at the problems other companies are having getting a iPad equivalent into production at the same or lower price point, I get the feeling the iPad doesn't have the traditional margin. Even with that, if they release new iPad models on the same 1 year cycle used for iPod / iPhone then I can see a lower price point next April.
Two things worth bearing in mind. 1. Google had acquired the Android team before the iPhone became popular 2. Mobile phones will sell whether they are smartphones or not, just because a user has a phone capable of utilising a function might not mean they use it, especially if they are purchasing bargain price phones just for making calls and sending texts
I (as a consumer) don’t care who “wins” as long as nobody dominates the market. I even think that’s a distinct possibility but I don’t really know whether my prediction for a fragmented market (kind of like the car market) with no clear winner is merely wishful thinking. As is I (as a consumer) would be slightly less intimidated by an Android dominated market. (Which is funny because if I needed a smartphone I would buy an iPhone.) It’s harder for three players (Google, handset makers, carriers) to be evil than for two (Apple, carriers).
I don’t expect the market to develop very analogous to the PC market at all and I especially think that you can’t just point at that and say it will happen again.
The web is such a massive leveller for different platforms these days, I don't think a comparison to Mac vs PC days works too well. It used to be all you could do with a home computer was buy more software for it from shops, and Windows held a massive advantage in that area; nowadays I wonder how many PC users ever buy new software, except Office. Just get your wifi sorted out and start surfing. Upgrade to new hardware when websites start running slowly.
The author seems to think that because there will be 20 or 50 viable androids they will somehow dominate. It seems to me that this is much more a branding/marketing problem for android.
Categories like this tend to support just two or three brands at the top of consumer mineshare. Think coke vs pepsi or BMW vs mercedes. The problem with android is it's not really a choice for a consumer. By picking android they really need to make a much more complex choice of which actual phone to get. The real choice the consumer is making is iPhone vs droid incredible or some other specific phone. In the end all the manufacturers under the android umbrella are competing with each other as well as the iPhone for mindshare.
I definitely agree that android will have more units out there than iPhone eventually, but I think the iPhone will easily be the brand with the much stronger mindshare in the category. Normal consumers will still see it as iPhone vs all those other phones. Apple will also have the biggest profit in the smart phone category as a result.
Remember, google is selling eyeballs to advertisers, not phones to consumers. They're playing a different game than apple.
> Categories like this tend to support just two or three brands at the top of consumer mineshare.
The consumer electronics market seems a lot more varied than two or three brands holding mindshare. Walk into a store to buy a TV and you'll see at least 7 brands you recognize (Sony, Toshiba, Sharp, Samsung, LG, Panasonic, Mitsubishi). And those are just the asian ones.
Sure, but ask any consumer what they think the best brand of tv is and it will probably fall between two or three brands that they can think of. I'm not saying a particular category can't be big enough to support a lot of brands. I'm saying in the consumers mind there are usually just 2 or three they think of.
No, thats a copout. If you don't have an educated guess, thats fine, but don't pretend thats especially wise, there is value in predicting the future, even if you are sometimes wrong.
The point is NOT to sell the biggest number of phones, as individual units. The point is to make the most profit and a race to the bottom in a market already saturated with what amounts to 50 identical wannabe iPhone clones will not be very profitable in the long run.
The point that the author of the original blog post was laboring over, was that as Android will have a larger installed user base at some point in the future, and therefore he thinks the smart money is in making Android apps. He's wrong, of course, but he is entitled to his opinion. As I detailed above, hardly anybody actually buys an Android phone, it is rolled into their contract. It is a me-too product that, while being functional, is nowhere near the iPhone in several important categories, namely user satisfaction, App developer profit, and per-unit phone profit.
Really, who wins over whom is something that I can not control. Neither do I have any say in the matter. So, what's the big deal? I haven't invested in Apple stock and neither have I bought a large share of Google. Why should I get so worked up about it?
Yes, I'm fascinated by this epic battle between 2 different philosophies, but I really don't care. People, books and my projects just matter more.
I would rather stand aside, read and chuckle than get heated up about something like this. That's what I was trying to say.
There's no reason Apple and Android can't both "win" in the phone market. But we'd need to define "win." For Apple it would mean selling a lot of devices and making a good profit on each device. For Google it would mean, uh, some kind of complicated bank shot where more people click on AdSense ads from their phone. (It's hard to see how they'd even know if they won.)
But note that Google would be fine with a future in which the iPhone is still very popular, as long as it doesn't completely dominate the market. (People do a lot of Google searches from their iPhones.) And Apple would be fine with a future in which Android owns the low end of the phone market, i.e. the low-margin commodity devices that are given away free or very cheap with low-end plans.
But of course, stories like "It's X versus Y in a cage match to the death!" are very appealing, even when they're wrong.