Should Nokia have gone with Android?

Ben Thompson writing at Stratechery has a new post today on BlackBerry and Nokia. In the post he argues that both companies should have opted into Android, and that had they done so, the Android landscape could very possibly look dramatically different (with Nokia as the clear leader, and BlackBerry holding on to their enterprise segment).

Nokia’s “burning platform” decision in Feb 2011 will likely be classic tech strategy case study material (if not already). In the 2.5 years since that fateful decision, Nokia Lumia has sold a bit more than 25 million units (according to Wikipedia), with 7.4MM in Q2 2013. By comparison Apple sold 31MM iPhones in its latest quarter, so it’s fair to say that Nokia’s Windows strategy probably hasn’t been as successful as they envisioned.

Having said that, I do have some doubts over Stratechery’s assertion that Nokia could have dominated Android like Samsung is doing so today:

  • By the Feb 2011 point, Samsung had already sold 10MM Galaxy S phones (in 2010), and a few months away from launching the Galaxy SII. Nokia’s first Lumia phone would only come in Nov 2011. In short, Samsung had already found its formula in Android, while Nokia would be in discovery mode
  • Unfortunately for Nokia, the iOS/Android smartphone era is the first mobile revolution that was started in Silicon Valley, unlike previous chapters in mobile history. The US market suddenly became the world leader in mobile innovation (you can measure it by app ecosystem revenue etc.), and this is a market that Nokia had neglected for almost a decade. Trying to regain a foothold in this market, whether with Android or Windows Phone, is going to be an uphill battle
  • In the iOS / Android era, hardware is not a differentiating factor. This is why every branded Android vendor tries to tack on their own software tweaks and/or even services. Nokia’s previous success relied on high quality hardware with memorable features (a great camera, great support for music etc.), and these strengths don’t come into play if it became an Android vendor. Going with Windows was an act of differentiation – Nokia is the majority Windows vendor with 80% share
  • Unlike the other industries that Stratechery related to (PC and console), the mobile industry has a giant elephant in the room – carriers. This is why I think there is room for a 3rd (or even 4th) platform, because there will be carriers that will give it enough distribution to survive. Furthermore, for an established horizontal service (e.g. Netflix), while the introduction of a new platform means additional cost, it is also a raising the barrier to entry for its competitors (as well as improving leverage against the existing platform owners), so the big services (Netflix, Facebook) would gladly jump in bed with the new platform

What are motivations to fork Android?

There are a lot of discussions – and quite a few attempts – of forking Android. But why would a company try to fork Android in the first place? What are the strategic motivations?

To try to get a comprehensive picture, let’s put ourselves in the shoes of different players in the broader TMT value chain.

A typical handset vendor –

  • Generally speaking, forking Android allows for deeper differentiation compared to run-of-the-mill competition, if the vendor has the software prowess.
  • An extension of the above, another consideration is to offer a customized OS deeply tailored to a specific market, e.g. China, where the local Internet landscape is drastically different from the west, and hence Google search / Gmail / Youtube etc. are irrelevant (making it far less attractive to stick with Google’s stock Android). A lot of big Internet countries actually fall into this category (if partially), e.g. Russia, South Korea, and perhaps Japan.
  • Another possibility is to serve the specific needs of a big customer – e.g. a telco, or a government agency; or generally, a big company that has very specific plans on how the devices will be used (e.g. as a retail POS). This doesn’t generally impact consumers, though I’ll call out telcos later since their perspective is important.

An Internet company –

  • Very similar rationale to why Google created Android in the first place – gain distribution within target audience. For a Internet company with a large enough set of services and users, creating a controlled, dedicated and direct channel with the end-user is a strong temptation. Amazon is the first company that actually did this on a large scale with its Kindle Fire tablets; we shall see if Facebook does something similar next week.
  • Again, in places such as China, there is even more incentive for the major Internet players to fork Android, since Google is conspicuously absent and players would love to fill the void.

A telco –

  • Fewer and fewer telcos nowadays actually have strong value-added-services of their own (we can thank the iPhone for dramatically pushing adoption of over-the-top services – i.e. apps), but for a brave telco that still wants to retain a bigger cut of the pie, backing an OS of their own is a logical approach. China Mobile did this for a while with its OPhone, to little success.

A startup –

  • A startup could be trying to fill the gap for any of the entities above; in that case, the motivation is the same, except it’s being executed by an outside party.
  • There is space for a startup focusing on creating an Android fork without catering specifically any of the interests above. The initial motivation is to capture a sizable user-base by offering a better product, which could serve any number of future monetary goals. An example would be this week’s unveiling of the Smartisan OS in China, which was incredibly hyped up in the tech community. The Smartisan team is focusing on what they think is a far more usable version of Android, in the hopes that superior usability will lead to market share, which they can later monetize either by launching their own phone or other forms of industry partnerships (e.g. as a gatekeeper of their user-base for other Internet services, collecting a referral fee in the process).


A couple of missing points to add to the original post.

For companies (both large and small) trying to target adjacent markets, Android offers a compelling starting point to build an offer. Example adjacent markets are gaming (where OUYA recently unveiled their first attempt) and in-vehicle systems (such as Ford’s SYNC) which are resembling tablets day by day.

Another motivation across the board for large companies is to strategically counter Google’s influence of the market. As in, forking Android just for the sake of undermining Google. To a certain extent, Microsoft’s continued investment in Bing is motivated by such thinking – keeping Google in check by owning and growing Google’s largest direct competitor.

Google’s long-term disconnect with Android

Fred Wilson has an interesting opinion piece today. He specifically calls out the following tweet and goes on to argue against it:

Fred’s argument is that Google is thinking long term, while Apple and Samsung are thinking short term. This is why while Apple and Samsung rake in billions of dollars of profit today, and Google comparatively doesn’t seem to be making much in mobile. He concludes the post with a with trailing-12-month stock chart comparing Apple and Google, and noting that the market understands Google’s long term view – hence its stock is significantly outperforming Apple’s stock.

I recreated Fred’s stock chart here:

Screen Shot 2013-03-18 at 10.47.44 PMIndeed a grim chart for Apple, and in support of Fred’s viewpoint, right?

Well, if you show the same trailing-12-month stock chart, but just time shift it back 6 months to Oct 1, 2012, this is what you get:

Screen Shot 2013-03-18 at 10.50.13 PMDoes it still support Fred’s argument, or does it support the opposite? What has changed in the past 6 months that has dramatically shifted the tide towards Google and against Apple? If anything, aren’t there reports of Apple gaining market share (and Android losing market share) in the most recent quarter?

We can play around with these stock charts some more, but the point is – it is of little value to pull out the most recent stock chart when it just happens to conveniently support your pre-assembled conclusion. Fred could have made the exact same post a few months back – would he have used the stock chart as an argument then?

But enough of that, let’s talk about some of Fred’s other thoughts, and here I quote the meatiest two paragraphs:

…They have gmail on so many phones. They have google maps on so many phones. They are getting the majority of searches on mobile phones. And that doesn’t even begin to address Android itself. It is the dominant mobile operating system around the world. Just think about all the data they are getting from this enormous mobile footprint they have assembled.

You can change handsets pretty easily when all your data is in the cloud. There is no moat around a hardware only franchise these days. But the software you choose to use on your phone is different. There the moat is much bigger. And where your data goes in the cloud is even more important. Changing that out requires a major effort for an end user.

Some observations here – first, Google doesn’t need Android to put Google maps and gmail onto phones; in some cases Android helps with that, in plenty of others Android actually works against Google in terms of promoting Google services. Just read a few of Benedict Evans’ posts, such as this most recent one.

The second paragraph is a much stronger argument, but again, there is a disconnect – Android the OS is not Google’s cloud service. In an alternate universe, Google never created Android and coexisted peacefully with Apple, offering deep service integration with Apple’s devices (remember the original iPhone and how Youtube, Google Maps et al. got preferential treatment?). If the argument is again Android provides a delivery channel for those cloud services, the counter-argument is again two-fold: 1) if Google had stayed as a neutral cloud services provider, some (if not all) hardware vendors would likely be fighting to integrate with Google’s services, giving Google the access it needs anyway; 2) Android can and has been used against Google, as delivery channels for other cloud service providers – Amazon and all the Chinese internet companies actively do this.

In closing – I don’t disagree that Google could be playing the long-term with Android, but they are tackling the long-term disconnect in terms of how Android fits into Google’s strategy. It’s not all roses as Fred and his stock chart suggests.


high-end non-brand Android phones in the US

following up on my previous post about the large contingent of non-brand (the “others”) Android vendors in China, it’s interesting to read this post in the Verge today. Essentially it’s about a non-brand handset vendor in Florida, BLU Products, that will sell high-end Android phones for $299.

What caught my eye was this intro paragraph from the post:

Sammy Ohev-Zion starts our chat with an economics lesson. It costs every company about the same amount to manufacture a phone, he says — the price of an Nvidia processor and a Sharp display is consistent whether HTC, Nokia, or Motorola is signing the check. But those costs are only a small piece of the price you wind up paying when you walk into a Verizon store and buy that phone — which either costs upward of $500 or requires a hefty two-year contract. You’re also paying for Samsung’s nine-figure marketing budget, HTC’s HR department, or Sony’s huge New York City skyscraper. What if you could buy the same high-end phone from a company without all that cruft and overhead? How much would it cost?

Ignoring the second half of the paragraph for a moment, and we can make a sharp observation from the first couple of sentences – horizontal integration business models (such as those employed by Nvidia and Sharp) have dramatically reduced the barrier to entry for a end-device manufacturer such as BLU. This is nothing new; it existed in the feature phone days, and it certainly existed in the assemble-your-own-PC days. What may be new is how assembly and manufacturing techniques have evolved to the point where a new entrant can storm into the market with devices that look almost as polished as those of the premium brands. In other words, the fact that these non-brands (BLU and the ones I mentioned in my previous post) are offering decidedly mid-market devices, and not just sticking to the low end of the market.

Again, this is enabled by horizontal business models across every layer of the value chain – since Foxconn owns the assembly lines that craft Apple’s devices, you can be sure that sooner (ever more sooner, these days) rather than later these manufacturing know-hows are enjoyed by Foxconn’s other clients. This leads back to the point I harped about in the previous post – hardware differentiation is no longer a source of competitive advantage, as no one can exclusively enjoy hardware differentiation for pro-longed periods of time (it’s now measured in months, not years); to achieve differentiation and therefore profits, players must differentiate on software – and thus all the players in the Android camp are in a battle till death.

The “Others”

Techrice has a good recent post on China’s army of hardware vendors creating competitive Android smartphones. Benedict Evans has also written about this some weeks ago, and I will borrow the category name from his eye-popping chart as the name of this post.

Having spent a week back in China, I’ve had a chance to witness first hand the Android devices commonly tracked as “Other” in market share reports. A good friend of mine showed off his Jiayu G3 and quizzed me on the price. I guessed 2000 RMB (a bit over $300), since this was the price point for a mid-high level phone in my memory, and the production quality of the device (I didn’t know the brand at the time) seemed quite high. I lowered my bid a number of times before he finally said, “it’s under 1000 RMB.”

When I got home that night, I did some quick browsing of Jiayu’s website. Interestingly, this small vendor from the west of China (registered in Shaanxi province, hardly a place renowned for consumer electronics, as far as I know) is on the brink of releasing its latest flagship device in its most premium line, the G series. The upcoming G4 boosts a quad-core CPU, a gorgeous 4.7″ screen, and a 13MM pixel back-camera. It’s not exactly the Samsung Galaxy S4, but it will be on sale at a fraction of the price – I couldn’t find the exact price, but based on the marketing positioning, it should be around 1000RMB (roughly $150).

Jiayu is obviously not the only game in town. On its community forum, enthusiastic supporters of the brand were quick to dismiss the upcoming iocean X7, which seemed to be a hot competitor of the G4. So I went over to the iocean site for the product to check it out. The X7 boosts some equally impressive specs – the same quad-core 1.2GHz CPU and a 1920*1080 resolution 5″ screen (which is a PPI of 443, even higher than the Galaxy S4 I believe?).

Now, both of these devices are not live on the market yet, so the exact price points are not known, and whether they actually are as advertised remains to be seen. However, there are already a few things worth commenting on.

First, the heated e-commerce wars in China of the past few years, as well as the prevalence of Taobao (which popularized shopping online), has meant that it is legitimately possible for a Chinese hardware startup to try direct selling smartphones online, as opposed to navigating the deeply complex offline handset retail landscape. This doesn’t mean that offline handset retail is unimportant; it just means the entry barrier has been significantly lowered.

Second, in my opinion these devices reaffirm the argument that it is near impossible to achieve differentiation in Android manufacturers based on hardware. It seems that any vendor worth his salt can create sexy devices, with design inspirations from the leading brands such as Apple and Samsung. And the moment the top brands reveal their latest hardware design, you can be sure that players like Jiayu / iocean (of which there are many) will take note. (After all, the current hardware paradigm revolves around a big piece of touchscreen-glass – how different / unique can your design be?) This is why Samsung is trying so hard to introduce software features unique to its hardware, as the specs alone do not justify the price premium.

Third, it’s exciting to see Chinese companies pick up so quickly the marketing execution skills of global brands. Both Jiayu and iocean’s websites were clean and minimalistic, which could be taking a cue from Apple. It was also funny to see these local brands copy each other in terms of marketing tactics – Jiayu and iocean used the same icons where they list out their shipping and return policies (7 day free return, 15 day exchange etc.). But beyond website design, these companies are also savvy enough to build and leverage their consumer community – both companies’ discussion boards seem to be quite active, with vocal posters discussing topics ranging from software/games to debating how their phones stack up against the competition. Jiayu’s discussion board gets 10,000 posts a day, which is not a trivial number by any measure – and this community approach is certainly distinctive compared to the big brands (which usually don’t offer a general discussion forum, and instead only a customer support board).

To sum it up – I will enjoy following up on this topic and watching to what extent these scrappy Chinese hardware companies can impact the market. This could be a very exciting year.

“Google controls too much of China’s smartphone sector”

Reuters published an article that summarizes a recent white paper from China’s Ministry of Industry and Information Technology. In the white paper, the ministry expressed concern that Android has too much market share in China, and that Google has discriminated against local companies in the ecosystem, as well as restraining their development in certain cases.

The white paper is early signs of a regulatory threat, but that’s not what I’m interested in discussing – Google has long had a tumultuous relationship with the Chinese authorities, and this development would also further reinforce the stereotypical view (in the west) that the Chinese government favors local companies and discriminates against western tech companies.

I have not used Android much in China, but I’m having some ongoing experience as I have a temporary Android phone while I’m currently in China. This device is a sample of one, of course, but it paints a very different picture than the notion that Android has too much control over China. The phone is a Samsung phone (model number GT-S5820) deeply customized for China Mobile. It runs a heavily modified version of Android 2.3.6. There are no Google services installed on the device; instead, it comes pre-loaded with 5 different browsers, courtesy of all the local Internet giants (a browser from Sina, a browser from Tencent, Opera, etc.). The map application is from Autonavi, the major local player (which Google also sources data from, if I’m not mistaken). What I was surprised at was the lack of any pre-loaded apps from Baidu – perhaps they didn’t get a deal with China Mobile?

I wonder how many Android phones in China are like this one – yes, it is running Android, but for all intents and purposes, Google has no say / no gain from this device. It merely provides a free OS on which all these other players provide their own value add. Samsung is the gate keeper for OS upgrades – it seems I’m locked on 2.3.6, unless I hack the phone and gain root access. There are one-click apps that help do that, but probably the majority of users will not go through the hassle of rooting their phone and loading the latest and greatest from Google, especially when the phone is deeply customized for them already – all the services are very local.

When Google made its high-profile exit from China a few years ago, it also burnt all bridges for profiting from Android in what is probably Android’s largest market. If the Chinese government piles on regulatory action on top of this, the irony would be too rich. Regulatory fireworks aside, I expect local companies to continue to thrive off of forking Android – what will be really interesting is if any of those local players can gain enough domestic traction to start pushing their version(s) of Android in international markets.

How the West was Won (or, another round of “open” vs. “closed”)

John Gruber posted a critique of a Tim Wu piece in The New Yorker. The ideas in the Gruber post are nothing new, but it’s interesting to see this topic come up time and time again.

Wu’s basic argument is “open beats closed,” with the modifier that “closed can beat open, but you have to be a genius.” Unsurprisingly, he enlists Wintel and Google as supporting evidence for why open beats closed.

Gruber specifically disagrees with Wu’s logic for why Windows defeated Mac in the original PC platform wars of the 80s-90s. In Gruber’s view, Windows won not because it was more open, but because Mac innovation had stalled, allowing Windows to catch up. He uses Mac’s brief period of allowing 3rd party licensing as evidence that being more open did not help Apple grow the Mac business; quite the contrary, after Jobs came back and closed off Mac licensing, Apple begun its resurgence.

Over at Techcrunch, Michael Arrington chimes in by stating that the Internet was the unmentioned factor that leveled the playing field for Macs – because the Internet became the core application, it mattered less that Macs had far fewer compatible software.

To me, the question to ask is (and has always been) why did Wintel win in the 80s/90s, and why was the Mac able to stage a come-back in the 2000s. Open vs. closed is simply a popular variation on this core question, because it has been twisted by folks such as Wu to be the critical success factor. It is not.

Wintel was immensely successful due to its leverage of network effects – i.e. the utility of the product grew as more people used it. Microsoft Word is powerful because everyone uses it, and the .doc format is near ubiquitous; if only one person used Microsoft Word, it wouldn’t be that useful outside of creating documents to print.

Wintel was also a two-sided network made up of both hardware/software vendors on one side and consumers on the other. This further reinforced the network effects on the consumer side.

The fact that Wintel chose to be “open” at the hardware layer (can be installed on any IBM-compatible PC) certainly helped drive adoption, but does not itself create network effects. The simple counter-argument is iOS – iOS is certainly “closed” at the hardware layer (exclusive to Apple’s products), but that does not prevent iOS users enjoy the network effects of iOS-exclusive apps (such as Instagram, which for a long time was iOS-only; another example is iMessage, which will probably always be exclusive to iOS).

Pre-Internet, the core application of computers were productivity applications such as Office, and Microsoft Office was (and Lotus 123 etc., before Office) exclusive to Wintel. In a sense, it is a bit of a chicken and egg problem – Wintel’s “openness” to hardware vendors drove OS market share, which in turn amplified network effects of the most popular applications on this platform, which in turn lead to more OS market share. It was a great, virtuous cycle.

It’s hard to say what choices Jobs would have made had he stayed at Apple in the late 80s; it’s a convenient side argument that Apple lost the 80s/90s platform wars due to poor business leadership, however I find this side argument to be often distracting.

Moving on to the late 90s, Arrington is correct in stating that the Internet leveled the playing field. Specifically, as the Internet became the core application, it removed the network effects exclusive to Wintel thanks to Office and other Windows-exclusive software. (Jobs’ successful negotiation to get Microsoft to develop Office for Mac is also Apple’s attempt at leveling the playing field.) And ever since then, network effects have had diminishing influence on PC platform wars – this is the underlying reason why Macs could stage a come-back from low single-digit market share; the beautiful execution (consistently excellent hardware/software iterations) also certainly helped.

As a corollary of this observation (diminishing network effects due to the Internet being the ultimate cross-platform application), we can predict that in the mobile platform wars, despite the seemingly dominant positions of Android and iOS, it is certainly possible for a late-comer (such as the new Firefox OS, and/or other new entrants) to enter the market and capture significant value. However, the success or not of those mobile OSes will not be determined by whether they are “open” or “closed” – by that measure, we can certainly already declare Firefox OS as the winner. The next few years in mobile will be very interesting.

Regarding Amazon’s Kindle Fire…

There’s only a few things I would say.

First, Google, not Apple, should be very, very concerned about this development. Amazon has basically taken Google’s engineering resources / output and said “thank you for your free work, we’ll take it from here.” How many times did Amazon mention Android in the device description? Does the device look at all like an Android device? Does it offer any Google services by default? Will Google have to pay to be the default search on a tablet that was designed using Google software (think about the irony in that)?

Second, this leaves most other tablet vendors still scratching their heads about what to do, and this is the best example of asymmetrical competition. I would elaborate, but John Gruber had this excellent paragraph from his post that sums is nicely already:

Attack from a position of strength. Build on your previous successes. That’s what Apple does. That’s what Amazon is doing here. The other guys — the Samsungs, HTCs, Motorolas, RIMs — can’t match Apple’s hardware design, don’t even try to match Apple in terms of original and differentiated software, and struggle to match Apple’s prices because they don’t have the economy of scale advantages Apple does. Those guys can’t match Amazon either, because they have no content to sell. Amazon can give away the razor because they’re already in the business of selling blades. The other guys don’t even have blades to sell.

The flaws to Google’s Android strategy

Kyle Baxter has written an excellent post dissecting Google’s Android strategy. On the whole I agree with most of his analyses, but I would like to point out what I see to be flaws in the strategy. I don’t claim ownership to all of the following; a lot of it was covered in the “Strategy for IT Firm” MBA course I took last semester at the Haas School of Business, UC Berkeley.

It’s true that Google has a strategy of commoditizing adjacent markets to turn them into ad-based businesses, which falls into its sweet spot. Many of Google’s most successful products besides its core search are of this nature: email, maps etc. GIving away Android for free is certainly commoditizing the mobile handset market: of the 300k daily activation number which Google touts, people speculate a large portion are what analysts traditionally call “unbranded” or “other” phones. In general this conforms to Google’s strategy; however, the flaw here is that in my view Android is disrupting other branded manufacturers like Nokia / Samsung / Motorola far more than it is challenging Apple and iOS devices. In other words, it may appear that Android is mainly a counter to the iPhone, but in reality it is killing Apple’s main branded competitors.

Allow me to expand on this point, because it probably appears counter-intuitive. Before Android powered smartphones hit the market, Apple was certainly in a league of its own with the iPhone. While it was rapidly capturing share of device profits (the famous 5% unit volume – 40% profit share charts), the incumbent device brands – Nokia et al. – still had the comfortable mid to low end market volumes, which would give them time to develop competing OSes. Now along comes Android, which, while it gave them a quick boost in terms of time to market of credible iOS challenger devices, also opened the floodgates to a whole range of unbranded competitors. These new comers – Huawei, ZTE etc. – play the same volume game as Nokia / Samsung et al. And we know so far Samsung / Motorola have not drastically reversed their financial performance thanks to Android – so what’s the next possible scenario? Would it be possible they continue to slip in unit volume, and be weakened further at the onslaught of the Android clones?

At the same time, I think Apple is sufficiently differentiated from the unbranded players  in terms of value propositions (very different consumer segments), so the Android clones do not pose a significant threat to Apple.

The flaw here is that Google did not limit who could use Android – a complete lack of platform control. If Google’s strategy does indeed include undermining Apple, it should have limited Android to a handful of brands, so they could compete effectively with Apple. Furthermore, I would also argue that Apple’s primary issue currently is not Android, but its own supply chain and distribution restrictions (e.g. AT&T exclusivity). The big fanfare of Android activation numbers have done little to stop iPhone stockouts all over the world – in China where the iPhone 4 is obscenely priced, supply is still tight. Admittedly I don’t have conclusive data on iPhone supply constraints – but if we take this assumption as true (and there are certainly indicators and proxies in favor of this), it would show that Android has done very little to halt Apple, and is causing far more headaches to Samsung etc.

The second fundamental flaw is that going back to the original strategy, carriers still stand in the way of Google’s profit realization, if and when the mobile devices are completely commoditized (the death of Apple and RIM). Mobile network operators have far greater influence over consumers than wireline operators – in most cases, people choose a mobile operator first before choosing a handset (Apple being the prime exception / disruption), whereas you choices over which wireline operator and which computer brand to buy are completely separate decisions. Because mobile operators “own” the consumers, market power dynamics dictate that Google cannot expect to extract substantial profits. I know this sounds abstract, but until Google can demonstrate to operators that “I can make your customers leave you for another operator”, operators could and should squeeze mobile advertising profits out of Google. Again, Google’s lack of control expedites this – Verizon can sign up Bing as the default search on its phones etc, but there also are many other ways to play this profit squeezing game.

Of course, Google could hope for a “Wintel”-like end-game, where they dominate the OS space and split the spoils with the operators; but operators can foreclose that outcome by actively playing one OS off another. I’m sure strategists at the operators are already plotting this out, and I wouldn’t be surprised if Nokia, which has long been an outsider to the US market, is called in by the operators to facilitate a bigger and better OS war.

Why predictions of the iPhone’s death (at the hands of Android) are greatly exaggerated

The comparison of the growth rates of the iPhone and Android phones is continually a topic of hot debate, in no small part propelled by the highly vocal and emotional fans of both camps. It almost seems conventional wisdom that iPhone vs. Android will be Mac vs. Windows, Part II.

Personally, I believe that on so many layers, this topic is really a non-topic. It provides entertainment value, no doubt, in the form of daily tech soap opera (bloggers jumping on every new data point released and typically extrapolating it beyond meaningfulness to arrive at flame-bait headlines). But from an industry analysis point of view, or a company analysis point of view (scrutinizing Apple / Google), the market share comparisons are really just one data point – it’s meaningful, but certainly not to the degree that the blogosphere claims it to be. Apple’s future is not in jeopardy if iPhone loses pole position to Android.

Over at Wired, Fred Vogelstein takes a crack at this topic. His main point is that if you sum up all the iOS devices (iPhone, iPod Touch, iPad), they are still outselling Android, by as much as 42%. While this may be encouraging to the Apple camp, there is no reason we can expect this to hold, especially when other Android powered devices (e.g. Android tablets) eventually hit the market.

I don’t have any doubt that Android devices will outsell iOS devices. If it hasn’t happened already, it will happen soon. There is no reason to believe an OS from a premium manufacturer (Apple) with an extremely limited range of SKUs can outsell, on a pure volume basis, an OS that is free to use and which is backed by some of the biggest consumer electronics companies in the world. On a dollar value basis, it might be a different story, but still not that likely. On a dollars of profit generated basis though, highly possible (Apple generates more profit than rest of mobile industry combined, with only 3% unit volume share).

That said, the main reason people are obsessed with these market share numbers seem to be the underlying assumption that iPhone and its eco-system will lose its draw to developers, and by extension to consumers, if it is relegated to a minority market share. I think there are at least a couple of counter-arguments to make here.

First of all, being the minority market share platform does not translate into a lack of quality apps, to the extent that it will hamper mass-premium consumers’ (Apple’s core segment) interest in the platform. For example, if you flip the argument over the number of apps in the Android vs. iPhone app stores on its head, you may well say that even though Android has a smaller number of apps, the eco-system is already sizable enough, so that for any functionality there will be “an app for that”. Another example would be none other than Macs – what’s the market share that Mac OS holds in all personal computers? Single digits? Do mainstream Mac users complain about the lack of quality apps (note the emphasis on mainstream – specific categories like hardcore gaming is lacking on the Mac, but even that is seeing improvement)? Holding these two examples, I would argue that with the developer community Apple has already amassed, it would be hard to foresee a drastic dying out of quality apps, even if Android floods the market.

Secondly, if you take a step back and look at the broader trend in computing, it is definitely headed in the direction of platform-agnostic. Some tech purists would even decry the whole notion of apps – everything should be realized on the browser, over the web. If you look at the desktop space, there is indeed the trend of “fat” clients (local apps) losing out to “thin” clients. Indeed, Google is perhaps one of the biggest proponents of this – its whole challenge to Microsoft is based on the browser. If we believe that the same trend will apply to mobile devices, then the apps craze we are experiencing really is just a transition phase – at some point, most of the apps you want would be delivered to you on the browser, as opposed to an app you download (again, Google’s Gmail mobile version on the browser is arguably better than Apple’s Mail app). And let’s give credit where credit is due – when Apple launched the iPhone in 2007, Steve Jobs’ initial vision was to have web apps (browser-based apps) instead of local apps. The app SDK and the app store only came out a year later, due to popular demand. (So you could say that Jobs had already envisioned an end-game where the browser was the point of delivery for apps, not the app store – his vision was perhaps just ahead of its time.)

If you sum these two arguments together, the bigger point is that iPhone will not lose its richness of apps in the face of Android capturing majority market share – it’s big enough already of a market so that there will be quality apps developed, and apps will be platform-agnostic anyway down the road. As long as Apple continue to bring innovation to its devices, it should not be overly worried about losing market share leadership – its whole strategy is founded on premium products, which implies that it won’t be market leader from a revenue / volume perspective. That’s why I wrote the headline of this post.

PS: Also, for people who continually say this will be a rerun of Apple vs. Windows in the 80s, please pause for a moment and reflect on the Mac’s continual resurgence over the last decade. This is again very indicative of the broader trend. In other words, one could almost claim that the “network effects” so famously championed by Wintel is close to becoming irrelevant, because the Internet has leveled the playing field for the small market share OSes.

PS2: And even if we are to talk of the platform wars of the 80s, we should get the facts straight. The following is my reply on a Quora question (similar topic really) awhile back:

First of all, it’s not really windows vs. mac, but PC vs. Mac. I would say by the time windows 3.0 came out, the platform war between PCs and Macs (at least the first war, not including Mac’s resurgence in recent years) was already over.

If you look at this article on Ars Technica,…
as early as 1986 PCs already had over 50% market share of computers, and it over-took the mac platform’s shares a few years before that. So in that sense, there never was a windows:mac war, at least not until very recently.

I think one key distinction between the platform wars of the 80s and android:iPhone is that in the 80s it was primarily driven by b2b, not b2c. IBM was late to the personal computers space, but they were the driving force behind making personal computers legitimate for business – they could go to a sales pitch with a business client with a perhaps inferior product but still sell it, and they could generate serious developer interest in developing for the PC. The killer apps of the 80s were spreadsheets and word-processors, sold to businesses. Apple could have better versions of such products on macs, but they couldn’t sell to businesses as quickly as IBM and clones like Compaq could, which is dictated by company structure and channel strategy – they are positioned as a consumer products company, and the only verticals where they made serious progress were education and publishing (where their products were clearly far far superior). That’s where the network effect kicked in and made Macs a niche.

Flash forward 25 years, and smartphone adoption is primarily driven by consumers, not businesses (blackberries being the exception). This is in Apple’s core area of expertise. It will still be challenging to fend off a group of competitors’ collective efforts (Samsung, HTC etc.), but as long as Apple retain a significant portion of the market, it will be in good shape. Apple doesn’t need to be market leader to be hugely profitable and have a sizable eco-system of 3rd party apps etc. – just look at macs today, as a general consumer you have majority of the apps you need to be happy with it (games being one major exception, which is also therefore a good business opportunity).

So back to your original question, I’d say Android:iPhone will play out very differently compared to Windows:Mac. Android might still end up with a more market share, but iPhone will have enough share and a big enough eco-system so that Apple won’t have to go through the kind of existential challenge it had back in the mid 90s.