14
Jul
cagematch[4]
Last Updated: August 2nd, 2012

Pundits have been saying for some time now there’s no sense in trying to predict a winner of the smartphone war. Some say that the marketplace is large enough to accommodate everyone and that cage fights make no sense because the iPhone and Android phones cater to different audiences. Really?

cagematch

While some may not like labeling winners and losers, there are winners and losers in business every day. Windows and OSX cater to two types of people, but the obvious winner of the desktop war is Microsoft, with about 90% of the market versus Apple’s 5% of the market. The debate between Windows and OSX is over quality, not market share. But that’s not the only cage fight in town where the marketplace chose a winner. Blu-ray vs. HD-DVD, Compact Flash (CF) vs. Secure Digital (SD), Google vs. Yahoo, all the way back to VHS vs. Betamax, the market usually chooses a winner. A "winner" in this case is the one that commands a clear majority of the market, and can demand some sway in the marketplace. Sure, there are occasional places where multiple competitors can survive (IE vs. Firefox vs. Chrome), but even then, there is usually one dominant player (IE).

So between iPhone and Android, which will win? The iPhone 4 may be the 800 pound gorilla in the room when it comes to smartphones, but even when it broke all US smartphone sales records, it’s beginning to show some weakness.

Putting on a good prognosticator hat, I’m willing to call this fight and put a time line. I’m saying within 18 months the Android OS phones will have more market share than the iPhone. In other words, Android will win the smartphone war. Consider these points.

Apple depends on growth, and that’s slowing

77% of the iPhone’s US sales were upgrades from previous iPhones. Almost eight of every ten iPhone 4 sales were replacing an iPhone. Great for Apple’s customer loyalty, but not a great statistic for iPhone’s growth. Apple has defined the iPhone as disposable technology (ever notice you can’t replace the battery), and this represents a ton of 3G owners throwing their phones on the scrap heap. Those that did change came mostly from Blackberry (6%). Yes, 3% migrated from Android to the iPhone. Not insignificant, but not large, either.

While iPhone’s growth slows, Android’s growth is rising

Of course Android is growing. It’s an operating system that’s less than two years old, so any growth would be an "improvement." However, nationally it’s growing at a much faster rate than the iPhone, which is more relevant. People are becoming interested in the Android "experience."

Apple isn’t dominant—by a long shot

Even though Apple is the 800 pound gorilla in the room when it comes to smartphones, there’s an 8 ton elephant in the room that’s larger and quieter than Apple. In the US, Blackberry still has more market share than the iPhone, but they’re not a viable threat to Apple as they continue to lose users every quarter. Worldwide, however, the Symbian (Nokia) operating system roughly equals the market share of the iPhone, Android and Blackberry combined. Symbian (like Blackberry) is losing market share while the Android and iPhone are the only smartphones gaining ground, but the magnitude of Nokia’s worldwide influence makes it an amazing mountain to overcome.

Scattered eggs

Despite these points, Apple has set an amazing smartphone sales record selling 1.7 million units in three days. That is impressive by any standard. Compare that to the Evo’s three day sales of about 66,000 units, and it’s not even close (only about 4% of the iPhone sales). I realize those are just the Sprint sales, but even so, the figure pales in comparison. Even if we double or triple that sales figure, the Evo fares pretty poorly. Optimistically it’s 10-15% of the sales of the iPhone—not even close.

But the Evo isn’t the only Android game in town. There’s the Droid X which will be shipping about the same time that many will receive their iPhones, and comes with an amazing array of video functionality. Then the Droid 2, replacing the nation’s most popular Android phone, and probably coming in at a lower price point than the X and catering to an audience that doesn’t need all of the functionality of that super handset.

Samsung’s Galaxy S series which will find its way on each of the major carriers with possibly the best screen this side of the Retina Display. Then the Sony Ericsson Vivaz Pro, the Dell Aero, the Lenovo LePhone, and the list continues. These are just the “super phones.” I doubt any of these will come close to the iPhone’s sales record, but they don’t have to. Taken together, there’s more than a better chance that the iPhone will be dethroned.

On top of that, there will be Android phones that aren’t nearly as well stocked, but will suit some people who don’t need high end specs. Further, Android is making headway as a prepaid phone a la Virgin or Boost. The market will continue to innovate, and in the meantime, the iPhone crowd will have to wait until June 2011 to find out what their next upgrade will be. Will it be competitive with the current Android offerings? Probably, but I doubt we will be as wowed when Jobs dons the turtleneck and tries to sell the next “magical, revolutionary” technology that looks a lot like a current or upcoming Android phones.

We might have already won

Okay, Android might not even need 18 months to beat out Apple. It might have the market share today, even with a 1.7 million user three day upgrade bonanza. With over 160,000 new users every day, the day of reckoning for the iPhone may already be here. The iPhone’s massive sales can’t be ignored, but they also must be put in perspective.

The profit motive

There is an argument to be made for the profitability of Apple, so let’s make it. Apple is a very profitable company. What does that mean for the smartphone war? Well, it means Apple can afford to make a good product by hiring talented people. Apple ups the ante by having a lucrative app store, music store, and derivative products (iPad, dock, etc.) that mean Steve Jobs won’t be bumming change for a latte anytime soon. They are a company that has the financial clout to keep offering more iPhones.

In sharp contrast, some companies making Android products could very well be on the financial brink making a handset that won’t sell and spell financial disaster for everyone involved. Businesses are cropping up every couple of weeks trying to hobble together an Android answer to the iPad that look like they have the stability of the leaning tower of Pisa perched on a bowl of Jell-O. Android companies can and will fail. But if any particular handset or company fails (aside from Google), it means practically nothing to the Android OS. However, if the iPhone 4 fails (or the iPhone 5, or any subsequent model), chances are the iPhone is over even if Apple survives.

But profitability doesn’t always predict success. Another profitable company is IBM. They made a very popular computer, the IBM PC—you might have heard of it. I’m guessing most people have a PC compatible machine now. I’m also guessing most people don’t use an IBM, but probably use the derivative operating system that computer ran, Windows. In its day, IBM computers were very successful. Now, not so much. The operating system migrated away from IBM and reached critical mass because it had competition that made machines that would give a compatible experience at different price points (Zeos, Dell, Gateway 2000, etc.). As a result, Windows became the dominant player in the desktop operating system war. Macintosh, on the other hand, became a boutique operating system for people who felt passionately about this particular OS, equaling about 5% of the desktop computer market (versus Microsoft's 90% market share). Apple wanted dominance in the desktop computer market (and still do), they just didn’t get it. By the way, IBM is still a profitable company, but they are largely irrelevant in the PC industry they created.

The reason most people use Windows, though, isn’t because they feel wild about the operating system or because they feel that it’s superior or even because it gives them status. It’s because the programs they want to use and the resulting data files they make from those programs work on Windows, and Windows machines can be had at cheaper prices than Apples. People don’t use Windows to run Windows. They use Windows to run Office, Firefox, World of Warcraft, etc. on an affordable machine. By the way, Microsoft didn’t come first, either. Apple did. Apple had more money, more market share, and more momentum, and Microsoft ate their lunch. Now that sounds familiar.

The secret behind Windows is the secret behind Android—price flexibility and quality apps. The Windows experience is the combination of apps on affordable hardware, not the OS. Likewise, the Android experience is the apps on a choice of hardware, not the OS. Given the choice, people will go for quality at a lower price point.

We’ve only just begun

The Android operating system is still in its infancy and only now beginning to reach quality parity (in hardware and software) with the iPhone’s functionality and app offering. Developers know that today, the iPhone represents the fastest revenue stream and return on programming investment. The iPhone market is more mature, which means to succeed in that market will require more investment in a polished app because there’s plenty of competition in the iTunes marketplace. I have no problem saying that the iPhone is today’s king. But the king is dying, and by my watch I’d wager he has about 18 months of dominance before iOS says “ad-iOS” to the majority of the market. App developers ignore Android at their peril, and they know it. Android offers choices, and the market repeatedly shows that it prefers many options over a single option. While navigating the smartphone market, many roads lead to Android—you choose your carrier, your handset—you're in the driver's seat. In the land of Apple, you have one ride, and Steve Jobs is behind the wheel.

Kenny Embry
Kenny was tech when tech wasn't cool. He got his Ph.D. in communication studying how people form relationships on the Internet. He also worked in television news for five years.

He is the father of four, and his wife doesn't understand why he'd ever want to trade in a phone. Go figure.
  • Frank

    Wow, you point out some facts but have trouble facing reality. I'm glad your are just a blogger and have no real effect on the mobile industry.

  • Droider

    @Frank

    Its iPhone users who don't have any influence on the mobile industry as Steve plays all the roles until the consumer sheds the last penny to buy the iphone which was designed by Steve for Steve of peoples hard earned money.

    But this guy who is a blogger has an influence over the mobile industry as he has an option to say no to something he doesn't like. It could be the hardware, the carrier or even the OS unlike in the case of iPhone. Android is by the consumer for the consumer and of the consumers hard earned money.

    The whole point he is making here is iphone is the king now. Thats reality and he clearly sees it. He is giving an insight or a vision in to how Android is going to the Lead the mobile war in future.

    So, its you who is not getting the futuristic vision of this blogger.

    May be you accept only when Steve in his black turtle neck walks out and says so. Does any iphone fanboi accept anything other than what Steve says. They just repeat what ever Steve says like a school kid repeats rhymes taught by his teacher.

    Good Luck with your reality Mr. Frank. (not for long!!!)

  • Slie

    Thought it was great, neither one of the articles talked about what is really going on here.

    Your article did show how Google (Android) is really going to get the Slip in on the market and become the new King.

    Both referred to Android as if it were its own "synthetic organism" when really we are talking about someone’s Baby.

  • Topher

    The Apple/AT&T exclusivity deal is Android's single best ally in the smartphone war. I believe that Google, HTC, and Open Handset Alliance is FULLY AWARE that Apple is tied (or rather held hostage) to AT&T, and NOW is the time to establish the Android foothold. 2010 has been a banner year for Android, and I'm sure that Apple is squirming in their seats watching Android go gangbusters on other carriers especially on Verizon. If Android did not execute on their market and release strategies before Apple is free AT&T, this would be a very different conversation.

    I think we can bare out my comment based on what's happening to Android v Apple on AT&T within the US market, and how it's playing out in Europe and other GSM networks.

  • Tijl

    I think in the end you'll be right, however your timescale is off. Like you say yourself, Apple wants growth, and they still have directions to grown in.

    First factor: Apple will add carriers, espc Verizon in the USA. This will boost sales on the near term.

    Second factor: Apple developers with iPad, iPhone 3G(S) and 4G are now used to supporting different hardware platform, including different resolutions. This will allow Apple to differentiate their hardware lineup to target a larger audience. Eg a smaller cheaper 3G class device.

    Third factor: iPhone with hardware keyboard. The OS already supports hardware keyboards through bluetooth now. If Apple wants to target many of the Blackberry holdouts, they could always go for this option.

    Arguably some of these are far fetched one, but if needed Apple has no problem with doing a complete turnaround on some issues. For example talking down x86 for years and then switching to it.

    • http://www.kembry.com Kenny Embry

      The European market is a great test study, and I think you've got a good point there. AT&T definitely holds back the iPhone, and I think when the inevitable end of the exclusivity contract finally comes, the iPhone will have a nice bump in sales. But I also think that most people interested in the iPhone made the switch already. I think this is your strongest point.

      Your second point is a non-starter. The 3Gs is at its end of life (EOL). Apple will continue to support it for a little while, but it is considered an outdated technology. For all practical purposes Apple has one phone that comes in two colors and two memory options. That's different than four phones. The Android comes in dozens of form factors and options.

      As for your third point, I think iPhone would be served well if they had more handset options, including a hardware keyboard. I think they need a cheaper iPhone without the front facing camera, a phone with a larger screen, one with an HDMI output, etc. I think there is a market for each of these. I just don't see Apple making any of them...and I already see them available in the Android space.

      Apple's great gift is downplaying its deficiencies until they have "perfected" it. Things like cut and paste, multitasking, front facing cameras, high resolution displays and slim form factors were all introduced by other handsets, and then became "revolutionary" when Jobs donned the black turtleneck.

      I like your observations, but I'll stick to my 18 month time line.

  • ARkar

    The main difference between Android and Apple is that if some how Andy Rubin or any of the current Android' staff stop their involvement in Android project, I don't think there will be any change in consumer's preference. I got two people in my office with Droid and Droid Incredible. I'll doubt they will notice even if Google themselves pull out. But, if Steven Job were to pull the same trick, its the end of Iphone. When Steven Job was taking the sick leave, one of my Iphone friend told me that he was worried that future iphone might not be up to his current 3GS's standard without Steven Job.

    • http://www.kembry.com Kenny Embry

      Exactly. Let's not forget that this is Jobs' second tour of duty with Apple. When he left, Apple almost went belly up. His re-emergence signaled the rebirth of Apple. Apple is Steve Jobs. In contrast, Android is the user base.

  • David Ruddock

    I agree Android still has significant room to grow in the smartphone market, but I wholeheartedly disagree that Apple and the iPhone will suffer as Android grows, at least not for a long, long while.

    The losers in the smartphone wars right now are Nokia, Microsoft, and RIM. While all 3 have major OS overhauls planned (MeeGo, Windows Phone 7, BlackBerry 6; respectively), they have all started to trend into the red for market share. The reasons for this are clear: inferior software and/or devices.

    Right now, Apple stands in a place they are familiar with: control of a market at the high end (see laptop/desktop sales over $1000, Apple dominates). If you remove all keyboard devices from the market share "pie", Apple controls a very large portion of a specific market. I guess you could call it the touch-capacitive software keyboard smart phone market, but regardless, Apple has pioneered this market segment and now owns this "image."

    Nexus One, Incredible, EVO4G, Desire, Hero, RIM's Storm, WM6.5's HD2, and a number of other devices all ended up playing catch-up to horn in on this sector after the iPhone was originally released and into iterations beyond. Why? Because Apple's device, whether out of good fortune, design, or marketing, was (and is) an unrivaled success.

    Before the release of the iPhone in 2007, less than 20% of Americans used smart phones, by the end of 2009 the figure had doubled to over 40%. Apple rode the wave, and they did it better than anyone else.

    Android has pushed into Apple's market with high-performance phones like the Nexus One, Galaxy S, and EVO4G. Their sales have been, compared to the iPhone, less than mind-blowing, and I don't see Android overtaking Apple at its own price point any time soon.

    However, for the $0-120 smartphone market, Android will inevitably outstrip every competitor. Why? Software homogeneity, and reduced overhead for handset manufacturers because of Android's ease of adaptation to almost any hardware platform. Much of the same reason Windows dominates the sub-$1000 PC market, and also why Apple refuses to do anything but skim the surface of it.

    Apple depends on the controlled systems they've created and devote all resources to developing them. Microsoft depends on the market's demand for homogeneous software in a sea of highly varied hardware at many price points and of many roles.

    Android is straddling the two, but will soon probably fall more into the Microsoft philosophy (excepting the fact that Android is open source) of trying to exist at all price points and types of devices, lessening their threat to Apple.

    • http://www.kembry.com Kenny Embry

      Excellent points, but I think the missing piece here is the fact that Android's biggest hurdle on high end handsets is keeping up with demand, not competing against Apple. How many times has the Evo 4G sold out now? Three times? Four times? The Galaxy S has already sold a million handsets and is on track to sell 10 million. The Samsung Wave has sold a million handsets. According to Apple's financial statement, for Q2 2010, Apple sold 8.7 million handsets. At 160,000 Android phones a day, that could be done in 55 days.

      I completely agree that Android will effectively own the sub-$120 smartphone market, but there's a good case to be made for it doing the same on the high end. I don't think Apple is going away, and I quite agree that Apple opened the smartphone market wide open. But I don't think the high end market is uncontested. If anything, I think the data shows that there is amazingly robust demand for Android there, too.

  • SirWally

    Let me preface my comments with this statement: I don't own an iPhone, and probably never will (although an iPhone emulator for Android would be cool ;-) Although I do own an archaic G3 iBook and a hand-me-down iPod Nano. I also don't have an Android phone...yet (Mmm....Captivate!)

    "I’m saying within 18 months the Android OS phones will have more market share than the iPhone. In other words, Android will win the smartphone war. Consider these points."

    51% would give Android the majority. Would you say that Android will have won the market share war at that point? You defined a "winner" as one with that "commands a clear majority of the market". What constitues a "clear majority"? Hasn't Android already surpassed iOS in market share? I know, we can partly thank all the "buy one get one free" deals.

    For the record, I hate it when people refer to healthy competition as a "battle" or "war" that needs to be won or lost. Who cares? Honestly, I would prefer it if market share was fairly distributed among the competitors so that everyone wins. One "clear winner" and a number of small, almost irrelevent players is not a good situation to be in. Take the Desktop OS market as a good example. Compare that to the (insert industry of choice here i.e. automobile) industry. The former has very little competition while the latter has scads, and the market is better for it.

    "Worldwide, however, the Symbian (Nokia) operating system roughly equals the market share of the iPhone, Android and Blackberry combined."

    I'm glad you mentioned the fact that Symbian dominates globally. I don't see that raised enough in (smart)phone discussions. Usually the talk is iPhone vs. Android vs. WinMo vs. BlackBerry. WinMo is quickly becoming marginalized while Android and iPhone slowly gain more and more market share. BB is slowly on the decline (I feel they are stale -- it's uncommon for the first to market to stay there, but BB has done a good job of hanging on for as long as they have, but their days at the top are numbered (IMHO). However, like you said, their market share pales in comparison to Symbian.

    "Apple wanted dominance in the desktop computer market (and still do), they just didn’t get it."

    I disagree. I see/hear people say things like this all the time. I am sure that Apple couldn't care less about market share on the desktop. Perhaps they did back in the 80's/90's, but Apple isn't a market share-driven company -- they are a profit-driven company, and they do _very_ well. Apple can make as much money (if not more) via high margins than by cutting their throat and comoditizing their products so everyone and their dog can buy one. They let the market work to their advantage (with a little help from excellent marketing campaigns). The more people that buy Apple products, the more people want to follow suit because, after all, they do make good products. They do not need to drop their prices to sell them -- they sell themselves. Of course, not everyone can afford their products, but unfortunately Apple doesn't care about you. Thankfully (in the smartphone arena) there is Android. Now, if only Ubuntu (or RedHat, Novell, perhaps even Microsoft) could bring Linux to the masses...

    "The secret behind Windows is the secret behind Android—price flexibility and quality apps."

    I misread that and thought you implied that Windows was "quality". Phew! (As an aside, I run Ubuntu and Windows 7, and Windows 7 is truthfully the first version of Windows that I actually like and could recommend to my relatives).

    "Given the choice, people will go for quality at a lower price point."

    Exception to the rule: Apple users, which will usually buy the Apple product even if it costs twice as much (I jest...somewhat. My apology to all Apple-lovers! :-)

    @Frank

    Facts were pointed out and apparently you couldn't refute them, or you simply couldn't be bothered.

    • http://www.kembry.com Kenny Embry

      I'd take 51%, sure. My point is that Android will have the majority of market share within 18 months. I think the Android Market needs a major overhaul, but as more people come to the party, Google will see that things need to be cleaned up to be more user friendly. We're not there yet, but in 18 months I see us looking at iPhone dominance in the rearview mirror.

      I understand the reticence about using war and fight as part of the language, but what I want is someone to be vying for my business. I don't think Apple and the iPhone will be going away anytime soon, and I don't think they should. Heaven knows Apple needs the competition from Google and vice versa. I want them to go after my business aggressively and try to woo me with great new features and unbelievable apps. I want Apple to come up with its answer to Google's free Navigator, and then I want Google to make their product better to beat Apple soundly back. I want them to fight like mad for my smartphone dollar, and I want them to be as innovative as they can to win my business. In other words, I want true competition and not co-opetition, where everyone tries to coexist or equally divide up the market. We often see that in the cable television market where one provider is the effective monopoly, so they get to set the price and the services and it's the customers that suffer. In this war/battle/fight it's Google vs. Apple and I see Google winning, but I don't want Apple to go completely away. I want them to come out fighting. In the end, Google has the more sustainable formula. If they force Apple to openness, I think that fundamentally changes the rules. I don't see that happening, though.

      As for profits, as I said, Apple is very profitable, and yes, they've got a nice niche in expensive computers and high end phones, but Apple understands they need market share, too. Right now they have it in the iPhone, and that's why their ecosystem of apps, tunes and iAds is the great trifecta of profitability and will almost guarantee lower iPhone costs in the short term. More importantly, Apple needs to keep developers to keep the iPhone relevant (and ensure demand). However, as more developers see Android gaining market share and consumer attention, they will be lured away, which means Android will get the better apps, while HTC, Motorola, Samsung, Lenovo, Sony, etc. make sure we have exactly the kind of hardware we want. The Android Market will get the makeover it needs (as demand increases). Apple will innovate, but will they innovate to openness? No way. That is Apple's undoing. It will be a great boutique phone with terrific apps that a minority of the market feels amazingly passionate about, and Android will be the phone that most people own at different price points with different configurations meeting everyone's quirky smartphone desires. People who love Apple will continue to pay the Apple tax, and the rest of us will buy a cheaper, more open experience.

      Android is important because it has succeeded where Palm, WinMo, Blackberry and Symbian have all failed by offering a superior experience that is open, affordable and extensible.

  • Keith

    These are a lot of US relevant stats. Android isn't doing as well internationally. And that's relevant. We need to look at that.

    I'm a little stunned by your 18 month prediction as an Android user. But then again, given the rate of growth in the US, I guess there's some merit to that prediction. Though we'll have to see what happens when Android runs up against the wall.

  • Aaron Gingrich

    Just wanted to say there are some really awesome arguments in the comments here. Good points, guys.

  • http://myspace.com/markomusic FjordPrefect

    As of February 8, 2010, 8,450,420 Android phones had been sold, with various form factors, tech specs, etc. As of February 15, 2010, 41,152,350 iPhones had been sold, with the form factors being fairly similar if not identical between each of the four models. What no one seems to notice is that this consistency has been a big part of the mammoth success of the iPhone. The iPhone, like the iPod before it, has an extensive third-party product ecosystem firmly entrenched in the real world. Go down the aisle of any drug store and tell me the chances of finding dock speakers, cases, screen protectors, charge cables, alarm clocks, etc. for the Droid X or the EVO or the Nexus. Pretty slim. iPhone? Yup, they've got you covered. In fact, everyone has the iPhone covered. I can find a case or a cord for my two-year old iPhone 3G in the smallest gas station in the most obscure town on the map. Want a case with a built-in battery-pack for your Android phone? You think Target is going to carry one for every model from each manufacturer, each with it's own button, speaker, microphone, camera, etc. placement? Not likely. Why would they want to get stuck guessing which of the multitudes of Android phones is the best one to support when all they have to do is support the iPhone in order to get a guaranteed return on their investment? Plus, since the form factors of the iPhones don't change that much, they can be sure that the screen protector they've been selling for the 3G will probably fit the 3GS as well, extending that product's shelf life. It's just a more stable and sensible investment. Consistency. Google, on the other hand, has created a fragmented and ever-changing market that will have tremendous difficulty in gaining the consumer foothold that the iPhone enjoys simply because of the vast myriad of phones available that run their OS. Most of the people I know who own an iPhone don't care if brand X has 2 more megapixels in their cameras than brand Y, or that brand Q has a more "open" app store model than brand Z. What they care about is that vast ecosystem of iPhone accessories and enhancements that sit on the shelves of every Target, Wal-Mart and CVS location in America that make them feel safe, sound and secure about the $100 or $200 they just plunked down for a phone.

  • Stewart

    Here's the thing, though: iOS has more (and arguably higher quality) apps than Android, is consistently praised for having a higher quality of "polish" (user experience), and is offered at a comparable price point. Also, Apple has the advantage of better brand recognition and higher customer loyalty. They're still selling iPhones as fast as they can make them, and I don't see Android gaining too much ground on them, especially now that the iPhone is on Verizon.

  • syco

    u must b happy ur prediction turned right
    android all the way

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