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November 19, 2011 • Editorials, News

Android Rules Smartphone Roost … But Holiday ‘Wish Lists’ Show Vulnerability

Guess who wants an Android Tablet for Christmas/Hanukkah? (Hint: no one). But we’ll return to that in a moment.

This week we got news that put the Android OS at more than 50% market share for smartphone operating systems. This is based on numbers from Gartner, which means that they willingly and knowingly count Samsung’s % estimates’ the same as other people’s ‘shipments’ the same as other people’s actual SALES. In other words, their numbers are a crapshoot. But make no mistake – Android is BY FAR the dominant mobile OS.

If you look at the trends in the graph above, Apple has remained fairly flat at ~28% share over the last several quarters while overall smartphone sales have skyrocketed, meaning that Apple has seen a massive increase in sales numbers – but just kept pace with the overall market. In fact, if you look at the trends since 2007, Apple has held ~25-30% marketshare in North America and has risen gradually to ~16% global marketshare. As much as many Apple haters would be loath to admit, the picture is one of stability and solid growth – and an obscenely healthy per-phone profit margin in a market of plummeting phone ASP (average selling price).

So how has Android more or less doubled market share in the last year? The graph above tells the tale – it has ravaged the carcasses of Symbian, RIM and Windows Mobile. That sort of growth isn’t sustainable, obviously – but it makes you wonder (a) what is the upper limit and (b) how has it happened so fast.

I have stated many times the four reasons I ascribe to Android success: (1) solid OS on solid phones, (2) ubiquitous availability in a ton of models and styles, (3) carrier push, and (4) cheap price.

In other words, as smartphones grow in popularity, the old-guard styles of Blackberry, Symbian, Palm and Windows Mobile were ill-suited to deliver the type of content users wanted. Apple and Google – and now Microsoft with Windows Phone – had solutions that suited users needs. But Apple had a single phone on a very small amount of carriers – only ONE in the US for more than three years! That meant that anyone wanting a smartphone who was a Verizon or Sprint or T-Mobile customer had to choose something different.

Having a ton of cheap phones available is not a new approach – and it is how most phone makers found success in ‘feature phones’ originally: they got carriers to have THEIR device be the ‘free on contract’ feature, which brings in customers – and gets those customers familiar with brand names. For carriers it is all about subscribers, and for handset makers it is all about generating huge numbers of device sales since the earnings per phone are very small. So this relationship quickly became symbiotic.

And let me be clear – I am not putting down the Android OS – it is my phone OS of choice for several reasons I have noted … I am just addressing reality.

Since the iPod just had its’ 10th Anniversary, it is worth drawing a parallel to the history of that device. Seemingly from the moment it was launched it took the world by storm, generating tremendous interest in spite of being a Mac-only player. Within a year it was the dominant music player and has never dropped below 75% market share since (though the market itself is now shrinking).

In the same way, over the last few years we have seen a meteoric rise in the interest in smartphones, with the iPhone taking them from the ‘crackberry’ to mainstream devices. But quickly users found they wanted more choices, or didn’t want AT&T, or just were part of the anything-but-Apple crowd. That enabled even the mediocre early Android devices to make inroads, and by 2009 when I joined the Android crowd they had made great strides and were about to bust into the ‘big time’.

But as I said, they have made these gains at the expense of archaic empires – Symbian, RIM and Windows Mobile. In 2007 RIM, Windows Mobile and Symbian owned the smartphone world – and even in 2008 with Apple capturing ~25% of the market RIM was still dominant … but the end was coming fast for Windows Mobile. It took until late 2010 for RIM to lose dominance, and really just this year we have seen them fall by the wayside.

So when we look at the two dominant smartphone systems, iPhone and Android, we see one that is influential and stable, and the other that is fragmented but dominant. Why does any of that matter? Because the question remains open if Android is the ‘iPod of Smartphones’ … or the next Blackberry (or Yahoo, to draw another Analogy involving Google).

Here is the question – if Windows Phone grabs 25% of the smartphone market by 2015 as some analysts predict, WHERE does that come from? Certainly not from RIM – they are headed to webOS-land quickly. A transfer of Symbian share is possible – but worldwide that will likely go to Nokia’s low-end smartphones … which remain Symbian based.

Some amount of iPhone share grab is possible, depending on usage, marketing, games and other factors … but the Microsoft-Apple antipathy divide is strong enough to have people not make that leap lightly.

That leaves Android. Here is my claim: if Windows Phone has 25% market share in 2015, they will steal 20% of that share directly from Android.

Why? Well, let’s start by looking at the image from the top. It shows what kids want as a holiday gift – and guess what? It is NOT anything with Android on it – it is Apple, Apple and Apple. Apple has a desirable brand with desirable products that people … well, desire. Some folks – mainly Microsoft or Android zealots – say that is because people who want Apple products are either stupid or mindless sheep. Yeah, THAT sounds really nice – and says more about them than anyone else.

Even when you think about the ‘Tablet (non-iPad)’, that is so generic as to be meaningless. Is it a Galaxy Tab, a Transformer Prime, a HTC Flyer, an Iconia … or what? We know that the Nook Color sold more than pretty much any other Android-based tablet – and NOT because it had an Android core, based on estimates Carly discussed here. So as of this summer, the #1 Android Tablet was … well, not about Android.

And we now know that the Amazon Kindle Fire has sold more units than pretty much all other Android Tablet devices COMBINED! And we can also safely assume that the Nook Tablet will sell extremely well this holiday season. So we are looking at entering 2012 with 75% of the so-called Android Tablet market occupied by Nook & Kindle – in other words, by tablets that were sold NOT by being Android tablets.

So … Android has NO traction as a tablet device. Anything remotely interesting comes along, poof gone done. Why does that matter? Because the paired tablet-phone setup helps draw people further into your ecosystem, as Apple has found. There is a reason that while Android dominates handset sales and has plenty of downloads, Apple still commands 80% of app revenue (which is, of course, all that matters). People are simply not that invested in the Android ecosystem – or, they just expect everything to be free and refuse to pay (which is why Android suffers staggering piracy rates for 99 cent apps and also is loaded up with malware).

But what about smartphones, you ask? After all, THAT is where Android is dominating. But look at it this way: who makes Android phones? Samsung, HTC, LG and Motorola are the big four. And who makes Windows Phone devices? Samsung, HTC, LG and Nokia. Notice something?

So the handset makers really don’t have to care about which way things go – for them it is about return on investment, and the second they see easier money from Microsoft, they will immediately shift their focus.

Speaking of Microsoft and money, let us not forget that Microsoft has a $1 billion annual business in Android phones. What? Due to Android violating patents from Microsoft (yes, familiar theme I know), Samsung, HTC, LG and others are all paying up to $15 for every Android phone they sell. So for the handset makers, using Windows Phone with whatever direct royalty they pay might be the lesser evil.

Finally we come to the carriers. As we have seen repeatedly, they really don’t care HOW they sell contracts, just that they sell contracts. The only possible issue I see here is that Microsoft limits what the carriers can bloat the phones with … so for example Verizon might be happier with Android where they can pile on 6 (yes SIX) new apps when updating my phone from Froyo to Gingerbread, including an nonremovable choice of Google Maps or VZ Navigator that pops up every time I try to get directions … with VZ Navigator as the default.

But carriers are pragmatic – right now the choices of Windows Phone devices are better on some carriers than others, but if they start to get traction then you can bet that you will see more and more on other carriers. And where does that floor space come from? iPhone has a 4-foot section in most stores, meaning that a WINdows Phone display will cut into Android displays – which are uniformly bland. Even the mediocre UK Nokia display I wrote about is better than the generic Android stuff in most Verizon stores – especially the Moto Droid stuff.

But I am not casting the downfall of Android, just pointing out that while Google has a brand with massive sales, what they do NOT have is a desirable brand or any brand loyalty. Consumers do not think they should pay for anything from Google, and so they don’t. And that lack of loyalty, along with the more desirable products from other vendors such as Amazon, Apple and Barnes & Noble, combined with the potential threat of Windows Phone … means that the smartphone landscape in a couple of years could be quite different.

What do YOU think about these possibilities?

2 Responses to " Android Rules Smartphone Roost … But Holiday ‘Wish Lists’ Show Vulnerability "

  1. Doug Miller says:

    It’s interesting to look at this about a year later. Clearly it’s not quite 2015 yet, but Microsoft still has a *long* way to go to get anything close to 25% market share in smartphones. And I’d say that the Surface tablet right now is looking like a mighty flop. Again, it’s early, but I bet Amazon sold a lot more Kindle Fire tablets than Microsoft sold Surface tablets.

    • Actually, depending on whose numbers you believe, Amazon sold more Kindle Fires over the holiday shopping season than the combination of Surface, Nook, Galaxy, Nexus, and on and on … pretty much they sold more than the combination of ‘anythig but iPad’ – by a LOT.

      I have no idea where any of this is going … the latest numbers show Windows Phone share actually continuing to contract (they only have through November) in spite of all the ads by HTC and Nokia and love from the press. I had estimated that MS would capture between 5-10% of market by the end of 2012 … of course that was before the whole WP8 non-backwards compatible debacle that trashed confidence at exactly the wrong time, just as the brand began to catch on.

      HTC has a bunch of pseudo-celebs hawking phones poorly … Jessica Alba, who mainly appeals to teen boys or peopel who remember Dark Angel and wonder what happened to her acting ability; Will Arnett, best known for a second-tier role on a poorly watched show a decade ago; and Gwen Stefani, singer for a band with a few hits a decade or so ago who had a mediocre solo career, little success in fashion, and a total flop with a recent new No Dount Album …