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What do you have to believe for an Android dominated future?

If we look at the growth of smartphones independently from all phones, the category looks impressive:

Smartphones are now almost 24% of all phones, up from 10% three years ago.

What’s also impressive is all participants in the market grew their volumes. The rising tide did lift all the boats.

For this reason it’s somewhat perplexing to hear absolute statements about the imminent death of certain smartphone competitors. The non-smartphone market is still 76% of the total phone market. And it’s the biggest and easiest target for all smartphone competitors. The data shows that, for the time being, calling the end for vendors or platforms in a market that’s doubling every three years is premature.

But what I really want direct attention to here is a subset of the market: modular platforms.

If you recall from the modular vs. inter-dependent dichotomy discussion, modular architectures are a way to implement products by licensing core components rather than keeping an integrated development model. I stated that modularity tends to be the better approach when markets are mature/over-serving and inter-dependency is the better approach when markets are young and the products not-good-enough.

Looking at the chart above you should note that the market is growing extremely quickly so it’s not “mature” in that sense, implying a healthy future for inter-dependent players.

So how are modular vendors faring at this stage of the market and what are the prospects of module suppliers (i.e.  mobile operating systems).

To help clarify, rather than looking at vendors individually I grouped them by architecture. I took the charts above and changed the colors so that modular vendors (in shades of brown) are represented separately from inter-dependent vendors (in shades of green).

When looking at the market this way we can make some important observations:

  1. Even though the overall market grew, the share of the market held by modular architectures is smaller than that for inter-dependent. It’s also not increasing. In 2008 modular players held 36%, in late 2010, they held 35%.
  2. The suppliers to the modular market changed over the same period, so to a large extent they are fungible. During 2007, the vast bulk of the brown area above was using Windows Mobile. The vast bulk in 2010 is using Android.
  3. The addressable market for Android is constrained to the modular market. Therefore the growth potential depends on whether that brown area increases dramatically relative to the green.
  4. Vendors don’t change architecture easily. My knowledge of the competitors makes me believe that none of the green players will change from Inter-dependent to modular, and even if they wanted to change  it’s not a simple thing to do. Conversely, changing from modular to inter-dependent is enormously challenging. Company processes, competencies and priorities must change dramatically.

So what’s the bottom line?

For an Android dominant future, several conditions must be met; one will need to believe all of these to be true:

  • The addressable market for modular solutions will have to grow much faster than that of inter-dependent vendors. [The chart shows in-line growth–again due to the overall growth of the market. The green guys above won’t just roll over.]
  • The split of licenses between Android and Windows Phone within the addressable market must favor Android. [Again, this is unlikely as “politics” will interfere. (I won’t even touch IP issues.)]
  • The current modular vendors will not become inter-dependent or the current inter-dependent vendors will become modular. [Now why would they tear themselves apart if they are growing?]
  • The profitability of Android vendors must be high enough to make modularity sustainable [more about this later.]

Talk of Android (or iOS) “domination” is still wishful thinking. With the acceptance of Windows Phone within the value chain (device vendors, operators, developers), the brown area above will be served by two very powerful and motivated competitors. Politics and lawsuits will add drag on growth. Established brands are important to consumers and new brands (like ZTE and Huawei) will have a hard time joining the top tiers with or without Android. Established integrated vendors like Nokia, RIM and Apple don’t have modular DNA but do have massive distribution.

In the end, the real limitation is that the brown area itself is not going to get disproportionately large. Android is limited by its addressable market and that market is a lot smaller than the whole market.

Looking at the world through modular/inter-dependent lenses lets you see that mobile platform dynamics will not evolve as they did in the PC era. At least not for the foreseeable future.

  • timnash

    Android has also yet to show that it can take share from iPhone on a carrier which supports both.

    • Nate

      This makes me wonder: what would these graphs look like if Verizon were left out of the picture? Subtracting VZW might clarify what it is that Apple stands to gain with a Verizon-compatible offering.

      • asymco

        I don't have Verizon data specifically (have not seen any), but these figures are world-wide so I don't think Verizon is a very large part of the whole picture (of 80 million total units last quarter, I doubt Verizon sold more than 5%).

  • http://twitter.com/fictionalui @fictionalui

    I pretty much agree with all you logic and conclusions, savvy as usual.

    I've only issues with your terms for the dichotomy, "inter-dependent vs modular" – I think it's a bit misleading.
    If you look at it (and you make this clear too) it is just a software thing – on the hardware side, pretty much everything in the consumer electronic world is modularized.

    So why don't we just talk of "owning" vs "sharing" the software platform?
    I think it just makes things more clear.

    Owning the software platform can be a big competitive advantage, as it creates positive product differentiation and additional revenue streams from integrated content and services offerings, augmenting brand value and attachment for the owner (that is, if the software platform is good and desiderable).

    Even the "modular" ("sharing"?) players recognize this, with their efforts in skinning and customizing Android to provide a little bit of "ownable" sofware experience.

    There is also the massive benefit of being in full control over the future evolutions and offsprings of the platform.

    Exclusively owning the software platform also brings some risk in isolation, and not having enough critical mass on the market to prevent marginalization of the proprietary ecosystem.
    Those risks are greatly exaggerated by looking at the classical example of desktop computing platforms.
    Basically, the historical market conditions that made extremely difficult to sustain an independent software platform in a Windows dominated world don't replicate in the mobile world.
    There are no sotware libraries lock ins or scarcity of developers here, so any independent platform can happily survive without being dominant. It all boils down to the owner having enough marketing muscles and brand recognition to promote the platform.

    So I think that any mobile player, ideally, would have loved to exclusively own their platform.
    The problem is that modern mobile software platform need a ginormous investment to develop.

    The advent of smartphone class hardware meant that their OS and dev tools became as complex as the desktop computing OSes.
    Developing a successful one in a timely manner implies massive engineering and UX teams, and massive experience in managing the development process.

    Basically, you either have the capability in place since some good years, or it takes a lot od resources and a real leap of faith to bet your mobile strategy on trying catch up on this.

    So, only estabilished software giants, or very software-centric mobile companies could think of doing that.
    Apple, Google and Microsoft among the former; and RIM and Palm among the latter.
    Plus Nokia, who has both the hubris of thinking it can do it, and the dumbness of betting the company on a not fully ownable (=open source) platform.

    All the others decided it was not an option.

    Android, and later WP7, came to save them, not by serving the needs of overserved markets, but by removing the enormous cost of developing in-house.

    At the same time, it condemned the adopting players to remain software dwarfs in a world where software is going to be the most important asset for success.

    I think framing it like this helps understanding why being in Android land is not such a big deal for the future, more than the "emerging vs overserved" and "interconnected vs modular" dichotomies.

    It also helps understanding efforts like Samsung's Bada – why taking the pain of developing an OS in-house for featurephones and low-end smartphones, which are surely more overserved than smartphones? Probably because Samsung is recognizing the importance of owning software, and differentiating with it, and it's just starting to build competence for the future with a low-end effort.

  • Shrike

    Horizontal (Google, Microsoft) vs vertical (Apple, RIM) could be another way to describe modular vs interdependent.

    Nokia is the interesting case. It can be argued that they are a modular vendor since Symbian (and Meego) are licensable platforms. It's just that it is in a terrible state right now and most modular vendors (LG, SE) are abandoning it. Symbian is just in a weird place right now as Nokia wants it to be modular, but there aren't any major vendors supporting it anymore. They may as well pull it back in, because they need to speed up the development of Symbian or Meego or whatever they want to use as fast as possible.

    • Marcos El Malo

      I try to keep in mind that these are all just concepts/frameworks, and none of them perfectly fit the evolving phone environment. They are all useful ways to think about and discuss phones, and each addresses certain saliencies. I find the Open v. Closed modality less useful because it is laden with emotional baggage and empty ideology (in the political sense). It's become an empty-of-meaning marketing phrase/political slogan, rather than a way to analyze phone phenomena.

  • Russell

    Horace/Group
    Thanks you for this article. Most of my questions/reading on asymco are usually focused on possible outcomes in the future. As you must know by now from my posts, i have a lot of PC era views that I've brought to the current tech cycle that need to be updated. Are the dynamics that you discuss in this article vs the PC era dynamics impacted significantly by the following:

    1. the tech world having seen what the likes of MSFT, ORCL, etc did with certain advantages, will all block each other from these possible outcomes going forward.

    2. Carriers with the control they have, (i think you've discussed here) have a vested interest in not letting any one smartphone player gain too much control.

    I'm always trying to look out to the horizon and beyond, and your final sentence has me curious about thoughts on other possible outcomes beyond foreseeable future. Perhaps on a future post? Having said that, I am coming around this line of thinking on probable outcomes.

    Russell

    • marko

      great post horace. and i also agree with russell. with so much focus on how Wintel dominated PCs, history will not repeat itself (ex. symbian was launched as an open platform specifically to nullify that threat).

      so the question becomes; what will be the major disruption to the mobile ecosystem that is not currently anticipated? i think its personalization (i.e user data)…. meaning facebook is currently positioned as the wildcard.

      • Russell

        Marko, I too see facebook in a good position to do a lot of damage/disrupt/innovate in mobile. I wonder if because they are still private and its business models are still evolving they are underestimated by a lot of folks. The social aspect in this cycle are going to touch so much, and they are the kings of social at this time.

        The fact that they work with Apple really well and have potentially mutual enemies (GOOG, MSFT) in certain key areas of their businesses(ex. search) bodes well for them. They have been dealt a good hand(positioning) at a good time(this tech cycle). Let's see how they plal it.

        Russell

    • asymco

      The PC era and the post-PC era differ as you point out: there is more awareness of how things can accelerate with network effects, it's a more complex value network due to operator involvement. The other issue is that it's a more personal experience and device. Business use is not leading consumption, individuals are. Value will accrue to those who are closer to the consumer and can solve their problems, not deep in the supply chain.

    • http://bmannconsulting.com Boris

      I don't think carriers are exclusively in the drivers seat here. Apple retail is selling phones. Microsoft is ramping up their retail efforts. In Europe, unlocked, full price phones are the norm, it is only in North America that we have 2/3 year contracts with subsidized hardware.

      • Iosweekly

        Not entirely correct – Its more the fact that American carriers usually simply have one subsidized price for their phones, where as the rest of the world has multiple subsidized rates based on different monthly plans – all the way from free iPhones etc on very expensive monthly plans, to half subsidized phones on reasonably priced plans, to unsubsidized phones on no contract plans.

        Unlike the US, most international carriers have at least half a dozen plans for each phone each with different monthly amounts of free minutes, txts and data limits.

        For instance, in new zealand Vodafone offers a ridiculously cheap $25 USD a month plan which gets you an iPhone 4 for about $400, and also has a rediculously expensive $160 USD a month plan which gets youma free iPhone 4. And apple sells the iphone unlocked also of course, which you can use on prepay data plans for as low as $6 USD a month for 100mb (good for my wife who only uses Facebook app + the pride&prejudice zombie game)

  • Joe_Winfield_IL

    It will be interesting to see what happens in a world with both Android and Windows Phone. To date, Android's rise has coincided with Microsoft's abandonment of its older Windows Mobile. Ballmer has stated that Microsoft is "all in" on WP7, so the next few quarters will be the first in which there are two viable, modular platforms. In absolute volume numbers, the growth in the smartphone sector will allow WP7 to do relatively well. However, their market share will have to come from somewhere.

    Microsoft has signaled that its app store will more closely resemble Apple's curated experience than Android's free-for-all. It is hard to imagine the techies abandoning Android, with their love of customized settings and questionable software. Part of the appeal of Android is the same as for Windows desktop; namely, it is easy to get illegal software and pirated media onto the device.

    Conversely, it is hard to imagine the consumers who value Apple's tight media integration and massive array of apps turning in their iPhones for WP7 devices en masse. Why abandon the premium experience in favor of a me-too platform, except for price? These customers also largely are disinterested in learning another file system and set of controls. Also, the media and apps currently on iPhones will require some effort to move onto WP7 for less savvy users.

    This leaves only the business users as a major potential class of adopters. RIM has already been wounded, with IT managers succumbing to employee pressure and allowing Android and iPhone use. If Microsoft gets things just right with Office integration, WP7 will have a leg up in this market. If WP7 is able to secure a large portion of this market, it will favor the brown manufacturers during the next phase of growth.

    Finally Nokia – as a US resident, I can't pretend to understand Nokia. They have chosen not to play ball with the ridiculous carrier requests here. But the charts produced on Asymco consistently show a pattern of share erosion. I have to imagine that the addition of yet another competitor to Symbian will only reinforce the current trend.

    I could be completely flawed in these assumptions, but if not, WP7 will come mostly at the expense of integrated software/hardware vendors (green on your chart). I can't decide though, whether Apple is aided or harmed by a shift from green to brown. If in 3 years time iOS has a much larger share of the green space, will their integration be at more of a premium? Or will this shift signal that the market has begun to accept the modularization of mobile devices to the detriment of Apple?

    I tend to think that WP7 is good for Apple, as its success would largely be an opportunity loss for Android. Even if WP7 sales aren't coming from Android buyers, a second major modular platform takes away the opportunity to establish a true market standard. Windows' desktop success has largely been self-reinforcing due to its status as the default choice. Windows didn't have to be better than Linux, OS2, MacOS, or anyone else over the last 15 years. It simply had to be good enough to prevent massive defections. As long as Android doesn't achieve this ubiquity, Apple should be selling iPhones in large quantities for a very long time.

    • http://twitter.com/aegisdesign @aegisdesign

      Outside the US, WinMo was barely detectable so it'll be interesting to see if they can get any market share in Europe with WP7. Android isn't that big here either since the phones largely cost the same as an iPhone and they're on the same tariffs. May as well buy an iPhone unless you've some pathological dislike of Apple.

      That's why Nokia does well in Europe. The phones are cheaper so the carrier can give them away on cheaper tariffs. In the US you have this strange system where all the tariffs are the same no matter how expensive the hardware is which effectively keeps Nokia out of the market. Nobody is going to buy a Nokia 5230 in the US if it's going to cost the same each month as an iPhone. In the UK a free 5230 will run you £15 a month but a £99 iPhone4 is £35 a month for the same tariff. I bought a Nokia C7 today – £19 a month as an upgrade. iPhone 4 would have been £30 for me.

      Nokia needs to somehow convince US carriers to introduce lower tariffs that match the lower priced hardware.

      • Joe_Winfield_IL

        Very good point. As an example to demonstrate your thought, ATT is currently selling 3 different Blackberry models for the subsidized price of $199 on their website. The Bold9000 is a 2 year old model, the Bold9700 is the 1 year old update, and the Torch is the latest model. Why on earth would a customer choose a 2 year old Blackberry without a real browser, touchscreen, or app selection for the same price as the top of the line iPhone or Android devices?

        Nokia also needs to yield to US carriers' insistence on adding proprietary bloatware. This is a big part of the reason Apple didn't work with Verizon 3 year ago. Most Android phones have carrier-specific widgets and applications that the users aren't requesting. It appears that the success of iPhone has given Apple enough leverage to maintain control over user experience. Nokia is not in a position of strength at the bargaining table in the US, so they will have to swallow their pride and allow carriers to do the stupid things they choose to do.

      • http://twitter.com/aegisdesign @aegisdesign

        They have yielded a couple of times and the results have been the massacre of the excellent E71 to create the AT&T E71X full of bloatware, sold at a stupid high price with the same high cost data plans as the iPhone.

        No wonder Nokia get a bad rap in the USA.

    • Marcos El Malo

      I think WP7 is following a hybrid strategy to tap into the untapped emerging market, and will be able to chip away at both the saturated early adopter market while also having certain integrative advantages in the emerging market. In addition, they are a huge brand! Consumers are not going to leave the iPhone en masse, but MS has as good a chance as any of scooping up those that are not committed to a platform.

  • Iphoned

    If only customers buying Android devices read this blog. Then perhaps they may stop ignorantly buying Android phones in fast increasing numbers.

    • Joe_Winfield_IL

      At what point has anyone suggested that Android won't be successful? Of course it is going to keep selling well, and users are by and large very pleased with Android.

  • Adam

    Good article

  • westech

    I find the term inter-dependent confusing in this context. I prefer integrated.

    In a growing market poor performance can be masked by the overall market growth. As the market matures the marginal performers will be squeezed out. Goodbye Motorola and Sony-Erricson.

    Apple is not competing with Android, or with Microsoft. It is competing with Rim, Nokia, Samsung, HTC, Motorola, HTC, etc. Apple has developed a manufacturing juggernaut which has the lowest cost structure. By concentrating on a single phone/computer, they were able to bring out a product which was outstanding: well thought out, well engineered, well designed. They then made a lot of them and drove their manufacturing costs down. They made lots of money and used some of this to improve their product and their market access. They invested in designing chips for mobile application; they invented the application store; they worked hard on keeping the customer experience at a high level; and they extended the technology to the iTouch.

    The last is not a subsidized product yet sells at prices in the same range as the iPhone. This is possible because they have driven their costs down with experience, and because they leave out some features, or use lower value variants of them. Look at the iTouch as an iPhone 3g tweaked. I’d bet that the manufacturing cost of the 32 gigabyte model is no more than $150, the iPhone 3gs (which is still subsidized) is around $200. I would guess that the iPhone 4 started around $325 and is now around $250.

    I don't believe that any of their current competitors could make and sell a Touch at a profit without subsidization. Or an iPad either, for that matter. When the market matures competition will get tougher, and if Apple chooses to compete on price it will wipe out the competition.

  • http://twitter.com/BrianSHall @BrianSHall

    As always, great analysis. Perhaps I am engaged in "wishful thinking" but I think you are using the past to predict the future (that is, the modular market is fairly static). I think given the embrace of Android and the detaching of Symbian from the leading edge, that this is incorrect.

    If your readers are interested, your post inspired one on my site: http://brianshall.com/content/androids-growth-abo

    Thanks again. Love the site. (Discovered via Monday Note)

    • neilw

      I was thinking similarly. I don't know if I fully grasp the notion of splitting the *addressable market* along modular/inter-dependent lines, since this seems to imply that *consumers* can't freely move between the two models. I fully agree that *vendors* are largely stuck in one camp or the other, but all consumers are surely in play for all vendors here.

      To be fair, there may be a subset of consumers on each side that prefers one vendor model over another, but most are just looking for the best phone, regardless. Or the best phone on their preferred carrier (in the US).

      Given the current strength and positioning of the major competitors, it seems likely that the balance between the two camps won't change radically in the short term, but over time anything would seem possible if a major competitor in either camp falters.

      • Joe_Winfield_IL

        I agree that future share between modular and interdependent will not remain fixed, but I disagree that users don't care about the system. Ironically, I think you are "using the past to predict the future" in this assessment. Among voice only and feature phones, it was the case that buyers would flop from one device to the next without regard to much beyond price and the "feel" of the phone. The size of the contact list, the type of power adapter, and other mundane features used to drive purchases. Today, however, many buyers are fiercely loyal to their smart phone. The phone is becoming a more interactive part of daily life, and the user experience is largely driven by the software.

      • Marcos El Malo

        I agree. I think this is twofold. One, even after the initial adoption, consumers get more deeply invested (literally) buying apps. Two, consumers become invested in a particular OS's workflow and UX. It's not necessarily that one workflow is better than another, it's that the consumer becomes more comfortable with it. (This is part of the reason I've stuck with Macs for so long, even as MS and Linux have caught up. I no longer have as many technical reasons for preferring Macs. I just prefer them!)

      • http://twitter.com/BrianSHall @BrianSHall

        I try hard to not equate the 'smartphone wars' with the PC wars, but perhaps I am too using the past to predict the future. However, this market is growing so fast, is in so much flux that I just cannot accept that the modular segment will remain fairly static. I'm not even sure the business models will remain static, let alone the devices, licensing schemes, etc.

      • asymco

        Loyalty is why it's going to be very hard for new OS devices to take share from existing OS devices (or to switch operators). The only question is how quickly the current OS device vendors convert non-OS users. I just don't see the rate of growth for modular players being significantly higher in this race to convert non-users. Remember, to see a *dominant* single player means they have to grow 4x the competition in a market that is growing 2x. Try to draw some lines forecasting the charts above…

      • Joe_Winfield_IL

        Loyalty is huge, but it only affects the 24% who have already bought a smartphone. It doesn't seem unreasonable to suggest that, in pursuit of the remaining 76%, the world of modular OEMs can scale production more rapidly than a few very large integrated manufacturers.

        I guess the counter-argument is that the interdependent platforms have a specific vision that can lead the market in new directions more rapidly than modular. We are seeing it with iPad today – Android has not yet released Chrome/Gingerbread/Honeycomb as a response to the scaled iOS. They will of course be able to catch up, but Apple will have already sold millions of devices before the first true Google supported tablets arrive on the market.

      • asymco

        That's exactly the crux of the matter. Innovation may come from completely new angles where inter-dependence holds the winning formula. It can be from new form factors (which use unique materials or screen sizes). It can come from new ways to integrate the software and the hardware like mobile payment authentication. It can come from ways of integrating different form factors like iPad with iPhone and AppleTV (Playback, TV show interaction).

        One thing's for sure, the way this mobile computing market will evolve is unforeseeable and modularity is all about using stable building blocks.

      • Joe_Winfield_IL

        Also, innovation within open source platforms is a tricky thing. To my knowledge, there are exactly two Google TV devices on the market today. Logitech has a set top box, with lots of add-on accessories. Sony has Google TV built in. Both look like great products, yet they are completely incompatible with each other. The manufacturers have built proprietary layers to differentiate their products. Good for Google market share, bad for their march toward standardization. The same phenomenon can be seen with the many flavors of Linux.

        For Android to be truly innovative (better cameras, processors, and screens don't count), the innovation has to be cooked into the software. It also needs to be compatible with the growing array of hardware. I know I'm just regurgitating your own thoughts on fragmentation, but I like many get sidetracked by the latest sales data suggesting an Android future. To their credit, Google has done a great job with voice, mapping, and search on mobile. The question is whether these efforts can be more easily duplicated than those of the verticals, or if Google even wants to protect its IP. Google has huge profit opportunity with maps in particular. Given the revenue model, they have more incentive to share the technology across platforms than to make it exclusive.

    • asymco

      Android is restricted by the licensee market (modular vendors). You could argue that the current vendors will explode in popularity, at the expense of the inter-dependent vendors, but in order to believe that you have to deal with many obstacles like distribution and operator incentives. Of course consumers will have a large amount of influence, but not all the influence and for a consumer, having Android does not compel as much as device brand, availability and promotion.

      Having said that, I find RIM to be the most vulnerable to Android going forward. If they start losing portfolio slots at the 530 operators that carry the Blackberry, it's going to get ugly fast.

  • Mark Newton

    Very interesting data Horace, thanks.

    Your article suggests the brown group hasn’t substantially grown – it’s constituents have just moved away from WinMo and Symbian toward Android. So, might it be reasonable to conclude that Android’s recent strong growth was powered by grabbing the ‘low hanging fruit’ of former WinMo and Symbian markets within the brown group?

    If so, might we expect future Android growth to be relatively tougher to achieve?

    • asymco

      The share of the brown has not grown. It's bounded by the vendors in the space. And vendors don't change their stripes. Could Samsung race with Android ahead to swamp Symbian, RIM, etc.? Maybe, but why are they launching Windows Phones (the Omina brand) and Bada phones (the Wave brand)? Same with HTC. So far Motorola is the only "brown" vendor with an exclusive Android portfolio but even they stated they are keeping options open.

    • asymco

      I should emphasize that growth for Android came at the expense of Feature phones first, dumb phones second, Windows Mobile third, RIM fourth. Symbian has been more resilient than most people think. What would be insightful is to repeat this analysis by region. Unfortunately the regional data is all behind pay walls.

  • westech

    In the phone arena, Apple does not compete with Android, or Microsoft for that matter. It competes with Nokia, Rim, HTC, Motorola, Sony-Erricson, Samsung, etc. None of these except Rim and Nokia individually has a market share that will enable them to compete in the long run. Manufacturers of Android based phones are competing with each other and driving their prices down with no affect on Apple.

  • http://twitter.com/dicklacara @dicklacara

    Good Article!

    But, I think you need to add Tablets to the analysis. The forecasts are all over the place, but I suspect we'll see somewhere between 30 – 70 million tablets sold in 2011. Some of these will contain Cell radios (as well as WiFi). The rest will be tetherable using a smart phone or a mobile router.

    I doubt that many tablets will replace smart phones — but I do believe that many will carry a tablet in addition to a smart phone.

    Where it starts to get interesting is when you consider the OSes that drive these two categories of smart mobile devices.

    Questions arise, such as:

    — Do we need a seamless UI/UX across the smart phone and the tablet.

    — Do we need a seamless UI/UX with the devices they interface: laptops; home/office computers; cloud computers; the web?

    If those questions are valid, then you have to ask: What OS platforms are robust enough to provide this seamless UI/UX?

    @marko asked:

    "so the question becomes; what will be the major disruption to the mobile ecosystem that is not currently anticipated? "

    I suspect that the "disruption" is already underway!

    Dick Applebaum

  • Gary

    I think the author cherry picked the information. First, I don't consider WinMO a modular system, Symbian is much more modular. Grouping WinMo into the modular category biases the data.

    Instead, using his graphs, if you simply look at the Android marketplace, which is what the author is criticizing, you see a massive growth from Q32008. Assuming the major Android vendors are Mot, HTC and Samsung. This growth ate into the Symbian (mostly outside US), blackberry, WinMO (other) and iPhone on a percentage basis.

    Somehow the author draws a conclusion that Android isn't following the PC model, with Apple in its usual place, and Blackberry and Symbian playing the roles of DEC and Sun. I just don't see the basis for believing that the growth of Android won't increase faster than Apple, Blackberry, and Nokia. The reason is exactly the same as for the PC, the hardware is interchangeable, the software and user experience can transfer to new hardware from other companies.

  • James

    Wow. Excellent piece. I’m really impressed. You’ve got 20/20 vision on this.

    To summarize… the market-share between modular (Windows Moblie, Android, etc,) and vertical vendors (Apple, RIMM and Nokia) has not changed since the advent of Android. In short, Android absorbed the modular market-share that was primarily held by Windows mobile and grew on par with the rest of the market.

    From this one can surmise that Android’s record growth can be attributed to two primary factors, one, the absorption of Windows Moblie market-share and , two, growth proportional to the vertical market. In short, Android is not gaining on Apple, RIM or Nokia, it simply grew rapidly as it replaced Windows Mobile, which it will now have to compete with again as Windows Phone 7. I’m no fan of Microsoft but they have a solid product that will pull resources and divide the attention of Android handset makers.

    Out of this Android seems less like a threat to Apple except where Apple is not one multiple carriers, such as, in the US where they are only on AT&T until January 2011. RIMM and Nokia clearly are the weaker of the vertical players, yet, healthy all the same.

    In the tablet market Android doesn’t have anything to absorb but their is certainly ample room for growth. It’s biggest weakness is price. Clearly Apple has leveled the playing field, if manufactures are struggling to match Apple’s price point with 7″ tablets that have 55% less screen space than Apple’s 10″ iPad. While volume on the Android side will help, for any single Android tablet to reach volume that specific manufacture will have to reach volume, since Android manufacturing is not cumulative. I just don’t see it happening.

    Anyway, awesome analysis. You’ve earned your pay for the year.

  • Steko

    The problem Android is going to run into is that each 1% market share is worth much more to Microsoft then it is to Google. Right now a lot of the people who buy android phones are buying them simply because that's what's on the verizon commercial or in the window or what the salesguy shoves in their face.

    At the end of the day though Verizon doesn't really care if they sell you an Android or Windows Phone (or a Blackberry, iPhone for that matter) and Samsung doesnt really care if they sell you an Android or Windows Phone (or a bada for that matter). Enter Ballmer's wallet. Microsoft can and will pay the carriers and handset producers for that market share if needed (i.e. can't earn the market share with product quality) and I think we're already seeing that.

    Same thing with RIM although only in relation to carriers.

    What's interesting as it relates to Apple, each 1% market share is also much more valuable to Apple. Except instead of bribing the carriers Apple told them to fuck off and is "bribing" consumers by good old fashioned better mousetrap building.

  • http://twitter.com/bratling @bratling

    Respectfully, next time could you pick a pair of colors other than Green and Brown? This causes huge problems for the red-green colorblind audience (about 10% of all males … but of course I only care about me ;) I can't make heads nor tails of the brown-and-green chart. They all look like shades of brown.

  • Marcos El Malo

    I should also note that I've been a Mac user since 1991, so when I do finally get a smart device, I'm predisposed to the iOS ecosystem. I'm almost positive that when I do jump in, I'll have the "Why did I wait so long? I should have gotten this long ago" experiences.

  • virgil

    You make the right observations, but draw the wrong (convenient?) conclusion.
    " I stated that modularity tends to be the better approach when markets are mature/over-serving and inter-dependency is the better approach when markets are young and the products not-good-enough."

    Smartphones WERE young – this is true; Apple was the first to "do it right", hence their success.
    Are they still young? Remember that we started seeing Android smartphones given away (at no cost) on contract. The market is maturing, fast (if it didn't already). Even Apple sees this, they have launched iPad (and re-launched Apple TV) to get a foothold on new, young markets. It's wishful thinking to believe that the green/brown pies will stay the same.

    • asymco

      Testing this is easy: are improvements in category products absorbed by the median customer? Absorption implies new products have features that users actually crave and quickly adopt as well as a willingness to pay for same.

      Overshooting symptoms are when improvements are neither valued nor used.

      All you have to do is ask whether a product (like the iPhone) is seen as over-featured and over-priced for those features which are most commonly used. My observation is that the vast majority of smartphone adopters actively look forward to and demand improvements. Features like faster processors, more memory, better screens, better and multiple cameras, better system features, near field communications, thinner, lighter, more rugged, better battery life, better accessories connectivity, gyroscopic sensors, identity recognition, voice recognition, projection of images, 4G network speeds, ubiquitous video calls (do I need to go on?)

      Although the smartphone market has been around since before 2000, these improvements are still not enough to displace the predominant incumbent computing platforms. There is a huge amount left to be improved upon.

  • sha

    I'm not sure 3 years of data is enough to extrapolate a trend ?

    • asymco

      I've been tracking this market for more than 8 years and observing it more more than 10. I also followed the PDA market which preceded it. The trend has not changed. In fact, there were times when modular was even more popular than it is today–e.g. when PalmSource was a licensor or when Symbian was licensed to Samsung, Sony Ericsson and Motorola and when Windows Mobile had 600 different devices in the market.

  • James

    It's worth noting that Apple pulls in 43% of all smartphone profits. Even if Apple's market-share stays right where it is they are stomping the life of of the competition.

    Just look at the computer market. Apple sells 90% of all computers over $1,000, where the margins are. Then look at a company like Dell or HP who sells far more computers and make next to nothing on them – $545 million profit on $15 Billion revenue vs. Apple $4.34 billion profit on $20.31 Billion revenue.

    Some simply argue Apple products are more expensive but the truth is different. Apple simply focus on mid-range to upper-range products, where the profit margins are and leave the plastic case bottom feeding to everyone else. Cater to the Walmart crowd or to everything above that. Who has a better business plan?

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  • Niilo

    A very well reasoned discussion of one of the most important topics in wireless.

    Top notch stuff. Really excellent.

    Put this int the best of asymco. Immediately.

  • Narayanan

    Excellent analysis as always.

    The last pie chart is clearly showing that Others/Android have re-aligned within and between themselves.

    But Apple has gobbled up all of Nokia’s loss of market. Even RIM has taken small bite out of the Others.

    So the stellar growth of Android is basically Windows Mobile vacuum fill. Now with WP7 out, MSFT will be fighting to reclaim their lost territories.

    I see the next 2 qtrs as an interesting tussle between Android and WP7.

  • Mike

    I think there are a few things that impact your analysis.

    The assumption that the inter-dependent vendors won’t give up growth to modular vendors is likely wrong. It is still early, but RIM seems to be giving up market share, mostly to Android. And, until iPhone is available on another carrier, it has likely peaked. Being easily available (without hacking) on another carrier would allow iPhone to continue to grow a bit.

    The assumption that Windows will play some significant role in modular vendors is also likely wrong. Microsoft had their chance and they missed it. Windows Phone will likely become as irrelevant as Zune is.

    iPhone won’t go away but likely won’t be the largest smartphone mobile OS. Apple will probably be the largest smartphone maker since they are 1) popular 2) are the sole distributor. So, whatever happens, Apple will likely do very well even without being the dominate OS.

    I don’t know about Nokia. It’s hard for me to see how they will retain market share in the US using their mobile OS and I don’t know anything about the tendencies outside of the US.

    A large benefit of Android is that it gives people a choice and most people like a choice. The choice of a keyboard or not. The choice of large or small. The choice of carrier.

    • asymco

      RIM is giving up share of growth but let's not forget that RIM did not give up share of growth to Apple or anybody else so far to a large degree. Not only that but the share of growth that needs to be surrendered by incumbent inter-dependent players must be disproportionately large in order to foresee a "dominant" position in the market for a modular entrant.

      WRT to Windows, the open question is how effective will Microsoft's funding of the channel be. Let's not forget their motivation to spend billions to remain in the market. That can buy share. The difference with Zune is that there was nothing to buy. Operators were not part of the value chain.

  • gctwnl

    Module vs interdependent would be more poignant if the modular vendors were below the interdependent. It would show more clearly that modular is still rather flat.

    Secondly, I recall this effect from economic research of the 70s-80s where I knew it as the S-curve of market development. In a new technology, in the very beginning there are many small players trying out different solutions, during the growth phase you need concentrated capital and policy (hence size) to set a de facto (or more) standards and very mature commodity markets often fracture again (think clothing, tiles)

  • Alexkhan2000

    I guess here in the States, we analyze things more from a computer-centric viewpoint than phone-centric. For me, and I presume many others in the US, Nokia and RIM are almost an afterthought although the global reality and the bottom charts show that we are not seeing the bigger picture. We look at the smartphone war as a three-way battle between Apple's inter-dependent architecture and Google/Microsoft's modular architectures. I have never even seen a Nokia smartphone and have never used or even handled a Blackberry. In fact, I had little to no interest in the phone sector until Apple came splashing in with the iPhone in '07.

    Viewing the industry trend from a more computer-centric point of view, it clearly seems like the "computer" companies like Apple, Google and Microsoft are taking over. From a software/platform/ecosystem perspective, who really has the advantage? It's quite obvious that this powerful high-tech triumvirate should be able to crush the inter-dependent phone architectures of Nokia/Symbian and RIM/QNX. And when comparing the '08 and '10 pie charts, it's clear that Nokia and RIM are losing share while Apple has gained tremendous ground.

    Nokia and RIM seem more reliant on the inertia of what they have going outside of the US and on the trend of the smartphone market gobbling up the addressable market of non-smartphones. Data of a little over three years probably doesn't forecast future trends and there is also the Microsoft WP7 factor being added to the mix in the years ahead. I would not count out Microsoft making an impact quite yet. There's just too much brute force there to ignore.

    And then there's another inter-dependent entry coming with HP's webOS and Samsung's own inter-dependent Bada that they are grooming in the wings. Clearly, neither of these huge players sees this mobile market as a repeat of the Windows-Mac battle of the 80's. There won't be a monolithic Windows-like dominant player in the mobile market. The market forces won't allow it. People comparing Android to Windows of the 80's and the 90's are color blind and also seeing things in 2D in a 3D world.

  • Marcos El Malo

    How many different versions of iOS are out there? How many does the vendor (Apple) support, and how many different versions are installed on the devices currently for sale? When a new version comes out, how easy is t to install it on the previous generation of hardware?

    Now how many for Android? What versions do each of the various vendors support, and how many different versions are installed on devices currently on sale? When a new version of Android comes out, how easy is it to install on the previous generation of hardware? Is it possible to install the one of the many forks? Do you need to swap ROMs to install a new version? Is the hardware locked to prevent you from installing a new version?

    This is an area where modular and integrative models are very different for the user. It can also make things interesting for the developer, which will impact the user experience. So, the point is not moot.

    Android cannot completely copy iOS because of patents that Apple holds, especially wrt multi-touch. And I don't know if you know this, but the hardware component makers had already "mastered" touchscreens. Apple is not using custom screens that the rest of the market had to catch up with to emulate Apple. Apple's secret sauce is the interaction between the OS and the hardware and between the OS and the user. And it's patented. So, the point is not moot.

    One of the ongoing themes of this site is the idea of disruption. Apple disrupted the phone market. You contend that this is no longer relevant because Google has now successfully copied Apple, and the only way Apple can compete with Google is through marketing. I would contend that Apple has already shown that it can disrupt its own business and won't be afraid to do it again. This would put Google in the position of copier again, if they want to continue to compete in a newly disrupted market.

  • http://twitter.com/godofbiscuits @godofbiscuits

    Mark my words….this guy will be the Nate Silver of the mobile market.

  • AlfieJr

    very interesting analysis. but the charts would look quite different overall if Symbian v1 and v2 market share were categorized correctly as independent for much of the period instead of treating all Nokia sales as modular, just because Nokia owned the OS.

    until the arrival of Android, Symbian of course was also licensed widely to many other OEM's and Nokia did not capitalize on its OS ownership by creating integrated branded services for it until recently with Ovi. so those OEM sales collapsed due to its obsolescence in the last 18 months, although Nokia still sells Symbian v2 products now able to access Ovi. and whereas the new Symbian v3 really is a modular OS practically exclusive to Nokia.

    • asymco

      I am aware of the level of licensing that Symbian enjoyed, but the point of control, direct or indirect, was within Nokia. See: http://tcrn.ch/cG4HtA

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