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iOS vs. Android: the tale as told by Wall Street

Yesterday I wrote about the growth in Android vs. iOS. The two platforms’ can be said to be enjoying healthy growth, though in markedly different patterns.

The consequences of this growth are being felt across the telecom and computing industries. There are almost 300 million platform devices in use today that were not even dreamed of three years ago. Operators are transporting petabytes more data and dozens of phone vendors are scrambling to meet demand. There are tens of billions of app downloads and hundreds of thousands of apps being sold by tens of thousands of new app publishers. There is a lot of hay being made while the sun shines.

But what about the poor saps that are funding the development? What about the shareholders of the companies behind these platforms. Are they being rewarded or punished?

The following charts tell the story:

I took the platform growth data published yesterday and overlaid it on the share price data (source: Google finance). Each plot begins at the point in time when the respective platform was available in the market and ends today. There are two vertical axes: the left side axis shows “activations” or units sold and corresponds to the thick blue line; the right side axis shows share price and corresponds to the area chart. Overall date range and growth in share price is shown in the upper left corner.

What can we interpret from this superimposition?

  1. Both Apple and Google shareholders saw share price appreciation during the two platforms’ histories. Apple shareholders benefited more (+172% vs. +41%)
  2. Apple’s share price appreciation seems highly correlated to iOS growth but Google’s doesn’t. Google share price had dramatic growth during 2009 while Android was moribund and was flat to down during 2010 when Android growth was explosive.
  3. We can also interpret the difference as Google’s fortunes being far less dependent on mobile platforms than Apple’s. Google has been subject to selling pressure this year due to corroding cost structures irrespective to platforms growth. Conversely, Google may not benefit from mobile computing as handsomely as Apple.

Correlation is not causation and clearly there are many factors at work in share price changes but I think it’s fair to say that Apple is obtaining fuel for growth with iOS while Google is in a more precarious situation with mobility–partly benefiting but partly threatened. The market behaves in bizarre ways in the short term but in the long term one can see logic and reason.

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

    So could one / should one postulate that Google will look for ways to make money from the Android eco-system?

    • asymco

      I'm sure they're working on that. They may even figure it out.

      • Walt French

        I know it's not your job to do Google's business planning for them, but I think you'd find it very interesting to look at scenarios whereby Google profits from its work on Android. It might shed some light on the potential for further disruption in the space, whether of Google, Apple, the carriers, the OEMs, etc.

        Of course, you've already touched on Google's risks of alienating potential partners in the OS wars; to my eyes they've encouraged RIM, HP and Microsoft but those players won't achieve enough mass to matter. (Yes, despite Gartner's ability to use rulers.)

        My personal guess today is that inside of a year, Android becomes directly-licensed by the Open Handset members, and the Android Open Source Project at best, continues more-or-less unchanged in scope, meaning it will become even more irrelevant to cheapo handsets that need broader services than simply a core OS. If I were an OH member, I think I'd much rather pay $15/unit and keep competitive on features than to pay $0 but risk being uncompetitive versus iOS, WP7, RIM and other efforts.

        And if Vogelstein over at Wired is correct, the Android project must make Google essentially zero. From a game theory perspective, I agree they had to jump in to prevent Apple sucking up all the non-carrier monetization, but you can only go so long giving away Android, just as they eventually monetized search.

    • Childermass

      I suppose that begs the question – why have they worked so hard for so long without having ANY idea how to make money out of Android?

      I sold my GOOG shares when I realised I did not know what they did for a living any more. Which really means I felt, and still do, that management don't.

      Sure they are brilliant and innovative at focused advertising, but the huge sums poured without apparent purpose into other projects means we shareholders get a poorer return than we should. Yes, innovative companies have to make risky, sometimes aggressive, investments into the unknown. But, personal view, I am happier as an owner when I see joined-up thinking at the top. More purpose, less randomness.

      Despite its short term volatility the market is still, in the long term, a 'weighing machine'. I think what HD has shown us is that GOOG has been weighed, and Android is deemed 'weightless'. That is: worthless.

      • addicted

        "I suppose that begs the question – why have they worked so hard for so long without having ANY idea how to make money out of Android? "

        To answer that question, I will have to pose another question. How many products have they worked on, in which they did have an idea how to make money, and were successful?

        Considering they only have a single in-house developed product that makes money (ads alongside web searches), there is any other.

        And they have one other money generator, i.e., AdMob, which they purchased a few years ago.

        I think the explanation to this chart is that Google is almost completely dependent on (and dominates) Web Advertising for revenues, and their stock price will go the way Web Advertising goes. Android is just a way to ensure the domination continues.

        It would make one question how shareholders can live with the sheer waste of money, but MS has been burning billions on consumer products and online for years, and their stock price doesn't seem affected too much, as long as teh cash cow is still alive.

      • Hamranhansenhansen

        Why does Richard Branson have a submarine?

      • barryotoole

        Because he can afford one.

    • leberumen

      Don't they use the Android platform to sell advertising?

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

    perhaps a better comparison is with HTC. that stock has tripled since it went "all in" on Android and is now the highest valued mobile phone maker. Android of course is a very small part of the Google profit picture.

    • asymco

      I am trying to understand platform dynamics. Platforms cost money to build. That cost is paid by shareholders. It stands to reason that their returns should be considered.

      Put another way, if Google finds its core business in distress, how will they react? History shows that there is a rigidity in responses where unprofitable or marginally profitable businesses are sacrificed to save the core.

      This is why the dictum of "be hungry for profit and patient for growth" is often repeated for disruptive aspirants.

      • davel

        I agree. If Google finds that Android is not a driver of the ads and search franchises then it is gone.

      • Hamranhansenhansen

        Someone from Google's search division was saying recently that they love to see iPhone grow because they make more money off an iPhone user than an Android user. iPhone users use their device more, surf the Web more, look at more ads, click more ads, and buy more stuff than Android users.

    • relentlessfocus

      Just to point out that HTC has tripled in price if you compare it to the trough of the financial crises but HTC actually had almost the same share price as today in 2006 before the advent of smartphones and before the release of Android. In May 2008 before the financial crises and in the early days of Android it was about 2/3 its current share price. They have certainly done a good job in transitioning from a supplier to other companies to a "brand" and they have certainly been one of the few profitable Android handset makers but they haven't tripled in price because of Android. They've been on a an up and down and up ride for many years.

      • asymco

        More precisely, HTC was booming when they were the dominant Windows Mobile vendor. The fact that their share price fell and their market evaporated had nothing to do with what they were doing and everything to do with what Microsoft was doing.

      • ChuckO

        there's a lesson in there somewhere and it's not hard to find.

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

        that may not have been deserved back then. that was a bubble. this time HTC earnings, which are primarily due to the explosion of Android, has also tripled.

        HTC Corp. (2498), the Taiwanese company which overtook Nokia Oyj this week as the world’s third-largest phonemaker by market value, posted record quarterly profit and sales on demand for smartphones.

        Net income almost tripled to NT$14.8 billion ($513 million) in the first quarter from NT$5 billion a year earlier, the Taoyuan, Taiwan-based company said in a statement today. That was higher than the NT$12.8 billion average of 18 analyst estimates compiled by Bloomberg.

        I don't know. To try to figure out how android is doing based on looking at GOOG stock? That doesn't strike me as the right measure. Mobile is getting more important to GOOG. But android is not the main thing. A better question, and one that might deserve it's very own blog post, is why Apple stock is down for the year when IOS devices are supposed to be exploding. And two, why is IOS market share flattening out in the face of Androids onslaught?

      • asymco

        Apple's stock is not down for the year. It's up 3.29% at this time. Google is down 12.08%.

        HTC's price was certainly "deserved" back then. Markets reward growth and multiples were generally higher then. The economics of HTC's business has not changed whether they sell Android or Windows Mobile devices.

        Your last question is a tautology.

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

        Apple stock was on down for the year on Monday before it bounced. You keep tying GOOG stock price to android and ignore the real drivers of GOOG stock price and that is legacy search. Android is exploding. I would like to see more posts on why that is.

        The economics of HTC business has changed since they don't pay a license for Android and Android has become a global standard that has massive momentum. Windows Mobile was a lame first attempt to develop products before the market had matured into something that HTC could exploit.

      • http://www.noisetech-software.com/Y.A.S.C..html Steven Noyes

        But where is the value to GOOG for Android exploding? As a platform, where does this really benefit Google?

        Android was created as a hedge against Microsoft getting a strong foothold in mobile. Had Google seen how iOS would have played out, they would have been able to make much more money by letting Apple do the R&D and Google get the advertising revenue from mobile search and apps.

        As for AAPL being down for the year? Nope. It is up slightly even with that 2 day drop as a result of ??? Google dropping 10% or so? Preliminary fear of AAPL not meeting estimates (my bet).

        Oddly, MSFT benefits more from HTC selling Android than GOOG since HTC pays MSFT a licensing fee for each Android handset sold.

      • mike

        What competitive advantages, barriers to entry, or differentiation does HTC have that prevent a LG or a Huawei or a ZTE from undercutting it in the future?

        HTC was in the right place at the right time. They were first to market with an Android handset. But in the long run, there is no doubt that Android handset OEM margins will fall to levels "enjoyed" by Windows PC OEMs or non-Apple MP3 player makers. The only real question is whether Apple will be able to maintain higher-than-industry-average margins in the handset business, like they have in the PC and MP3 player businesses.

      • Addicted44

        Actually, I have to credit htc for this. Their being in the right place at the right time is not a coincidence. They are willing to take bets on new platforms unlike others. E.g., they were one of the first windows mobile partners (not including the "partner" Ms sued). similarly they are one of the first few making wp7 phones. In other words, their strategy is to just throw a lot of Sense covered shit on the wall, and hope something sticks. And it works for them.

      • Hamranhansenhansen

        > why is IOS market share flattening out in the face of Androids onslaught?

        Why is one handset maker with one single phone able to hold its own in the face of a hundred Android handset makers with hundreds of devices? How truly crapulent must each individual Android handset be in that case?

    • Iosweeky

      HTC has no control of the platform – google could announce tomorrow and say that all future versions of android will be exclusive to manufacturers of their choosing, or they may simply stop developing it as a platform altogether in a deal with Microsoft to be the exclusive search provider for WP7, or they may face the same problem that windows has of to many malicious apps & viruses – that may depress sales of android devices, or maybe amazon flexes it's considerable muscle and starts a full assault on android phone/tablet makers with it's own forked version of android….HTC just can not know what's in androids future.

      By comparison Apple & HP (and to some extent Microsoft) have total control over there own platforms.

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

        At this point with a tripling of HTC share price and a tripling of HTC profit, I don't think the first thing on HTC shareholder mind is that they don't control the platform. Even if one could argue that Sense is in efffect a platform, HTC shareholders have no time to argue that point as they busily search for new luxury cars and larger homes.

      • unhinged

        Would this be the shareholders who bought in 2008 or the shareholders who bought in 2006 (as per relentlessfocus' comment)

      • asymco

        Before spending on luxuries, maybe they can help out the Sony Ericsson and Motorola shareholders who bet on the same platform.

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

        those companies made their bad bets a long time ago. they are not where they are now because of Android. they are where they are because of poor decisions made many years before the adoption android. android many save them may not. but blaming Android for where they are now is simply wrong. Neither company was prepared to make the transition when the mobile markets changed dramatically. You seem to think that every company that "controls" it's own platform is a winner. they aren't. Nokia controlled every aspect. They are losing. rimm controls every aspect. they are losing. it's not about control. it's way more nuanced than that.

      • Hamranhansenhansen

        The best thing HTC could do now is put their own Linux and WebKit under Sense and turn it into HTC OS.

      • Walt French

        Yes, hypothetically Google could cut off HTC. But the other OHA members would immediately realize that one of them would be next, and probably fork the current OASP release into a new consortium without Google at the head of it, making Google's victory both pointless and pyrrhic.

        So I expect Android to be licensed on a reasonable and non-discriminatory basis. Just probably not free.

    • Darwin

      No HTC is not highest valued device maker. That would be Apple.

    • g3user1usa48

      Yet on the other hand, Motorola Mobility's fortunes have horribly declined while using Android. All those Droids and the lone Xoom have basically turned Motorola mobility into a crap stock in just a few months (down nearly 30% or so). Motorola Mobility appears to not being helped by Android at all. Unless it really has been helped by Android and Motorola as a company just plain sucks.

      • Addicted44

        I think the causation there is incorrect. Motorola was on it's way down wewll before android (basically since they started selling dirt cheap razrs). they got a slight boost suckling on vzw with the original droid, but once that well ran dry, they realized, once again, that they really had no ideas, differentiation, or competitive advantages. And their brand presence is non existent.

        It's amazing that it whoe less than 7-8 years ago that Oscar winners were talking about how thrilled they were to see a Razr in their winner's basket, and how moto has been reduced to nearly nothing already.

      • asymco

        You can ask the same question about Sony Ericsson. Their sales continue to decline and they have made a similar commitment to Android.
        https://twitter.com/asymco/status/602695399208509

    • Hamranhansenhansen

      HTC is more highly valued than Apple?

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  • westechm

    The success or failure of the Android adventure of Google is still unclear. Superficially it would seem to be a success because of the large number of phones that have been sold. The free Android platform has made it possible for cell phone manufacturers to stay in business in the face of Apple's success. Some of them are making money, others not so much. Its availability makes it harder for Microsoft to re-enter the business. But is Google making money?

    Google’s financials are opaque. The original premise was that Android phones would provide a platform for additional advertising revenue, the assumption being that this revenue would far exceed the costs of developing and maintaing the platform. There is no way of telling from the published data whether it is a huge success in this respect, a major failure, or some place in between.

    Here is a SPECULATIVE scenario. Android was Larry Page’s venture. Eric Schmidt was surprised by it, and though lukewarm gave it his best try for success. Despite this, Android was (is) not making a ton of money for Google. The problems of maintaing an ‘open’ system were far greater and cost a lot more money than anticipated. Eric’s approach was to try to focus more on core issues and control costs. Larry wanted to go all in, hire more people and overwhelm the problems with technology. This is only a part of the story. Page clearly wants to tackle other product areas. Hiring more people, spending more money for this as well as supporting Android is Pages approach. Being more focused and managing resources if Schmidt’s approach. Larry won the argument; after all, he (and Brin) ‘own’ the company.

    I may be totally wrong in my view, but this approach is not uncommon in growth companies…as long as they have money. Usually they are using someone else’s money, but in this case they have plenty of their own based on the success of their search and advertising success. Google’s pockets are very deep. Larry Page is gambling that he can ride out the short term negative impact on the bottom line and win eventually. He may, but judging from the recent reaction of Wall Street to his actions he may not have much time before the stock really gets hammered.

    So, how will it turn out? I don’t have the foggiest, but stay tuned. This has the makings of a fine soap opera.

    • davel

      Interesting take.

      Thanks

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

      android has higher market share and is growing faster than IOS. It has all the momentum and shows no signs of slowing down. in fact it looks like it is accelerating. Given that cold hard evidence, a rational analysts would postulate that the IOS, the platform that is losing share to android at a rapid clip, may be on the outs and is the platform that is "warm" to borrow an analogy from Steven Elop. But I don't come here to read the rational comments.

      • Grant Klassen

        To counter the "doom and gloom" of iOS loosing market share to android: Apple keeps:
        - increasing the number of iOS devices it makes
        - selling all they can make
        - growing revenue and profit at a rate that is unprecedented for a company their size
        - improving the iOS ecosystem
        - returning billions of $$ to App developers

        IT'S DOOOOOMMMMED!!!!

        peace,
        Grant

      • batfink

        If by 'warm' you mean 'taking the lions share of the profits' then yes, you are absolutely correct.

      • westechm

        The evidence is certainly not hard and there are also reports that Androids momentum is slowing down. Pick the blog that supports your point of view. Note that rational analysts usually rationalize when they are wrong.

        Let's see how the soap opera turns out.

      • Westechm

        Market share is a snapshot of where a manufacturing company stands relative to it's competitors. It is important because usually the greater the market share, the larger the profits, and the larger the profits the more money available to grow the business. Thus, market share is only meaningful when comparing individual manufacturing companies in the same or similar markets.

        Comparing the market share of IOS with Android is meaningless in this context. What is meaningful is the market share of the individual companies that make cell phones.

        In this context, I rank smart phone market share as:

        1 . Apple

        2. Rimm

        3. Nokia

        All the rest are also rans, the highest of these being Samsung and HTC.

        There is a lot of excellent correlation other industries of market share with longer term success at various stages of market maturity. In the absence of game changing innovation, Typically only the top three to five survive in the long run in the market in question.

        Higher market share correlates excellently with cash flow, and Apple exemplifies this in the smart phone industry. Things do not look good for most of the other smart phone manufacturers.

        Platform market share is not important in this respect unless the platforms are sold competitively e.g. Windows. It is important to developers, search engine and advertising sellers, etc, and this is important to those using the platform on their products because they affect popularity.

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

        really? nokia? platform market share is everything. individual market share is nothing. steven elop did the most thoughtful and extensive analysis of the mobile industry in the last 6 months and concluded his market share has no value because it's based on Symbian. He went on to say that in the future it will come down to a battle of Ecosystems, not individual companies. And that's why he did something that seemed counterintuitive at the time and joined with msft to create a third ecosytem. He repudiated his own market share. And if you think Rimm has the right strategy you aren't up to speed. They are trading at 8 x PE ratio meaning the market is ascribing little value to it's market share and growth potential.

      • Westechm

        Yes, really. If you are making a product and aren,t making any money on it, w hat should you do? If you make ten products and all but one are growing, where should you invest your efforts. Should you spend more money on the loser, hoping to save it, than on the winners to increase your profits? These are classic cases.

        Clearly Apple has the best ecosystem, they make most of the money.

        As far as Rimm is concerned I didn't imply that they had the right strategy. They just didn't use their market share advantage when faced with the game changing innovation of Apple. Ditto Nokia.

      • Addicted44

        Actually com score's recently released analytics proved this wrong. iOS has a 60% greater installed base than android. Of course, the android promoters completely ignore the fact that iOS is available on far more than just smartphones. Conflating smartphone market share with the platform market share makes no sense, but some do it anyways…

      • davel

        Please note that this report was exclusive to the USA market I believe.

    • Hamranhansenhansen

      I have some friends who work at Google and they say that Android is HATED by the parts of Google that make money.

      • asymco

        Interesting. I guess my Google vs. Android series is not entirely just theory.

  • Walt French

    @Horace, a brief thought on "activations."

    Perusing thru the Android Open Source Project and other Android materials, I see the note that no one may claim a distro based on old versions of Android (i.e., AOSP) is "Android."

    But I'll wager that Google, happy to see big activation numbers, cites activations by non OH members in Asia. Of course, Google does not benefit from (and its OH members are harmed by) these generic "Android" activations that are bundled with Baidu, Bing or all sorts of other tools, none of which channel revenues thru Google or its partner carriers.

    So if you ever have a chance to tease out the split between Open Handset Alliance and non-OH "android activations," I think you'd have a much clearer story of the business that Google is in.

  • KenC

    Would it be better to run a regression on activations vs share price to see what amount of correlation there is?

    • HTG

      Probably get much the same result – for share price you would have to switch to % change as activations show marginal changes not totals as Horace's charts do…

  • Joseph Futral

    Seems a vector showing revenue or profits during that same should be in order to see if Wall street is delusional or not.

    Joe

    • HTG

      What matters to shareholders is what the shares are worth today vs yesterday (or any other day) – so from an investors' perspective Horace's charts are the right ones to look at.

      I think many people on this blog would attest that Wall Street is 'delusional' in that Apple's share price is so undervalued, but share prices often stray away from 'value' for long periods of time – I don't buy that efficient market bullshit for a second… Although I could be persuaded by mean reversion…

      • chandra

        But is it Wall St that is delusional, after all. If you mean Wall St. the share market then I think you're wrong. What is lacking for AAPL is a shortage of people buying into the current undervaluation opportunity. And why might that be? Apple is confounding everyone with its 20-something (?) quarters of stellar growth, cash accumulation and managed diversification. It is unprecedented. Human nature being what it is, and fear being stronger than greed, at least in the case of the sustainability of runaway success stories, hesitancy rules and few are buying.
        But, the point about precedents is that they often break moulds and modes of thinking and that is long overdue where AAPL is concerned. AAPL daily demonstrates that the law of large numbers does not apply to it. they know it. We know it, But potential investors don't trust in what they cannot understand. And, taken from a perspective of the traditional ways that Mr. Market's mind is accustomed to working, Apple breaks all the rules of market behaviour and corporate performance they know and love and rely upon.
        And so, imo, Apple's share price will grow well, but slowly and it will lag behind the growth in sales, earnings, profitability and yes, cash asset positions. It cannot be that we would ever arrive at the absurd position where the market cap was represented more than, say, 50% by cash on the books and NOT by by the Float x Price multiple. That would be silly and I suspect we will see an upwards correction when cash assets:market cap rises above 20 or 25%. A silly state of affairs but this can happen when you confound people so deeply that they are suspicious of your seemingly endless success.
        What can I say? There has never been a near-death to astonishing growth company like Apple within living memory, unless someone will kindly correct me. BMW comes to mind but that was 40 something years ago and they had a far less explosive growth pattern post-resuscitation.
        Let's get used to this. We need to be patient.We need to Think Different where market perceptions are concerned. Mr. Market needs a lot of time to gain some enlightenment, let go of some out-dated or irrelevant benchmarks of corporate performance and learn, from Apple, about the art of the possible. What Apple is achieving, quarter-by-quarter, flies in the face of every profound belief Mr. Market has about what is possible and how it can be sustained beyond the medium-term, at least.
        Sell the house, the car and the mother-in-law and buy. Apple is deeply oversold.

      • davel

        The market is not rational.

        There are many reasons why Apple is not higher.

        1) institutions are all in.
        2) the rebalancing of the index
        3) price manipulation
        4) stock price.

        All and more are reasons why Apple is up or down. The continuing saga of steve job's health. The price is the price. Unfortunately I do not have a good theory on what that is.

        Someone explain to me how Amazon has a much higher PE than Apple. SImilar growth stories. I have given up. If Apple continues to execute and grow its market the price will rise. Perhaps not as fast as it 'should' but it will. If they miss it will drop. Fast.

      • Joseph Futral

        As a shareholder I humbly disagree. Maybe that's all that matters to traders, but I am interested in a company that makes profits, how they make them, and how much more they could make in the future. What the share price was yesterday has little meaning (except in hindsight and abstract formulas depending on trends). I can't buy or sell on yesterday's price.

        Now I realize that not all share buyers think like that. And I agree that Apple is undervalued. But as a potential Google shareholder, I see them investing a lot of money in Android. I am curious if any of that is turning into or could turn into profits. But because not all share buyers operate on reason, I am curious as to Google's share price vs profit and Android growth. No point in growing Android if it doesn't equal increased profits. Thus no point investing in Google.

        Joe

    • Walt French

      You don't need a weatherman to tell which way the wind is blowing. The analysis you propose works fine for a company with constant growth prospects and constant competitive positioning, but those are the dull cases not up for discussion here.

      Per Horace's recent post on extrapolations, none of this sort of work would've captured the iPhone phenomenon. And I think there are still explosive game changers coming in all the even slightly tangential areas: wireless service; cableTV; electro-entertainment; Personal Mobile Assistants; etc.

  • newtonrj

    What if Apple/iOS was not the target? Remember back to who were OS market leaders in '06 and who are not in market leadership today. -RJ

    • Hamranhansenhansen

      Google says they went into mobile to prevent Microsoft from monopolizing it and shutting them out of ads.

      • newtonrj

        I had read that somewhere too – do you have a source/link? -RJ

  • Dmitri

    This is a great analysis Horace. if you had to guess, do you think Apple will consider developing their own search engine and other cloud services? i.e., entering Google's core markets?

    • unhinged

      My guess is that they have already considered and we'll know what they're doing when the NC data centre is complete.

    • Addicted44

      I dont think apple can outgoogle google. They seem to be building a maps alternative but I don't know if it will e a complete substitute for google maps. Google maps has a ton of user data that Any new mapping service would lack. Add in their new opening of the data on google maps and it will be veery difficult for apple to replicate.

      Ms has spent billions on search and has not been able to wrest that away from google. I doubt apple could do it.

      I think apple I'd approaching this in a different fashion. They basically just want to eliminate the preeminence of search in our onine lives and replace a large portion of that with apps, this would be a huge boon for smaller dev shops ( reroute some of the google ad money to smaller devs) and should also make life a lot. Simpler for users while hitting google where it hurts.

      • nangka

        That's what people said about Apple going into the mobile phone business: that everything is so entrenched and there's no way Apple could just walk in and..

        Apple's strengths lie in making the current solutions even better: iPod, iPhone, and iPad (ok, there wasn't any viable current tablet solution there but you get the point.)

        I think Apple's next disruptive "intervention" will come in the software realm. Sure Google has maps & search but I bet Apple's executives have been cranking their collective minds to think: "How can we make search better?" Clues: Placebase & Siri.

        From the historic treatment by "partners", Apple has learnt to hedge core technologies & components that may be used by these "partners" as leverage: Safari, iWorks, Mac OS X on Intel way before it decided to switch, etc. To some extent, the Placebase purchase served this purpose too.

      • davel

        I hear that Microsoft is making gains. 30% i believe in part because of the yahoo deal.

    • asymco

      Apple will consider many things but I think they will only act when there is the potential to bring overwhelming value to a market that is grossly underserved along dimensions of performance that Apple knows how to improve.

      "Search" is not a great interface today and perhaps there is room for improvement. Apps certainly are a new way of looking at the problem. But I'll abstain from making any predictions beyond that.

  • newtonrj

    Don't disagree that ad placement/search is (should be) the financial reward for lateral expansion into mobile. But what drove them to take on Apple? Could it be that Apple was not the target, per se but that both are in the market of territory denial for incumbents of the '06 vintage. I've seen this argument here in this blog before and like it. Apple goes out of its way to use Google search. Google goes out of its way to look/feel like Apple. Neither go after each other directly, they use proxies.

    Less like school bullies on the playground and more like feuding brothers. -RJ

    • Addicted44

      Google always saw the next platform as being mobile. They bought android in the mid 2000s. Of course, the iPhone was just a rumor then, and the next wave of smartphones was going to be blackberries. Google was worried that they would not be the default search engine on blackberrie, which is why they made android, which was then a blackberry clone (there are pictures of googles demo of android just as the iPhone came out and it looked exactly like a bb). Of course the iPhone turned the market on it's head, but google's rationale hadn't changed. They still needed to make sure that they weren't dependent on a single vendor in the next computing platform, so they repurposed android to be an iOS clone.

    • davel

      I think it is pretty clear that Apple is the target. They may have bought Android back when and may have initially targeted RIM/WIn 6.x, but Eric being on the board of Apple and studying the reports and talking to Steve; learning the how's and why's of Apple's new platform of the future. Looking and holding the mock ups the demos clearly made Google shift focus. I believe the early Android phones had keyboards. No more.

      Apple is the focus because Apple is best in class.

  • John

    Though we must do so comparing iOS and Android share is really odd. iOS is a clearly defined product like BB or WebOS. Android is more nebulous without a clear goal except to be not Apple.

    It makes sense that Android is growing very fast as it seems to be the low cost alternative for when you don’t care what is in the phone. This is new Nokia, Sony Ericsson, etc. It also makes sense that Goog doesn’t show a lot of growth from this. It seems like a defensive move that preserved access to mobile devices for them, it did not forge a path for new revenues. It may have worked in preventing loss as intended.

    HTG – Loved your refreshing comment about the efficient market.

    • Joseph Futral

      With regard to Google and Android, I think it is clearly defined. It is Google getting onto any mobile internet device so they can maintain supremacy in search and related ad revenue. I think they clearly saw mobile as the next major chunk of internet access. Apple clearly was not interested in playing the numbers game, especially in the US. In other words, Google saw the untapped market that Apple was not going to reach. Google isn't really interested in "beating" Apple with Android. Google is just trying to be everywhere they can be. They already have prime positioning on Apple iOS devices. MS/Bing is Android's real competition.

      Google is about search and ads. Everything else is BS. Once you understand that Google's Android strategy is crystal clear.

      Joe

      • Daniel Velez

        @Joseph Futral
        I understand the theory behind the strategy, get customers and profit later. My concern is that building operating systems is an expensive endeavor and I'm not sure how it can be monetized. Their options for monetization are as follows:
        1) License the operating system. Nope.
        2) Default search. Yes, due to their ownership of search advertising.
        3) App advertising. Yes with lots of competition.
        4) App sales. Nope, gave it to the carriers.
        5) Maintenance support, like Red Hat. Nope.

        If you take away default search how does Android get monetized? I don't know this as fact but it's entirely possible that Google makes more money from Apple than they do from Android. At least it's a clear revenue stream.

      • kevin

        a. Apple supplies an OS to enable its devices more attractive, so that people will buy them.
        b. Google supplies an OS to make smartphones more attractive, so that people will buy them and use Google services, and click on Google-provided ads.
        In both cases, the OS is not monetized but it enables another product to be monetized. Google may make more from iPhones than Android phones, but they also clearly make more from Android phones than from featurephones.

        Google makes so much profit from default search that they don't have to monetize other options. Google just needs to ensure that they are the default search provider on whatever devices people use and wherever on the Internet people go. That's why I think social networks like Facebook and even Twitter, (and someday maybe apps like Flipboard will) loom as major threats.

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

    here is a story from last year. it's only gotten worse this year. http://www.sfgate.com/cgi-bin/blogs/techchron/det

    • http://www.noisetech-software.com/Perspectives.html Steven Noyes

      And one from today showing iOS still crushes Android from an US market share eco-system standpoint:
      http://blogs.wsj.com/digits/2011/04/19/a-look-at-

      You made the very novice mistake of not knowing the difference between iOS and the iPhone. You made the statement:

      android has higher market share and is growing faster than IOS

      a statement that is 100% drivel or an outright lie. Had you written:

      android has higher market share and is growing faster than the iPhone

      then you may have been closer to the the truth as for every 3 Android handsets activate, there are 2 iPhone handsets sold. But the iOS platform is NOT just the iPhone. The iOS platform consists of:

      1) iPhone
      2) iPod Touch
      3) iPad

      just like Android platform counts smart phone, tablet and PMP activations (as miserably small as Android PMP and tablet numbers are), the iOS platform consists of a smartphone, a PMP and a tablet device. The question, is, can you rationally look at the data or will you rationalize away 2 of the 3 iOS platform legs while counting all 3 Android platform legs so you can feel better?

      I have always worked from the assumption that Android will, at the end of the day, end up with more market share but will be a much harder system to monetize. From what I have seen, it will take Android having 5X to 8X the market share compared to iOS for developers to equal the profit potential of iOS. I question if Android has what it takes to end up to 85-90% market share.

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

        no novice mistake. go ahead and count mp3 players and tablets. Android is "trouncing" IOS in smartphones. That will only continue because Apple is so stubborn about keeping their phone prices high. That's inevitable that they will lose more smartphone share. I am sure you will agree. As for tablets, most analysts believe that market will simply be a rerun of the smartphone market. That's obvious given that apple will have only one tablet one form factor while Android will have many vendors, many form factors, many price points, i.e. choice and variety for consumers. So go ahead and count your tablets and MP3 players. I will observe how Android has overtaken IOS as the #1 SP platform after just 2.5 years on the market. Have no fear. IOS will continue to be the high end choice and people that want a "Cadillac" experience to go with a Cadillac price, will choose it over and over again.

      • http://www.noisetech-software.com/Y.A.S.C..html Steven Noyes

        Novice because you were 50% wrong on this simple statement:

        android has higher market share and is growing faster than IOS

        Novice because you thought iOS only encompassed the iPhone and did not include tablets and PMPs. Android has done stunning with adoption curves that are nothing less than stellar on smart phones. iOS has also succeeded in 3.75 years and has no sign of slowing down as well. Android fans think this is a Highlander game. "There can be only one."

        Likewise you were also 100% wrong on this statement:

        A better question, and one that might deserve it's very own blog post, is why Apple stock is down for the year when IOS devices are supposed to be exploding.

        Novice because a simple visit to Nasdaq would have shown you AAPL has been in the (+) since Jan 1 2011. And the list goes on. The sheer number of made up data and bad information makes you read like a novice.

        Android is "trouncing" IOS in smart phones.

        If you consider a 3:2 difference "trouncing" when the iPhone is bringing in 50% of all profits for all types of handsets world wide. When developers make almost 20X more profits on iOS than Android. Is that "trouncing"? Really? iOS is crushing Android in the mobile tablet and PMP market. As in about 50:1.

        As for tablets, most analysts believe that market will simply be a rerun of the smartphone market.

        Some analysts do but they give no reason why except to say because Android is open. Dude, Android is open!!! Like that made Linux take over the desktop. Tons and tons of choice did wonders for GM. Lots of choices and lots of brands is not enough.

        If you examine IDC and Gartner's recent fantasy numbers, they require iOS will need to shrink to less than 40% in the second half just to be accurate for 2011. Are you naive enough to put any faith in estimates looking out 4 years that are already wrong? They assumed there would be viable iPad competition in the first quarter of 2011 but it is looking more like late 11Q2 or early 11Q3 before the Android tablet masses will show. All you have to do, however, is go look at all the amazing competitors announced in 10Q1 at CES 2010 to see how those might play out.

        Many analysts expect the tablet market to be much more like the iPod market. The funny thing is they actually support that view with real data and real reasons. But don't fear, there will always be some Android tablets for people that like to fiddle under the hood.

        Have no fear. IOS will continue to be the high end choice and people that want a "Cadillac" experience to go with a Cadillac price,

        So a Caddy only costs $50? Really?

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

        in the largest market for wireless devices Android is eating IOS's lunch and it's just going to get worse as long as Jobs continues to stake out the high end of the market with one or two devices. Rinse and repeat for tablets.

      • http://www.noisetech-software.com/Y.A.S.C..html Steven Noyes

        But in the even larger mobile computing landscape, Android is losing to iOS's much more coherent device strategy.

        Again, how is iOS collecting 50% profit share loosing to Android with 10-20% profit share?

        Again, how is iOS making almost 20X more profit for its developers loosing to Android?

        How is Google's historical rejection of IP and Copyright helping Android users get content like Hulu and Netflix?

        While Android has some great things going for it, it also has some amazing warts and blemishes that will seriously hinder its long term "stickyness". Developers making almost no money is on the top of the list.

        You have yet to put forth a rational explanation and, based on most of your statements, your decision making process is laden with faulty data. You have lots of wishful thinking but little of substance.

        What is your theory for some magical success of Android in tablets? They have been dismal failures so far since people want WiFi tablets and Android has no distribution channels for WiFi only based devices. We all know how GM did with offering lots of choices and brands. Again, choice is not enough.

        Tablets will be just like the iPod space. Rince and repeat;-)

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

        your analysis is static. essentially you predict the status quo to be upheld–what's true today will always be true. But apple has had periods in it's history where it was on the verge of complete failure. But your arrogance suggests you aren't aware of that or that changing technology markets can be punishing. You never anticipated, given your reverence for the cult of apple, that Android would begin vanquishing IOS in smartphones after only 2 years. Yet you are confident of your vision of the future. I assume android tablets will get way better because android for smartphones got way better. goog develops good software and they do it quickly. Please continue to believe the future will be exactly like the past and I will keep believing it won't be.

      • nangka

        "your analysis is static. essentially you predict the status quo to be upheld–what's true today will always be true."

        Funny that's exactly your argument for Android tablets taking over iPad's reign a-la Windows vs Mac.

        What have been presented here and also at RoughlyDrafted are meticulous, detailed analysis of why iPad space is not the same as the mobile phone space. (Ever wonder why vendors are so reluctant to release non-3G tablets? Because they need the carrier subsidies to even stand a chance.)

        In fact, if you dwell further into these 2 websites, you'll find that the Android vs iOS scenario is never going to play out like Windows vs Macs. And we are already seeing Google cracking..

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

        I don't buy that argument. I see choice and variety for consumers "winning"in the long run.

      • Kizedek

        those RIM Playbook prices sure look a lot like iPad prices… for smaller screen, less capability and less quality.

      • asymco

        What does this lunch consist of. Can you be more precise? This question inspired my posting in the first place.

        The shareholders backing iOS are certainly eating better lunches than those backing Android so I don't see how the wealth transfer you write about is taking place.

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

        that may be true today. remember the android ecoystem is new and immature. it won't always be that way. it will develop. it's open. in fact Amazon is taking major steps to improve the value of android. I don't just look at today. I imagine what might happen tomorrow.

      • nangka

        I hope your "ceo" designation is not of a big, reputable company because judging from your input, this company is not in good hands.

        If I should venture a guess, it's more likely a (very) young startup Android app developer company.

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

        there you go with the personal attacks. It means you have nothing of value to add to the conversation. instead you try to draw attention to my name. you demonstrate you add zero.

      • davel

        You guys need to calm down.

        My take on this is Android and iOS push each other and so is good for Apple and Google as well as the customer.

        Apple has the better ecosystem Google has the broader reach. Apple is more profitable and as our host continually reminds us is the better value. While Apple is widely regarded to have lost market share ( but not growth ), it still dominates in profits. There are many questions as to exactly what Google's profits are with Android however you slice it.

        I read a recent article on Page which should give Google investors pause. Their costs are rising because of various pressures. They have changed their management team and ostensibly their focus to social. As someone pointed out not long ago Google does not get social. They get search and ads. Apple does not get social either.

        Both Apple and Google have great franchises and similar and different hurdles to clear. In the phone space it appears that Google has more issues. They have not successfully transitioned to tablets yet. They have a fragmented platform that they need to address. Their marketplace is a joke. Amazon may own the Android marketplace soon. Many of their licencees are losing money and may be evaluating what that means to them.

    • Walt French

      @PB/C, your article said, “The real question is when Android becomes the go-to platform for developers looking to make money.”

      Now I might differ, but this was your story, and I have news for you: it is bad and getting worse for Android. Despite those who show the ratio of iOS to Android apps shrinking, Apple continues to gain in apps downloaded and used, and by accounts continues to dominate in paid apps, aka apps where the user would rather spend a dollar or five instead of being interrupted during some game by ads that generate an astonishingly tiny revenue stream for the dev.

      I admire your efforts to do a rational analysis on cold, hard data, but the -14 I see on your post suggests most visitors here see it as the sort of mindless extrapolation that Horace skewered here a couple of days ago. Rational, perhaps, but jejune. And below, you follow it up with some strong emotional responses that suggest your head is playing catch-up with your gut.

      In my case, I see the current Google trajectory as unsustainable: I'm not personally insulted by Page's truncated comments to shareholders which insulted many. More worrisome, and the proximate cause of the stock drop, is the suggestion that he can't/won't discuss mundane issues such as profitability for shareholders. So the company seems to be on a collision course with 21st century capitalist reality. Even if Google upped the license fee to $15 per unit (which they would never get outside the US/Europe), even 100 million units doesn't generate the revenue growth that investors want from tech stocks.

      So heed Stein's Law: when something can't continue, it won't. My guess is that within the next 18 months, we will see new and dramatic disruptions to the status quo, as both Apple and Google look for profit opportunity. TV, music, wireless services, cabletv distribution, better integration with social sites and other portals: we're gonna have an interesting, no a GREAT time.

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

    have no fear. I am sure IOS will continue to be the "Cadillac" of mobile devices. they just won't have the highest market share.

  • Joseph Futral

    From my perspective, #2 and #3 are what they were shooting for, thinking they could translate their desktop and iPhone success to mobile at large. They saw Blackberry as the future before Apple came out with iPhone (and BB certainly was heading that direction) and then iPhone when that blew out. Else they wouldn't have copied either (early Android prototypes were BB clones).

    I think your concern is what Google is just now realizing, which is why they've adjusted to a more "curated" approach to hardware vendors (no doubt due to Rubin's Apple background, too). Just because most everyone other than Apple has your OS doesn't mean those vendors are creating value and "magic" (to use Jobs' notion). iPhone owners WANT an iPhone. Many (I'd say most) Android owners are settling. That is something they have to address to actually grow the market. Right now the market exists as Apple has defined it.

    I agree that Google is probably making more from iOS than Android, (which is probably reflected in their recent quote that when Apple does well, so does Google). Which is why I would have liked to see their profit overlay on their Android development cycle, too. I already follow Apple fairly closely, so suspect it looks similar to the share price and iOS growth.

    Joe

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