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Android vs. iPhone

It has no price and hence there are no ways markets can signal demand or value creation. Furthermore, Android is not being offered to users like the iPhone. Android’s “customers” are phone vendors who package the software with additional value-added hardware and sell the combination to operators or distributors who then package it further with services and offer the total to end users.

So obviously, comparisons between Android and iPhone center on instances of Android used in real products and the “market performance” of Android therefore relies on these proxies for Android — the aggregate sum of products that have some form of Android in use.

I wrote this in response to a very short brief: “We’re looking for an editorial piece that comes down on either side of the debate of iPhone vs. Android”. The challenge I saw was on the approach to the question of “iPhone vs. Android”. I chose to measure value creation by the means available to shareholders.

Read more here: Horace Dediu Android Vs. iPhone on BusinessInsider.com

[I am posting this here in the hope that comments will accrue to this forum as well.]

  • http://profiles.google.com/larry.davis Larry Davis

    This part was interesting to me:

    “So the comparison of iPhone and Android is one of two successes of a different kind. The product strategy of Apple has been financially rewarding with a solid installed base of 250 million iOS units sold. The usage-first strategy of Google has also been a success with 200 million users obtained even more quickly. But this strategy it has not yet shown rewards to the company.”

    (BTW, I freaking HATE Tynt, which BI uses).

    Why that’s interesting is that you include all iOS devices.  I believe this to be correct as that’s Apple’s strategy, though it further complicates comparisons between Apple and Google, as iPhone should really include the iOS ecosystem and Android may or may not include forks.  Should one simply compare just iPhone to just Android-branded phones?  Do you include Kindle Fire, Nook, and any number of other forks?

    Direct comparisons aren’t easy because they are playing two entirely different games, each with their own benefits and downsides.

    My personal opinion is that Apple has taken the better path.  Google is relying on sheer numbers to generate value, something that hasn’t been an overwhelming success (if at all considering the cost of Android development and the cost of Motorola Mobility).  Apple is relying on hardware sales with a supporting foundation of an entire ecosystem of Apps and media.  

    The sets of customers, as pointed out in your article, are entirely different.  Android’s customers are carriers and manufacturers, but primarily advertisers.  Apple’s customers are end users.  Ultimately the mass required for financial success with Android will likely degrade the experience to the end user with ever intrusive advertising and usage tracking whereas Apple adds value to the end user because that user is the direct customer.

    Volume works on the Internet where delivering a service approaches free.  I don’t think that translates to physical products.

    • Anonymous

      I can’t think of any good reason to include forked versions of Android in the totals.  Falkirk has argued the same recently a couple of times.  If Android vs. iOS is fundamentally Google vs. Apple in mobile, forks cannot be included in the total.  Forks exist specifically to intermediate between Google and the customer.  Generally, they do not benefit Google, nor do they benefit Apple.  They are as relevant to the discussion as WebOS or WP7.

      • http://twitter.com/jmoskun Jim Moskun

        The forks may have an indirect benefit to the platform by making the Android app market incrementally larger, and therefore, more viable for app developers.

      • Anonymous

        Good point.  Even then though, the waters are muddy.  In at least the case of Amazon Fire, and likely some other forks, the apps are outside the purview of Android.  Every Fire counted as an Android is taking app sales away from Google (in addition to services, search, etc.)

      • Walt French

        True, that. But insofar as the forks come with different stores with different approval and technical requirements, the benefit is diluted. My take of Google’s “draconian future” spin is that before Android, they could foresee the day when Microsoft owned mobile the way that they own the desktop, and could see Bing become the dominant search engine. Apple is a BIT less of a threat in search, but hardly has pledged never to do anything like search (as Siri shows). One could make the argument for Android that it was necessary to prevent the collapse (!) of the Search business, and that any actual revenue was gravy.

      • Tatil

        Compared to the revenue that comes from search advertising and the potential growth in mobile advertising, Google was probably correct in coming up with this “moat” strategy. If the strategy proved too costly compared to the benefits, it could always walk away from it by declaring victory for “openness” and transfer Android to a foundation after the marketshare became substantial enough. It would not look like a failure. 

        When they went for the purchase of Motorola though, the moat just absorbed a year of profits on top of the development costs that were probably not miniscule to begin with. Moto actually cost more, but I figure it can sell the patents for a return of some of its investment at any time. Now walking away will not be so easy for the new CEO. 

        As Android is the largest smartphone OS, Google will probably not be allowed to fully integrate Motorola’s hardware with its OS division. This puts an limit on how much success it can achieve. If Google, perpetually lacking focus, fails a turn around at Moto, it will end up sinking more and more money into this moat. If it succeeds wildly, the other Android partners will shift at least partially to Windows Phone, making it a hollow victory. It will take months to complete the acquisition and another two years before Google can put its signature on the new products due to the long development cycles inherent in smartphone hardware business, so a turn around in Motorola’s marketshare, if it comes, will probably take until the end of 2013. Until then, shareholders will not know whether success is right around the corner or Android is a big money pit. 

      • http://kaizenity.blogspot.com/ FalKirk

        The forks may have an indirect benefit to the platform by making the Android app market…more viable for app developers.-Jim Moskun

        How so? Do you really think that it benefits App developers to have to separately submit their Apps to multiple stores? Do you really think that forcing consumers to pick and choose between different stores increases sales? Imagine, for example, that Apple announced that they were going to split their App Store into two separate stores. Would this not be viewed as sheer madness?

        I suggest that if you put the question to the developers and the end users as to whether they would rather have all of a platform’s Apps located in a single store or in multiple stores, they would opt for the former every time.

    • Walt French

      Minor note: you might look into JavaScript Blacklist if you’re a Safari user, or find something similar. This extension is URL-specific and Tynt is my first address for it.

  • Anonymous

    While I applaud your courage in contributing to Business Insider, and your contribution will undoubtably increase the intellectual quality there, it’s rather like casting pearls before swine. There are an increasing number of bloggers that are adopting the “don’t link to BI” stance. Refer to the crap that gets posted there, call out the monumental idiocy of some of the posts there, but don’t, just. Don’t. Link. To. BI.

    • Anonymous

      I don’t think BI readers suffer from intellectual quality, but maybe more of ‘pot calling the kettle black’. It’s hard to see the faults of others in oneself. Horace was trashed @BI:twitter because of a topic that is held dear to people for some strange reason.

  • $390AShareIsTrulyExciting!}:-D

    The hedge fund managers are pretty sure that Android smartphones are going to crush the iPhone in every way.  Supposedly, no consumer will buy an expensive $199 to $399 iPhone 4S when the median price of an Android smartphone is $100.  After all, how many consumers want to pay extra for an Apple logo.

  • Anonymous

    Horace. Thanks again. 

    You really do come up with some amazing, thought provoking, and enlightening charts and facts.

    Perhaps the most significant new facts you have unearthed are: 

       * Google only makes 21c of share price appreciation for every point of market share gained for Android per year – very little given the share price of more than $500.

       * Apple with the iPhone makes around $4.3 of share price appreciation for every point of market share gained per year.

    My one quibble is that Android, which is an operating system, is being compared with just one Apple iOS device, the iPhone. 

    In fact it could be argued that Android is so fragmented and dysfunctional that it is a collection of  almost incompatible operating systems, including Amazons forked Android OS which has been stripped of Google’s money making embellishments. Whereas iOS is a single OS working seamlessly across three significantly different devices: the iTouch, the IPhone and the iPad.

    What your analysis highlights is that Google’s strategy of giving away the Android OS in return for gaining mobile search advertising is so far barely producing any gains for Google’s shareholders.

    Worse still, the strategy may be about to fail spectacularly, incurring huge costs and liabilities and for little or no mobile advertising gain.

    Firstly, Google were forced to confess to Congress that despite Android’s smartphone market share gains, two thirds of mobile search came from iOS devices. Google may pay a heavy price for having betrayed Steve Jobs trust and alienating Apple, who with Siri may be able to divert these searches and/or make them anonymous, depriving Google of the valuable user information.

    Secondly, Amazon’s forked Android strips out the stuff Google relies on to make money. Other OEMs may follow. But even if they do not, the two biggest selling tablet devices, who may together gain and hold between 80% to 90% tablet market share will not benefit Google. This is particularly significant because research shows that the iPad users are by far the biggest users of the internet, and Kindle Fire users my also be much heavier internet users than smartphones.

    Thirdly Android smartphone market share may have peaked. 

    There is increasing evidence that the iPhone is having a blowout quarter far exceeding Apple’s most optimistic expectations and may beat guidance by substantially more than usual. 

    Android may suddenly be having a catastrophic loss to the iPhone of its US Smartphone market share lead.

    Comscore’s latest survey covering the three months August-October 2011 shows the following US Smartphone Market share – Aug-Oct 2011:

    * 46.3% Android up 4.4%

    * 28.1% iPhone up 1%

    * 17.2% RIM Down -4.5%

    * 5.4% Windows Mobile Down -03%

    * 1.6% Symbian Down -0.3%

    However, the above disguises a very large increase of iPhone market share in Oct 2011* following the release of the new iPhone 4s, because in Sept 2011 there was a large drop in iPhone market share

    http://www.comscore.com/Press_Events/Press_Releases/2011/12/comScore_Reports_October_2011_U.S._Mobile_Subscriber_Market_Share

    * This confirms J.P.Morgan research that in the 3 last weeks of Oct 2011, since the release of the new iPhone, Apple enjoyed stellar sales, leapfrogging Android, gaining over 50% Smartphone marketshare while Android was down 9% in the 3 US Carriers carrying iPhone (AT&T, Verizon & Sprint). 

    Also JP Morgan predict that T-Mobile, who do not sell iPhone, lost market share while the three carriers with the iPhone gained.
    http://tech.fortune.cnn.com/2011/12/04/j-p-morgan-verizon-is-getting-its-iphone-reward-this-quarter/?source=yahoo_quote

    What is also significant is that at a stroke, in a brilliant marketing move, Apple have eradicated Android’s previous price point advantages, with the iPhone 3GS free on a post paid contract and the iPhone 4 on sale at $99, which means that customers can buy the premier brand at bargain prices. Those two phones come with the latest iOS, offering the full user experience (except for Siri, which is only available on the top of the line 4S) which has earned Apple by far the highest user satisfaction and retention ratings.

    Android cannot compete with the above, because it is so fragmented that it not backward compatible to older models!

    Additionally the iPhone receives far larger subsidies from carriers than Android. JP Morgan estimate that the average iPhone subsidy is 

    * $350 at Verizon, 

    * $375 at AT&T and 

    * close to $400 at Sprint.

    * This compares to about $150-250 on similar Google (GOOG) Android devices.

    What will be interesting to see is whether this apparent loss of market share to the iPhone in the US is going to be repeated around the world.

    • Walt French

      EPIC post!

      Anyway, “ Google only makes 21c of share price appreciation for every point of market share …Apple with the iPhone makes around $4.3…” could also be written as $68 million vs $4.2 billion — very roughly (since I’m just remembering Apples total shares) 60 times as much.

      Of course, many confounders to this simple ratio analysis. But it’s even *more* dramatic than your cite suggests.

      • Anonymous

        Walt,

        Yes $68 million v $4.2 billion does indeed highlight the massive difference in scale.

        However, I think Horace’s point is the correlation of value gained to market share growth.

        Both sets of figures together give a more complete, complimentary picture

    • Anonymous

      So carriers charge the same for the line rental but provide greater subsidy to the Iphone perhaps $200 more so they make less per iphone contract than Android phone. This situation if correct will not last forever. Why would I want to keep on selling a phone which I make $200 less than selling another phone?

      Horace did not quantify which stats he used for the market share were they worldwide, US only.

      Again value creation and value capture. Apple captures more of the value that is created by its products. Android creates value that is captured by many companies. It seems in your logic you prefer a monopolist?

      • http://www.asymco.com Horace Dediu

        All my stats are world-wide unless otherwise noted.

      • unhinged

        For the same reason that VISA was able to convince merchants to refrain from passing their fees on to customers: people spend more using that product. iPhone users sign up for higher monthly subscriptions; the carriers more than make up the $200 initial shortfall over the life of the contract.

      • Anonymous

        People sign up for the same monthly subs – you pick the contract and the phone – if you said I dont want a phone your contract price stays the same. Have you got any evidence for this? How much carriers make more from selling an Iphone versus an Android phone?

  • Canucker

    Agreed.  I, for one, am awaiting Googles response to the forking. This will be a declaration of that forking of Android is a problem.  So far, they’ve been silent on the matter but Amazon is emboldened. 

    It’s also interesting that Verizon demanded that Google not load its Wallet app on the Galaxy Nexus. When was the last time Apple allowed a key, new capability to be disabled (I guess there is the hotspot issue but that is available on networks either for free or as an added fee)?

    Google has less pull on the telco networks for whatever reason. That is a disadvantage given that it is rare that the telcos ever make a decision in favour of their customers’ interests.

    • Anonymous

      Google has less pull on the telcos because Google is not a significant supplier to the telcos.  The Nexus phones are the only ones sold directly by Google, and do not represent anywhere near the volume of iPhone.  The new Nexus probably won’t even be competitive with the Galaxy II S volume within Samsung’s portfolio of Android phones.

      However, you can add FaceTime over 3G to the list of features disabled by Apple at carriers’ request.  

      • Canucker

        But with 3G FaceTime it was partly the carriers inability to support the data rush. They’d have made as much from 3G data as lost talk time – if not more.

        Agree on the lack of connection between Google and carriers but they also make more from Apple than they care to admit and do not want any one company to create an effective monopoly. It’s time the telco business model went the way of the dinosaur.

      • Anonymous

        Yes, but Apple also makes much of its money today from the telcos – they now have a fairly symbiotic relationship. Apple loves to disrupt, but cutting out telcos entirely will cause themselves significant pain.

      • unhinged

        Apple have not hesitated to take short term pain for long term gain.

    • Walt French

      “I, for one, am awaiting Googles response to the forking.”

      We haven’t seen much since the Rubin quote of almost (?) a year ago, that he was going to take more control of the Android experience, have we?

      Especially in light of today’s EU action to investigate Apple’s iBooks pricing, I wonder whether Google is considering how release policies, restricting new versions to a key vendor and otherwise coordinating availability of the OS that is now the majority (if not “dominant”) smartphone system. Oh, OK: I just know their legal staff has to be trying to figure out how they can stay away from the appearance of illegal collusion on pricing, selling, etc. 

  • http://twitter.com/jmoskun Jim Moskun

    Eye-opening post. Your work clearly shows that android’s contribution to share price is at the noise level. Might be interesting to go a layer deeper and develop a gross p&l for android and ios. I am particularly interested to understand the indirect, hidden and opportunity costs to google to compete in this space.

    Another  question that I often ponder is how things might have unfolded if Google had not entered the space. The way that Apple was both supply and distribution constrained they could not have possibly satisfied demand for iphone-like devices. Could be that the void would have been filled with half-way solutions from the incumbents keeping the window of opportunity open longer which would have probably benefited Microsoft. 

    • Walt French

      If Android had never seen the light of day, Apple would be using a couple of extra assembly lines on the same factories. I sure don’t know where all the higher-cost smartphones such as Samsung’s, HTC’s etc are cranked out, but those factories would seem to have extra capacity and Apple wouldn’t be trying to get nice hi-res screens that Moto is buying, etc.

      So some of the “we’re selling all we can make” must be understood with “…given the competitive environment we’re in.”

  • Glimmerman

    “I wrote this in response to a very short brief:
    “We’re looking for an editorial piece that comes down on either side of the
    debate of iPhone vs. Android”. [I am posting this here in the hope that
    comments will accrue to this forum as well.]”

    Horace – hope you appreciate the value you get on Asymco
    vs postings on Business Insider. As klassing et al have said BI draws a
    different crowd and have a different goal – looking for the click throughs
    rather than rational conversation. As Gruber said a couple of months ago “Sites
    like The Huffington Post and Business Insider are the inevitable result of an
    advertising model that counts page views. CPM is a corrupting
    revenue model; sites like HuffPo and BI are what you get when you’ve
    mastered that model.”

    • poxybowsy

      Agree completely.  Oddly just a few days ago, I vowed to never visit Business Insider again … and then was forced to break my vow because of Horace’s article.  

  • Anonymous

    One the one hand you dismiss Apple under performing share price based on Analysts not  understanding Apple business because of faulty models, methodology or the innovation process then go ahead and use the wrong methodology to assess the impact of Android on Google. 

    You conflate value creation and value capture. Apple can capture more value than Google because it produces the hardware, software and services. The value of Android is captured not only by google but other manufacturers, suppliers, carriers as well – carriers offer less subsidy to Android phones than Iphones.

    Consider the introduction of Android as a payoff matrix in game theory. Looking at the 2 most relevant outcomes out of Google develops Android/Apple develops Ios and Google does not develop Android / Apple develops IOS

    Google does not develop Android: Zero cost to Google but Apple has larger market share ergo extra 10bn income for Apple. 

    Google develops Android: Development cost $2bn but Apple market share is limited ie the situation that currently it is now

    In situation 1 Google is 10bn worse off than Apple and has little or no control over the direction of the mobile industry.

    In situation 2 Google is 2bn worse off than Apple but has control and direction of the industry. 

    Not all actions will feed into the shareprice as some decisions are difficult to evaluate but considering game theory and payoffs soon clear up why decisions are made. the value of the decisions may be felt elsewhere.

    • kdt

      Google has spent far more than $2Billion on Android.  It spent $9 billion ($12B – $3B MMI had ash  on hand) for Motorola, Billions on patents and still 66% of mobile search on Google comes from iOS.

      • Anonymous

        That is on Motorola. The patents have value beyond Android. But you are missing the point the issue was the payoff matix and decision making.

        The mobile search stat where is it from? Add up adverts from in apps as we Google doesnt just get imprints from searches from its websites. Also what about in page adverts. I dont think its as clear cut as you make out.

      • http://www.asymco.com Horace Dediu

        The mobile search stat is from Google employee testifying under oath before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights. http://9to5mac.com/2011/09/21/google-23rds-of-our-mobile-search-comes-from-apples-ios/

    • http://www.asymco.com Horace Dediu

      I don’t think I conflated value capture and value creation. What did I write to make you think I did?

      • Anonymous

        The result would be a measure of shareholder value created for every unit of market share gained over time. ($/unit of share over time.) To that end I prepared the following two charts showing the market share vs. share price performance of Apple and Google over the lifetimes of iPhone and Android respectively
        Your charts – as I poitnted above this analysis is really not comparing like for like.

        The share price incorprates the value captured but Google does not capture all the value it creates. If you included the whole Android industry as value creation then it would be a better comparison.

      • http://www.asymco.com Horace Dediu

        The quote is referring to “shareholder value”. That is not a measure of “all the value [Google] creates”. The discussion was entirely about the value capture of Android.

      • Anonymous

        If it’a about the value capture of Android then where is the charts for Samsung, HTC etc who have captured value from Android. The analysis is not a fair comparison.

        Also you say Android has been a value destroyer but then in the absence of Android how much value would Google have? Are you saying Goole without Android would be in a better position?

      • http://www.asymco.com Horace Dediu

        The discussion is about the value capture for Google shareholders and only Google. That is what can be measured discretely.
        I have claimed Google shareholders would be better off without Android. I’ve written many posts on this topic (under the heading “Google vs. Android”). The last was in April: http://www.asymco.com/2011/04/01/google-vs-android-part-v/

  • goodreason

    Horace,

     

    I find this particular type of analysis to be the first of
    its kind. Am I wrong?

     

    Do corporate strategists and management consultants from say
    Bain, Boston, or McKinsey routinely compare dissimilar strategies and quantify
    how value was created by a platform?

     

    If your work is indeed routine, I am wondering why mgmt.
    consultants and say industry analysts don’t provide such good reason routinely on their blogs. Would you be willing to extend your analysis to a
    macro economic view of American economic policy, for growth?

     

    For example,

     

    Considering the lack of value created, in wake of such
    massive technology adoption, how would you advise the Obama administration [and
    a republican rival] about policy for helping America shake off its ‘Great
    Stagnation’.

     

    How would you (or say Bain, Boston, McKinsey etc.) advise
    the CEO of Google in particular, about ways to deal with such difficult news, in
    the their effort to put more wood behind [their] arrows?

     

    I look forward to hearing more from you. Keep up the good
    work. 

    • http://www.asymco.com Horace Dediu

      This post does not delve deeply into innovation theory and it’s a very shallow take on value creation (or value measurement, really). The analysis of economies or industrial policy through innovation theory is something that is beginning to dawn. It’s very early days but I hope to be able to write more about this. Clayton Christensen began some years ago an he is opening some minds on the subject already.

  • http://cananito.com/ Rogelio Gudino

    Awesome analysis Horace.

    But the whole BusinessInsider “GREAT DEBATE on Android Vs. iPhone” is super stupid, it’s like you said at the beginning, you can’t compare an OS with an actual device. The “GREAT DEBATE” should’ve been “Android Smartphones (powered by Google) vs iPhone” or “Android vs iOS (includes iPad and iPod Touch”.