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Android Revenues in Perspective

Data is useful only when put in perspective. Yesterday’s post on the Android Income Statement showed how sales and revenues are captured and how costs are paid for that revenue. The data was shown for the entire calendar year 2011 and the maximum value in the vertical axis was $1.5 billion.

Google has also reported that their revenue “run rate” is now in excess of $2.5 billion so there is significant growth, as would be expected from an exponentially increasing user base.

However, it’s important to place this growth in perspective, both in absolute and in relative terms.

Below is a diagram showing Apple’s revenues for the first calendar quarters of 2010, 2011 and 2012. Each product group (iPhone, Mac, iPad and iPod) is shown separately with estimated gross margins (GM). Operational costs, taxes and net income are also shown.

Consistent with previous versions of this data are the color schemes where white areas represent costs of goods sold.

I also placed a scaled version of the Android Income statement next to the first quarter 2011 revenue bar for Apple. The scale is maintained where $1 billion is represented by the double-ended arrow line.[1]

It might be hard to see the Android section of the chart so I expanded it below at 400% the original:

It is still difficult to resolve the data at this resolution but the picture should become clear nevertheless. Keep in mind that the iPhone data is for one quarter while the Android data is for one year. Comparing revenue “run rates”, on a yearly basis Android is 2.5% of iPhone or 1.6% of iOS.

As various members of the Android ecosystem are rewarded from the 40% revenue share of Android, it would be important to consider the scales involved in these illustrations when considering the influence Google exerts. It could be argued that Google’s spreading of wealth from search creates strong incentives for participation in its ecosystem.

However, there is little wealth created. 40% of a little is a lot less.

Note:

  1. The scaling of the image in both X and Y dimensions can be deceptive. I provide the following view where only the vertical dimension (value) is reduced for Android:

 

 

  • def4

    Ouch.

    • graphex

      So, Android is not winning?

      • Narayanan

        Whining, you mean!

  • http://www.facebook.com/people/Luis-Alejandro-Masanti/1074106344 Luis Alejandro Masanti

    “However, there is little wealth created. 40% of a little is a lot less.”

    It seems to me that this is more like “the interner” bubble, pure fantasy, something in which Google is the king!

  • http://twitter.com/e_orione Emilio Orione

    And that without considering customer’s change rate!

  • Walt French

    Hmmm, I was going to make a similar point in your last post after I looked at the numbers but lost track. This comparison is too lopsided.

    Economic theory tells me that businesses that don’t align costs and revenues are unstable: outfits like Amazon figure how to take the free stuff without contributing to revenues, and the contributors look for profitable products to substitute in. (Samsung making a WP push, or grafting TouchWiz onto Tizen would be an example of the latter.) “Arbitrage,” for those who are fond of $3 words.

    Ads are hard to split from a search request, so “free” search with ads works. But it’s easier to split Google revenue from Android, as Amazon, B&N, ZTE and others show us. That under-capitalizes Android, to an extent that surprises me.

    Google must have known the carriers would push whatever handsets left them with the most profits, but perhaps made the same overly-optimistic assumption that Jobs did: that firms wouldn’t use the AOSP free version to independently maintain a competitive version and undercut Google. If the Fire is as successful as first appearances made it out to be, it won’t be the last such effort.

    • http://michaelkdawson.com/ TrendRida

      Walt, not sure if I follow your point completely – but IMO Google’s tremendous profits in desktop search allows it to invest in new businesses for as long as necessary. It’s time horizon for determing if a biz is uneconomic is much longer than most. Amazon to a certain degree is similiar. After Q4, I have read that Fire sales have dropped substantially. In both cases their financial reporting is very opaque making it very difficult to understand what is truly happening inside of the businesses. Based on their valuations, investors are willing to give them a free pass and trust that it will work out in the long run.

      • Walt French

        My point is that “free” Android may have a hard time EVER generating profit for Android. While only link hijackers (e.g., the Flashback attack on Macs) try to get between a user’s Google search and ad results, it’s much easier for others to “hijack” the OHA Android and cut Google out. As the Fire has done and as Baidu-linked Androids do.

        In trying to find a correct attribution for “hungry for profit but patient for growth,” Google linked me to an April 2011 Asymco post. It seems the comments that triggered the Google link were missing, but Horace’s comments were still interesting: “Apple is obtaining fuel for growth with iOS while Google is in a more precarious situation with mobility–partly benefiting but partly threatened.”

        So yes, Google IS investing in many other areas besides its core search/ad business, but the business model is difficult to see—how will they profit even reasonably well from building out these additional platforms?

  • kankerot

    it’s misleading comparing Android Income statement to that of Apple. One produces hardware and software whilst the other produces software only.
    You took issue with “Analysts” in how they valued Apple incorrectly and now proceed to analyse Google Android business “incorrectly”. Hypocrisy?
    The real issue is where would Google be without Android. If Android did not exist what is the opporutnity cost of Android. Trying to value the business as is using your understasnding and analysis you draw the conclusion it’s not effective use of their resources.
    Apple like MS will have it’s day in the sun and then it will pass. Like rising house prices people suspended belief and bought into the new reality and dynamics only for it to all come crashing down.

    • Walt French

      “Hypocrisy?”

      I recognize your screen name from Ars, where name-calling is unfortunately the norm. As yet, Asymco.Com has not degenerated the way that Diggit, SlashDot and now Ars, has. Rather than providing a forum for content-light advocacy, let’s try to share ideas for mutual benefit.

      Your claim betrays no recognition of past comparisons of tech firms such as Microsoft, which were assumed to be capable of huge margins because they were in software and services, rather than hardware, which was understood to be more difficult. Trying to compare, and then understand, the differences between Apple and “Android Inc” is the actual purpose here, not to justify Apple’s wonderfulness. So really, your itchy trigger-finger on trashing different views is horribly mis-directed.

      “Apple like MS will have it’s day in the sun and then it will pass.”
      Here’s an example of what I call “content-light” advocacy. It tells us nothing about what forces brought Apple to the fore, and what will cause the sun to set on it. Paraphrasing a favorite quote from Keynes, you set yourself too light a task by telling us that companies rise and fall, or that asset prices grow and shrink with sentiment.

      • kankerot

        I’ve not posted on Ars.
        No my point is straight forward. There is no real point comparing Google to Apple. There is not much you could glean of real benefit. Google only strategy is to get into as many channels where it can push its ads.
        At the moment volumes are growing in the smartphone space but I shudder to think of Google plans when we have smart cars and Google trying to push adverts to me when I am driving to work.
        As to the comment re Apple. Their rapid growth since 2007 has been due to the Iphone and Ipad. Apple has been very adept at not growing its non retail workforce in line with its rapid sales growth – unlike Google which was increasing staff levels and bureacracy as it grew Apple has not fallen into this trap yet.

      • Sacto_Joe

        There’s no real point from your perspective. From the perspective of clarifying the real numbers there’s every point. Now we can discuss on a level of reasonable assumption.

        I would have approached your issue differently. I would have asserted that, for Google, breaking even was good enough. They gave themselves a potential seat at the table for the game of the future. Acquiring Motorola can be seen as another strategic move in that direction, especially if, as I suspect, they now move to the creation of their own “walled garden” OS.

        But you have decided to be combative rather than analytical. That makes your motives strongly suspect. If you truly are reasonable, then you’ll re-examine your motives and apologize to Horace.

      • Walt French

        apologies for mixing your name up with somebody else’s.

      • FalKirk

        “There is no real point comparing Google to Apple.”-kankerot

        I’ve never understood why people say such things. OF COURSE, there’s a point to comparing Google to Apple, Apple to Microsoft, Microsoft to Google, etc. Comparing and contrasting; learning the things that are different and the things that are the same; learning what matters and what doesn’t – that is the WHOLE POINT of studying business enterprises.

        “Google only strategy is to get into as many channels where it can push its ads.”
        Ads are not a good in themselves. The purpose of Ads is to make money. And as this and previous articles have demonstrated, Google is making more (not much more, but more) money from iOS than from Android. If more Ad revenue is being generated from other mobile devices, then isn’t Android actually counter-productive?

      • kankerot

        My point re Hypocrisy was perhaps using strong language but only to hammer a point. Horace argued there was “market failure” in the inability to correctly value Apple share price. Market failure tends to be associated with informational asymmetries.
        As to Android Economics the producer surplus captured by the participants is hard to quanity amongst hardware suppliers, network operators etc also as it is not a tradeable good / service the value each places on the surplus is different.

      • Sacto_Joe

        Exactly. You hammered your point. If you hadn’t, you might have engendered a reasonable debate, which of course raises the question of whether or not you really wanted a reasonable debate. Trolls do not, and use “hammering”, if you will, to obfuscate that fact. Are you a troll? It not, then don’t act like one.

    • http://twitter.com/qazwart David Weintraub

      Good question. Where would Google be without Android? Probably in better shape. Google makes more money from iOS than from Android, yet Google is finding itself being pushed out of iOS bit-by-bit.

      Apple is pushing Google out of iOS not for some need for some Jobsian need of revenge, but because you don’t want a competitor to be front and center in your platform. Siri could have used Google’s data, but chose a mixture of several other providers. Apple is in the process of removing Google Maps, and it wouldn’t surprise me if Apple is working on a search engine just to remove Google from iOS entirely.

      Imagine if Google didn’t buy Android. WebOS may still have been viable, and another route for Google income. Google could have worked with Meego or Bada or another Linux based platform and made that the “Open Source” alternative for iOS without getting their hands dirty. Then, Google could have a revenue stream from all the various platforms without anyone worrying that Big G could possibly be a competitor.

      That’s how Google made its money on the desktop. They simply did a nice job with search and worked no matter what platform you were using. Let Apple and Microsoft and HP and Dell and Motorola and Samsung and HTC duke it out for both desktop and mobile supremacy. Google could have been sitting on the sidelines cheering everyone on and making boatloads of money.

      Instead, Google is deep in the heat of competition and making tons of enemies. Apple, the biggest mobile vendor is doing their best to cut Google out of its market. Windows Phone is getting noticed by many of the Android partners who suddenly find themselves competing against their OS provider. Google’s reputation has been damaged, and for what?

      In the end, Android hasn’t made Google a penny more than if Google simply just provided the services that other parties have always used.

      • http://twitter.com/stijnschuermans Stijn Schuermans

        “Where would Google be without Android? Probably in better shape. Google makes more money from iOS than from Android, yet Google is finding itself being pushed out of iOS bit-by-bit.”

        How would Google be better off without Android when now iOS is pushing out Google, as you claim? I would think the opposite: Android is a good hedge against Google services being removed from 3rd party platforms.

        You argue that having more 3rd party platforms would prevent such a scenario, as Google would have made less “enemies”. Not too sure about that. More likely, Google would have had to pay placement fees to all of them.

        On the other hand, Android might have had a much larger effect on the use of Google services (on both mobile and PC), and therefore on Google’s business, than Horace’s analysis of ‘direct income’ indicates. Android as a complement to Google’s core business, rather than its core business itself, like in the Apple case. If Android is a part of the user engagement and brand awareness story for GMail, YouTube and all those other services, then its effect would likely be positive, even if it doesn’t make a lot of advertisement revenue on mobile directly.

        Its adoption indicates that Android has value for users, even if Google doesn’t manage to capture all that value as directly as Apple does. Android users add to the lock-in into Google services, something that 3rd party platforms could not provide. So I don’t agree with your final sentence. Android is a complement and a hedge, which does add to Google’s overall business.

      • sigaba

        The Android-as-hedge argument makes good sense until you remind yourself that Google paid $12 billion, or something like 30-50 years of 2011 Android profits to buy Motorola, a move that’s already beginning to alienate other handset vendors.

        The amount that it was willing to spend clearly indicates that Google thinks it’s sitting on a potential iPhone-sized business with Android, even if we accept their prima facie argument that they were just buying Moto for their IP. Spending that much money for so little paper reward would indicate they think Android is pretty “core” to their business.

      • Mike Wren

        Google should have just bought the patents from Motorola or spun off the hardware business after buying them. Motorola is not profitable and it seems unlikely that Google will improve things. What does Google know about managing a hardware company? Does Google think its going to become Apple? It took Apple a long time to become Apple. Making things is hard.

        Motorola will hurt Google’s profit margins. And it makes Android phone makers more likely to emphasize Windows Phone. In addition Samsung will push its new open source Linux OS Tizen.

      • Mike Wren

        Google should have just bought the patents from Motorola or spun off the hardware business after buying them. Motorola is not profitable and it seems unlikely that Google will improve things. What does Google know about managing a hardware company? Does Google think its going to become Apple? It took Apple a long time to become Apple. Making things is hard.

        Motorola will hurt Google’s profit margins. And it makes Android phone makers more likely to emphasize Windows Phone. In addition Samsung will push its new open source Linux OS Tizen.

      • Mike Wren

        Sorry about the multiple posts. I pressed the button and nothing happened so I pressed it again.

      • Mike Wren

        Google should have just bought the patents from Motorola or spun off the hardware business after buying them. Motorola is not profitable and it seems unlikely that Google will improve things. What does Google know about managing a hardware company? Does Google think its going to become Apple? It took Apple a long time to become Apple. Making things is hard.

        Motorola will hurt Google’s profit margins. And it makes Android phone makers more likely to emphasize Windows Phone. In addition Samsung will push its new open source Linux OS Tizen.

      • Walt French

        “Google should have just bought the patents from Motorola or spun off the hardware business after buying them.”

        Well, maybe. But who would have bought a money-losing company that was ALSO losing share in the Android ecosystem?

        I think that was the whole logic in the first place: Moto’s “highest and best use” was in Google’s hands. Whether as a source of patents (Google’s story) or for prevention of negative “goodwill” (mine), this has been pretty extensively covered.

      • Walt French

        “Google should have just bought the patents from Motorola or spun off the hardware business after buying them.”

        Well, maybe. But who would have bought a money-losing company that was ALSO losing share in the Android ecosystem?

        I think that was the whole logic in the first place: Moto’s “highest and best use” was in Google’s hands. Whether as a source of patents (Google’s story) or for prevention of negative “goodwill” (mine), this has been pretty extensively covered.

      • Tatil_S

        I am a bit conflicted. On the one hand, I agree that it sounds like a good hedge, but Google still ended up sharing a substantial chunk of the ad revenues with Android hardware partners and carriers. Furthermore, I don’t know how strong the lock in effect is. Unlike on the desktop where I type maps.google.com out of habit, on mobile I click on Maps app. If OS provider replaces that with another good enough source of Maps or if I switch to a different platform with a different Maps app, I don’t think it would take me more than two weeks to get used to the change. Inertia would prevent most users from going back to a replacement app from Google and on locked down platforms the replacement will not work very well anyways.

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

        As we’ve seen with Amazon’s Android and with Baidu’s Android, Android is not a hedge against removal of Google services. Paying OEMs and carriers is a hedge against the removal of Google services.

      • Joe_Winfield_IL

        Exactly. And the market price for these payments is set by Microsoft, who for some reason just keeps throwing money at search.

      • http://twitter.com/ToddbboT ToddbboT

        David, this is a very well written argument and I agree. Another aspect of Google’s Android business though, is that they have nearly decimated the marketplace for “non-iOS” phone software. In a way, Google has helped Apple tremendously by helping it kill off all the incumbent players and then replacing those value chains with the tiny (compared to Apple’s) slice of profits that we see in Horace’s charts here. For MS, RIM or others to stage a resurgence they have to compete against Google’s free and good-enough. This may well leave Apple the high ground and profits for years.

        It may be that Google’s goal was to stop MS from doing in mobile what it did to the desktop and thus protecting their search box from Bing.

      • juven

        I agree completely. While the viewpoint of Apple vs Google is highly attractive, I’ve come around to viewing Google’s strategy to be more of a hedge against Microsoft.

        I believe that many of Google’s efforts in area that haven’t generated much revenue for them have been executed to attack Microsoft. Just because Microsoft has stumbled badly in its efforts in the mobile
        space doesn’t mean that they weren’t potentially a potent threat to
        Google. I believe that Android, Chrome OS, and Google Docs are targeted at removing people’s dependencies on Microsoft’s platforms.

        I imagine that had the Android project not existed back when the iPhone was gaining market share, the OEMs would have clung to Windows Mobile to compete with Apple. They would have stuck with Microsoft through the clunky Windows Mobile 6 and 6.5 releases, and Windows Phone 7 could have been far more successful than how it has turned out. Android essentially shut out Microsoft’s phone efforts. In fact all other mobile phone platforms are under incredible market pressure between Android on the low end and the iPhone on the high end.

        Now that companies are forking Android, it’s showing that Android is not as great a moat as Google would have hoped. I’m sure Google is racing to figure out how to deal with that now.

      • SiMBa37

        You completely nailed it. Bravo my friend.

    • Kizedek

      No, the hypocrisy was, is and remains to be valuing Google highly on the basis of, what…?

      As you point out, by at least one measure, Apple is “diversified” and Google is not. Yet, apparently, Apple is (and I think it is often you that point this out, but I may be wrong) too focused on only one source of income (the iPhone). Go figure.

      The hypocrisy is that Mac, OS X software, iOS, iTunes, iPod, iPhone, Apple TV, iCloud and iPad *don’t count* as contributing to making Apple an all around company that is viewed as viable into the future. Yet, all these businesses are growing (except maybe iPod, but its ASP is going up as it evolves with iPod touch).

      Whereas, Google, a software company *only* as you contend (and yet they have bought Motorola and everyone conveniently forgets that 12B), is apparently oh so talented that they can do anything and *everything*. And whatever they touch is sure to turn to gold. So, they get a sky-high multiplier for their stock. But… half their businesses are beta or make very little money as we are finding out. So, what’s the deal?

      Of course you can make a comparison between Apple and Google: to see what picture is really accurate. Google is held up as a growing, vibrant, smart company for the future that has loads of ideas, loads of diversified opportunities and loads of potential. Apple is said to have peaked, to be on the way down, to have no real growth potential left. What’s the real truth as to who is best using their resources, “core” businesses, talents and opportunities?

      Well, let’s take a little look, shall we?

    • Kizedek

      “The real issue is where would Google be without Android.”

      Hmmm. Interesting, isn’t it. An “internet” company in the truest sense of the word. Perhaps *The* internet company of all time. Google, a company that was based on the future of technology and had the brightest possible start.

      So, where *would* Google be without Android? Stuck on the desktop like Windows? Interesting that Apple, NOT an “internet” company, has changed the face of the world by revolutionizing Mobile. Where do most mobile surfing stats come from? iOS. What users use the most varied range of apps connected to all sorts of online services and startups? iOS users. Who is in a position to dump whom? Apple (such as by creating its own map services and using Wolfram Alpha for search).

      Google has to follow Apple, or be left out. Now, let’s see how well that is going for them, despite how “unfair” you think it may be.

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

      If I were to compare only identical companies I would not have any companies to compare. Technically speaking Google does not sell software and so I could not compare it to a software company. It sells ads, so the only comparable would be an ad selling company that happens to also make software it gives away.

      The point is to understand the economics of Android and to understand just how important the distribution of payments to channel partners is. Placing that revenue and payment model in relation to those OEM’s biggest competitor should given them something to think about.

      • kankerot

        You need to understand the issues of consumer surplus vs producer surplus. Without an analysis of this you are not looking at the complete picture but a subset.
        You analyse the numbers but not the economic perspective.

      • Sacto_Joe

        If it weren’t for this series of articles, we wouldn’t have the numbers with which to clarify the economic perspective. You are not giving Horace his due.

      • Walt French

        The elephant in the room of “consumer surplus” vs “producer surplus” is what I’ll call “complementary good surplus.”

        I’ll assert that the carriers are essentially capturing 100% of whatever producer surplus Android is forgoing. As a result, the actual “consumer surplus” attributable to Google is not as simple as would be true if people bought smartphones without also committing to vastly more expensive wireless plans.

        That’s in the US, anyway. It doesn’t seem that there’s an integrated global market for mobile OS’s.

        And again, producers need to make investments and make returns on their investments to survive over time. Consumer surplus, whatever it is, doesn’t fund the development of JellyDonut, KeyLimePie or whatever new turns Google takes with its OS.

      • Chandra

        Since we are talking technical terms like ‘Consumer Surplus’, are we implicitly granting that the Carnot Duopoly principles apply to this market? It may, I am not sure. May be there are two duopolies going on: Apple and Google and Apple and Samsung. If so, then consumer surplus is the quantity that is produced above the Carnot equilibrium quantity and hence resulting in average lower prices.

      • kankerot

        Cournout duopoly will not apply in this case or market for smartphones or phones in general. Perhaps you might be able to strongarm the theory into the US telecoms market but it will be a fudge.

      • kankerot

        Complementary good Surplus? What is that exactly?
        Consumer surplus is basically the difference between what a consumer is willing to pay and what they actually pay. So they might pay $600 for an iphone but would have paid $750 as they derive extra benefit / value over and above what they have paid.
        Producer surplus is the difference between what a producer is willing to sell their goods for and what they and what they actually receive.
        Samsung may have been happy to sell the S3 for $600 but demand and pricing means they sell it for $750. Their producer surplus is $150 per device.
        So Android has an infinite supply curve – a straight horizontal line. It can be supplied in any quantity.
        Now you assert carriers are capturing 100% of any producer surplus Android is forgoing is incorrect. Android is free and Google values it as being free subsequently there is no producer surplus to be captured.
        Now if you consider Android as a complimentary product to Google Adverts and there exists a negative cross elasticity of demand then as the price of Android tends to zero then demand for Google services ceteris paribus will rise.

      • Tatil_S

        Well, how about Facebook? :)

        Actually, IPO is right around the corner, I am sure you’d get a ton of viewers if you were to run articles comparing Facebook and Google.

      • http://twitter.com/handleym99 Maynard Handley

        I think it’s simple-minded to assume that Facebook sees itself as an ad company in the model of Google. And certainly Zuckerburg has ample examples before him of companies that imagined their only revenue source was ads, and so pushed them so aggressively they killed the golden goose.

        On the money-making side, Facebook has done a pretty good job so far of continually seeing itself not as “your personal web page” or “your personal web page + email replacement” or “your personal web page + email replacement + photo-sharing”. They keep expanding their ambitions — basically anything that involves your interaction with other human beings they see as part of their remit. It seems awfully foolish to assume that this is not something monetizable (and not only through ads). Throughout history people have been willing to pay good money to communicate. Facebook today extends that trend in ever more abstract ways — look at their being really the first federated ID system to take off on the internet.
        How could they make more money? Some obvious examples
        – get into the same sort of business as Skype — offer voice and phone calls and charge for extra features
        – get into the same business as Dropbox — provide the basic photo/video sharing they have now, but charge money for more than a certain amount of storage
        – get into the same business as Pandora/Netflix — provide ways to share music and video between friends and charge for the experience. Eg — synchronized movie viewing — we all see the movie together in sync, but on widely separated screens, there’s a backchannel (text or voice chat for us to comment and make snyde remarks), when one of us pauses for a bathroom break, the movie pauses for everyone.
        – get into the same business as Amazon Prime — offer an annual membership fee which provides all the above benefits and continually adds more.

        Consider my communal movie watching example — yes in theory you can cobble together something like that with NetFlix or Amazon or iTunes. But Facebook is the guy that can write, on Joe’s page: “Joe is currently watching (and mercilessly mocking) ‘Green Lantern’ with Bill, Mike and Sue — do you want to join them?” And this will work, because Joe’s, Bill’s, Mike’s and Sue’s friends are all already in the habit of looking at Facebook pages to see what their friends are doing.
        A bet of Facebook is a bet on
        – people will find ever more ways to interact with friends via the internet
        – Facebook will do an adequate job of supporting these new interaction modalities
        – competitors will not do as good a job.
        I’d say history so far bears out all three of these assumptions.
        (The third might be controversial, but Google+ is struggling, Ping is basically dead, and Twitter, while successful, does not have the history of growing its vision and cope like Facebook has.
        The dark horse COULD be Skype. But MS is so paralyzed with internal empire building and civil wars that it seems unlikely that they will ever get their act together enough to unite their Skype users, XBox Live users, and all their various other network property users into a single social network — heck they can’t even get their act together on a single branding strategy for all these properties.
        Apple is the other dark horse. They have the single userID sorted out, and have access to part of the social graph through iChat and FaceTime. What’s not clear is if they are even much interested in this space — they tend to be very focussed and to ignore areas where they don’t have any obvious advantage.)

      • http://twitter.com/handleym99 Maynard Handley

        Horace, disqus is truly broken in how it handles carriage returns. It frequently strips them out, breaking formatting and rendering a carefully laid out argument into a single massive and difficult to read paragraph.

        This doesn’t matter on BS web sites whose comments consist mainly of “you suck”, “oh yeah, well your mama so fat her weight is higher than her zipcode” But it DOES matter here, where people are trying to lay out complex arguments in a way easiest to understand.

        You really ought to talk to them and ask them to get their act together.

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

        I sent your comment as feedback. The version I’m using is still in Beta.

      • Tatil_S

        - AFAIK, Skype never had a profitable year. Besides, the more people communicate through Facebook (voice, video or text) the less they need to talk to somebody through paid phone calls. People don’t expect to pay for pure internet based communications and it is as difficult for Facebook to change that mindset as for newspapers to charge for online news.
        – Flickr already uses that business model, but I don’t think they make much money. I am not sure about Dropbox, but I doubt it is a big business.
        – “make snyde remarks), when one of us pauses for a bathroom break, the movie pauses for everyone.” Oh, god no, don’t quit your day job. How is that for a snyde remark? :)

        I doubt either of these can make money anywhere near what they can earn through ads and games.

  • http://wmilliken.livejournal.com/ Walter Milliken

    While interesting, this doesn’t quite tell the whole story as far as the carriers are concerned, since it a) doesn’t show a comparison with what additional revenue the carriers receive from Apple (presumably “none”), and b) it doesn’t show anything about the relative costs for carriers to obtain the phones.

    Both of these are actually better shown in another chart, comparing the carrier costs and benefits of the two ecosystems. Unfortunately, some of the benefit numbers, like customer churn rates, probably aren’t available.

    • safi kariv

      I think the contribution of the Iphone to these carriers was exhibited by Sprint’s deal with Apple and the T-Mobil CEO lamenting of the lack of.
      There is a fine balance for each carrier betwen the near term income/profit (Droid) and the long term (Apple) which includes retaining customers for years as well as adding their family member (like in our household).
      In extention, perhaps, the short/long play in our US is simmilar to the stock market or politics where instant gratification most of the time trumpt better quality and extandad vision.

      • Walt French

        “I think the contribution of the Iphone to these carriers was exhibited by Sprint’s deal with Apple and the T-Mobil CEO lamenting of the lack of. ”

        And not just the Pronouncements, which one should always take as advocating positions favorable to the company; you can look at T-Mo’s churn rates and get a sense of how people are voting with their wallets.

  • http://www.facebook.com/people/Dave-Nelson/1285630758 Dave Nelson

    Lots of Fandroids out this morning.

    • Biff

      Correct spelling: “Fandrhoids”

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  • Rob Scott

    A fairer comparison is what iOS has done for Apple in 2011 and what Android did for Google in 2011. Apples to Apples.
    That way we can understand what these platforms have done for their owners.

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

      I hoped that it would be possible to visually strip away the non-iOS portion of Apple’s business from the chart.

      • Joe_Winfield_IL

        True, but you could cut out the Mac, whack iPod in half, and eliminate software altogether. Of course, this would be overly conservative, but it would still show Apple’s mobile efforts trouncing those of Google. More importantly, it would remove ammunition from those who think this to be an unfair comparison.

      • Rob Scott

        It is for the benefit of those who might feel that this is an unfair comparison (Android vs. Apple or 3 months iPhone revenues vs. all of Android for 12 months). I’m a regular here,I have a fairly good grasp of the numbers.
        Great work nevertheless.

      • Walt French

        Certainly you did that well enough for my purposes.

        But you’ve raised a different contextual issue in the past that I’d like to see more about. It may require a bit more “poetry” than the numbers support, but the “opportunity cost” of Android broadens the context for how Google has limited its opportunity of working more closely with Apple. Partnerships are tricky, and Apple is maybe more difficult to work with than others, but these charts certainly emphasize how Google has gone not for the low-hanging fruit, but windfall fruit that doesn’t command much of a price. Especially if recent rumors — about Apple replacing significant parts of Google’s iOS footprint with new maps and expanded Siri — pan out, Google’s emphasis on volume at the expense of profitability may have been VERY self-defeating.

        And on the other hand, there’s the impact on Microsoft: IIRC, you’ve said that Android was originally seen as a way to keep Microsoft from establishing their dominance on mobile, in a way that could hem in Google. It seems to me that Apple blunted Microsoft’s efforts FOR Google, but the combo of Android + Apple has made it much harder for Microsoft to get back into the game. Developers’ costs for a third platform is an obvious example. Surely, part of Google’s revenues are enhanced by blunting the network effects of a more robust revenue stream to Bing, Bing Maps and other MS services that work across multiple platforms.

      • http://wmilliken.livejournal.com/ Walter Milliken

        I’m not sure whether Google sees an opportunity cost in losing Apple, or whether this is all part of a larger strategic goal to own user eyeballs. In some sense it seems a lot like Apple’s goal to not be dependent on other parties for anything that significantly affects the user experience. Google similarly seems to want to make sure they’re not denied access to the eyeballs they sell.

        They have no lever to pull to ensure access to mobile devices, unless they control the software that runs them Google’s big mistake seems to have been to make that software platform too open-source, which let it get out of their control. They might have gotten what they wanted if it had simply been free.

        Now, I think Google is more likely to need to pursue other ways to own those eyeballs, which would involve bypassing the carriers and owning the end customer, if they can’t own the terminal device.

        In other words, I think the key question here is “Who owns the end-user?”

      • Chandra

        Google owns those end users who sign up with Google services using a google id. Especially so, if they use Google Wallet. So far, not a remarkable performance on the Google Wallet side. Apple owns all their iOS customers since they all have an Apple ID. And a large majority of them have a credit card with Apple.

        In the next arena which is NFC where the people’s wallets are in play big time, Apple looks to have a big edge. That is probably why Facebook, Amazon, Baidu etc. want to have their own devices so that the default NFC wallet server is their own.

      • http://wmilliken.livejournal.com/ Walter Milliken

        My point is that Google *doesn’t* own “Android-oid” customers, to coin a term — people who own devices that aren’t running the Google services, like the Kindle Fire, and what appears to be most likely in the near term, Baidu, Facebook, Samsung, etc. forks of Android that cut Google out. An open-source platform doesn’t appear to be a success strategy for owning the customers.

        I wouldn’t be surprised to see the US carriers join the forking frenzy, either, since they have a strong desire to keep owning the customer (who they lost to Apple, at least).

      • Walt French

        “I think the key question here is ‘Who owns the end-user?’ ”

        Let me turn that into “To whom does the end-user ascribe value worth paying for?”

        People like to belong, but they don’t like to feel like they’re pawns nor worse, serfs, in somebody else’s game. In anything resembling a market where there is free choice, the win has to go to where the customer freely chooses to associate with, or invest into, a brand.

        Monopolies can control their users, but those monopolies don’t last. I will be really thrilled if the reports turn out true, that Google’s next move with Android will be to sell 5 different OEMs’ phones by mail-order retail, cutting out carriers’ control of customers.

        I expect it to fail as badly as the Nexus 1 did, but if it succeeds, we’ll have broken the carrier subsidy racket, making it possible for users to freely switch between carriers, opening up true competition. That should help foster incredible innovation and honest-to-God competition.

  • Eddy Poon

    Why is it fair, to compare Android as an OS, with Apple as a whole which sells integrated hw/sw/services in devices?

    • Joe_Winfield_IL

      This is an analysis of Google’s efforts in mobile, as compared with Apple’s. Why should Samsung’s profits be considered beneficial to Google?

      The question remains – why is Google trying so hard for so little payoff? Keep in mind, the MMI acquisition ($9.5B net of cash) isn’t even considered on the Android Income Statement chart. Adding this in, Google is five years away, minimum, from turning a profit on Android…and that’s assuming continued growth on the same trajectory in perpetuity.

      • Tatil_S

        Well, some of that are IP assets that Google can sell later pretty easily. I don’t know whether they would fetch $9.5 billion, but I am pretty sure it can extract quite a few billions from Microsoft, Apple and Samsung by threatening to sell the portfolios to a couple patent trolls. Besides, Android expenses do not go up at the same rate as the numbers of users and low end future phones will be even better at web surfing thanks to Moore’s law.

      • Eddy Poon

        No, Samsung’s profits should not be considered to be beneficial to Google. The profit however should be considered as part of the value created in the Android ecosystem / participants.

        Android is mostly TAC to Google, and an insurance of distribution availability in the mobile space.

      • Joe_Winfield_IL

        Why should anyone care about the “value created in the Android ecosystem / participants?” This is not a metric of any value outside of online debates.

        While Android is officially open source, Google is the owner and developer who nurtures the product and creates every update. To me, Google’s revenues and costs should be the only ones considered when debating the economic value of Android. Do you think Microsoft counts vendor profits as part of the value of Windows Phone?

      • Walt French

        You may be onto something although I’m with Joe W as being skeptical.

        Let’s use the paradigm that you don’t really know how to solve a problem until you can write a program for doing it: let’s talk about what metrics define “value created” in the “Android ecosystem.”

        I personally think the fuzziness and undefinability of this notion is Google-speak, meant to keep the Faithful enthused even as Android is providing VERY little value to its partners. Not shown here, Android has been exceptionally useful to carriers, who might well have only had a very hard-negotiating Apple to deal with in offering high-revenue data services. But essentially NOBODY is rooting for Verizon to make more money, so it goes unspoken.

        Also not shown is the profitability to Samsung and the ~23 Dwarves of Android, ~22 of which are losing money despite the Android “value created.” These charts don’t make it easy to compare the value to developers on the various platforms, but since it’s apparently possible for any individual developer to work for either or both, attributing unique value to one platform or another seems specious. And you certainly don’t mean to include whatever licensing fees Microsoft snags from the OEMs, do you?

        So off the top of my head, Horace has indeed captured the value of the Android ecosystem in a way that shows business incentives to invest in the ecosystem for future value. I’d be pleased to see metrics of current or future benefits that align with the efforts to build the system.

      • http://www.facebook.com/profile.php?id=741717344 Dick Applebaum

        Well said!

        One simplistic way to look at Android — would it be viable as a stand-alone business proposition, e.g. Android Inc.?

      • http://twitter.com/handleym99 Maynard Handley

        I think there’s grave danger in this sort of scoring, especially done early in a project’s life. I don’t have a better solution — and certainly one doesn’t want to keep pouring money into a losing business (*cough* Itanium *cough*) but a comparison with MS is useful.

        We’ve all heard that XBox is probably still not net-positive after all these years, and certainly none of the on-line properties have ever made money. Does that mean that they were a bad idea? Those that have no obvious relationship to the MS brand and mission — Expedia for example — probably were. But Bing and the Live properties (for all the jokes we make about their constantly changing names and appearances) probably are, in some sense, vital to MS retaining relevance.

        Personally I think one should view Android in the same sort of way — essentially worthless, neither positive or negative, in immediate dollar value, but of tremendous option value given the uncertainty of the mobile future. That is, essentially, THE lesson of Brealey & Myers or any other serious corporate finance textbook — that option values are tremendously important and what separate professionals from amateurs. Even if Android were losing money, it would probably still be worth keeping alive for the option value — cf Bing; and the fact that it’s making some small profit just makes the decision that much easier.

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

        Can you imagine Apple spending billions in symmetric attacks (or defenses) of failing business models for the overall objective of “remaining relevant”?
        Why is this behavior tolerated, even encouraged, of Microsoft or Google and considered lunacy for other companies? My hypothesis is that this behavior is tolerated when companies have monopolies and there is nothing considered too desperate in the defense of those monopolies.

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

      It isn’t fair.

    • http://twitter.com/handleym99 Maynard Handley

      Horace is not in the fairness game. This is neither a trial nor a playground dispute.

      Horace is in the game of trying to understand mobile BUSINESS. Who makes the money, how and why do they make it, when and why do they stop making it. The comparison with Apple is purely informational.

      Make of it what you will — if you feel there is value in comparing (a specifically selected part of) Google’s P&L to (a specifically selected part of) Apple’s P&L do so. If you feel there’s more to be learned by comparing the revenues of the whole of each company, go ahead and do that.
      Just, for god’s sake, leave the team cheerleading (whatever your team may be) for other blogs.

  • davel

    Perhaps I am dense.

    I am not sure what to make of the charts other than to say that Apple makes a lot of revenue and income compared to Android ( not really a fair comparison ). I have no clue what you hope to show with the 400% graph. It looks like just Apple data.

    So in the end if your aim was to say that Android revenue is small then an article would be much more descriptive than these graphs which I find very confusing.

  • Nigel

    Horace, you’ve mentioned Android’s “run rate” at various times. Is this a standard financial term, and if so, what does it mean? Since you place it in quotes I assume no one really knows what Google uses to calculate the number, and whether it can be considered interchangeably with revenue.

    This isn’t to criticize your use of their $2.5b “run rate” alongside the 2011 revenue. Simply trying to understand what is fact and what is estimation.

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

      Run rate is revenues per year but not measured over a whole year but some arbitrarily small time interval and extrapolated to a full year. It’s problematic because it may change dramatically from time to time and we don’t know what time frame is being sampled.

  • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

    Horace, your series of posts on Android economics is great material. Taking bits of public data, sometimes unwillingly shared and assembling everything together in a coherent, self-evident view is a gift that you do not share with many. Regarding this particular post, I think that it was an angle of the Android economics that was necessary as part of the whole Android picture. However I disagree with the previous comments that try to look at this data as an isolated view and learn some lessons from it. There are few reasons why this particular post cannot teach any lessons to those who need to learn:
    1. The diagrams show that you may have an incredibly profitable business if you spend a lot of time sweating over every little detail and create great products as a result. Those who need to learn fast this lesson will not learn it because it is not taught in business schools.
    2. Being a millionaire is a nice consolation prize if you missed on being a billionaire. Therefore there will always be companies that will produce less value, but enough to make some people millionaires.
    3. The way you define value is not valid in all contexts. Income and profits are not the only way to define value. I’ll bring forward an outrageous analogy, just to make the point more clear. If you looked at different doctor specializations and noticed that cosmetic plastic surgeons have the highest income and the highest profits, would you conclude that they create the most value? The fact that Google is forced to share so much of its revenues with so many players is actually valuable in itself. It’s like having a small economic ecosystem. It allows smaller fish to live. Apple creates a lot of value, but that value is relevant only to Apple and to the operators and developers to a much smaller extent. Android creates value for Google, Samsung, operators, developers, Amazon, Vertu maybe, some Chinese manufacturers maybe, Microsoft (through their patent bullying). Having Android besides iOS increased significantly the value of Rovio, Facebook, Twitter. After all, Apple’s products are great, but as a business, producing a huge pile of cash sitting in a bank account is not necessarily valuable. Microsoft in its glory time is a good example why.

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

      I would bet Apple creates more value for third party case makers than Google creates through Android and it partners.

    • Walt French

      Not to glorify raw capitalistic economics or anything, but the numbers here do NOT show that Android is providing much of any “value” to anybody.

      I would argue that the carriers have profited immensely from Android, but that it has only reinforced their oligopoly position, a net negative for consumers. In any case, those numbers are not shown.

      You can list a zillion manufacturers, but if an OEM such as Moto is losing money with help from Android, Android has only propped up an inefficient, past-its-prime coulda-been-a-contender has-been.

      Or you can claim that somehow consumers have benefitted wildly from choosing an Android device at about the same net price to themselves as an IPhone. Why this is anything much more than a Ford-vs-Chevy different strokes choice is beyond me. Exactly zero evidence for dramatic superior access, app quality, ease-of-use.

      Meanwhile, there’s *plenty* of evidence of Verizon needing to get in the smartphone business when AT&T had an effective monopoly in the US, and its great financial rewards from getting on the train before they could get Apple to reverse course and do business with them, after Verizon told Apple to get lost in 2006.

      Even your plastic surgeon example is off-base. People feel better when they think they look better. Deny people the choice of controlling their appearances and you deny the value of customizing the home screen, the primary benefit cited for Android. A totally inconsistent argument.

      • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

        I am not arguing that Apple is not valuable, i am not even arguing that Android creates more value than Apple. My main point is that assessing “value” is complex and it requires more than the income/profit view. Horace is actually building that complex view, but it is spread over many of his posts, not only this particular one. From many angles Apple is much more valuable than Android (the comparison of a company with a fuzzy group is on purpose). There are, however, ways of looking at value where Android might be just as much valuable as Apple.

        As for the plastic surgeons, my point was not that they do not create any value. My question is whether, out of all the physician specializations, they create the most value just because of the income/profit view.

      • Walt French

        But I’m still perplexed— what is this value that you keep referencing? How do we know it exists? When will the clouds part and we will see it revealed in all its Glory?

      • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

        How do we know it exists? That is a very good question indeed. Since I already claimed that we cannot quantify that value through the revenue/profit view I must provide some other method for proving the existence of value. A not so well thought through analogy might be of help again :-) How do I know that my kidneys are valuable? Can I quantify their value? Some people do that, but most people do not. One way I know that my kidneys are valuable is that if I lose one I will lose some of my capabilities.

        Same with Android. Let’s assume that Android would become extinct tomorrow. Who would lose some of their capabilities? Well, operators for a start. They would really have something to lose if Android did not exist, so for them Android has value. Samsung would be another obvious loser. Rovio, the maker of Angry Birds would lose a significant portion of their revenue. I do not know if Rovio makes more money from Android than from iOS, but I am pretty sure that the two are in the same order of magnitude, so for Rovio iOS and Android have comparable value. Same for Facebook. Losing all the users that access their services through Android devices would diminish some of their capabilities. Amazon is an interesting question: is Android valuable to them? Few million Fire tablets would suggest a positive answer, but the jury is still out on the success of the Fire business.

        Seen from those angles Android has value and in some cases similar or bigger than Apple’s. The funny thing is that I do not know if Android is really valuable to Google, but Horace’s post from today provides a good answer.

        If you do not mind, I would like to turn the challenge of proving the existence of value also back to you. Has wikipedia created any value? I would say yes, but the proof is not trivial.

    • http://twitter.com/handleym99 Maynard Handley

      I hate to introduce a note of realism into this but the most recent figures I can find
      (at http://mdsalaries.blogspot.com/ which has a bunch of different figures, but they are all over the place) do NOT show that plastic surgeons make the most money. Depending on exactly what you are looking at (for example do you consider total income or hourly income? remember — does hourly income include only time spent with patients or also — perhaps considerable — time spent practicing, or learning?) you can make the numbers come out in many different ways — brain surgeons are top, anesthesiologists are top, radiologists are top, oncologists are top. And the differences between them all are not much.

      I’d say the main thing this variability tells us is that there’s a certain level of expected compensation for being a medical specialist, and beyond that the specialty doesn’t matter.

      Second, it is very easy to conflate “plastic surgery” with “cosmetic plastic surgery”. Plenty of plastic surgeons are helping burn victims, people mauled by dogs, kids with cleft pallets, etc. Even many of the (boo hiss) despised cosmetic plastic surgeons perform this work sometimes, if not full time.

  • Walt

    Where is the interest income for Apple for the $110b in liquid assets? I hope it’s factored into the product revenue

    • Walt French

      Meh. Zero percent times even a hundred billion dollars is essentially zero.

      That money has option value, in a hypothetical world where Apple wants to make a major acquisition or strategic investment into a huge business, but Wall Street doesn’t see the wisdom and demands a much higher borrowing cost than a firm like Apple otherwise faces. Till then, it’s almost dead weight.

      • http://www.linkedin.com/in/daviddrinkwater demodave

        And that is one of the reasons that it becomes obvious to use that money in some other way than waiting for the perfect (and clearly, it would be very large) acquisition. So fortunately for us long holders, Apple has chosen to return some of that money to us and to buy back some of its own shares.

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

      It wouldn’t be. That’s part of other income and expense which comes after operating income/expense and before tax.

  • Darel Rex Finley

    I hate to be a nitpicker, but maybe you should’ve made the tiny Android data the same width as the Apple data. Shrinking it to scale on both axes exaggerates the smallness.

    But still, great comparison!! Please keep up the good work.

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

      I did. It’s in the footnote.

  • Darel Rex Finley

    Oh, you did that in a followup graph. Sorry! :D

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

    Android cannot become extinct. It’s open source. Nobody can kill it since nobody owns it and it lives by virtue of being copied freely. That was the whole idea behind open (free) source.

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  • http://www.appleoutsider.de/ AppleOutsider.de – Sebastian P

    Hm.

    Why exactly do you compare iPod, Mac and Software profits opposite Android revenue?

    Shouldn’t you compare Google as a whole with Apple then?

    This seems really contrived.

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  • http://techtakes.net Arthur P. Johnson

    Horace pretty much nails it here, and this was BEFORE Google’s move to sell state-of-the-art Android devices at breakeven, pretty much removing any profit for OEMs,