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At 50% penetration the US smartphone market is not showing signs of saturation

According to comScore, as of end of May,  the ratio of consumer phone users in the US (aged more than 13) who use smartphones as their primary phone has reached 47%.

The question is whether this is reaching saturation. My guess has been that saturation will be at levels well above 80%. The data shows that during May the rate of smartphone adoption (first time users) was 630k/week. This number is a good recovery to above the historic mean indicative that saturation is not yet in effect.

50% penetration will happen this summer. A year ago the predicted “tipping point” date was also the same: August 2012.

The platform shares data is also returning to a historic consistency. A month ago I asked if there was “trouble with the robot”  because Android net adds dropped to a level unseen for two years and the decline in net adds had been going on for four months.

This last report shows a recovery in Android net adds to about 1.5 million new users.

[Note here too that there is no sign of saturation: The net user gains are far above net user losses. Even BlackBerry showed a gain. In a market where there is saturation, net gains and losses among platforms would balance each other out.]

In terms of share, Android shows two months of no growth. The following charts show the history of platforms in terms of share and actual units in area and line charts.

I’d say the jury is still out on whether Android has “peaked” in the US. Globally, the rate of additions seems to still be increasing but in the US we might be seeing the effect of upgrades as many first time Android buyers are reaching the end of their contracts. iPhone and Android “purchase rates” are already at parity but the install base might take some time to converge.

With half the population still not using smartphones, there is still headroom for the platforms, but the inter-platform dynamics are becoming very interesting.

  • http://www.studio-orione.com/ Emilio Orione

    Smartphones have more or less gained 30% penetration in 2 years and the rate of conversion from phones to smartphones is accelerating.
    Above 80 % is the saturation point, will the market saturate in less than two years?
    Platforms are now most competing with non consumption, will they start to compete heavily with each other in a year or so? (I mean inter-platform competition will become prevalent near saturation).
    If so, the new platforms starting at the end of this year (microsoft windows phone 8) or at the beginning of 2013 (RIM qnx for blackberry 10), will have a very short period for targeting new smarphones users, they will have to target heavily returning users from other platforms, that is unsatisfied users with small app investments.
    With current user satisfaction rates it will be tough to gain traction, isn’t it?

    • Space Gorilla

      If I’m not mistaken the satisfaction rate for Android phones isn’t above 50 percent, so new entrants that eat up share are much more likely to take a bite out of Android.

      • http://www.studio-orione.com/ Emilio Orione

        If you assume that things will remain the same. Android makers seem to care about consumers only when they need to. If they will need to increase customer satisfaction they can try to change something.

      • Tatil_S

        It is difficult to change the corporate culture. The change may come indeed, but it may take a long time.

  • Alen Teplitsky

    i don’t think we’re at saturation, but think we’re past the peak. I’m tired of my $150 monthly cell phone bill from AT&T and going prepaid in a few months. can’t beat $30 a month for unlimited texting and data.

    and i’m at the point where i don’t care about having a new phone every year or two. it wouldn’t bother me if i had to use my 4S for three years.

    more people will buy phones but going forward i see dark clouds for the US wireless carriers and apple

    • http://twitter.com/MtnMikeBall Mike Ball

      I’m curious which carrier you’re considering going with. I’m also planning on switching to prepaid this fall.

      • Alen Teplitsky

        straight talk because they go over AT&T and AT&T phones will work on it

        there is also virgin and cricket that support the iphone

      • Alen Teplitsky

        straight talk because they go over AT&T and AT&T phones will work on it

        there is also virgin and cricket that support the iphone

      • Alen Teplitsky

        straight talk because they go over AT&T and AT&T phones will work on it

        there is also virgin and cricket that support the iphone

    • Gavin Hay

      In Canada we have 3 year contracts with our carriers.

  • Arv

    Here in Asia and Australia, I can see rip-roaring business for Android. My very “unscientific” testing as I travel around the region, I can see far more Android phones than I did a year back. A year back in a train carriage, I would see 4 out 5 phones an iPhone, but the situation is that now every 3 out of 5 phones are an Android.

    • FalKirk

      Unscientifically speaking, Arv, why do you suppose that is? Is it distribution – there are more carriers that sell Android than iPhone? Is it price? Is it some other factor altogether?

      • xynta_man

        Mostly price, I believe. Android phones can be bought for as low as $100 without a contract. While these phones many times don’t even have a data-plan and aren’t used as modern smartphones, it’s still drives the installed base of the platform. Android is replacing Symbian as a major low-end-not-really-a-smartphone-phone platform, at the same time it doesn’t suck as much as Symbian on more high-end devices.

      • FalKirk

        Thanks. It’s only anecdotal evidence, but it’s in keeping with my understanding of why and how many Android phones are being purchased and used.

      • darwiniandude

        My partner’s niece just got her first phone. She wanted an iPhone, but got given an HTC Wildfire S running Android 2.2. These phones look cute but only have about 100mb internal storage available to the user. It was bought because it was $149 outright, prepaid, and the 8GB iPhone 3GS prepaid was (I think) about $389.

      • FalKirk

        “(she) got given an HTC Wildfire S running Android 2.2.”-darwiniandude

        It just boggles my mind that Android manufacturers are selling brand new phones with an operating system that came out in May of 2010. Unbelievable. (EDIT: I originally mistakenly put 2012 instead of 2010).

      • darwiniandude

        I think you mean 2010, not 2012, but yes, it’s crazy. And no further updates available. And the phone has only 512mb internal storage, 90mb of which is available to the user. People online claim that this gets filled with a crash log file eventually that you can’t delete to reclaim space without rooting the phone or erasing and doing a factory reset. Insane. And with what they’ll pay for prepaid ($30per month) they could have got a 16GB iPhone 4S free on a $48 a month plan instead, just $18 a month more. Also includes 2GB data instead of 400mb. Argh! We tried. (She even owns many apps she bought on her iPod touch before she lost it, and an expensive speaker dock)

      • FalKirk

        Thank you for the comment and the correction. I updated my remark.

      • Kizedek

        Xynta, could you happen to list a few Android phones that are typically not used as “smartphones”? (or modern smartphones).

        I was reading through a thread on another site where a couple of regulars here comment, and an Android fan there was scoffing that this could not ever be the case (that there are Android phones that are not smartphones). He kept challenging us to mention some by name.

        Darwiniandude below mentions the HTC Wildfire S. …Any others that anyone can think of? Thanks, guys!

        And what’s the definition of modern smartphone? A few built-in apps, browser, but not used to access app stores to download apps? No cloud services? Only certain types of data is sync’ed? What?

      • Evansmic

        If you buy a cheap phone,perhaps shelling out $30 or more a month for data isn’t in your budget. That would effectively make any smart phone dumb. Sure you could use it in wifi areas but otherwise you would be missing out on the majority of the phones functions that make it worthwhile.

      • Kizedek

        OK, thanks. There is that; and the same could be said of a data-capable iPad, I guess.

        But I guess I am wondering if there are significant numbers of the 400M Android devices, or the daily activation figures, that don’t actually deserve to be touted up there as an incentive for developers — because they may never get apps (whatever the version)? Maybe they don’t get official Google services, or maybe they just don’t have a large touch screen, or something? I don’t know.

        It just seems like there would some definitive list somewhere of phones having Android, and what kind of minimum job you can expect them to do. Then maybe we can draw a line about where “smart” is. But right now I hear (from “my side”) that of course Android share is large because it is on all kinds of feature and dumb phones as well as smart phones); but the “other” side is challenging that notion.

      • xynta_man

        It’s not a list of particular models, but more a mix of the condition and reasons why do people buy these devices, which in the end influences how these devices are perceived and used.

        Let’s say some person isn’t tech-savvy (or interested in smartphones) and used a dumbphone for the last two years, when his contract runs out this user goes to the store of his cellular operator, like he always did, and gets a new “free” device. Last time that device was an operator-branded generic flip-phone and now it’s a low-end smartphone. The users get this smartphone and continues to use as he always did: call people, text them, etc. Maybe he will use the pre-installed Twitter client or something like that, but these people don’t usually go and buy/install different apps, or even browse the web (hence the web usage data, that doesn’t correlate with Android’s marketshare).

        It’s the same reason why Symbian “on paper” had a gigantic marketshare, which didn’t really create an ecosystem. The majority of people got those Symbian smartphones not because they wanted a smartphone, but because all of the good/top Nokia (which back than was popular) phones were with Symbian.

        And while such people do get iPhones, Apple clearly steers them in the direction of using their iPhone as smartphones: it advertises the apps, it advertises browsing the web, it has even relegated the whole “phone” to just one of the apps, that runs on the iPhone. Hell, the iPhone’s homescreen is a big “application folder”.

        People in developing countries just get the cheapest possible smartphone, mostly because of status (i.e. smartphone = cool and modern) and most of the time don’t even have a data -plan, which cripples a major part of using a smartphone as a smartphone. Usually those phone are so bad, that they poorly run even the base OS, so using any third-party apps is mostly out of the question.

        So, to answer your question, it can be any device, like HTC Wildfire, Samsung Galaxy Ace, etc. The majority of them are low-end Android smartphone. Plus, there’s a market of super cheap Chinese Android smartphone (you can go to dealextreme.com and take a look at some of them), which use official Android, with Google Play and all other bells and whistles.

        Samsung’s major success in Android market is partially based on its ability to convert its huge portfolio of dumbphone into smartphones. What was a sub $200 of contract dumbphone yesterday became a low-end Android smartphone today.

      • darwiniandude

        I think anything running any Android version is a smartphone (excluding total conversions a la Amazon Fire) but I don’t think they’re purchased as a smartphone, or with the intention of being used as a smartphone, and often aren’t. I still hear people using phrases like “I just want a basic phone to make calls with, don’t need the bells and whistles etc”

        I’m sure 100% of feature phones have a basic web browser for years now. Doesn’t mean it’s being used. I’m sure this is why we see large numbers of Android phones out there, but comparatively low browsing stats compared to iOS. The people who go to their carrier and say “I want a new phone. Something basic.” and buy whatever the sales person says is good.

      • xynta_man

        Feature phones and old smartphone had way crappier browsers than we have now, those browsers make browsing the web a chore, hence why most people don’t use them. God bless webkit-based mobile browsers with multitouch.

    • jawbroken

      All market share data in Australia disagrees with your anecdote, as far as I’m aware. Perhaps people in trains are not a representative sample.

      • darwiniandude

        I see a lot more Android phones than I used to, but that’s because I used to see none. Way I no longer see though, is Nokia, Blackberry, featurephones etc. They’ve all vanished. I think most of these have been replacement with Android devices most likely.

  • Brian L

    “In terms of share, Android shows two quarters of no growth” – I think you meant 2 months. Nov 2011 46.9%, Feb 2012 50.1%, May 2012 50.9%. On the other hand Mar 2012 51%, Apr 2012 50.8%, May 2012 50.9%.

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  • xynta_man

    Android could certainly peak in the US, with many users jumping ship from their expired contracts and crappy old Android devices to iOS and/or WP8, or even BlackBerry 10 in the future. But it still is growing like crazy in the rest of the world. Android (and companies like MediaTek) empowered every small chinese knock-off factory to produce super-affordable “smartphones”, which are very popular in developing countries. Heck, even Samsung owes much of it success to spamming the developing markets with random-super-cheap-android-smartphoes, many of which can be bought for as low as $100 without a contract.

    • riffdex

      Probably a little late to be expecting a BlackBerry comeback.

  • Ian Ollmann

    If we suppose, per Gruber, that the iPhone was successful not because it disrupted the phone market, but because it disrupted the PC market, then perhaps the size of the PC market serves as a useful estimate of the upper size of the smartphone market, adjusted somewhat by people’s tendency to own more than one smartphone vs. more than one PC and replacement period. That is, PC owners are likely smartphone buyers.

    • jawbroken

      Seems like a bad estimate, especially considering the growing number of people who access the internet solely through a mobile device. Disrupting the PC market doesn’t imply that the size of the PC market represents a bound in any way.

      • Gavin Hay

        We have and exchange student from Asia living with us that uses her phone almost exclusively. The PC (a macbook) is seen as an evil necessity that is used only in distress – writing an email longer than 20 words. She is intimidated by it, and is almost “allergic” to its complexity.

        The beauty of the smartphone is that it reduces the “PC” to its essential tasks that it’s “Hired for” into discrete functionalities (this has been said may times here before).

        My observations is that it makes computer users out of an entirely new market – females that are interested in the task and not the “technology” as my wife likes to remind me. The MacBook prevented her from wanting to throw the computer out the window – the iPad has made her embrace computing technology by getting the “computing technology” out-of-the-way. The idea of marketing “Windows” to these users is crazy – in fact MS should be removing the brand wherever it can as it reminds people of work and how much they hate their computers (except for us nerds…).

        Finally – I think there will be defections from Android to iPhone or some other platform – at least from the non-technical population as it still garners a halo of ease-of-use. While my student lives on her phone, she strongly desires an iPhone. The build quality of her Sony has disappointed her and looks at my iPhone 4s with envy.

        Disruption to the next market will come from the next generation that has a completely different interpretation of “computing” that we are even conscious of.

    • http://twitter.com/causticmango Samuel Ford

      If I’m not mistaken, smartphone sales have already eclipsed PC sales.

      It also seems likely that iPad (sorry, “tablet”) sales will reach parity with PC sales in a shockingly short time.

      I’m of the opinion that the “smartphone” is a transitional product on the way to a constantly connected tablet. We may see the smartphone gold rush as quaint aberration in five years much like we see the netbook fad now.

  • Walt French

    Props (does all our adulation get boring?) on todays’s post. But your tweet linking to your great post of 2 years ago — how the iPhone disrupts — raised all sorts of questions that these interesting comparisons keep in the background.

    First, as you noted, and Gruber nailed, the iPhone is not so much a phone as the computer you always have with you. Featurephone usage is relevant as a measure of consumers who have enough money to talk as they move around, but saturation of the total population, rather than the comparison to featurephones that do very different jobs, is the relevant issue, no?

    If the iPhone is about new jobs to be done, there’s a bit of debate about how best to do those jobs. Right now, we have Android (It’s the browser, stupid!) versus iPhone (Great apps!) and a couple of wannabes & has-beens. It’d be interesting to see if we can track (maybe, by platform) usage somehow by apps-v-HTML. I keep seeing how Apple is dominating internet usage, but the breakout I’d like (can you get/manufacture the data?) would identify how much there are (a) featurephones, (b) browserphones and (c) smartphones.

    Also as you so smartly pointed out 2 years ago, the iPhone potentially disrupts other industries, and it sure looks like advertising is one that’s at risk. As you note, ads pretty much pay for the whole internet these days, and smartphones are lousy at ads. I’m guessing that the whole push for identity control, and how it’ll hamper ads, also stems from smartphones. Are there trends on ads or alternative monetization in mobile that would build out our understanding?

    The Surface looks like an explicit admission that Microsoft’s desktop business is in the throes of sharp disruption. But as I guess is per normal for a disrupted business, they’re responding with a product they hope will sustain their desktop business, rather than making one optimized for new consumer needs—building out from the desktop to the tablet to the phone (rather than vice versa), they risk losing their leverage over Nokia and over the highest growth, just to do a me-too product. Why?

    These are just a few of the many huge questions that come to mind from that old post. It’s so good; you might do a refresh on it at this juncture, even.

    • http://twitter.com/WalterMilliken Walter Milliken

      To an extent, I think both the Google (cloud) and Apple (app) models are right. One job-to-be-done is to get data we want out of the cloud. Another is to interact with data in the cloud (e.g. reservations, purchases). Then there’s the social cloud job: Twitter and Facebook and company. And then there’s the job of editing/managing our own personally-generated data that we sometimes need to share or use elsewhere, which doesn’t necessarily need to reside in the cloud, but does need to migrate through it sometimes (apps, iCloud, Dropbox). And the entertainment job: use-once content (mostly video) where cloud-streaming makes some sense, and multi-use content (games, music) where living locally makes the best sense most of the time.

      The thing is, putting all the application part of these jobs into the cloud gives you my favorite dead horse to beat — the thin client model. It’s proven to be inherently unreliable and out of the user’s control in the past, and people seem to prefer having control of what they’re working on. If the data itself *belongs* in the cloud (i.e. a large database), users *have* to accept that sometimes it’s not there when they want to work with it. But for other things, a local copy/sync model makes for a lot better experience and better control.

      I think Google is driven to favor the cloud-everything model by its need to own the eyeballs, and thus force the application into the cloud where it can control what the user sees. Apple is more device-centric, since that’s where they get their money. For them, the cloud is a necessary communication service/rendezvous point for the devices, but not much more.

      My prediction is that we’ll see it all evolve to a “data-as-a-service” model (maybe XML-based), with the UI running locally by preference, on locally-cached/copied data to provide a good user experience, and then “saving” to the cloud. Web interfaces will exist as well, often as the first available version, but they’ll be second-class citizens, used only when there’s not a better choice (i.e. an app).

      I think you can see the trend in several places: the popularity of Dropbox and similar services, for one, and the fact that big cloud-centric services like eBay, Twitter, and Facebook feel the need to build apps. The web is just not providing the experience users want. Of course, having an app also gives more control about monetizing content, and can enhance secure transactions and identity confirmation.

      So I guess that all raises the question: Is the app economy disrupting the web?

      • Panos

        For me the question is not cloud vs apps. It is “Google Now” vs “Siri” both as interfaces and as enabling platforms.

        So can Siri as a modular (based on outsourced services) platform compete with the integrated (Youtube,Gmail,Google+ etc with one Google account) cloud environment of Google Now?

        For example what platform can better predict your needs in something? Meaning, what platform is more capable to establish patterns from your everyday life, and adopted to it?

        In this race, Google seems to be in better position.
        It can easier gather data about a user from multiple sources and can support the integration that is needed to “rapidly and competitively improve the performance of a not-good-enough system”.

        An interesting question: “what is the job to be done” here?

      • http://twitter.com/WalterMilliken Walter Milliken

        An interesting point. For me, Google Now crosses seriously into “creepy” territory, from what I’ve read of it. Siri only does things it’s asked to do. But I’m a privacy fanatic, so atypical of the market.

        There are some details in here which will probably prove telling:

        – How will Google use its knowledge? If it’s a thin veneer of basic predictive services as a carrot, will the accompanying advertising push outweigh the advantages for users? Google’s real product is customers for advertisers, they have to walk a fine line here to avoid alienating their eyeballs.

        – Will Google be allowed to do everything, and know everything about everybody? There is already a lot of government activity in Google anti-trust. They may not be allowed to integrate many more services so that they know what they want to know about people.

        – Will Google Now really work? What’s its accuracy rate? If it’s no better than targeted advertising, it may wind up becoming another source of environmental noise people start ignoring. Being a cynic, I see Google’s real point to this being about pushing people harder to buy stuff, so that Google can reap higher revenues for “push” ads. The advantages to the user are somewhat incidental. But I’m a just a cynic….

      • Panos

        Some thoughts..
        When i say “Google Now” i am mainly referring to the platform aspect and not the interface. Meaning, the integration of every Google’s service, resource, infrastructure around a single theoretical point. The user.

        It is quite interesting that everything Google did (intentional or not) seems to lead to this paradigm shift. From the aqusition of the different services, the one Google account, to the knowledge graph, everything seems to converge to now. “Google Now”.

        I imagine “Google Now” as a new era information infrastructure (II-2) that have applications and devices (mobile,tablet,tv,pc etc) as interfaces that just connect to the same point. The virtual user.

        It is something really disruptive that could be rough around the edges at the beginning but it will rapidly improve. It is both a universal and a unique experience that no other company seems capable to implement (for now) at least in the extent Google can.

        The really innovating aspect about this II-2 is not that it can accurately answer the user’s questions, rather anticipate and pre-acts to the user’s “needs”. So these “predictability algorithms” could be the next big thing since the “search engine algorithms”.

        In this perspective it seems that Apple’s integrated device approach is not so revolutionary after all….

        The only real question for me is, as you said “Will Google be allowed to
        do everything”. Meaning the role of the Government, legal aspects, the users rights
        etc

        Horace, could you write something about it?

      • JohnDoey

        The Web is 20 years old, and native apps are 40 years old. What is being disrupted is the idea that the Web would replace native apps.

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

      The weird (sinister?) thing about new market disruptions is that the thing you aim at (and what everyone thinks you aim at) is not what you hit.

      • Ian Ollmann

        So, lets look at a case, the PC revolution. Are you saying it didn’t hit minicomputers and instead clobbered the publishing industry or accounting, or video arcades?

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

        The microcomputer was initially targeted at consumers. It did not target IBM initially. In fact, IBM joined whole-heartedly (though through an autonomous effort). When the Mac was launched it was aimed at IBM (if we are to believe the “1984” commercial) but it failed to connect and ended up changing publishing. Regarding minicomputers, I don’t recall PCs being positioned against them. They did not run the same apps or solve the same problems until networking came into force much later.

      • http://twitter.com/PenguinTweet PenguinTweet

        A perfect example of not hitting the intended target with a device was the PC and the minicomputer. I worked in several companies in the US and Switzerland in the 1980’s where the PC did indeed replace PDP-11’s as front ends to VAX/VMS. In one company, entire departments used a Digital “PC” that was essentially a micro-PDP workstation. We replaced them all with IBM PC/AT 286-based computers with 20MB hard drives. I attended PDP and VAX workshops held in a vast Digital education complex in Massachusetts. Those buildings are all empty now.

    • delmiller

      Walt,
      Your questions about Microsoft’s plans mirror my own. What are they trying to accomplish?

      If Android and iOS are closing in on 50% of the available US market and if, as Horace suggests, 80% of the total is the saturation point, then there is approximately 30% of the existing wireless handset market up for grabs.

      Take a look at Horace’s market share chart. Android and iOS together appear to increased their share of that total market by 20% from Dec2010 to Dec2011, and the growth is accelerating.

      Extrapolating the curves, Android and iOS will have *all* the available market in about 18 months! This would mean that if Microsoft can expand WP market share at the same rate that Android has been doing in the last 18 months, then the maximum market share they could hope to obtain is 15%.

      But that is the ceiling and it is a very high one. Windows is not likely to grow market share at a rate anywhere near the torrid pace that Android is growing its own. I think it generous to predict any more than as third as fast. Which would mean that the maximum market share that Windows phone can reach is around 5%–and I think probably not even that. This is not enough to maintain Microsoft revenues and profits and is unlikely to even pay back the considerable expense it will take to leap even that low bar. Shades of Zune.

      Of course the US market it not the global market, where the smartphone percentage might be lower and hence the potential for market share change higher. But Microsoft doesn’t seem to have any global advantages that point to a different outcome than in the Us.

      These are rough estimates based on Horace’s chart but really, what does Microsoft really think is going to happen?

      • Tatil_S

        In one of his earlier posts, Horace said it is far easier to compete against non-consumption than other competitors after market saturation. Still, it is not impossible. Gmail came to the party pretty late, but became quite widespread, compared to the existing providers such as Yahoo or Hotmail. People do not change email providers often, as there is quite a bit of inertia working against a switch. Comparatively, phone market looks “easier”.

        People as a matter of habit and 2-year contracts tend to upgrade their phones about every 2 years. WP8 can steal market share away from Android through users who are not all that happy with their handset experience. Among my friends, there are far more unhappy Android users than happy ones, even though some are not looking forward to an iPhone at all. If Microsoft can steal a good chunk of the unhappy Android users, that is potentially a vast market. Then, there are all those Enterprise accounts looking to switch from Blackberry. (At this point, we might as well lump Blackberry with non-consumption.) WP8 can easily become a fairly successful third player in mobile OS in the next two years. Mobile OS market may not be as profitable for MS compared to Office and desktop OS markets, but that is another story.

      • delmiller

        I agree with your points , but it doesn’t really explain why Microsoft is making the effort. First, how do you define “fairly successful third player?” My guess is that it will be years before Microsoft makes enough money from WP to even begin to pay for the expense it has already made. The general word in the tech press is that Xbox is a big success, but it is unlikely that MS, even after most of a decade, has even broken even on the line. Is that “fairly successful?” Not to me it isn’t. Now a smaller company could pull in a certain amount of revenue and call it a business, but it wouldn’t even move the needle on MS’s annual report.

        So why do it? The only reason I can think of is defending Windows in the PC arena.

      • Ian Ollmann

        It’s not about defending Windows in the PC arena. It’s about defending their future ability to generate revenue anywhere.
        First of all, Microsoft is gravely concerned about the way the market is heading. Microsoft must understands disruption at some level. Microsoft had a front row seat at the disruption and dismantling of the IBM lock on computing in the 80’s and 90’s. They were part and party to much of it. Where is IBM now? They still do mainframes and some custom silicon, but the PC division is in the hands of the Chinese. This bit of history can not possibly be lost on the Microsoft C suite, though I think the strategic landscape at the time that drove them to success was perhaps mostly not their doing. (DOJ) That is, I’m not sure they actually understand how to use disruption as a tool. In any case, one’s choice in the face of disruption is action or irrelevancy. The current round of disruption will be paid for by the fat margins of the incumbent, which in this case is the former Intel MS duopoly. There is a big giant target symbol painted on their wallets. They know it, with some alarm.
        Whether they like it or not, a lot of computing will go palm top. There are some core markets like data entry, software development, clerical work, etc. which will obviously need a PC. Microsoft will perform as always there, but these may not add up to much. A lot of the other areas of endeavor like retail, travel, logistics, and the all important consumer space probably will do as well or better with a smaller more portable device. If Microsoft does nothing, they will be looking at shrinking revenue, shrinking markets and gradual irrelevancy as users transition to smaller devices that don’t use Windows or Office. The problem is how to craft a new business model that puts Microsoft software on top and in control in a realm of phones and pads. This is required just to stay as profitable as they currently are. Their signature strategy — we’ll see if it succeeds this time — is to leverage their dominance in the PC space to crack open the new space. They need to do it now, before they become irrelevant and their fulcrum disappears. They should have done it two years ago as the iPad was released and the writing on the wall was less clear. (These things take time.) That is what all this is about. Make a device that does windows and office well to get the classic lock-in (office + associated file formats) into the palmtop space.
        If they can’t do that, then plan B would be to attempt to live off a software only solution (e.g. office for iPad, http://www.businessinsider.com/source-microsoft-will-launch-office-for-ipad-in-november-2012-6) and give up on the OS. They did that before there was a windows. The problem with the software only model is that I don’t think people are willing to pay $199 for office for iPad. They may only pay $30 for it. That is a huge margin cut to swallow! So we’d be looking at a much, much smaller Microsoft. Also, the form factor isn’t really suited for office as we know it today, so the volumes may be less. After some study, they may believe they need to control the hardware in order to be able to deliver the kind of software they are good at.
        So, it makes perfect sense, *for them*. Companies never do anything unless it makes sense *for them*. It remains to be seen whether it makes sense to the market. The absence of office doesn’t seem to have bothered the market so far with Android and iOS. When I saw the Surface, my reaction was they have created another interpretation of the ultra book. I applaud them for their creativity! I’ve thought that the processor needs to go behind the display for a while — better cooling, fewer burns, etc., though that is not why it is a great design. However, I don’t know if it is compelling enough to justify the price, and they don’t appear to have really innovated with input devices here, which seems to be a requirement for a real home run. (e.g. Kinect, iPhone, Mac/Windows) I think Horace may also right about the antibodies, since there are signs they will pull their punches in the retail channel and lose the war because they aren’t sure they want to win, if it means winning that way.

      • Ian Ollmann

        Yugh. The paragraph formatting went all to H___! Sorry about that.

        The problem with the Surface, and the reason why it seems unlikely to succeed, is that it is designed to be a business strategy and not a product.

      • http://www.jeffkibuule.com Jeff Kibuule

        Products that were “doomed” to failure before they became wild successes:

        1) Nintendo Wii – “Who on earth will want to stand up and wave around to play games?” – typical market analysts
        2) iPhone – “Apple is not going to just waltz in and take our business, especially with a $500 phone” – numerous phone OEM CEOs.
        3) Android – “How is Android ever going to overtake the iPhone when it’s clearly a better product?” – every Apple “pundit”
        3) Kinect – “People are already bored with the Wii. Why would they buy a $150 peripheral?” – more market analysts
        3) Galaxy Note – “Who on earth wants a 5.3″ screen on a phone? It’s practically a tablet!” – again, every Apple “pundit”

        Sometimes I question the wisdom of “analysts” who seem to forget that the market doesn’t follow their predictions of consumer behavior, consumer behavior drives the market. Do NOT fall into the trap of assuming that the average consumer thinks like you do.

        The smartest analyst will always end their comments not with “This product will fail” but “we’ll see how the market responds”, because no one can predict the future.

      • judsontwit

        Conversely, just because an analyst/pundit hates a success, doesn’t mean it counts as a true disruption.

        Out of the “wild” successes above, only two were actually disruptive (in the sense of being sentinels that heralded a direction change for their market): Wii and iPhone.

        And of them, only *one* was disruptive in the sense of sustaining financial turnabout for incumbents vs. upstarts (which one is left as an exercise for the reader).

      • riffdex

        All products that were exceptionally innovative or revolutionary – products of the future. With the Surface, you simply have Microsoft’s constant insistence on old tech.

        This is Microsoft’s main problem. Most of the time, MS uses the strategy of leveraging their past/current dominance to enter new markets, without really being very innovative or forward thinking.

        Surface included. MS could have worked to revolutionize the tablet, and create a product far superior to iPad/Android tablets. But no, they simply take old tech and try to combine it with new tech. They do another take on a PC – without realizing that the market is heading toward a post-PC world.

        You can merge a toaster and a fridge, but it won’t necessarily equate to a pleasing product.

      • delmiller

        I believe that is the “Quote of the Day”

      • delmiller

        I believe that is the “Quote of the Day”

      • delmiller

        Excellent points all. More food for thought.

      • Walt French

        I think the disruption theory stereotype fits Microsoft incredibly well. They have utterly failed to understand that THEY are the industry being disrupted, and how they can shift from their business-as-usual approach to one that will succeed.

        This is NOT unusual for them. Reports about the Kin effort had them dismissing the “Mythical Man-Month” logic, an earlier insight to the Disruptive Tech theory that has a narrower applicability. Still, MS personnel were asked about their management approach in light of it, and they told us how they were smarter than that story reflected; the result was Kin was late, stuffed with inessential changes and eventually, rushed as an incomplete product to a market that had passed it by. All the engineering talent was utterly squandered due to management hubris.

        There’s no sign that Microsoft really learned from the Kin disaster (a > $1billion mistake). Ballmer said that he personally would supervise phone efforts (really, can you imagine anything more foolish than having somebody with marketing expertise oversee a complex tech platform?) and away they go, business basically as usual.

        Horace has been incredibly generous in calling them “patient.”

      • Walt French

        I think extrapolations such as you’ve done are useful for the short term, but this post is all about the incredible reversals the happen over years. Microsoft, believe, is hoping to shore up their desktop business, and build up the resources — apps, developer commitments, netowrking/leverage effects, etc. — that’ll allow it to become dominant in the mobile space.

        I think their mobile strategy is incredibly behind the times, but first things first: they MUST defend their core business now.

        The pity of it is that WP8 and Win8 look like very workmanlike products, probably of a higher quality than Apple produces. (I’m especially irate now that I’ve accepted the Aperture upgrade, and because of software quality issues, am stuck with not being able to access my photo library at the time I want to view/edit/publish my son’s wedding.) But Microsoft does NOT know, while Apple DOES know, how to prioritize for consumers, so Microsoft will continue to build solid products that nobody can figure out how to use.

        So Microsoft engineers will be able to point to their quality work and will continue to be mystified why nobody wants it. I think it an incredible failure of Microsoft senior management.

  • http://www.facebook.com/jesterthejedi Billy B

    Do you have a prediction when Windows Phone will enter the Other categorization?

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

    I like the height of those graphs ;-)
    Thanks Horace!

  • http://www.just-the-reverse.com/ David Pinto

    What exactly do you mean when you say “…but the inter-platform dynamics are becoming very interesting.”?

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

      What I meant was that there might be more rivalry now even though there is no saturation. In the period to date, most competition has been with non-consumption. It may be changing.

  • Grusaren

    How does comscore get its numbers? Is this web traffic or sales? If its web traffic the actual number of android use should be much higher since we know that Android users don’t surf as much as iOS users. Or have they already factored that in?

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