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Android economics: An introduction

May 13, ’12 7:57 PM

Android has had unprecedented growth. Based on activation announcements, it’s possible to estimate that thus far, about 370 million Android devices have been activated. The total number of devices in use is a lower figure which depends on replacement rate and retirement rate. This total number of devices in use at year end is estimated in the following chart.

I added the blue line which represents what Google had as an internal estimate in mid-2010.[1] The difference between the two lines shows that Android’s growth is far higher than what the company expected.  If the company itself did not expect this growth, it’s unlikely anybody else did either.

Unexpected, exponential user growth is usually accompanied by a dramatic positive improvement in the finances of a company and a higher return to shareholders. The curious aspect of Android’s success is that it has not had an impact on either. The market has not “discounted” the half-billion anticipated Android users into a price for Google shares that reflects this growth. It can only imply that those users are not very valuable.

But why would there be such a disconnect between the number of users and their value?

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What is disruption and how can it be harnessed?[1]

Mar 12, ’12 5:31 PM

The phenomenon we call business disruption could benefit from a different name. Although it signifies a disturbance or an interruption in an industry, it’s much more than that.

The nominal definition I work with is that disruption is the “transfer of wealth in an industry from dominant incumbents to disadvantaged entrants.” It’s a convenient definition because it’s brief, it puts the emphasis on economic value and because it alludes to a reversal of fortune and the implied extraordinariness.

However, there are several nuances lost and contradictions ignored in this definition. I want to enumerate them here and now:

  1. Although in a disruption there is a transfer of wealth, that wealth is not necessarily conserved. An industry that undergoes a disruption often emerges larger, more productive or more influential. Disruption typically creates net growth.
  2. Although extraordinary and spectacular it is also very commonplace. Disruption is not rare. In fact, it rarely fails to happen. One could even say that if it does fail to happen, it’s a symptom of an industry in crisis.
  3. Being so common, it can be seen as a regular occurrence. But if the regularity of disruption can be considered to have a clock cycle, its frequency is increasing.
  4. Disruption in the literal sense implies discomfort, displacement and even destruction. But it’s necessary to the health of any economy. The analogy to biology is that death is the most important thing in life.
  5. Although only recently characterized and studied in cases set in the past century, the pattern is evident throughout history.

I’ve offered examples of these consequences or side-effects of disruption but I’ll emphasize once more the example I’m most familiar with. To illustrate the primary definition, the AMP index is a measure of the success of one company relative to a set of peers in the mobile phone industry. It’s the average of four market shares: mobile phone units, smartphone units, revenues and operating profits.

This chart shows the shift in AMP index values for the competitors whose data is public and which make up the vast majority of units sold:

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The opportunity cost of Windows Phone

Feb 21, ’12 1:29 PM

The global mobile OS market shares for Q4 shows a continuing (but diminished) leading share.

At the end of last year Android’s unit share reached 51% which is down from about 57% during the third quarter. iOS reached 23%, followed by Symbian at 12%, RIM at 9%, Bada at 2.4%, Windows Phone at 1.6% and Other at 1%.

When seen on a year/year basis

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How many iOS devices will be sold in 2012?

Nov 28, ’11 2:51 PM

There are several methods I turn to when estimating device sales.

Top-Down Demand analysis

The first is to look at so-called top-down views of the demand. This method takes a view of the overall phone market and assumes share for smart devices and, further, shares for individual platforms. There are several estimates out there. The most recent is Ericsson’s Traffic and Market Data Report, released November 7 2011.

It concludes that in five years’ time mobile subscriptions will reach 8.4 billion of which smart devices (incl. tablets) will total 6.2 billion. As iOS has approximately a 250 million install base at end of 2011 and as the total base from Ericsson’s estimate for 2011 is 1.44 billion then Apple’s share is approximately 17%. If we assume that Apple will be able to increase smart device share to 20% (3 percentage points in five years) then by 2016 Apple will need to have 1.24 billion iOS subscribers.

Assuming that half the installed base upgrades every year and Apple adds devices required to reach the install base necessary (1.24b or 20% share) leads to the following unit sales projection (I’ve added 2008 through 2010 actuals and 2011 estimates based on my own current Q4 projections).

 

This Approach yields an estimate of

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The Global Smartphone Market Landscape

Nov 17, ’11 4:47 PM

There is finally enough information to try to give an estimate of the smartphone market as a subset of the overall phone market.

The chart to the left shows the overall picture.

To sum up: The smartphone market has now reached over 30% of shipments. Non-smart devices are at 69% of total. The individual phone platform shares are as follows:

  1. Android (and Android-like): 17.6%
  2. iOS (iPhone only) 4.4%
  3. Nokia Symbian: 4.3%
  4. BlackBerry: 2.76%
  5. Bada: 1%
  6. Windows Phone 0.5%

The past quarter was the first where there is evidence of significant non-seasonal decline in incumbent platforms. Both RIM and Symbian saw two sequential drops in volume. The iPhone had a seasonal (or, more accurately, transitional) decline. Windows Phone had a very modest increase in share from 1.3% to 1.7% share though this is well below a margin of error in the estimate.

Android (and Android-like) shipments ballooned to nearly 70 million but sell-through could be about 10 million less. Nearly one in five phones sold is now powered by an Android variant. A remarkable story since the share was zero less than three years ago

Of the vendors involved, here is the division of share:

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