iPhone controls 46% of Japanese smartphone market

My bet is we’ll see the same thing in Korea. In both Japan and Korea the incumbents mounted campaigns against the iPhone and mustered means at their disposal (including major newspapers, TV and government agencies) to hinder Apple’s entry.

The reality however is that captive customers in those economies have always yearned for better products. There will always be a segment of the population that is informed about alternatives and will buy what works, at the expense of purchase decisions based on nationalism. It’s that group which will influence behavior over time.

This is how Toyota won against GM in the US.


Smartphone Penetration in the US

This is active users in the US only.

iPhone now tops WinMo and is second only to RIM. The only line that is going down is the dumbphone category which lost 10 million users.

Those users were mostly switched to RIM and Apple. RIM gained about 4.3 million users and Apple gained about 3.5 million.

Android user base still lowest of all platforms and increased by about 0.6 million. They are likely to beat Palm however next few quarters. At this rate however it’s very hard to see an installed base that is going to challenge Apple for a long time.

Palm gained 0.44 million. Symbian gained 0.41 million. WinMo gained 0.3 million.

With a 1.4 multiplier for iPod Touch, the platform would have 12.5 million users, pretty near RIM’s base. We might see that tipping over next quarter.


Nokia shutters U.S. flagship stores

In other news:

  • Nokia shutters flagship Regent Street store in face of Apple retail’s domination – December 08, 2009
  • Nokia sees flat market share as Apple gains – December 02, 2009
  • Nokia Chief Strategist: Apple will remain a niche player in smartphones, just like in computers – November 30, 2009
  • Nokia to cut another 330 R&D jobs – November 20, 2009
  • To understand market share vs. profits, look no further than Nokia vs. Apple – November 11, 2009
  • How Apple passed Nokia to become the world’s most profitable handset vendor – November 11, 2009
  • Strategy Analytics: Apple passes Nokia to become world’s most profitable handset vendor – November 10, 2009
  • Nokia sues Apple claiming iPhone infringement of Nokia GSM, UMTS and WLAN patents – October 22, 2009
  • Nokia posts loss of 559 million euros on weaker smartphone sales – October 15, 2009
  • Nokia’s earnings plummet 66 percent – July 17, 2009
  • Jim Cramer: The problem with Dell and Nokia is that no one wants their products; Buy Apple – July 17, 2009
  • Nokia’s failures vs. Apple’s vibrant iPhone platform puts market share at risk – June 24, 2009
  • Nokia Ovi Store launch a complete disaster – May 26, 2009
  • Nokia ships 19% fewer phones in Q1, bleeds more share – April 16, 2009
  • Nokia axes 1700 jobs worldwide – March 17, 2009
  • Nokia halts sale of iPhone killer; 5800 handset plagued with major problems – March 02, 2009
  • Nokia hops on bandwagon, unveils knockoffs of Apple’s iTunes Store, App Store – February 16, 2009
  • Nokia profit collapses 69% in fourth quarter 2008 – January 22, 2009
  • Nokia’s profits plummet 30 percent – October 16, 2008
  • Nokia’s fatally flawed ‘Comes With Music’ service no Apple ‘iTunes Store killer’ – October 03, 2008
  • Nokia fumbles iPhone lookalike-not-workalike launch in U.S. and Europe – October 02, 2008
  • Nokia sputters that iPhone ‘not worthy of discussion’ – August 13, 2008
  • Apple takes top spot from Nokia on AMR Research’s 2008 Supply Chain Top 25 list – May 30, 2008
  • Nokia shares slammed in wake of miss; Nokia CEO calls Apple iPhone ‘niche product’ – April 17, 2008
  • The knockoff parade continues: Nokia exec shows Apple iPhone lookalike ‘Tube’; dismisses Apple – April 08, 2008
  • Nokia previews blatant Apple iPhone knock-off (with video) – August 29, 2007
  • Nokia CEO challenges Apple over iPhone – February 13, 2007


Game Platforms vs. iPhone

The number of games per platform. All approximate.

  • Nintendo DS 600
  • Sony PS3 600
  • Microsoft Xbox 700
  • Sony PSP 700
  • Nintendo Wii 1000
  • Google Android 3,000
  • iPhone/iPod touch 22,000

If IDC prediction of 300,000 iPhone Apps by end of next year holds and if the ratio is preserved at about 20% games, then there could be 60,000 games on the Apple platform by next year. It’s doubtful that the other platforms will grow by more than 10% in the same time frame. Are there any implications if one game platform has more titles than another? It’s interesting that all the other platforms are in the same order of magnitude.


Version Arithmetic

Remember when I laid out the timeline for Nokia’s response to the iPhone? Still checking off the milestones: http://www.thestreet.com/_yahoo/story/10636833/1/nokia-outlook-another-year-in-limbo.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Let’s also do some version arithmetic:

Nokia is already on the 5th version of Maemo, a platform which by any measure is non-functional but already 5 years in the making. After this investment, only one product is shipping and it’s something of a science experiment–a pre-beta product. Nokia is also on the 9th version of Symbian, a functional but outdated platform stuck in the 90s. Promising big things in the 10th version to be re-branded Symbian ^2–I guess double digit version numbers are not confidence inspiring.

Microsoft meanwhile is working hard on the 7th major version of Windows Mobile. World waiting with bated breath.

The Pocket PC Paradox

Recent data from admob shows that Android OS share is highly dependent on a single vendor (HTC). (http://metrics.admob.com/wp-content/uploads/2009/11/AdMob-Mobile-Metrics-Oct-09.pdf page 7)

There is an implied message in Android advocacy that once more licensees join in, volumes will be distributed among a broad set of companies benefiting from a healthy rivalry. This broad licensing will be a boon for volumes and for user choice and the platform itself will prosper.

I’m going to argue here that there will be no healthy distribution of volumes or profits in the Android platform.

History shows that volumes for an openly licensed mobile platform concentrate in the hands of a single vendor. To illustrate, I attached a list of all the devices which shipped (to date) with a flavor of Windows Mobile. The list includes 911 different phone models (search on your own on pdadb.net under the pdamaster tab–search criteria are on the last page of the PDF).

The Windows Mobile platform “took off” and had hundreds of concurrent licensees in the middle of this decade. In spite of this wide adoption, one vendor captured 80% of the volumes for all instances of the platforms: HTC. Having started with the iPaq as a PDA and followed by being the first to market with a WinMo device, HTC dominated Windows Mobile volumes even when faced with literally hundreds of competitors. These competitors included all the big names: from PC vendors like HP, Dell and Toshiba, to cellular incumbents like Motorola, Sony Ericsson, Samsung, LG and every ODM and OEM in between. The reason HTC won is mundane: they have the experience and the distribution to make an impact and they iterate rapidly and are intimate with the details of making a tough-to-integrate product work. They basically worked their way up the value chain from a contract design shop to a branded top tier vendor.

But if you exclude HTC, dividing the number of units of WinMo shipping at any given time by the number of licensed products in the market at that time, one gets about 50,000 units/licensee. Think about that: except for HTC, an average licensee could hope to ship 50k units for any phone they engineer and market. And they also need to prepay Microsoft the minimum license fee of $10/unit (approx) for a minimum order of 50k units or half a million dollars.

This is actually a paradox. Put yourself in the shoes of a business manager at one of the potential licensees. Consider the situation where there are 200 competitors in a market all shipping undifferentiated products, and one competitor has 80% share. Would you want to be the 201st? Saying yes implies hoping to split the remaining 20% 200 ways or obtaining, on average, 0.1% share? But this is not a share of all phones, it’s a share of that platform, which itself is, at best 10% of all smartphones which make up maybe 20% of all phones. So you are committing a few million dollars to pursue (.2*.1*.001=) .00002 of a market. That target is 3 orders of magnitude less than what Apple obtained in 2 years (without the margins). It never adds up unless you expect your entry to blow out of the 20% ghetto and take on the incumbents.

As it turned out there were dozens upon dozens of business managers who opted to be the 201st (or 301st). Unsurprisingly, the result was that every Windows Mobile business plan failed (except that of HTC). Every decision to join this ecosystem on the device side was a value destroying decision, repeated 900 times.


I don’t have an answer as to why so many are taken in by this. I have a hypothesis that it has to do with excess R&D capacity (e.g. idle engineers) that compels small companies to build product with no hope of market penetration, but I cannot prove it. They may also couple the low barrier to entry to the premise from the platform vendor that a no-name licensee could be the next Dell/Acer/HTC if the platform “takes off”.

Regardless of the cause, the proliferation of WinMo SKUs did nothing for the success of the platform overall. For consumer products, it does not matter what jockeying for position happens within the value chain if the end user/developer experience is painful and uncompetitive.

Android will win or lose on the user/developer experience. It will not win or lose on the proliferation of licensees.

Stack ‘em high!

In comparing two platforms like iPhone and Android, the question of addressable market for developers must come first. Apple has the advantage of an early lead plus its iPod touch devices which add another 40% to volumes. As a result, Apple created a 57 million units base with 100% yearly growth. It’s not a stretch to assume that before the end of 2010, Apple will have 100 million units in the field with 150 million by 2011.

All told, current Android licensees offered up less than 4 million devices to developers to date. When accounting where future Android volumes will come from, the chances are that Nokia, Samsung and RIM will not deploy Android widely as they have their own platforms to protect. That leaves Motorola, Sony Ericsson, HTC and LG and the current Windows Mobile licensee base. Even assuming unprecedented growth (270% y/y–greater than iPhone ever achieved) from this less-than-stellar list of vendors, it’s hard to imagine more than 30 million Android installed base by end of 2011.

One Android device for every five iPhone OS devices does not compel ecosystem switching costs for developers. Fragmentation and low volumes coupled with a tenuous vendor story leads us to conclude that iPhone will still have the upper hand by 2011.

Android Business Fashion Model

Nice summary: Essentially, Android isn’t Google’s phone platform, it’s an open alternative for failing hardware makers to use in place of Symbian, Windows Mobile, and Linux to create the same type of convoluted, fractionalized, and poorly integrated products they’re already making. This is also why Symbian, Windows Mobile, Motorola, and Sony Ericsson are all failing commercially.

Google’s primary and most significant contribution won’t be any major innovation in the core Android platform but rather in its own bundled apps, where Google plans to earn its revenues from via, to put it bluntly, adware and spyware.