It’s When, Not If, Android Gets Bigger than iPhone

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I was surprised to see that there was no small amount of angst when NPD published the results of a survey that showed Android OS had surpassed Apple’s iPhone for total number of smartphones in use in the U.S.

There’s a lot to poke at when it comes to NPD’s data. The biggest thing, of course, is that it was a survey, and not based on the kind of manufacturer and retail sales data on which the firm usually bases its reports. While the number of participants was high, some 150,000 people, it was still a survey.

Even Apple made a rare public comment about the report, telling The Wall Street Journal: “This is a very limited report on 150,000 U.S. consumers responding to an online survey and does not account for the more than 85 million iPhone and iPod touch customers world-wide. We had a record quarter with iPhone sales growing by 131 percent, and with our new iPhone OS 4 software coming this summer, we see no signs of the competition catching up anytime soon.”

It’s not like Apple to be defensive, but our readers were even more so. The comments on TMO and from Mac fans at other Web sites was as if NPD had said Apple was about to go out of business.

The reality is that I would be very surprised if actual sales data from NPD and IDC don’t end up directly refuting the results of this survey. Indeed, IDC’s global report for the smartphone market for the same quarter appears to do just that — at the end of the day, I don’t even understand why NPD released a report like this based on a survey, and had I better understood its nature, my coverage would have been slightly different.

But that’s not the point of today’s column — it doesn’t even matter if NPD’s survey accurately reflects the actual marketplace — because from my view it’s only a matter of when, not if, Android surpasses iPhone in total units in both the U.S. and global markets. And that when isn’t likely to be that far off.

For one thing, there are already more Android devices either on the market or announced than you can shake a stick at. There are multiple manufacturers making a myriad of devices. Some of them are aimed at broad markets and other aimed at specialized or niche markets, and there are Android smartphones that will run on just about every mobile network on the planet.

Then there’s the tablets and the netbooks, both real and in the works. Android has a real shot at taking a lot of market share from Microsoft and Linux in those markets.

In contrast, Apple sells essentially two models of iPhone, one of which comes with two capacity options. In most of the world’s market, they are locked to one or two carriers. Apple’s iPod touch isn’t limited to a particular carrier (in that it’s not a phone), but it also comes in essentially one model with different capacities. As for the the iPad, it is so far locked to one carrier in the U.S., though the WiFi-only model has no such restrictions.

This is the way Apple does business, but we’ll get to more of that in a moment. In the meanwhile, within a year or two at most, we’ll see scores, or maybe even hundreds of different models being offered by dozens (and dozens) of vendors and carriers. When you have that kind of opponent competing with a tightly controlled, high-end product line offered through tightly controlled carriers, it is inevitable that Android OS will surpass iPhone in total units sold sooner or later, and I expect it to be sooner.

The kicker, however, is going to be that Apple will retain the top end of the market with the iPhone just as Macs own the top end of the computing market. Apple will be making the lion’s share of the industry’s hardware profits — or at least a vastly disproportionate share — as Android devices become more and more commoditized.

I mean, seriously, Verizon is giving them away in a two-for-one promotion! That will move some units, but not at a profit on the hardware.

For the near-term, Android’s growth will at first be fueled along with the growth of the overall market, but eventually Android OS devices will pass Apple’s iPhone unit sales, and even while iPhone unit sales continue to grow, its market share will retreat. Heck, I think even BlackBerry is going to lose share to Android, and Nokia — currently the world’s largest mobile handset maker — will have to embrace Android in one fashion or another, or continue to get trounced.

But Apple will be there all along with all its usual control pushing the industry with its dominant mindshare and minority market share, just as it pushes the PC industry’s direction with Macs, but even more so. Not only will Apple be content with owning just the top end of the market, that is undoubtedly what the company actually wants.

Apple CEO Steve Jobs and COO Tim Cook have both talked about how the low end of the PC market offers no hardware profits, in part because it is made up of high maintenance customers who have the highest support costs. I believe this true to a greater or lesser degree in the device market, and I don’t see Apple managing its business in this market any differently than it does for the Mac.

If you remember, Mr. Jobs said Apple was shooting for 10% of the smartphone market. Right now, Apple has 16.1% of the global smartphone market, and an even higher percentage of the U.S. market. As long as iPhone sales grow and the user base gets bigger, I think Apple will be pleased as punch to rake in the profits while all of the Android-chasers flounder around and wonder why Apple gets all the press.

The App Store will continue to grow and become more refined, and the user base will continue to expand. That will continue to attract the developers, despite Apple’s strict controls over development.

In fact, I am audacious enough to predict that there will be more iPhone OS apps made long after Android passes iPhone in market share. Between the Android platform’s fractionalization, the lack of any kind of app cohesiveness or an online store that is a true destination, more developers will make more money on iPhone OS apps, and that will be that.

The iPad is going to follow the same curve, too, though I think it will reign supreme longer. Apple may even be able to hold on to the same kind of dominant market share it has enjoyed with the iPod, but we’ll have to see about that.

One way or another, though, as long as Apple dominates the most profitable end of the market, the company and its shareholders will be satisfied.

So fret not when Android devices surpass the iPhone in unit sales so long as Apple continues to sell more iPhone OS devices at the same time (and reaps all the profits while doing so). It will happen, but it won’t matter.

Comments

Tiger

Google’s advantage here, heck, even HTC’s, is that one makes the hardware, one makes the OS. Neither has to invest in R&D for both. Google doesn’t make phones. They make the OS. And while it may work for a while, see the FALLING share for Windows Mobile phones as an example of what failure looks like. I’ve used my co-worker’s Windows Mobile phone and it is a total nightmare to navigate through. And she’s had to reinitialize it at least three times when it crashes.

HTC is making some nice phones, though I don’t know any guys that would purposefully carry a pink Desire phone.

But hey, competition is good. We’ve seen how Apple responds to it. They put out new stuff. And as long as they keep bringing products to market, they’re in the game. After all, it is only just a game. He who dies with the most toys wins. He still dies, but he wins!

FlipFriddle

I’m interested to see how long Google focuses resources on Android development when they currently don’t make any money off of it. Is Android one of their odd long term “beta” projects that they will try and monetize when it’s big enough and relied on enough to have leverage, or will they just decide that the ROI isn’t worth it and pull the plug?

We’ll have to see how it works as a tablet OS as well, when Android tablets finally ship. Making a tablet OS isn’t easy, so it’ll be interesting to see how it performs.

b9bot

Apple’s advantage is it can make the whole widget. Hardware, software, store, and make it work seamlessly with professional fast service. Google totally fell on there face when problems came up and there was no one that wanted to help. The finger pointing came from both HTC and Google, mean while the customer suffered and then ultimately went back to the iPhone.
No support means customers will leave.
Apple’s way ahead of everyone, the chances of anyone catching up are far, far, away if ever. Unless Apple stops doing what they’re doing but I doubt that.

Lee Dronick

Sounds like Android could be the new Windows

pats

I think it is a bit early to claim victory for Android.  The fact that an NPD survey showed Android selling well in one quarter should surprise no one, but you make an assumption that Apple will not respond to market competition.  Apple has better then 70% of the MP3 market.  Maybe their target for Smart Phone is much higher then you think.  HTC was the primary maker of Windows phones and now they are the same with Android.  Apple’s growth in Iphone is nothing short of phenomenal.  Give the ecosystem time to grow.  Android growth is equally torrid but will all the competing hardware result in a very muddled market a year from now.  Rather then Android being a marketing as a brand, it may move to HTC or Motorola as a brand and oh by the way were using Android as the OS because it’s free and we can’t build anything better ourselves.  What if next year Samsung switches to BADA and HTC to Windows 7 what will that do to Androids market share?  Verizon has already created the Droid brand which includes Android but uses different hardware manufactures and throws different UI on top of the basic OS.  Let’s see when contracts come up for renewal in 2yrs what device folks pick.

Bosco (Brad Hutchings)

I’ve recently updated my opinion on iPhone v. Android, at least for the US market. A caveat is that for smartphones, the US market is the trend leader because of the proximity of developers who are most plugged in. So the world trend will lag.

In the battle for the #2 spot, the phones really don’t matter. The networks are in control. After the debut of the MOTO Droid, iPhone no longer is appealing enough to Verizon for them to want it on anything near Apple’s terms, or in fact, anywhere near worth the exercise for Apple.

jonricmd

I’m not so sure Android will overtake iPhone.  I don’t think the phenomena that led to Windows domination applies to this.  Partly because we are in the “post PC” era and consumers are more savvy about user interface, partly because there is no monopoly on the OS and also because there is not the corporate-drives-consumer phenomena as there was with Windows.  It will come down to which OS is most compelling - not what hardware one is using.  Cell phone network carrier is a non issue now also (except, I guess for Sprint).

There’s a lot of hype about Android, but what are the people saying that have used it?  Not intuitive, clunky, “not ready for primetime” are what I’m seeing. (www.shasam.net/archives/317/).  Unless the UI improves, Android may turn out like the Palm Pre.

Lee Dronick

There?s a lot of hype about Android, but what are the people saying that have used it?? Not intuitive, clunky, ?not ready for primetime? are what I?m seeing. (www.shasam.net/archives/317/).? Unless the UI improves, Android may turn out like the Palm Pre.

It is my observation that Android is popular with geeks who often seem to like such interfaces.

UrbanBard

Yes, Sir Harry, it seems as though history is repeating itself. There is a difference, this time, because a single commercial enterprise, Microsoft, does not own the OS. Google used open source technologies to develop Android. This means that other people could take over its development and replace Google if it showed monopolistic tendencies. The FOSS community will, also, influence where Android, and Chrome, will go.

In a way, the feature phones are the equivalent of the DOS market, with Windows and the classic Mac OS as the equivalent of the smart phones.

Many people participated in DOS. IBM was not the only one and they made major business mistakes which allowed Microsoft to become a major player. It was Compaq who broke open DOS; they bought the BIOS from a company which had decoded BIOS in a double blind way which escaped court retaliation.

A highly competitive hardware market developed with a single OS. The same thing is happening with Android, with similar results. But, it’s too soon to conclude anything, though. The Android phone market is quite chaotic. It will be a few years before Google demands minimum standards for its smart phones so that applications can be used on all Android phones.

One major difference is that Microsoft parleyed its monopoly in DOS into one in Windows, but the same conditions are not in place to allow Google to do that. Google doesn’t own the feature phones.

Apple had played its part by being on the sidelines of the DOS and later the Wintel market. It acted as the leading edge of many technologies; Microsoft was always playing catchup in those areas. The two companies served different market segments: Apple in the creative and graphics markets and Wintel in business ones which were data related. The markets which Apple served placed much higher demands on the hardware, so it was always more expensive than Wintel. This lowered its market share. Apple refused to sell its OS into Wintel, because that would have gutted hardware sales.

How will events be different, now? Both Google and Apple are feeding off of the feature phone markets. Smart Phones are, as yet, a tiny minority of the mobile phone market. The general consumers are not yet driving either business.

Apple has the head start, this time. It is applications which draws the customers and Apple has the edge here. Android does not yet have its market segment laid out; It’s hard to tell where its customers are coming from. It could be a flash in the pan unless Android draws the general customer. Linux has never been able to achieve that, so who knows?

veggiedude

Ten years ago, most Apple fanbois (me among them) would have argued that the combination of a one two punch (Mac OS X and any *nix OS) would be the ideal solution to topple the Windows empire. Well, that day is in sight - we should be rejoicing! Instead, there is only bickering between us. Stay focused! We wanted Windows to fall - now we got the chance to do it. Android is what Linux should have been all along. Window Mobile was a joke, it deserves to die. In ten years, Windows will no longer be the prominent desktop OS. It will probably be the web OS Google is developing or possibly Android. Mac has a chance to pick up more share too, as well as iPhone OS. All at the expense of Windows.

Lee Dronick

Stay focused! We wanted Windows to fall

It wasn’t that I want/wanted WIndows to fall, just that I wanted the Mac OS to get its due respect.

Tiger

I agree. Failure helps no one. But what a different world it would be today had Microsoft been judged a monopoly from the get go and the tables turned earlier.

I’ll stand up for parity and equality. And competition. Apple’s problem was that it was blocked out of competition. It’s not the case this time. While Apple may have a large mindshare, its actual market share is now roughly 15% for smartphones.  A far cry from the 93% Microsoft still carries for the computer OS.

ipaqrat

In first-world nations, short term IT markets are zero-sum: any gain by one party equates to a loss by another party. The long term markets are among folks just growing up, getting jobs and making their first choice about platforms and brands.

At this moment, smartphone growth comes from dumb-phone users, so somebody has GOT to lose. Anyone can use that shift to justify their own predictions. But that doesn’t mean all predictions are spurious - with enough information, predictions CAN be rational and correct.

I respect Steven Jobs’ vision, cohesion and idealism. Despite that, or because of it, Apple HAS grown repressive and puritanical. Will I go live in sin with an android? Maybe, but not until after I have a look at iPhone 4.

And, Steve, it better be damn fine….

trrll

I see Apple and Android pretty much dividing up the smartphone and tablet universe, with Apple owning the high end, while Android becomes dominent at the low end, particularly in the third world, and also the preferred mobile platform for hackers and hobbyists. Apple will have the smaller market share, but will have a substantially higher profit margin on its products. Android products will have razor thin profit margins, but Google will be raking in money from advertising tie-ins.

Lee Dronick

I see Apple and Android pretty much dividing up the smartphone and tablet universe, with Apple owning the high end, while Android becomes dominent at the low end, particularly in the third world, and also the preferred mobile platform for hackers and hobbyists.

That is the way I have been looking at it, Android is the new WIndows.

UrbanBard

“I respect Steven Jobs? vision, cohesion and idealism. Despite that, or because of it, Apple HAS grown repressive and puritanical. “

Has it, ipadrat? There is an orchestrated publicity campaign going on against Apple now. It’s hard to tell what the truth is; A lot of FUD is being thrown about. Some of the issues involved are technical and monetary, while others are managerial and political. Apple has been too successful in recent years;  many disgruntle people are lined up to take Apple down.

The Flash issue on the iPhone platform is far more complex than is portrayed by the anti-Apple pundits. Adobe dropped the ball; it never provided an acceptable Flash app for the iPhone, or any other mobile phone, in three years. Adobe resents Apple’s rejection and wants to use publicity to replace technology, with mixed results. Perhaps, Adobe will get its act in gear on the Android phone this summer.

Adobe’s use of public intimidation and PR caused Apple put its foot down on cross platform apps, recently, and this stirred up a fuss. Apple can afford to do this because it has 200 thousand apps in the store and a huge list of developers.

The developers who come from Windows and Linux have different expectations from long time Mac developers. Who is to make those Windows and Linux developers create apps which are acceptable to Mac users? If you say that the buyers should do this, then it means that iPhone users must wade through a lot of windows looking junk. The cross platform developers are demanding a supposed right to sell crappy apps. I don’t know where they thought they got that right.

The App Store is a huge success, in part, because it is constrained. Apple has created a safe, convenient place to shop which has high standards. Many groups want to wrestle control way from Apple and lower its standards.

Apple desperately needs to turn the App store into a department store with parental controls, so that both children and randy adults can be properly served. Evidentially, the software to do that is not ready, so Steve Jobs has to come off like a prude until it is. Steve Jobs is an ex-hippy and has an illegitimate child; is this the background of a prude?

Many iPhone critics miss the point.  Apple has been forced to develop new methods for the iPhone. Cut and Paste and Multi-tasking is not the same as similar tasks on the Macintosh desktop; it is closer what appears on Android. It is not yet apparent who has the best implementation.

In short, many thing are going on which Apple isn’t talking about, yet. Apple doesn’t have all its ducks in a row. I am sure that Apple is prepared to withstand adverse publicity and lost sales until its plans mature.

Bosco (Brad Hutchings)

That is the way I have been looking at it, Android is the new WIndows.

I can’t wait for iPhone to get BootCamp so that my 3GS could be useful again! I dug it out for a phone number last night and it felt absolutely pedestrian compared to my N1. To me, the Mac always felt simpler and more refined compared to Windows prior to Win 7. iPhone feels like a toy.

Bryan Chaffin

I see Apple and Android pretty much dividing up the smartphone and tablet universe, with Apple owning the high end, while Android becomes dominent at the low end, particularly in the third world, and also the preferred mobile platform for hackers and hobbyists. Apple will have the smaller market share, but will have a substantially higher profit margin on its products. Android products will have razor thin profit margins, but Google will be raking in money from advertising tie-ins.

Well said, trrll, though I think RIM will continue to well, especially in the Enterprise space.  We may actually see multiple competing platforms in the smartphone space for a long while (in comparison to the PC space).

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