In Smartphones: Google is King but Apple is Rich

A couple of weeks ago, the inevitable was announced. According to Canalys, a leading mobile market research firm, in Q4 2010 Android has overtaken Symbian as the world’s most-pervasive smartphone platform. According to Canalys, 33.4 Million Android phones were shipped by Google licensees in the quarter – more than double the iPhones or BlackBerries.

While this has been touted with much fanfare, some seemingly contradictory information is “common knowledge” to mobile application developers. It is still much easier to get traction and especially monetize iPhone apps than Android apps. How come? With such momentum for Android, you’d expect it to be at least as successful as iPhone.

The answer, which I’ve been proclaiming for awhile now, can be summed up this way – “Android is the new Symbian”. Now I’m sure some Googlers will resent this, so maybe a different way to put it is – “Android is the new MS-DOS”.

What I mean by this are really two things. First, that Google’s strategy with Android is to reach as far and as wide as it can. That’s one of the reasons it is free to licensees, open-source etc. Google intends to eventually leverage Android by tying it to its other assets and ultimately use advertising to monetize it. This means you can build cheap Android phones and target the mid-market, not just the high-end as other smartphones have (in truth, Android hardware requirements are still relatively high, but Moore’s law is taking care of that cost). Furthermore the abundance of licensees means that a price war is evident – and indeed we now see free (subsidized) Android phones on many operators portfolios. So – Android is becoming the dominant player in the mid-market, with high-end presence too, and ultimately low-cost aspirations. This is exactly the path Symbian took in 2004 – 2008, becoming the world’s leading smartphone platform by volume – but dwindling in consumers’ eyes to a point where it drives low-margin devices, with BlackBerries (initially) and iPhones (later) commanding the high-end, high-margin sector. In 2008, a Nokia executive told me personally that Nokia learned the hard way that the top 10% of the handset market commands 50% of the margin. Think about it – if one company takes over the top 10%, it can be worth as much of all the other companies combined (who sell in aggregate 9 times as much as it does). Right? So this is the second point – a smartphone platform that is focused on mass is doomed to become a low-margin platform. Google doesn’t mind. But it’s licensees are doomed to fighting over scraps.

Now this is a tall order claim, that I couldn’t really publish before, until I ran into this analysis by Asymco’s Horace Dediu:

Which brought to mind Noam Wasserman’s “Founder’s Dilemma” metaphor about Rich vs. King. Apple’s startegy with the iOS devices, just like with the Mac before, is to aim for the top 10-30% of the market. The people who can spend, the people who care deeply about the product they are buying and using. Google’s strategy is more like carpet-bombing. If we can get to 80% of the people, we’ll surely find a way to monetize that.

So is this just an interesting business case? Or Valley gossip?.

If you’re involved in this business in any way – you might be an app developer, a marketer wanting to reach mobile device users through mobile ads or a mobile app / website etc., or a service provider who is pushed to provide a service to his customers through their phones, this is critical info. Cause it means that you are going to reach a different demographic and psychographic when you target the different platform. In the Apple case, your demographic will be skewed towards high-income, users may be more engaged with the product, and there may be more willingness to pay. On the Android platform you will eventually reach more people, but engagement and purchasing intent will be different. And your adoption ratio (compared to the total available Android market) will be different, as many of these users are much less enthusiastic about their phones. Yes – they bought a smartphone, but maybe because “everyone else is getting one” or because “it was free, so why not”. So choose your audience wisely, and plan your marketing moves with consideration for its composition.

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