Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their views on hot topics across the wireless industry.
It has been eventful last 24 months in the mobile phone industry post-2009-recession. The smartphone revolution had pushed global smartphone sales penetration above 40% by the end of first half of 2012 and is well on course to cross half of the global handset sales by mid-next year according to our research at Strategy Analytics.
While the smartphone adoption has been exceptional, we are seeing the rise (iOS, Android, Windows Phone) and fall (Symbian, MeeGo, WebOS, BlackBerry) of several mobile platforms in terms of adoption rate, market share and mindshare across consumers, developers and media. This has caused significant consolidation of smartphone platforms into a highly polarized landscape, with power shifting towards Google’s Android and Apple’s iOS platforms.
So, let’s analyze what makes and probably could break these top two platforms’ duopoly in near- to mid-term:
Apple:
—Huge user base: Apple is leaping ahead in the touch-based “app-centric” mobile devices ecosystem. Total cumulative touch-enabled iOS device shipments will soon approach half a billion units translating into a huge installed base of active users in the iOS ecosystem.
—Broader ecosystem: Apple has a growing bouquet of applications, content and services: More than half a million applications tailored for iPhone, and almost a quarter million for iPad. Furthermore, the cloud-centric service iCloud now boasts 150 million users. These are huge numbers to lure and lock in more consumers, developers, device distribution partners and investors.
—Stronger equity position: Unmatched brand equity, leaner supply chain and effective salesmanship have allowed Apple to command a greater pricing and selling power to generate enviable levels of revenues and profits.
This huge competitive advantage which Apple has gained is here to stay. Nevertheless, there are some growing chinks in Apple’s armor:
— Aging UI and UX: Though simple and usable, the iOS UI is aging without any evolutionary upgrades since its inception. Furthermore, the lack of personalization and customization options for consumers as well as carrier partners has started to cause some user churn in the Apple ecosystem. In contrast, competing platforms are bringing higher levels of features and fresher experiences at a lightning pace.
—Lacking convergence: The industry is entering into an era of a higher level of computing convergence. However, Apple is falling behind its competitors as the three device segments (iPhone, iPad and Macs) are still tied up with half-baked software and hardware convergence. For example, the latest Mac OSX Mountain Lion is still not touch-optimized. In contrast, Microsoft’s upcoming Windows 8 and Windows Phone 8 OS is a great example of both hardware (touch) and software (UI) convergence. These platforms share a common core allowing a consistent UI, design language and UX across different device types.
— Sliding subsidies: The cheaper and more advanced Android smartphones demand lower subsidies than iPhone and also rope in the same amount of high-value data subscribers for the carriers. This has somewhat diluted Apple’s selling power allowing carriers to pressurize Apple to reduce its ASP, challenging Apple’s top and bottom lines.
Google:
—User base and growth: Post recession 2008-2010, Google’s Android platform became the much-needed catalyst in accelerating smartphone adoption. 2011 was the breakout year for Android as device activations skyrocketed to 100 million mark in the first half and to 250 million by the end of the year. Total Android activations have now crossed the 400 million mark in the second half of 2012 and Android may soon surpass the iOS ecosystem this year.
—Wider adoption: The adoption of the supposedly “free” and open Android platform amongst device makers, chipset manufacturers, developers and consumers has been remarkable. Fast adoption coupled with perceived lower build costs driven by Korean, Chinese and other global mobile players have resulted in mass-market price points for Android devices.
— Flourishing ecosystem: The growing scale and adoption has attracted thousands of developers taking the Android Play Store beyond 600,000 apps, almost neck-and-neck with Apple’s Appstore. Google has also ramped up its content offerings along with other assets such as GTalk, YouTube, Google+, Google Drive and Google Wallet to build a robust sustainable ecosystem and lock in more users. The Android platform is also well positioned to expand across other device types (TV, set-top boxes, etc.) and verticals (auto, smart home, etc.)
Android is without doubt the leading ecosystem in the market right now. This lead will be difficult to overturn at least for the next few years, due to lack of a credible alternative. However, the current state of the Android ecosystem is not as rosy as it looks.
—Fragmentation: Android OS warrants an increased need for differentiation and customizations at the UI and hardware level, thus inducing a higher level of software and hardware fragmentation. Hence, it has been difficult for OEM and carrier partners to cope up with Android’s annual refresh cycle and many have failed to push these new updates to the huge Android installed base. As a result, more than 80% of the active Android devices still run Android software that is a couple years old, failing to meet users’ expectations.
—Polarization and hidden costs: The shipments, revenues and profit growth have been possible for only a few vendors in this over-crowded Android space. For example, Samsung is the only vendor realizing a positive sustainable growth, amongst all the Android vendors. This polarization along with hidden patent costs is proving to be unhealthy for the Android ecosystem. Furthermore, Google has yet to generate enough income per active Android device to make its Android strategy successful.
— Conflict of interest: Google buying Motorola as a “pure patent” play may not bode well with Android OEM partners. Some of these vendors are thus looking to divert resources to the third or fourth ecosystems and spread risks. Additionally, Google’s own offerings are now competing directly with offerings from its OEM and distribution partners. For example: Google Wallet competes with carrier partners’ Mobile Wallet initiatives while Play Music conflicts with Sony’s own Music offerings.
In summary, both Google and Apple are leading app-centric ecosystems, but the upcoming offerings from Microsoft and others with growing support from OEMs, operators, and developers are quite promising and will challenge the status quo across device types and price-tiers.
Secondly, from the OEMs’ perspective, those who have unsuccessfully tested Android waters will look forward to other ecosystems such as Microsoft or HTML5 based platforms such as Firefox.
Thirdly, many operators are looking to diversify and promote multiple platforms, thus offering more choices to subscribers and reduce their overdependence on Google and Apple.
Lastly, consumers expect newer experiences at pocket-friendly prices as well as continued support from the ecosystem players. As consumers get more aware and decisive about which ecosystem to join or leave, the “ecosystem lock-in” will no longer remain “the strategy” especially if it fails to satisfy at least two of the above criteria moving forward.
Neil Shah is senior analyst for the Strategy Analytics Wireless Device Strategies service group.
