Daniel Eran Dilger
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Reality Check: NPD’s Android vs. iPhone sales headlines

Daniel Eran Dilger

Headlines tell such a sensationalized side of the story. Here’s the missing bits of recent tech media events that have been reported with a slant starting with:

NPD says Android has surpassed iPhone in US unit sales
.
The suggestion: the reign of iPhone is over because Google’s Android platform is taking over the market in terms of sales and installed base.

The reality: Android sales are certainly not eating up iPhone sales, which are higher than ever–especially in the first quarter, when Apple’s hardware sales have historically plateaued. Rather than taking on the iPhone, Android is really just replacing the plummeting sales of Windows Mobile and the old Palm OS (and even webOS) and the embedded software that formerly ran a lot of HTC and Motorola phones. Consumers are upgrading away from pseudo-smartphones from LG and Samsung, and buying more advanced smartphones, which looks good for Android.

Globally however, Android sales are still well below the iPhone. According to IDC, Apple took 16.1% share of smartphones in the quarter, while HTC and Motorola (the only Android makers, who also sell other non-Android smartphones) amassed a combined global share of 9%. Android’s total share is less than half that of second place RIM’s BlackBerry sales and less than a quarter of the smartphones sold by Nokia, but Android is getting a lot of press to suggest that it is taking over the market, at least in the US.

Why is Android doing so well in the US? It’s the same reason RIM’s BlackBerry sales have kept pace ahead of the iPhone, despite failing to best or even match Apple’s platform in terms of technology: most of those phones are being given away for free. That’s an easy way to claim market share, but not really a way to actually create sustainable growth. And if you look at RIM’s global sales in the last quarter, they’re only up 45% year over year compared to Apple’s 131% growth, despite all of RIM’s promotional free giveaways contrasted with Apple’s actual sales to customers.

Apple iPhone smartphone market share surges; RIM slips | ZDNet

NPD’s numbers aren’t a story of Android competing against iPhone as much as Verizon trying to keep up with AT&T’s iPhone trajectory by dumping a ton of free smartphones into the market, many of which happen to use some version of the Android OS. Even so, Verizon is still behind AT&T in terms of smartphone sales.

It’s also notable that only a third of the installed base of Android phones are running the modern Android 2.x. The majority are still running last year’s versions, meaning that Android as a platform is fractionalized to the point where sales (and free giveaways) are not creating a viable market for modern software.

Add in the technical issues that prevent Android apps from being sophisticated (they’re limited in size due to hardware architecture and operating system software issues that have not been resolved) and you have a platform that is smaller than it should be, and therefore less attractive to developers than it would appear it ought to be, given all those free phones that are being distributed.

Inside Google’s Android and Apple’s iPhone OS as business models

On the other hand, Apple’s other iPhone OS devices, the iPod touch and iPad, are not figured into these smartphone numbers but clearly have a huge impact on the market share and installed base that is driving iPhone OS apps. Statistics have long indicated that iPod touch users are buying more apps than even iPhone users, so Apple’s parallel efforts are bolstering the iPhone App Store by a huge amount (approaching a 100% increase over iPhone sales alone) even as Android’s fractionalization problems are deeply cutting away at the critical mass of the Android Market.

Apple’s iPod touch is also driving game development to the point where Apple’s mobile platform is encroaching upon dedicated game systems. Apple now has 20% of that market, nearly double the share taken by the Sony PSP and nearly three times what the iPhone OS claimed just last year. Android isn’t even represented on that pie chart, because there is no viable gaming market on Google’s platform. If Android were really outselling the iPhone OS in some meaningful way, that shouldn’t be the case at all.

Android 2.2 to do things we assumed it already did

Both Google and Apple are accomplishing exactly what they’re intending to do. The purpose of Android is to broaden the base of mobiles that are tied to Google’s adware-based services, rather than Microsoft (Windows Mobile) or perhaps Symbian, which could possibly ally with Microsoft given the deal between Nokia and Microsoft to bring mobile versions of Office to Symbian at some point.

The purpose of the iPhone is to sell new hardware at a profit and dramatically expand the market for Cocoa-based software development. Google doesn’t really care about the hardware margins of its partners, and can’t seem to really sell its own Nexus One branded phone. Google doesn’t care about hardware.

It also isn’t that excited about creating a mobile software platform. It hopes the open source community will accomplish most of that work for it. Google engineers have informed me that the company’s long term plan isn’t to do anything with Android’s Java-like VM or even the new C-based native platform; Google sees the future of mobile apps developed in the same code as it sees desktop apps: the web. The company is betting everything on HTML5. Talk about Android’s current VM, NDK, and Google’s support for Flash are all just efforts at covering the bases until mobile HTML5 apps can become a reality.

Apple sees HTML5 as a useful tool for developing web apps, but unlike Google, the company isn’t sold on the idea that the desktop and native mobile platforms are going to vanish anytime soon. Apple is putting significant efforts into developing Cocoa and Cocoa Touch as viable platforms well into the future, serving needs that web apps can’t serve now and many never really excel at.

That’s why Google’s apps are nearly all web based (Maps, Docs, Gmail, etc) and Apple’s are all native (iWorks, iLife, iPhone apps, Pro Apps). It should come as no surprise that Google’s support for cheap, low quality phones that can be given away for free is an extension of that adware/web-based strategy, while Apple’s sophisticated, premium iPhone market that exacts the world’s highest ASPs while still biting off a third place share of the global market is exactly what Apple is trying to do.

  • http://berendschotanus.com Berend Schotanus

    “Rather than taking on the iPhone, Android is really just replacing the plummeting sales of [...] and [...] and [...].”

    That’s the kind of effect I’m trying to point at when I’m saying that somebody has to fill the “dull 51% of shelf space”. In this case the effect is (at least partially), as you rightfully point out, explained by carriers giving away smartphones in order to maintain market share. In my observation, in any market a part of the sales volume has to be explained by this kind of forces rather than by the actual quality of the product.

    I don’t think these forces should be fought against until the bottom, they are just a fact of life. Most important is they don’t dominate the market.
    Still: good thing you are pointing out the underlying mechanisms.

  • ChuckO

    roz 50,
    “Wrong and baseless. It is a platform just like the iPhone. It has features the iPhone does not have, better camera, flash, radio, free nav. It is on every carrier in many versions, styles, price points. Don’t kid yourself too much.”

    That’s all great but Apple actually get’s people to BUY STUFF like say the iPhone. That’s terrific for Apple as they make a lot of money a lot of which they put into R&D for the next version of the iPhone. Maybe tons of Android phones (half of which are sold to people a lot of those at firesale prices, half of which folks got for free) is great for Google but I doubt it will work for HTC or Motorola for long. The Nexus is Google’s real answer and competitor to the iPhone (You HAVE to buy it) and if you read up on it you’ll see carriers are running away from it.

  • roz

    @ChuckO
    “Maybe tons of Android phones (half of which are sold to people a lot of those at firesale prices, half of which folks got for free) is great for Google but I doubt it will work for HTC or Motorola for long.”

    HTC and Motorola have no problem with that pricing because they get a subsidy from Verizon. The real cost is retail amount plus the service plan. And don’t forget their R+D is less expensive because they got the OS for free. Verizon is happy to retain customers. Google is happy to spread Android.

    The Nexus is a failure – it was never sold in a store – only online. But the Incredible is an improved version of the Nexus (coming out like what 3 months later?) and carriers will be excited to sell that.

    I am not trying to be a dick or a troll or depressing. I just want people to understand what is happening in real terms and not be lured into complacency.

  • http://motorizedmount.com Alan

    Dan, I think the most valuable piece of info you could dig up is how long will CDMA radios be needed on Sprint and Verizon phones even as WiMax and LTE are rolled out. I read an article a while back saying the estimate could be as long as 5+ years.

    Sprint/Clearwire now has 4G Wimax covering 30 million people and are supposed to cover 120 million people by years end. I happen to live in a Wimax city, Atlanta. I will be getting the new HTC Evo that supports Wimax but I am grateful that it will also fall back to CDMA/EVDO when I am outside the metro area. But even with WiMax and the Evo, I would get a new iPhone on Sprint in a heartbeat if I had the chance. I just will not switch for shoddier coverage and over twice the monthly price. I will have to upgrade my plan for the EVO to the $69 plan but after a 25% corporate discount that will bring it down to $52 a month for basically unlimited everything. How much is the equivalent iPhone plan on AT&T?

    Sprint hemorrhaged millions of customers in the last few years and rightfully so due to past mistakes, but these have been largely fixed and things are starting to turn around. Customer service is now top notch, fewer dropped calls than AT&T, the 2nd biggest 3G network and only working 4G network. Many people still enjoy bashing Sprint, but I think that Sprint would be a far better partner than Verizon. It sure would give Apple a lot more leverage with Verizon if they did release a Sprint version first, especially since we get free roaming on the Verizon network.

    Without knowing how long the transition to full voice call coverage will take for LTE or WiMax, it is impossible to speculate on whether a CDMA iPhone will make sense or not. If it is only 1 or 2 years, it probably wouldn’t make sense as you said. But if a CDMA radio will be necessary for voice calls for for many more years to come, then not making a phone that will work for 72% of the market begins to look less rationale. I also think that Apple is also waiting on a chipset that can truly support all networks and meet their power requirements.

    It looks the chipset inside the EVO is almost there. Maybe the engineers at Apple can find a way to make this work. http://www.thesearethedroids.com/2010/03/25/sprint-evo4-chipset-qsd8650-supports-gsm-and-hspa/

  • ChuckO

    @Roz 53,
    “HTC and Motorola have no problem with that pricing because they get a subsidy from Verizon. The real cost is retail amount plus the service plan. And don’t forget their R+D is less expensive because they got the OS for free. Verizon is happy to retain customers. Google is happy to spread Android. ”

    I think your wrong here. Apple’s getting a way better subsidy. That matter’s in the long run.

    “The Nexus is a failure – it was never sold in a store – only online. But the Incredible is an improved version of the Nexus (coming out like what 3 months later?) and carriers will be excited to sell that. ”

    I think your logic is a mess here. Google has significant disruptive plans in the mobile space and the failure of the Nexus (business) model is very significant in that regard. The similarity in hardware isn’t what’s important here.

    “I am not trying to be a dick or a troll or depressing. I just want people to understand what is happening in real terms and not be lured into complacency.”

    Understood. This is all in good fun. I think the thing here is if competing with Android on a number of phone’s sold basis was in Apple’s best interest they could alter their model pretty quick to get on Verizon and hit more price points, etc.

    I personally suspect that the iPad is the first shot in a new model for Apple mobile hardware where they compete more aggressively on cost but as is Apple’s habit I think they’ll be smart and wait for iAds to start paying to make up for the lower hardware margins. They’re crafty devils those Apple folk.

  • roz

    @ChuckO
    “I think your wrong here. Apple’s getting a way better subsidy. That matter’s in the long run.”

    I don’t think I am wrong here. Your point was that the discounts are a problem for the hardware makers: “…I doubt it will work for HTC or Motorola for long” But Motorola and HTC don’t care that much about Verizon’s discounts. They sell devices to Verizon at some wholesale price, Verizon packages them with service contracts and sells them to us. The hardware makers don’t care that much about the retail price.

    And regarding your point that Apple’s higher margins – which are no doubt higher – matter in the long run. THAT is the question. Apple can happily trade some market share for margins but the iPhone represents an opportunity for owning the dominant product and ecosystem in the category – that is worth even bigger margins down the road and now whatever deal they have with ATT is putting that at risk – if it has not already been lost. Is the iPhone viable with 10 – 15% of the market? Sure. Is it meeting the potential of the kind of device it could be? No way. That is the point. If Android has 1/2 the margins but is being sold to 60% of the market, that is a better position. And there is no reason for it because currently Apple is only selling to 28% of the market. They should be addressing 100% of the market by now.

  • MathMan

    It seems to me that Android’s fractionalized platform is a big reason that Google is going to allow flash on the Android platform. That way, they will get all those flash web games to partially compensate for the difficulties of developing natively. This still leaves them with a bunch of lowest common denominator apps, but they do get a lot of them.

  • ChuckO

    @Roz 56, Your a panic-er. Apple would be in the toilet if they listened to you. It’s the long game that matters. Verizon can’t keep spending 100′s of millions of $ marketing Android. In the meantime Apple is out there executing like a mofunga just relentlessly grinding away, making things better, innovating on so many levels the “open handset alliance” can’t begin to dream of and don’t have the resources to match. Apple will give them these questionable headlines this quarter to spit them out a couple of quarters down the road like the cheap punks they are.

  • roz

    @ChuckO
    There is no panic here. It’s called awareness, deal with it. And I am speaking from experience because I have seen Apple have a superior product only to piss the advantage all away because they had all these arbitrary issues that kept them from competing.

    Say what you like but look at the specs of Evo: http://now.sprint.com/evo/?ECID=vanity:evo

    That’s just one device. A lot of other makers are working on them too. And Android, while not ideal, does not totally suck.

    Are you sure you know what you are talking about?

  • ChuckO

    @roz, Ughh. I do know what I’m talking about. I’ll just leave it at “You’ll see! Mark my words! You’ll see!”.

    Are you the guy that told me I didn’t know what I was talking about when I predicted the iPad would sell for $500 back on one of Dan’s iPad threads?

  • roz

    @ChuckO

    No that was not me.

    The key is picking up more carriers, particularly Verizon. If they do that, great. I’ll be happy to let them work on features, innovation. If they punt on that again, it will be an ugly sad mess.

  • ChuckO

    When it makes sense they will…and when they do all the Android users will switch. In the meantime they have the rest of the world, and the iPad, and iPod Touch and Macs and stuff we haven’t seen, etc., etc., etc.

    Motorola and HTC should have such problems.

  • calebcar

    One MAJOR disadvantage of Android- With the platform this fragmented, how can they ever get any sales in enterprise. Apple may not be as enterprise friendly as Blackberry, but at least the IT people have one product to decide what they can and cannot allow. Android is too undefined to make any headway in enterprise.

  • roz

    @ChuckO
    It made sense to have a device on Verizon a year ago and nip all this Android crap in the bud.

    @calecar
    Fragmentation is an issue for a game developer. Not sure why an enterprise manager would care. As long as the devices act consistently for Exchange or whatever device manager they have in place slight differences between handset implementation probably would not matter to them that much. If the devices are cheaper and they have the choice of maker and supplier it might be more attractive to them. Many organization won’t order things that have a single source supplier if there is an alternative. They can develop solution and can distribute to devices without dealing with Apple. And as we have seen in the PC market, Corporations just LOVE cheap crap and will select it over usability everyday of the week.

  • airmanchairman

    Yawn.

    It’s that time of the year again, almost always a month or two before the launch of a new Apple mobile handset, when all these pseudo-rational arguments, replete with graphs and figures, emerge about how the naysayers can start Flamenco-dancing on Apple’s grave a la Macintosh 1996 etc etc.

    And then, come the launch, these arguments die out within weeks (days even) given the stupendous REAL sales figures as opposed to these contrived figures skewed by promotional offers (remember the Motorola Razr being pronounced the hottest-selling handset via this very artifice in 2007/2008?).

    Prepare for even more critical vitriol in the wake of the launch, in the manner of that remorselessly brainless music known as Disco (the only sure thing after you hear the first thud is that after an appropriately uniform time-gap, it will be followed by another remorseless thud of equal intensity, and so on).

    Gratifyingly, with every week of sales figures released (and every new hardware and software feature i-upgrade introduced) the monotonous uproar recedes slowly into merciful silence. That is, until the next “i-killer” technology announced by the mobile industry.

    Very reminiscent of the Fox Channel and its robotic threnody of criticism directed at Senator Kerry years ago (“Flip-flop, flip-flop, flip-flop, flip-flop, flip-flop, flip-flop”)

    You could almost set your watch and calendar by it…

  • roz

    @airmanchairman

    Fluctuations in sales would not be an issue if Apple was really competing across the market. Currently they only sell to one of four carriers, representing only 28% of the market. The rest have no iPhone option available.

  • gslusher

    @roz

    “IT IS DUMB TO ONLY SUPPORT ONE CARRIER IN THE US MARKET.”

    Oh, like Motorola with the Droid? It’s available only on Verizon. Why aren’t you foaming at the mouth about that decision?

  • gslusher

    @roz:

    “People don’t want to use ATT.”

    Some do, apparently, since it’s the second largest carrier in the US. From

    http://business-phone-service.tmcnet.com/topics/business-phone-service/articles/76913-largest-us-wireless-carrier-subscribers-tallied.htm

    Data for end of 2009. Numbers in parentheses are changes during the last quarter:

    1. Verizon Wireless: 91.2 million (added 2.2 million)
    2. AT&T Inc.: 85.1 million (added 2.7 million)
    3. Sprint Nextel Corp: 48.1 million (lost 148,000)
    4. T-Mobile USA: 33.8 million (added 371,000)

    So, Verizon is only **7%** larger than ATT and ATT grew faster in the last quarter of 2009.

    Historically, Verizon has apparently insisted on controlling the phones it sells. I doubt that they would have agreed to Apple’s terms–that’s probably what the problem was, as Apple insisted on being in control. (E.g., software updates, apps.) Verizon also has a long record of “dumbing down” the phones it sells, disabling features and/or requiring users to use Verizon’s extra-cost services. According to Samsung, my cheap flip phone can load ringtones from a PC, but Verizon disabled that feature. I had to buy ringtones through their selected sources at inflated prices PLUS pay extra charges for “data access.”

  • roz

    @gslusher 67

    “Oh, like Motorola with the Droid? It’s available only on Verizon. Why aren’t you foaming at the mouth about that decision?”

    Hmm. Well, if Android, as a platform, approached the US market with basically one device on one carrier, yes that would also be a dumb idea. And if that one device was a hit and other carriers wanted to carry it – it would be even dumber for Android not to offer them devices. And then, right, let’s say a competitor, call it Robot, said they were going to offer a similar kind of product at every carrier, at different price points and sizes and in response Android said, well, no as a platform we are still exclusive to one carrier and basically one device – that also would be a dumb idea. And if the Robot brand started to outsell Android on all those carriers, including the carrier Androids are sold at, because it was a one sided exclusive deal, and Robot started to find a following and Android said, well we make a little more money with our one sided exclusive deal, so market share does not really matter – yes I would say that was a dumb idea. The question to me, why the heck would anyone defend that, like you do? Why would any one want to lose a market to a competitor so willingly?

    Apple is going to make great margins even if they sell to other carriers. They retail the device so they get a big cut there – no other manufacturer is in that position. They make money on apps and everything else on iTunes. Books, music, tv – everything. All of that would be leveraged across a much larger install base. They sell protection plans which they make money on and replacement batteries that they make money on. The iPhone gives a halo to all their other products. Of course they want to sell as many of the devices as they can! Seriously, you guys call me deluded and foaming at the mouth when you don’t see the reality of this arbitrary limitation as a massive strategic mistake. And don’t forget – all the carriers want the iPhone, forget what you read. They all want it and would make good terms for it. Maybe not as good as ATT where they are over a barrel without it but still good terms.

    Oh and by the way, Motorola has many devices, on different network standards, at every carrier. Motorola has Android devices on other carriers too – the Motoblur, Android, is on T-Mobile. The BackFlip, another Android device, is on ATT. That is called competing.

    The Droid brand is not even owned by Motorola, its Verizon’s spin on Android so of course it’s not going to be on any other carrier. Droid is on more than one device though, the Eris, the Incredible and the Droid by Motorola are all Droids.

    So what are you talking about exactly?

  • roz

    @gslusher 68

    What is your point here? I am saying, Apple should support all carriers at this point. They can’t grow anymore if they are restricted to ATT.

    You say, ATT is number #2. Some people like it. Uh ok.

    Here is why I am saying people may not be excited to be switching to ATT right now, iPhone or not:
    http://news.cnet.com/8301-1035_3-20004547-94.html

    or this:

    http://mashable.com/2009/12/01/att-dead-last/

    You are aware that the #1, #3, and #4 carriers are all pushing the competitor to iPhone? Spending money advertising it. Heck even ATT #2 has Android devices.

    Why would any company want to tie a successful exclusively to a bad service?
    And then do it AGAIN with another product?

  • http://www.van-garde.com adobephile

    Nice try, there, roz! You sure can write long posts, and you spell good, too!

    But the more words you write the more they firm up you still twisted point of view. You’re zeroed in on Apple’s “craziness” while you patently disregard their ever increasing prosperity. This is indeed the most reliable gauge of them DOING THINGS RIGHT.

    Just because you’re not privy to their strategy doesn’t meant that its not a good one and that it’s not working.

  • ChuckO

    Lot’s of rumors out there about them going to Verizon this fall. It’ll be interesting to see what happens.

    @Roz, Nice job standing your ground against a veritable tsunami of “your crazy”‘s! I think one thing that hasn’t come up is I don’t know how much longer Verizon can continue to buy Android market share. I almost hope Verizon doesn’t get the iPhone just to see what would happen after the $100 Droid campaign is over. Would Android stay hot or hot enough to keep surpassing iPhone?

  • http://www.van-garde.com adobephile

    @ChuckO As tantalizing and affordable/popular as Android “real estate” may seem now, Droid and other “structures” are built on fragmented foundations of “sand” and to me seem highly prone to “sink holes” in the future.

    In stark contrast, Apple is building on a much sounder foundation of not only the tried and true OS X, but on a carefully crafted ecosystem of quality hardware, a well engineered IDE which pays and in many cases automatic and careful attention to memory and resource usage, and user interface guidelines, coupled with extensive hardware engineering all coordinated to provide for its customers a high level of ease of use, reliability, generous warrantee programs, and smooth upgrade paths to an always improving system of products which work together well and are easy and pleasurable to use.

    Of course the unwashed masses are legion and convinced that the “smart” way is always the cheap way and who will readily part with their shekels to get shiniest gewgaws which are “just as good.” But they’d probably never cross an Apple Store threshold anyway.

    So that’s the competition which really isn’t competing in the same space as Apple. Apple gets new customers when they realize that they’re ready to pass through the looking glass. Some may go back, but I think most stay and are glad they moved up.

    So I guess both sides will be fine in their respective sandboxes.

  • roz

    @ChuckO

    It will be interesting to see what happens. Imagining from their perspective it is not a bad investment. The are subsidizing the phone with pricing and marketing and establishing the Droid brand but when they are done, Droid, whoever makes the device is under Verizon’s control. They can do whatever they want with it. With the iPhone they will continue to be beholden to Apple.

    If Apple ships iPhone for other carriers, please god, then we will see the extent to which damage was done. Let’s hope the pricing is reasonable and that its the latest HD and not an older model.

  • Dude

    The Wall Street Journal is reporting that Google will halt online sales of the Nexus One phone. Unlike the Nexus-6 models in Blade Runner with a built-in life span of 4 years, the Nexus One direct online sales had a life span of ~4 months.
    From the WSJ:
    “The Internet company Friday said in a blog post it would instead work with wireless carriers to make the phone available to consumers through existing retail stores.”

  • JohnWatkins

    This sums it up well:
    (sorry I can’t find the link to the article, but I’m sure its on the site somewhere!)
    http://ismashphone.typepad.com/.a/6a00e55225079e88340120a4f8571b970b-550wi

    Long story short, with less than a 5% share, Apple gets 8% of the total industry revenue, and 32% of the total industry profit. They get 40% margins where the rest of the industry gets from 1/5th to 1/2 that margin. Classic Apple–quietly slip in and take the cream and let everyone else get in a knife fight over the whey. This is why the BOGO stategy is not sustainable for the likes of RIM and The Android phones.
    For some reason Ros can’t understand this strategy. Apple doesn’t have to take over the lion’s share of the market now. It can do so at its leisure. Think iPod vs MP3 plyers, not early Mac vs Windows.

  • http://www.van-garde.com adobephile

    @JohnWatkins
    Well perceived, well put. Roz is stuck with mere convictions in the absence of such. So is the rest of the world beyond Apple.

    Let’s hope they don’t succumb to too much outside negative influence while executing their grand strategies for ours and their benefit.

  • roz

    @JohnWatkins
    Nice graphic. I don’t actually see that as that going against anything I am arguing. Smartphones are more profitable but that graphic is about the entire industry, right? So drawing conclusions about the viability or profitability of BOGO offers for Android is not really reasonably possible, at least not from that data.

    In any case, I didn’t say Apple should charge less per se or that they should alter their strategy in any way other than offering the same breed of phone on more carriers in the US, at least Verizon but ideally all of them. Frankly, I can’t see why that is at all controversial even if it did lead to slightly lower margins, it is the only way the can truly take over the market.

    With iPod Apple was very aggressive with pricing and getting the device into every sales channel it could. That is why we saw iPods in Costcos and Walmarts. Everywhere that someone went to buy a music player, anywhere in the world, there was an iPod at a relatively competitive price. So when people went to buy an MP3 player, iPod was always right there as an option, and it usually was a better option – the market followed.

    Cell phones are different. Like it or not, not everyone can or wants to change carriers. They might not have ATT coverage where they need it or their work my require another carrier. This should not be news to anyone. The result is that they can only get what the carrier offers and the means the iPhone is not an option. Can you see how this approach is different from the conditions of the iPod’s market success? Apple is only going to grow so much under the arbitrary limitation of ATT which only serves 30% of the market. Apple is very profitable, so it would likely be worth some margin to be able to address the other 70% of the market. That was true before Android started taking off, its even more true now.

    If in the iPod market Apple were getting high margins but losing market share to a competitor – that would not be a good situation, right? Long term they would risk losing the market. That is the same issue here. I understand profit taking. Do you understand the risk to Apple’s long term position if they lose developer mind share and real market share to Android?

  • JohnWatkins

    Actually iPods were pretty expensive and exclusive at first. It seem like they were always aggressively priced and widely available because they are now. Apple advanced their strategy relatively quickly because the MP3 product and market are less complicated and were more quickly commoditized.
    The mobile phone/device market will tend to move more towards Apple than Apple to it because Apple will continue to keep their hardware offerings simple even as their competitors waste money and resources offering everything under the sun while simultaneously Balkanizing their similarities and imitating Apple’s offerings from two years before.

  • JohnWatkins

    By the way, Android is not a brand that can have mindshare. In fact it can’t even have profits as its open source. 30 different Android offerings from each of 20 different providers will make nobody (except Apple) any money, nor will it make any competition for Apple. It will confuse customers, frustrate developers, confuse and frustrate HW and SW updates and downloads, and diffuse profits.

  • enzos

    I think the USA is a testing ground. Better to start with one carrier-partner that helps develop and test the technology as it is rolled out. In Oz (and more recently in the UK) the iPhone is on all major carriers and is the only game in town. http://mobile-phones.smh.com.au/MobilePhones “The Apple iPhone is the most popular *mobile phone* on our site…by a long way! Compare Apple iPhone deals here.”

  • roz

    Initially it made sense to launch with one carrier. It also can make sense to have short terms exclusive deals. The iPhone though has been out for 3 years now.

    Check this out: http://bit.ly/b37EDV

    According to that guy iPhone is 65% of ATTs smartphone market. Is there really anything keeping it from getting the same portion of the total US smartphone market? Yes, it’s the deal which means that 70% of cellphone customers don’t have iPhone as an option with their current carrier?

    [You kind of sound like the critics that used to say, "Apple just needs to gain market share. If it gained 5% more market share, it would be selling millions more Macs!" The problem is not discovering the issue, it's figuring out how to address the issue without causing new, unintended consequences or failing to execute the solution properly - Dan]

  • enzos

    Indeed, Roz, with reservations I agree that the ATT/Apple partnership may be getting a bit over-ripe.. unless, that is, there’s a stunning new technology that they are developing together.

    “the company will focus on its HSPA+ data network which should, at least in theory, bring its subscribers betters Internet surfing speeds which will be averaging somewhere between 7.2Mbps and 14.4Mbps. / AT&T is said to bring HSPA+ to no less than 250 million Americans by the end of the year ” http://tinyurl.com/2w3mhp3
    Don’t know if this would qualify as ground-breaking but I’m thinking it keeps the iPhone ahead of the rest in terms of (best case) user experience, for now.

  • shadash

    enzos,

    The problem with AT&T is coverage, not speed. They are already faster than Verizon. Maybe this will help some, since AT&T is already a year behind (!!) Verizon on that, but there will still be gaping holes in their coverage.

  • enzos

    So people keep saying. Must be a USA thing; I’ve never had dropped calls on any carrier in Oz or Fiji. A couple of friends have brought iPhone 3GSs from Oz to Fiji and put them on the local Digicel network (Vodafone offers a F$3000 iPhone 3G (no S) “deal” but there haven’t been many takers!). Slow 3G service but no coverage problems, even in the islands!

  • roz

    Some people complain about coverage. In my experience it seems to be about something different from coverage in places like San Francisco. You can have full bars yet have dropped calls or trouble connecting. My thought at those times is that there is a tower nearby but it’s just maxed out with too many users. That seems like a capacity issue. In the suburbs, ATT works fairly well. Go downtown SF and you sometimes can’t make a call. At least so far this does not seem like a problem that is easy to fix.

  • gslusher

    @roz:

    ““So far it doesn’t look like Apple needs to worry about Android much more than they do about dumb phones.”

    Wrong and baseless. It is a platform just like the iPhone. It has features the iPhone does not have, better camera, flash, radio, free nav. It is on every carrier in many versions, styles, price points. Don’t kid yourself too much.”

    I’m confused. First, you say that Android is a “platform just like the iPhone.” Usually, that refers to the OS. Then, you say that “it” has features the iPhone does not have, etc. It seems to me that you have confused the “platform” (OS) with specific hardware/phones. There is NO “it” when referring to the hardware in the case of Android phones. Remember that there are still phones for sale that use early versions of the Android OS and it’s very unlikely that those phones will ever be updated. (Some may not be able to be updated.) Any updates to Android phones must come from the carriers, who have little incentive to provide free updates as Apple does, worldwide.

    “With iPod Apple was very aggressive with pricing and getting the device into every sales channel it could. That is why we saw iPods in Costcos and Walmarts.”

    Go back and check your history. The early iPods were much more expensive than existing MP3 players. (The original 5GB iPod sold for $399 in 2001-2002, when one could buy other MP3 players for less than half that.) It was also quite a while before Wal-Mart started selling the iPod–early 2005, as far as I can find. That’s 3 years after the iPod was released.

    http://www.macdailynews.com/index.php/weblog/comments/4887/

  • gslusher

    Roz, et al:

    Two questions:

    1. Do you think that Steve Jobs and the rest of the upper management of Apple are stupid?

    2. Do you think that the Apple management is unaware of the arguments and information (all readily available) you have posted?

  • roz

    @glusher
    Android is a platform, an OS. Leading Android devices have features and specs that surpass the iPhone 3GS. See Incredible and Evo. Hope that is clear enough.

    I don’t think Jobs or Apple management are stupid, not at all. But, contrary to people here, I do think they can make mistakes. In a corporation it is very easy to make a mistake and have it perpetuated. In this example, Apple probably does have an incredible subsidy from ATT. Ok, so that makes a lot of money – it is hard to argue against that. Someone internally who owns that relationship, maybe Jobs himself, is going to defend the profit margins they are making and not want to alter the deal. Strategically though it can be a bad move. Smart people can make mistakes or perhaps there is an internal logic there that drives these things – but I still think it is wrong because it has created such an opening to a competitor.

    But the reason I am posting here, doesn’t have that much to do with Apple or it’s management. I don’t think they are reading this. I am posting these points because the people here seem so closed minded. They can’t see a problem for themselves. They have to believe that everything Apple does is right even when it does not make sense in a really obvious way. So they defend a bad policy, call me deluded or an idiot when really they are the ones caught up in this dogma that keeps them from seeing things clearly.

    So I have a number of friends who keep asking me what phone to get on Verizon since for whatever reason they can’t or don’t want to switch. It’s not an intellectual leap for me to see they can’t get an iPhone and that is not a good thing. People here see that as sacrilege.

  • roz

    @glusher
    And I don’t get why you and another are arguing against me for pointing out the way that Apple was aggressive at making the iPod broadly available. I wrote: “With iPod Apple was very aggressive with pricing and getting the device into every sales channel it could…” You say I need to check my history. I didn’t say they did that from day one, I said they did that, and they did. I am not incorrect. So it was after the iPod had some traction in the market, that does not conflict with what I wrote or my point. The iPhone has had traction in the market for a while now. I am not arguing with how the iPhone was introduced with one carrier in the US. I am arguing that now, three years later, the product is being held back arbitrarily by not being at Verizon and the others. You hear this point made my many people out there. It is by no means novel.

    The timescale of the iPhone’s market adoption is much faster than the iPod. Few understood the benefits of the iPod when it was first released. It took time for the product to mature and the market to understand it’s potential benefits. So if they got to Walmart in year three that was fine in the lifespan of the iPod. I was impressed that they did that at all and reached out to more people with the product. That was very un-Apple at the time but it was the right call in my book.

    The iPhone launched with iPod functionality built-in so it leveraged the iPod’s popularity and customer base – that accelerated its acceptance. There was already a market for smartphone that was paying money for flawed devices. It took a lot less time to find it’s audience, as we all know. So then the time from launch to needing to broaden the offering is going to be shorter. At least that is how I see it.

  • macpeter

    @roz

    Apple will come to Verizon when LTE is ready for roll out. Their network may offer better coverage than AT&T but it is not very fast at the moment. Verizon plan 4G upgrades in 30 markets till the end of the year and at least 10 times more data speed will change everything.
    If Apple is ready to offer a dual mode CDMA + LTE phone in front of the competition, Verizon will accept all of Apple conditions and togehter they will land a home run in all new 4 G markets.

  • roz

    @macpeter
    Yeah we have been hearing that same story for a while now – wait for LTE. Even Daniel admits that the chipsets are not here yet, the network is not here yet and its not as if they can turn off CDMA tomorrow. It’s still going to be a different SKU for Verizon v ATT, so what benefit is there to waiting?

    Bet they don’t wait and ship a plain old CDMA, which is fast by the way, and all this talk about how it made no sense to ship a CDMA will be shown to be the bunk that it is. All the other device makers are not waiting for LTE because they want to have something in the market right now.

  • macpeter

    @ roz
    Nobody except of few involved people knows, which chip Apple has ready for the next generation iPhone. Apple invested more then 2 years of development and usually they “skate where the puck is going to be” and this is for sure not CDMA.
    Product- and contract cycles are at least 2 years and in in this timeframe 4 G will be offered by every modern wireless carrier.
    If Apple wants to lead smartphone development, they have to lead the introduction of LTE.
    A CDMA only iPhone with 4G just around the corner would be one of the most stupid things Apple could do and if they are not ready for LTE this year, then they better should wait for next year.

  • roz

    @macpeter
    Hey if they can ship an LTE device that is backwards compatible all the better – but they have to have something for Verizon in the market this summer. If the rumors are correct and they ship in the August/September timeframe that probably means that they are pulling something off the shelf, which to me means CDMA. I don’t see that as a mistake. There is no benefit to building an LTE device before the network is built out. You can’t even do real world testing on it. Better to be on the next rev of chipsets that are more optimized. Ship a CDMA on a mature well understood, optimized chipset and then set up for the upgrade to LTE next year when Verizon has started to light up LTE.

    Apple does skate where the puck will be but for example they opted for EDGE with the OG iPhone. That in retrospect was probably a good move considering the power issues with 3G. So the EDGE iPhone was sold for a year and has a lifespan of 2-3 years. That is not a bad precedent for CDMA to LTE.

    One nice thing about the new design is that perhaps they don’t feel as much need to have a white or black option. That would mean 1/2 the SKU globally. So last year they had to manage inventory of 7 SKU just for ATT. This year that could go down to 3. And maybe an additional 3 for Verizon and the few CDMA carriers around the world. Should not be too bad.

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