There's a real interesting battle for mobile phone supremacy or "smartphone" supremacy right now. As the NYT notes,
In the six months ending August 10, Android phones accounted for 32 percent of the smartphones sold, Nielsen said. By comparison, iPhones accounted for 25 percent of devices sold and BlackBerry handsets for 26 percent. A month earlier, the three types of devices were in a virtual dead heat.
(I believe these numbers are US-only).? Clearly, from a marketshare point of view, Apple needs to get out of its exclusivity with AT&T to improve its US numbers.
However, it is worth noting that Google's share of smartphones is... pretty much zero.? They don't sell phones.? But some other folks DO sell phones that run Android:
One would think, as they're selling so many of these Android phones, they must be killing it in profit, just like Apple, right?
Not so fast.
Check out this article from Horace Dediu which reveals the velocity of profit and market-share changes in 3 simple charts:
[caption id="" align="alignright" width="481" caption="The change in 3 years is astonishing"]
The dramatic nature of the change is all the more apparent looking at his last chart, which really shows the velocity of change:
[caption id="" align="alignnone" width="294" caption="Profit Share Growth is telling"]
So, if Android handset manufacturers are killing it in volume, surely they're making a hansome profit as well, right?
Wrong.? Over the last 3 years, none of them has profit share growth north of 10%, and it looks to me like HTC is only barely above 0%, and Motorola might be about 1%.? The others are negative.
Meanwhile, Apple's profits from the iPhone are soaring... and Nokia's profits are plummeting.? So how is Apple getting all the profit when it has such small market share, and isn't even the leader in market share growth?
First the obvious items:
- Apple's iPhones are still considered the creme de la creme and therefore fetch a higher price from service providers like AT&T.
- Apple is selling every phone they can make - in a sense right now they are build-to-order - which means, no inventory going stale on store shelves.? That usually enhances profit considerably, though it also often means they lose out on some marketshare.
The less obvious items:
Apple benefits from laser focus - having essentially one model every year means that all the engineering focus can be on one model.? All the sales focus. All the support focus.? Yes, they still sell the 3GS, but this pattern of selling last year's model at a lower price is a pretty simple model to sustain and support.
By leveraging common components and commodities across several device categories, Apple gets "scale" in certain components they might not otherwise:
- The A4 chip (iPhone4, iPad, and AppleTV)
- Flash Memory (NAND) - they are the biggest buyer by far, buying 20-25% of the world's supply!? This gives them a huge pricing and availability advantage in the market.
- Touch screen R&D
- Touch screen components - Apple is already the largest purchaser of capacitive touchscreen glass screens.
- Leveraging iOS across multiple devices... and iOS itself leverages much of OSX.
By developing a few key differentiators and then leveraging them to the hilt across their product line, Apple is moving up-market at the same time that Apple is growing share.? But from Apple's perspective, quality is much more important than quantity.
A reasonable difference, however, between Apple eating Nokia's lunch, and Apple eating "Android's" lunch (if we can pretend for a moment that Android phones are one thing rather than dozens of companies), is that Android *does* represent a viable competing platform, whereas Nokia's fractured smartphone strategy did not.
However, as long as Apple's platform is seen as the premier platform, with a halo effect for those who write apps for it, Apple will continue to see the best apps first.? And the platform will continue to be not only viable, but defensible. To that end, we're already seeing Apple leverage the platform (appstore/iOS) across more devices than just phones.? And they're making these moves faster than the competition, and in a more rationalized way.? I think in this market, you want to be the phone provider that is making money, rather than the one that is taking market share, if you have to make a choice.