Clay Christensen in the Innovators Solution lays out an explanation for what is happening here. Apple used vertical integration to make a giant leap forward with their iPhone that you couldn't have made in a non-integrated company. They ended up overshooting the typical consumer's needs though in the following iterations of the iPhone. And the technology that was at first difficult for competitors to reproduce became easier to replicate (thanks in part to Android). Samsung, HTC, and others were able then to provide good enough devices (and in certain ways, better devices) to consumers at a lower price point.
Apple's response has been to move up market towards tablets, and have been able to use their vertical integration to produce devices that no other Android manufacturer could match at first. Microsoft is building their own device to have similar quality, but they are doing it as a vertically integrated company. Amazon showed you could do a partial vertical integration (heavily customized Android and integration into their own media resources) to take away the low end of the tablet market from Apple. And slowly the Android tablet manufacturers are catching up to Apple.
So what this makes me ask is what will be next for Apple? They haven't been good at playing the high-volume, low-profit electronics game, so they'll need another "blockbuster", highly innovative device, and I am excited to see what that will be. It drives the industry forward, and creates exciting new technology we all get to benefit from eventually.
You are absolutely right in what you say regarding integration.
I disagree with your final analysis of where this leaves Apple. I think Apple will continue to hold a significant chunk of the "high-end" luxury market. iOS will maintain high price points and Apple will maintain its polish--and consumers with expendable income will keep their sales strong. I suspect their market share in Europe, USA, Japan, and wealthy Chinese won't drop too much (30% of market? 45%?). Android will claim the entire low-cost market--the rest of China, India, South America.
I think Apple will maintain its profits, but Android will secure the majority of the world market. Apple is trying to maximize percentage of industry profit rather than percentage of industry sales.
One thing he notes is that Apple sell the current (new) generation device at the same time as they sell the previous generation for less. By looking at sales they can tell if they are over serving - people will buy the previous generation because the new generation doesn't add sufficient value to their needs.
This is seriously good news. What many people don't realize is how powerful Android is. Open Source doesn't mean shitty quality software, contrary to popular belief. Android can do so many things that other Operating systems still cannot provide. All Android needs is some time, and some iterations and no one can even dream of killing it (like many plan to). Because, if anything history has taught us, Open Source will eventually win the war.
I own a 42" Sony Bravia LCD TV. When I first purchased it, I got a hard copy of the GNU/GPL license. Wondering, I did a quick search and found out that my TV runs on Linux! Now, here's the sad part - Since I'm somewhat techie, I know my TV is powered by Open Source software. But the average end consumer doesn't know and doesn't care much, he just wants a good TV. So, the main area where open Source is weak at is marketing. And this too, is only a matter of time, till it catches up, I believe.
Imagine if the Linux foundation advertised on TV like Apple did, for their Mac vs PC commercials? Then the average consumer would probably care. If you have a good product, you should let people know about it. Sadly, even the Nexus 10 and Nexus 4 have poor marketing in this context (Michael Arrington wrote a wonderful article on this[1]).
One day, Android will reach 95%+, and I will live to watch it happen and I will tell my kids and my grandchildren without hesitation - "This is the future."
The Android codebase may not be killable, but Android as a platform certainly is. Google is the only thing holding Android together; if they pull out or a major OEM or carrier grows balls, they'll fork and the ecosystem will shatter. Remember Android is mainly [edit: Apache] licensed so there's no requirement for forkers to stay open; I have serious doubts OEMs and carriers are interested in helping their competitors.
You're neglecting to mention one important fact. Open Source often relies on subsidies and handouts from companies/organizations(that use open-source software to compete with (and attack) software companies that created the original software product). Sun is a good example that comes to mind here
In case of Android, Google is an ad company and don't need to earn money by selling mobile OS software.
I have had Android phones since the G1 (and wrote a prototype Android app long before the first Android phone (G1) was in the market). However, that doesn't blind me to the fact that Google's business model (free software that obtains user information and monetizes users through ads) is very different from the business model of companies like Microsoft and Apple.
What Apple does well: Take a nascent but exploding market and create a fantastically superior experience via vertical integration. Get way out of in front of the competition and own the consumer mindshare: PC/iPod/iPhone (almost Newton)
What Apple doesn't do well: Own the mass market. The one place they have - music players - has really collapsed as a stand alone market and merged in with smart phones. (ie no one in the right mind today would launch a stand alone music/video player)
Why Apple is in trouble: 47% of all revenue comes from the iPhone and it's clear that that market has moved past their sweet spot.
What Apple needs to do: Understand that (to them) this market is mature. It's not about fighting Android. It's about finding the next PC/Music Player/Phone where the potential is huge and the vertical integration of hardware and software will blow away the competition for 3 - 5 years. What is that? I don't know or I'd be running the place! My fear is Steve would have known but Tim does not seem like he would.
"Why Apple is in trouble: 47% of all revenue comes from the iPhone and it's clear that that market has moved past their sweet spot"
This is not clear at all. Selling tiny computers with mobile broadband is clearly going to be the biggest hardware business for the next 10+ years and 10 years from now the device that generates the bulk of Apple's revenues will probably still be called an iPhone. It may bear little similarity to the current slab/multitouch input phone of today but will serve all the same purposes. And Android based competitors may be 90% of the market then and Apple may still be the most profitable company in the world.
I have a hard time believing the story that 'Apple is in trouble' because they have the highest margins in one the biggest markets which is still rapidly growing.
Couldn't agree more with this. What apple needs to do is not necessarily only innovate with features, but also with price. Otherwise they'll lose the market share (happening), devs won't prioritise iOS anymore, the iOS ecosystem advantage will become less relevant and well see the same pan out as we've seen when w95 hit the market.. In the end, it'll all boil down to marketshare.
Apple has designed its business model to cede the mass market. It focuses on capturing the majority of industry profits, not sales. It should surprise no one that more phones ship with Android than iOS.
As a platform company, this strategy exposes a vulnerable flank since historically the platform company with the most market share attracts the best software and the most end users.
The greatest difference between mobile devices and PCs? There is no IBM, which essentially standardized a powerful alternative to the Apple PC within a year or two. Android is not a single alternative but more an umbrella term encompassing several alternatives. There is still too much fragmentation today in the Android ecosystem, and its structure fosters fragmentation -- not standardization. The device manufacturers saw how commoditization destroyed the PC manufacturers, and they are intent to avoid the same fate. Unless something changes, Android devices from one manufacturer will continue to vary from other Android devices in terms of size and functionality.
For developers, the right way to segment operating systems is not Android vs iOS vs Windows 8, but by code reach. In other words, how many devices can be reached with the same code base? My hunch is iOS will have an impressive lead in this metric, but I'm happy to be proven wrong if someone has contradicting data.
Apple is content to yield marginally profitable customers to "Android," provided Android remains as fragmented as it is today. If Android were to unite, or some other OS emerges, allowing devs to target 75% of the market with (fundamentally) the same code base, the threat to Apple becomes far more dangerous.
This was more true 2 years ago. I think they are trying to capture back some of that "mass market" where people expect a cheap or free phone as opposed to the high end where we are used to paying $200-400:
Those are the current, just-released numbers (in an analysis from IDC). To argue that those don't represent "now" seems to be to be a silly semantic quibble -- there will never be sales numbers for "now" if these aren't them.
This whole article reads like Google is announcing it's dominance, as if it's some Christian crusader claiming a conquered land in the name of the Pope and Christianity.
Here's my interpretation of some of what I read:
"If Google decides that HTML5 web apps are the way forward, making them a first-class citizen in future versions of Android, then other mobile OSes will have no other option than to follow suit."
(We claim absolute power)
"Conversely, Google could decide to cease development of the stock Android browser — much like Microsoft did with IE4 — and push alternative technologies like Native Client or Dart, forcing other mobile OSes to embrace Google’s tech."
(You must all submit to our new power)
"And what about the other platforms? It seems like Apple is destined to occupy a tiny corner of the market — no doubt making fat profits, but losing control of the market and all-important mind share in the process."
(Your former leader has been dethroned and never had your interests in mind anyways)
"You may point to the fact that Android is open source, thus making such a monopoly rather toothless. This might be theoretically true, but in practice Google still holds all the keys."
(Don't question Google's power)
"Over the next few years, Google will develop unprecedented control of the fastest growing tech market in the world. Will Google use this power to gently steer and cajole the web and mobile computing markets towards green pastures, or will it cave like Microsoft and squeeze as much money as it can from Android?"
(Will Google be a benevolent leader or a ruthless dictator? You will find out.)
1) To make use of many Android device features, you typically are required to have a Google account. (Ditto with the iPhone, but it's a bigger deal the more you control the market)
2) The pressure exerted on Aliyun
3) By default, Google search in the browser. How long before there's pressure for a "search engine ballot" screen?
I think that because the sentence includes "of all smartphones sold", the discrepency is describing a shift in market share. Apple could have 70% now, and 75% of all new devices sold now could be Android. They were in the game first, and aggregated a huge market share, but now it is shifting.
I don't see why they demonize this: "If Google decides that HTML5 web apps are the way forward, making them a first-class citizen in future versions of Android, then other mobile OSes will have no other option than to follow suit."
They don't demonize it, they are just showing how much power Google will have. Power that could be used for good or for bad from the world's perspective, but will always be used for Google's benefit.
This is actual phone handset market being delivered (not necessarily sold, as many of them are subsidized to $0).
Additionally, looking at just phones is a myopic view of the mobile landscape, when tablets and mini tablets (aka, iPodTouches and sub 6" android tablets) are a huge source of gaming revenue as well as advertisement revenue.
I think the ecosystem is still a vibrant multiplayer arena.
The article assume smartphone makers will continue to battle on hardware for tiny margin and let Google handles the software.
That is possible, as we see with Amazon, that they focus on their software ecosystem and keep Google largely out of the picture.
That is not as unlikely as it seems, the Nexus line and Amazon have broken the taboo against cheap quality hardware and that is like a red carpet for the cheap chinese makers.
Hopefully the current manufacturers will want to avoid a second serving of the Windows OEM market, so they may decide to focus on their software ecosystem instead.
That is the best scenario, one where Microsoft and RIM both will have a chance to bring diversity. The market is too young to settle on a single OS.
[+] [-] dquigley|13 years ago|reply
Apple's response has been to move up market towards tablets, and have been able to use their vertical integration to produce devices that no other Android manufacturer could match at first. Microsoft is building their own device to have similar quality, but they are doing it as a vertically integrated company. Amazon showed you could do a partial vertical integration (heavily customized Android and integration into their own media resources) to take away the low end of the tablet market from Apple. And slowly the Android tablet manufacturers are catching up to Apple.
So what this makes me ask is what will be next for Apple? They haven't been good at playing the high-volume, low-profit electronics game, so they'll need another "blockbuster", highly innovative device, and I am excited to see what that will be. It drives the industry forward, and creates exciting new technology we all get to benefit from eventually.
[+] [-] cloudwalking|13 years ago|reply
I disagree with your final analysis of where this leaves Apple. I think Apple will continue to hold a significant chunk of the "high-end" luxury market. iOS will maintain high price points and Apple will maintain its polish--and consumers with expendable income will keep their sales strong. I suspect their market share in Europe, USA, Japan, and wealthy Chinese won't drop too much (30% of market? 45%?). Android will claim the entire low-cost market--the rest of China, India, South America.
I think Apple will maintain its profits, but Android will secure the majority of the world market. Apple is trying to maximize percentage of industry profit rather than percentage of industry sales.
[+] [-] rogerbinns|13 years ago|reply
One thing he notes is that Apple sell the current (new) generation device at the same time as they sell the previous generation for less. By looking at sales they can tell if they are over serving - people will buy the previous generation because the new generation doesn't add sufficient value to their needs.
[+] [-] bane|13 years ago|reply
[+] [-] sputknick|13 years ago|reply
[+] [-] mongol|13 years ago|reply
[+] [-] sinnerswing|13 years ago|reply
Android has become the new Nokia.
Big Market Share. Worthless user-base.
[+] [-] neya|13 years ago|reply
I own a 42" Sony Bravia LCD TV. When I first purchased it, I got a hard copy of the GNU/GPL license. Wondering, I did a quick search and found out that my TV runs on Linux! Now, here's the sad part - Since I'm somewhat techie, I know my TV is powered by Open Source software. But the average end consumer doesn't know and doesn't care much, he just wants a good TV. So, the main area where open Source is weak at is marketing. And this too, is only a matter of time, till it catches up, I believe.
Imagine if the Linux foundation advertised on TV like Apple did, for their Mac vs PC commercials? Then the average consumer would probably care. If you have a good product, you should let people know about it. Sadly, even the Nexus 10 and Nexus 4 have poor marketing in this context (Michael Arrington wrote a wonderful article on this[1]).
One day, Android will reach 95%+, and I will live to watch it happen and I will tell my kids and my grandchildren without hesitation - "This is the future."
[1] http://techcrunch.com/2012/10/31/hey-google-your-nexus-7-mar...
[+] [-] shinratdr|13 years ago|reply
How does that work? Where is the open source OS that "won" the desktop war? Where is the open source codec that "won" the codec wars?
[+] [-] ConstantineXVI|13 years ago|reply
[+] [-] credo|13 years ago|reply
You're neglecting to mention one important fact. Open Source often relies on subsidies and handouts from companies/organizations(that use open-source software to compete with (and attack) software companies that created the original software product). Sun is a good example that comes to mind here
In case of Android, Google is an ad company and don't need to earn money by selling mobile OS software.
I have had Android phones since the G1 (and wrote a prototype Android app long before the first Android phone (G1) was in the market). However, that doesn't blind me to the fact that Google's business model (free software that obtains user information and monetizes users through ads) is very different from the business model of companies like Microsoft and Apple.
[+] [-] briandear|13 years ago|reply
[+] [-] jusben1369|13 years ago|reply
What Apple doesn't do well: Own the mass market. The one place they have - music players - has really collapsed as a stand alone market and merged in with smart phones. (ie no one in the right mind today would launch a stand alone music/video player)
Why Apple is in trouble: 47% of all revenue comes from the iPhone and it's clear that that market has moved past their sweet spot.
What Apple needs to do: Understand that (to them) this market is mature. It's not about fighting Android. It's about finding the next PC/Music Player/Phone where the potential is huge and the vertical integration of hardware and software will blow away the competition for 3 - 5 years. What is that? I don't know or I'd be running the place! My fear is Steve would have known but Tim does not seem like he would.
[+] [-] Steko|13 years ago|reply
This is not clear at all. Selling tiny computers with mobile broadband is clearly going to be the biggest hardware business for the next 10+ years and 10 years from now the device that generates the bulk of Apple's revenues will probably still be called an iPhone. It may bear little similarity to the current slab/multitouch input phone of today but will serve all the same purposes. And Android based competitors may be 90% of the market then and Apple may still be the most profitable company in the world.
I have a hard time believing the story that 'Apple is in trouble' because they have the highest margins in one the biggest markets which is still rapidly growing.
[+] [-] ricw|13 years ago|reply
[+] [-] panabee|13 years ago|reply
As a platform company, this strategy exposes a vulnerable flank since historically the platform company with the most market share attracts the best software and the most end users.
The greatest difference between mobile devices and PCs? There is no IBM, which essentially standardized a powerful alternative to the Apple PC within a year or two. Android is not a single alternative but more an umbrella term encompassing several alternatives. There is still too much fragmentation today in the Android ecosystem, and its structure fosters fragmentation -- not standardization. The device manufacturers saw how commoditization destroyed the PC manufacturers, and they are intent to avoid the same fate. Unless something changes, Android devices from one manufacturer will continue to vary from other Android devices in terms of size and functionality.
For developers, the right way to segment operating systems is not Android vs iOS vs Windows 8, but by code reach. In other words, how many devices can be reached with the same code base? My hunch is iOS will have an impressive lead in this metric, but I'm happy to be proven wrong if someone has contradicting data.
Apple is content to yield marginally profitable customers to "Android," provided Android remains as fragmented as it is today. If Android were to unite, or some other OS emerges, allowing devs to target 75% of the market with (fundamentally) the same code base, the threat to Apple becomes far more dangerous.
[+] [-] bdcravens|13 years ago|reply
http://www.apple.com/iphone/compare-iphones/
(4: free, 4S: $99)
[+] [-] Quekster|13 years ago|reply
[+] [-] ajross|13 years ago|reply
[+] [-] rbii|13 years ago|reply
[+] [-] moolcool|13 years ago|reply
[+] [-] danielrhodes|13 years ago|reply
Here's my interpretation of some of what I read:
"If Google decides that HTML5 web apps are the way forward, making them a first-class citizen in future versions of Android, then other mobile OSes will have no other option than to follow suit."
(We claim absolute power)
"Conversely, Google could decide to cease development of the stock Android browser — much like Microsoft did with IE4 — and push alternative technologies like Native Client or Dart, forcing other mobile OSes to embrace Google’s tech."
(You must all submit to our new power)
"And what about the other platforms? It seems like Apple is destined to occupy a tiny corner of the market — no doubt making fat profits, but losing control of the market and all-important mind share in the process."
(Your former leader has been dethroned and never had your interests in mind anyways)
"You may point to the fact that Android is open source, thus making such a monopoly rather toothless. This might be theoretically true, but in practice Google still holds all the keys."
(Don't question Google's power)
"Over the next few years, Google will develop unprecedented control of the fastest growing tech market in the world. Will Google use this power to gently steer and cajole the web and mobile computing markets towards green pastures, or will it cave like Microsoft and squeeze as much money as it can from Android?"
(Will Google be a benevolent leader or a ruthless dictator? You will find out.)
[+] [-] atirip|13 years ago|reply
[+] [-] drp4929|13 years ago|reply
"Android now powers 75% of all smartphones sold <b> in 3rd quarter of 2012 </b>"
[+] [-] bdcravens|13 years ago|reply
http://www.washingtonpost.com/business/ftc-staff-said-to-for...
1) To make use of many Android device features, you typically are required to have a Google account. (Ditto with the iPhone, but it's a bigger deal the more you control the market) 2) The pressure exerted on Aliyun 3) By default, Google search in the browser. How long before there's pressure for a "search engine ballot" screen?
[+] [-] Kylekramer|13 years ago|reply
[+] [-] nchomsky|13 years ago|reply
[+] [-] daenz|13 years ago|reply
[+] [-] rbanffy|13 years ago|reply
[+] [-] drivebyacct2|13 years ago|reply
[+] [-] azakai|13 years ago|reply
[+] [-] gte910h|13 years ago|reply
This is actual phone handset market being delivered (not necessarily sold, as many of them are subsidized to $0).
Additionally, looking at just phones is a myopic view of the mobile landscape, when tablets and mini tablets (aka, iPodTouches and sub 6" android tablets) are a huge source of gaming revenue as well as advertisement revenue.
I think the ecosystem is still a vibrant multiplayer arena.
[+] [-] jonknee|13 years ago|reply
Sold is sold, subsidies just change who is doing the buying.
[+] [-] Kylekramer|13 years ago|reply
[+] [-] Goronmon|13 years ago|reply
I'm not seeing the "cheerleadery" side of this.
[+] [-] gutnor|13 years ago|reply
That is possible, as we see with Amazon, that they focus on their software ecosystem and keep Google largely out of the picture. That is not as unlikely as it seems, the Nexus line and Amazon have broken the taboo against cheap quality hardware and that is like a red carpet for the cheap chinese makers. Hopefully the current manufacturers will want to avoid a second serving of the Windows OEM market, so they may decide to focus on their software ecosystem instead.
That is the best scenario, one where Microsoft and RIM both will have a chance to bring diversity. The market is too young to settle on a single OS.
[+] [-] unknown|13 years ago|reply
[deleted]