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An Analysis and Valuation of The Success Story Formally Known as Android

Submitted by Reggie Middleton on 09/27/2010 08:15 -0400

The next installment of our comprehensive analysis and valuation of
Google is available for download to all paying subscribers. I have taken
the liberty to excerpt a small portion to publish openly on the blog to
illustrate the outrageous growth that is the Android. We will be
following up with a full compendium of Google’s valuation and analysis
(including an embedded, plug and play valuation model for professional
and institutional subscribers) in a day or two. In the meantime, enjoy
this analysis and a little blooper wherein my young daughter makes an
unscripted guest appearance in my video introduction to the Mobile
Computing Wars. I figured I would throw in something to lighten up all
of these numbers and charts for a change.

The Success Story Formally Known as Android

Admob acquisition and Android’s success has helped Google to build a
dominant position in the mobile advertising market. Google’s Android
mobile operating system is gaining considerable traction in the
smartphone market. Android is steadily and rapidly gaining ground and
its dominance is a serious threat not only to RIM and Symbian but also
to Apples’ iOS. According to research firm Gartner during Q2-10 Android
captured almost 17% of the global smartphone operating market share, up
from just 1.8% Q2-09 and 9.6% in the previous quarter. During Q2,
Android surpassed Apple’s iPhone OS (14% share) to become the
third-most-popular OS in the world behind Nokia’s Symbian (41%) and
RIM’s Blackberry (18%). Android not only surpassed iOS in worldwide
sales but also overtook Blackberry in the US. Also interesting to note
that Android was the only operating system to witness improvement in its
market share on q/q basis (+7.6%) in Q2-10 while on y/y basis only
Android and iOS (far distant second) gained market share with gains of
15.4% and 1.2%, respectively.

According to a latest report released by comScore (Sep 15) for the
three months period end May-July 2010 Android’s market share in the U.S
smartphone operating system increased by 5.0% points to capture 17%
share, up from 12% from Feb-April 2010. Although RIM and Apple’s iOS
are still the dominant player within the U.S. mobile market, RIM is
having a steady roller coaster ride downward in terms of share. RIM
continued to lose its market share losing 1.8% in the quarter to 39.3%
while Apple lost 1.3% points to record 23.8% market share.

Some pundits contend that Apple was losing market share in Q2 ahead
of iPhone4 launch, thus comparing market share gains is akin to
comparing apples-to-oranges due to demand compression from launch cycle
expectations. As it apparently played out, the iPhone4 did relatively
little to pull users away from Android. Although Apple had sold
significant number of iPhone 4s, those sales were largely within its
existing customer base, while drawing relatively few users from the Android camp. It appears as if both OSs have been cannibalizing their other competitors, though.

Android shipments and market share

Source: Gartner

Change in smartphone market share by Operating System (Q2-10 vs Q1-10)

Source: Gartner

Android’s rise is even more apparent among new smartphone
subscribers. According to a survey by Nielson, new smartphone U.S
subscribers (last six months) for Android nosed past Apple’s iOS to grab
a 27% market share of 6 month’s worth of subscribers.

Operating system, 6 months subscribers

Source: Neilson

Smartphone Operating System Market Share Forecasts

Android’s record growth has surpassed nearly all predictions, save
ours at BoomBustBlog – and we are still very bullish on the operating
system save any unforeseen legal difficulties. According to latest
research by Gartner (Sep 2010), helped by service providers’ marketing
and vendor support for Android-based smartphones, Android with 17.7%
share would become the second-largest platform, following Symbian (40%
share), by year-end 2010 while at the end of 2014 the number one spot
will be contested by Android. Gartner predicts that by 2014,
open-source platforms will dominate more than 60% of the market for
smartphones and expects that single-source platforms, such as Apple’s
iOS and RIM’s OS, will increase in unit terms, but their growth rate
will be below market average and not enough to sustain share increase.

BoomBust forecasts were on spot with Gartner and IDC, and much
earlier: The latest smart phone market share forecasts by Gartner (Sep
2010) are in line with what we at Boombustblog.com predicted more than a
month ago during Research in Motion analysis (see RIMM Forensic Analysis and Valuation – Professional & Institutional and RIMM Forensic Analysis and Valuation – Retail). The table below gives market share for each of the players predicted by Boombustblog.com and Gartner.

Click to enlarge

OS market share

Source: Gartner, BoomBustBlog

Android and AdMob Revenue Forecasts

Quantcast released figures for share of mobile web usage by platform.
According to Quantcast, Android’s share of the pie has increased by 17%
y/y (5.5% Q/Q and 2.0% m/m while the market leader, Apple’s share in
the mobile web usage has declined 11% y/y (-3.3% Q/Q and -0.3% M/M).
Android is the only operating system to increase its market share while
all other OS players have lost ground on mobile web usage. While Apple’s
iOS is still the dominant player within the U.S. mobile market in terms
of Web consumption, it is steadily losing ground while Android is
gaining traction steadily. Use of mobile web and its market share is
more important for Google than any other metric (OS market share) simply
because Google is purely a provider of Web services and cloud
applications and does not engage hardware sales whether retail or
enterprise – it is an OS provider with a very focused purpose (as
explained above in the monetization section). The web usage simply
measures mobile web usage and users of certain mobile platforms access
the web more often than others. As such, Android has been designed to
enhance the web browsing experience through Google’s myriad Cloud
offerings and Web services and with market share for Android forecasted
to grow (BoomBustBlog, Gartner and IDC), Android’s share of web usage
should increase at a even faster rate.

Even, as visually depicted below, if one were to view the most recent
data available as a most granular snapshot of activity, Android is
smoking its competition – stealing share from all parties involved!

According to comScore, usage of browser and apps have increased with
33.6% and 31.4% of users using the application for 3 months end July
2010 from 27.5% and 21.6%, respectively in December 2009. Increased use
of mobile browsing and app downloads are major aspect of the paradigm
shift, empowering search to become wireless and illustrating Google’s
rationale behind the concerted push into the mobile market…

This full document (19 pages in all) can be downloaded by all paying subscribers here: File Icon An Analysis and Valuation of Google’s Android and AdMob.
We will be following up with the full compendium of Google analysis,
valuation and opinion withing 24 hours or so. In the mean time, for
those who have not kept abreast of our research and opinion concerning
the mobile computing wars, there is deep well of reading available to
subscribers and non-subscribers alike…

Recent Google subscription material:

Be sure to peruse A Quick Review of Research in Motion’s Q2 2011 Earnings Announcement and previous Research in Motion commentary:

Research in Motion subscription content (click here to subscribe):

More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!

- advertisements -

Mon, 09/27/2010 - 11:09 | 607231 fx

Hi Regie,

you seem to have become an expert on everything - well, sort of.

Have you ever gone through the really annoying and frustrating procedure to download any software from Google's Android marketplace? Probably not. It is next to impossible - not just for me but for a gazillion of users (some of which I do know and a myriad of which I don't but you can find their experiences written all over the www. heck, many software developers have special passages devoted on their websites to the topic that their software cannot or only under immense difficulties be downloaded via marketplace. Which in turn, means lost business for them and for Google. I guess, the guys at Google have no time to care for that, being busy with counting their money.

Google the next MSFT? You better do not prey for that as Mr. Softie is a privacy protector compared to the ever-data-hungry guys at Google. And as things stand, Google may gain some market for Android but MSFT for sure will hit back and a hard one. And if not, well, Google has already proven how to squander business opportunities and lose advantage by nonexistant customer service and data espionage that would make the guys in Langley proud.

Mon, 09/27/2010 - 11:38 | 607288 Reggie Middleton

Have you ever gone through the really annoying and frustrating procedure to download any software from Google's Android marketplace? Probably not.

Actually, my 9 year old son and I do it regularly, with the last download being just 20 hours or so ago. Camera 360, which gives you professional level control over the 8 MP Evo camera, allowing you to choose from about 8 levels of JPEG compression, 10 levels of picture resolution and so many other features as to be hardly believable you are using a phone. Just to show how powerful the Android platform was, many reveiwers chose the iPhone 4's camera as having better quality than the HTC Evo's. As it turns out, it was a matter of image compression.

You can take your Evo or Droid X and download the aforementioned app from any number of places (with the Android Market place being only one of them) and blow the iPhone 4 camera out of the water both in terms of features and quality. You can do it for free with and ad based app, or pay for it ($4 US).

Camera 360 - Android app on AppBrain

Camera 360 - Turn your phone into professional camera. Provides LOMO, HDR, axis shift, draft, ghost, etc. and multiple styles. #No...
www.appbrain.com/app/vStudio.Android.GPhoto - Cached Loading data for http://www.appbrain.com/app/vStudio.Android.GPhoto
Camera 360 Free – Take your Android camera to the next level

Jun 13, 2010 ... It's time to upgrade your Android camera with the “Camera 360 Free” application. The app provides some nice features like axis shift, ...
www.droidapps.org/camera-360-free-take-your-android-camera-to-the-next-level/ - Cached Loading data for http://www.droidapps.org/camera-360-free-take-your-android-camera-to-the...
Camera 360 - Better Picture Quality? - Android Forums

Jun 11, 2010 ... I'm trying to make sure I'm not crazy. I have been sitting here at work trying to find an alternative to the photo software that comes on ...
androidforums.com/.../99181-camera-360-better-picture-quality.html - Cached
Camera 360‎ - Sep 5, 2010
Vignette or Camera 360 Pro?‎ - Sep 4, 2010
camera 360‎ - Aug 12, 2010
Camera360 for Android.Best Camera soft‎ - Jun 4, 2010

More results from androidforums.com »
Loading data for http://androidforums.com/htc-droid-eris/99181-camera-360-better-picture-...
Fun With Android – “Camera 360” - Geek News Central

Sep 17, 2010 ... A few months have passed since getting my Sprint HTC Evo. I've had a chance to try out a number of different apps.
www.geeknewscentral.com/.../fun-with-android-–-“camera-360”/ - Cached

As a matter of fact, despite the interface quirks, I greatly prefer the Android market to the Apple App market (I use both since I have and iPod Touch and an iPad, as well as a Zune and Evos), due to the fact that you have 24 to 48 hours to return your application purchase with no questions asked for a full refund. The Android market is much, much more consumer friendly than the Apple App market. Several educational apps that I have purchased for the iPad have turned out to be duds, despite what appeared to be decent ratings. So, the answer to your question is a resounding yes.

In addition, because Android is open sourced and is quite open compared to Apple's App store, you can always download apps directly from the developer (gameloft.com has best of breed 3D games that they sell directly from their website) or third party app stores. Check out appbrain.com. In addition, I believe the gingerbread 3.0 update to Android will give a facelift to the market place.

Mon, 09/27/2010 - 15:41 | 607970 Panafrican Funk...

"Android is open sourced"

Just wanted to again point this out for emphasis. Conceptually simple, and fatal for Apple.

Mon, 09/27/2010 - 11:06 | 607217 carbonmutant

Well, Google's G2 slider goes on sale Oct.6 at T-mobile and it'll be running Froyo with Swype.

http://www.gsmarena.com/

Mon, 09/27/2010 - 11:04 | 607214 snowball777

Bitonal Android/iOS market for the next few years.

RIMM and Symbian fade to black (or at least background noise consisting of crypto-sensitive comm markets only).

Mon, 09/27/2010 - 10:18 | 607106 doolittlegeorge

Had AT&T with a Samsung for years. They "yahoo." it's really hard to "google" and that's no accident as Google has always been a communication company first. in short: the real loser is AT&T should Google link up with the likes of Wal-Mart. I know if there's a Wal Mart/Google alliance I'd be a buyer. Great post Reggie. Keep at it. If Google cares they should call you since you're in effect making a market in their stock thus helping it have a great day today. "There's more than one great day" like that out there, too.

Mon, 09/27/2010 - 10:02 | 607083 Rogerwilco

Will someone please explain to me how Google shareholders make any money from this train wreck? The growth numbers are impressive Reggie, but what about earnings? Google is chock-full of really smart technical people, but I don't see evidence that any of them know much about running a business.

Mon, 09/27/2010 - 11:58 | 607334 JohnKing

Will someone please explain to me how Google shareholders make any money from this train wreck? The growth numbers are impressive Reggie, but what about earnings?

Quit asking Reggie about revenue!

The mobile advertising business is puny. But don't tell that to Google and Apple.

http://money.cnn.com/2010/08/26/technology/mobile_advertising/index.htm

Mon, 09/27/2010 - 10:40 | 607153 Reggie Middleton

The entire document linked for download dedicates almost 20 pages to illustrating, in full detail, how Google will monetize Android, along with valuations, revenue and profit forecasts. I don't see how it is so hard to conceive, but luckily it apparently is so I can charge for both the strategic concept and hard core empirical analysis.

Just think of how MST made money as they allowed so many copies of pirated Windows to proliferate back in the days.

Mon, 09/27/2010 - 09:32 | 607024 infotechsailor

reggie, how could you post this article without including the iPhone vs HTC video?

http://www.youtube.com/watch?v=FL7yD-0pqZg

Mon, 09/27/2010 - 13:45 | 607553 Freewheelin Franklin

Oh yeah? Well:

http://www.youtube.com/watch?v=UAOtC9QfXac&feature=channel

Mon, 09/27/2010 - 09:30 | 607017 Careless Whisper

dayum reggie, i thought you were gonna break out the old spice body wash.

Mon, 09/27/2010 - 09:24 | 607003 oddjob

So I guess your last post in which you said that you will not belabor the subject of smart phones anymore was just a lie?

Mon, 09/27/2010 - 10:44 | 607160 Reggie Middleton

I said I wasn't going to post on RIMM much more, and more importantly this isn't about smart phones, its about who gets to rule the computing market after this paradigm shift. You're thinking much too small.

Mon, 09/27/2010 - 11:44 | 607306 oddjob

I'm thinking to small?

When the shit really hits the fan,being long or short,Google or Rimm will not make a rat's ass worth of difference.When you tell people not to participate in the markets in any form,then you will have seen the bigger picture.

Mon, 09/27/2010 - 09:50 | 607059 infotechsailor

that video was only 21 seconds for me... lmfao

Mon, 09/27/2010 - 09:22 | 606996 Sudden Debt

I've bought a android tablet for next to nothing. 120 euro, it has a webcom, 40 gb storage, flashdisk, 2X USB 2, changeable batteries, 10 inch screen...

For that money, this gadget is GREAT!

I'm not buying the Ipad. For the use I've got for it, it's not worth the money.

I've even heard rumors about a Indian android tablet 7inch that is going to hit the streets for 37$! I might not be super quality, BUT 37$!!! YOU CAN'T EVEN GET A BLOWJOB FOR THAT KIND OF MONEY ANYMORE THESE DAYS!!

Like history learn us: Cheap crap wins the race!

Mon, 09/27/2010 - 13:06 | 607438 homersimpson

"YOU CAN'T EVEN GET A BLOWJOB FOR THAT KIND OF MONEY ANYMORE THESE DAYS!!" Um.. here's one guy who will take your word for it.

Mon, 09/27/2010 - 14:16 | 607669 The Alarmist

You can in India ... they're not all vegetarians.

Mon, 09/27/2010 - 09:09 | 606961 ebworthen

RIM is clueless.

Blackberry is charging anyone trying to use Outlook and an Exchange server a $25-$50 a month premium. Result? People are getting an iPhone or Android instead when they upgrade. DOH!

Apple and iPhone need the competition; now if Google and Adobe and Microsoft could just get along they could actually help each other's sales over the iPhone.

I have yet to see an innovative Microsoft handheld product (Zune? What's that?) but maybe they'll get it right with the phone. They really need to get it right too because the smart phone is becoming the laptop/computer for the Millenials.

Nice video Reggie, I'm liking the gold watch, and your Daughter is a cute kid, nice to see a Dad taking the kids along (I do with mine). Keep up the good writing and work.

Mon, 09/27/2010 - 10:32 | 607135 Reggie Middleton

I agree that RIM's management needs to be replaced for the benefit of shareholder. They seem to have lost touch with the (not so) recent shifts in the market.

Google, Adobe and MSFT don't need to get along. Google is currently the market leader in growth, and the absolute market leader in the US. Adobe needs Google, and Google can use Adobe as an additional wedge against Apple's extreme proprietary approach, which will absolutely backfire if Adobe gets Flash to run efficiently on low powered portable devices (they're about half way there with v. 10.1). Google is Microsoft's direct competitor so there is no love lost there.

The Zune is actually the best of breed in terms of media players, but it is not super innovative. Innovation is not what MSFT does. They take an innovative product, eventually improve it for the masses, then drop the price to squeeze the competition. That's what they do.

As for my daughter, I do everything with my 3 kids. I am a full time, make that over time Dad. That's why I don't have a Wall Street gig, many banks and funds simply don't understand or respect the need for the full time Dad thing (I have no problem with the occasional 18 hour days, they just need to be around my loved ones). Trust me, you can tell the kids that don't get enough time with their parents.

Thanks.

Mon, 09/27/2010 - 15:36 | 607949 Panafrican Funk...

Yeah, I think this is ultimately going to be an software battle, and Apple is going to lose, again, just like it did with PC's, revealing Steve Jobs fatal flaw, which is that he's an anal-retentive dipshit.

An Analysis and Valuation of The Success Story Formally Known as Android

The Success Story Formally Known as Android

Smartphone Operating System Market Share Forecasts

Android and AdMob Revenue Forecasts

More on the Creatively Destructive Pace of Technology Innovation and the Paradigm Shift known as the Mobile Computing Wars!

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