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Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple's (Short-lived?) Dominance
It appears to be official. Apple’s iPhone is no longer the fastest
growing smart phone in the world’s largest and most important smart
phone market – the US! This is a very critical time for Apple and its
investors, for Apple has executed wonderfully in the smart phone space
and has risen from a non-existent manufacturer to the most profitable in
the world and simultaneously the fastest growing – at least until
recently. The phenomenal success has bolstered the iPhone and from zero
to nearly 45% of Apple’s revenues and nearly 70% of their profits. With
such a earnings and revenue concentration in a single device, multiples
and valuations are becoming quite susceptible, particularly when that
single device has gathered competition from some of the biggest, most
capable companies in the world – companies who have arguably already
released a better product being adopted at a faster rate than that of
Apple’s.
According to technology consulting firm, Canalys:
- Although Nokia grew shipments 41% from last year and has a
substantial lead of 38% total market share, its market dominance is not
as unassailable as it once was, with its performance outpaced by growth
in the smart phone market as a whole. The smart phone market
grew by 64% annually worldwide in Q2 2010. According to BoomBustBlog
research, Nokia has lost market share for several quarters running and
year over year (see There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All). - Shipments of RIM’s BlackBerry smart phones grew by 41%. Helped by
the continued strong performances of devices such as the Curve 8520, it
was once again the second placed vendor with an 18% market share,
while also retaining its leadership position in North and Latin
America. BoomBustBlog’s proprietary research shows RIM is also losing
both market share and growth momentum. 
- Canalys states “Apple’s initial shipments of the iPhone 4 were
predictably strong and contributed to Apple’s 61% growth and worldwide
market share of 13% for the quarter. But analysis of Canalys’ detailed,
globally consistent data shows it is the collective growth of Android
device shipments across a range of handset vendors’ portfolios that is
most remarkable. With key products from HTC, Motorola, Samsung, Sony
Ericsson and LG, among others, shipments of smart phones running the
Google-backed Android operating system grew an impressive 886% in Q2
2010.” - We, at the BoomBust, have warned that the Android threat is woefully underestimated, see The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift.
A 900% growth rate is, to our knowledge, unprecedented, particularly at
a time such as this where the smart phone competitive landscape is
deeper, broader and more intense than it has ever been.
- More from the Canalys release:
- “‘The latest release of our detailed and complete country-level
smart phone shipment data for Q2 2010 clearly reveals the impressive
momentum Android is gaining in markets around the world,’ - In the United States, for example, we have seen the largest
carrier, Verizon Wireless, heavily promoting high-profile Android
devices, such as the Droid by Motorola and the Droid Incredible by HTC.
These products have been well received by the market, with consumers
eager to download and engage with mobile applications and services,
such as Internet browsing, social networking, games and navigation.’ - The United States smart phone market grew 41% year on year. It is
the largest smart phone market in the world by a significant margin,
with 14.7 million units accounting for 23% of global shipments in Q2
2010. Android devices collectively represented a 34% share of the US
market in the quarter, and with growth of 851% Android became the
largest smart phone platform in the country. - ‘The story in the Asia Pacific region is similarly optimistic around
Android,’ noted Senior Analyst, TY Lau.‘Android devices are gaining
good traction in markets such as mainland China and South Korea, with
growing numbers of consumers wanting more sophisticated smart phones.’
China was the world’s second largest smart phone market in Q2 2010 for
the sixth consecutive quarter, with shipments of 6.9 million units
representing 11% of the worldwide total. Android devices combined
reached almost 475,000 units in Q2 2010 from no presence in the country a
year ago. It is also important to note that China Mobile is committed
to developing its own platform, OMS, based on Android, and an
additional 174,000 smart phones shipped in the quarter running OMS. - Motorola and Samsung, as well as local vendors, such as Dopod,
Lenovo and Huawei, are achieving promising volumes on the platform, and
Android devices held a 7% share in China this quarter.’ Despite a
close relationship with its strategic partner Dopod, HTC, the world’s
leading Android device vendor, announced last week that it is entering
the Chinese market with its own-branded smart phones. With a population
of 1.3 billion, China represents a market with enormous growth
potential and Canalys expects Android to be among the platforms that
will drive growth in the coming quarters and years.
- “‘The latest release of our detailed and complete country-level
As I explained in The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift and An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses,
it is nearly impossible for Apple to compete with the Android upgrade
cycle and feature set due to the amount intellectual development
capacity and marketing prowess being pushed into it as both an open
sourced platform and a platform being relied upon by dozens and dozens
of vendors whose ranks are growing daily.
Such growth was bound to attract developer attention, reference Android is gaining preference as the long-term choice of application developers:
- One key fact that the survey highlights “Despite all of
Apple’s success, developers see that the winner long-term will be the
mobile operating system that has the most capabilities and flexibility
in scenarios beyond phones.”
I recommend subscribers download this 27 page, complete description
of Apple’s business model and strategy which outlines their strengths
and weaknesses. It is a considerably extended version of what was posted
on the BoomBust a couple of weeks ago (An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught). The download is available here: 
Apple business model note, and you may click here to subscribe.
We will be releasing FULL forensic analysis of Google, Apple and RIM
in the upcoming week and a half for subscribers, as well as juicy
tidbits of empirical analysis along the way.
Earlier must read analysis from the same guys who predicted the downfall of Bear Stearns, Lehman Brothers, WaMu, and GGP:
- There Is Another Paradigm Shift Coming in Technology and Media: Apple, Microsoft and Google Know its Winner Takes All
- The Mobile Computing and Content Wars: Part 2, the Google Response to the Paradigm Shift
- An Introduction to How Apple Apple Will Compete With the Google/Android Onslaught
- Don’t Count Microsoft Out of the Ultra-Mobile Computing Wars Just Yet
- This article should drive the point home: An iPhone 4 Recall Will Hurt Apple More By Opening Additional Opportunity for Android Devices Than Increased Expenses
- A First in the Mainstream Media: Apple’s Flagship Product Loses In a Comparison Review to HTC’s Google-Powered Phone
- After Getting a Glimpse of the New Windows Phone 7 Functionality, RIMM is Looking More Like a Short Play
- advertisements -
I can hardly wait to stand in line for the iPhone 467. Having already bought iPhone models 1 through 466.
Do you live in your car?
http://finance.yahoo.com/echarts?s=goog
http://finance.yahoo.com/echarts?s=aapl
Which stock is in a major bull market with all moving averages lining up more or less perfectly?
AAPL, bitchez . . .
That a numerically significant slice of the population could even recognise and respond to the streets-ahead superiority of the iPhone, let alone find its collective ass with both hands and a funnel, is a temporary societal anomaly. At the end of the day Apple's iPhone is all about the quality, not the numbers of its adherents. The drones will have their 'Droid. In droves. Va salut' and enjoy the NSA backdoor.
How is there a backdoor on the droid? Considering it'd be possible to actually monitor connections since you have the physical device, a more likely scenario would be major internet telecoms being monitored by the NSA.
Might I suggest there is a new paradigm wherein we can shrink our overall economic base yet grow our overall GDP. It becomes a function of value definition. Today the value definition is driven through and by firms that can meld technological and industrial processes. Think Apple and increasing GOOGLE and to a much lesser extent RIM. These are not capital intensive industries as we know them. They have capital up the wazoo. They are knowledge and information centristic powered. SO, old school thinking is out. Production is not the worry. It's fitting into the global knowledge flowcentric hierarchy. The closer to the "truth" your are; the more you can shape the future; the perfect ♠♠♠♠Utopian society; no? Note the sarcasm in the print.
In this context the future of international competition is to enable individuals the richest real-time data-centric tools and communication networks. This will enable firms to develop products and services that people or your competitors want before they collectively know that. Combined with recent advances in cloning and DNA molecular cell programming (building new lifeforms from the DNA up) we will soon have new factories specializing in specific "environmental process production"services. I think part of the reason we can't ride out this depression is because we don't have the imagination or the urgency of our forefathers. Speaking of, could you imagine what they would think of your flat screen TV's in their day and age. Those days with black and white and then really bad colour TV's?? 26"was big. Real big. Get the picture? Excuse the pun.
Full disclosure -- I'm an AAPL shareholder, and Steve Jobs can come over to my house anytime for dinner -- he and his crew paid off the mortgage. These folks have been executing and kicking ass since 2001, but articles like this one claiming the company's days are numbered still appear on a regular basis. In an interview a couple of years ago, some CNBC weenie asked Jobs if he thought their success was due to luck. To his credit, Jobs stayed calm and asked this asshat to consider that maybe, just maybe, his management team actually knows what they are doing. What a concept!
Jobs is playing out a years-long strategy that will put Apple products into the hands of hundreds of millions of people. Their focus on individuals is markedly different from MSFT (where OEMs are tops) or GOOG (look at our ads, fool) and it establishes a bond with customers. Many people mock the loyalty of Apple customers, but as an investor I see it as a tremendous asset.
When Apple opens its new data center later this year and makes the competition look stupid yet again, I'm sure we'll see stories about how it was dumb luck, and in two years when XYZ catches up, APPL will be toast.
Reggie, how you factor in the I-Tunes, that has been instrumental in luring and keeping customers in Apple's "ecosystem"?
You folks don't get it. I'm happy for Android but I think the developers for Android are finding out what Google employees already know. Google doesn't want to pay for sh^t. They are cheap and when the developers are not making money...no matter how "open" the OS is options will dry up.
I think if developers start making money with Android, there will be competition. But most people yelling open, open open don't know what they're talking about. Open=Free. Apple customers pay for products where as open source folk want everything FREE. Linux = Free, Android=FREE, etc.
Google's challenge will be to keep Android burning and not make it a side project for itself. Will Android be used by the masses, sure if the fragmentation is taken care of. If fragmentation is not cleared up it will still exist, but for tinkerers mostly.
The average consumer doesn't want to root their phone like tech enthusiasts do.
And Apple is American. Conceptualized and engineered in America. Manufactured in China just like everything else in this country. Their call centers are in the USA. Unlike HP and others they haven't shipped those jobs to Costa Rica and India.
My two cents anyway.
Open source is a whole 'nother discussion. Many developers don't favor Android because it is 'free', they favor it because it is not subject to a one-size fits all business model that ties them to only devices and applications that are dreamed up by one company.
As a matter of fact, since Android is finding a footing in more and more embedded applications, it will offer developers more options to monetize their development than a system targeting a smaller subset of devices. For instance, developers can target automotive, industrial, fuller featured tablet based applications, etc.
The basic thought is not which OS is better to target 'toy' apps on a smartphone. That is clearly Apple right now. The question is, which OS is better to target the shift in computing from desktops to mobile platforms of all stripes. And for that, Android has a whole lot more traction than Apple right now, precisely because of what Reggie said - developers want to target the largest set of potential platforms.
Whether Google pays for it or not is irrelevant. What is important is that consumers and businesses pay for it. Which means it has to meet their needs, not necessarily the needs Apple dreams up for its very consumer-targeted products.
Your point that Google (or, more correctly, the Android community) need to avoid fragmentation or being seen as only for geeks and tinkerers is well taken.
I have dealt with open source and commercial products as and enterpenuer since 1994. Those who say that open source is free do not understand the model. There is probably nothing in this world that is free, open source products included.
The upfront costs of licensinf commercial software is shifted to the back end when one adopts open source products. True, you don't pay to install it and use it, but you must pay (either in cash or man/hour resources) to customize it, upgrade it, and lock it down. It also needs periodic maintenance like any other software. It is the avoidance of upfront costs, which became excessive when MSFT had an unfettered monopoly, and is excessive in terms of Apple's ecosystem, that creates such a demand for OS product of quality. As for the fragmentation and security issues, 80% of the web sites you visit are probably runnin on a LAMP/(or)PHP+DB platfrom. The OS community allows for lightening fast advancement and the rapid locking down of security issues that is quite difficult to do with commercial platforms that are verically integrated into the hardware. Just ask Apple how difficult it is to keep up with HTC.
Open, Open, Open,,,, yada yada yada....
Anyone here of HTML5 ? Apple has been pushing quite nicely. Also the Apple isn't standing still on the desktop either with new touch innovations coming all the time.
Plenty of upside there as it sells more and more desktops along with the whole iLine of toys.
I too development mobile apps.
What do you think Apple's stance will be if HTML5 enables web app developers to basically circumvent the app store by deliver full featured apps through their browser? I expect you think they will just roll out a browser to allow this?
Hint, for a clue, look at their stance toward Flash. Since HTML5 smart apps would basically torpedo their whole business model, they will certainly have some plan in the works to gimp it.
Unless, as I said, unless they change their stance toward developers.
Look I am not an Apple hater. I happen to think they make innovative products. However I am an observer, and the trend is clear, as Reggie has pointed out.
then you would know that a google employee is the 1 that developed html 5. He still works there as far as I know. Apple cannot out code Google and 2 million OS developers.
Here is the money quote:
“Despite all of Apple’s success, developers see that the winner long-term will be the mobile operating system that has the most capabilities and flexibility in scenarios beyond phones.”
Do a quick search, and you will see dozens of tablet computing devices on the horizon all planning Android support, many with significantly more computing chops than IPad. Developers will jump on Android because it supports their apps going onto so many more devices. Windows and WinMo for embedded apps is already virtually dead. Yes the IPad was first as a widely available tablet, but is was basically a play by Apple to get into tablet computing first and catch the first market wave. It does not herald Apple's long-term dominance of tablet computing.
Unless Apple changes its developer stance to be more open and to allow developers to leverage cross-platform toolkits and intelligently target more devices without risking Apple's wrath, their developers will flee, as is already happening. There are simply too many more devices to target with Android. There are more Apple devices already sold, but many more potential Android users in the end. And Google is making the right moves to bring app development to the masses.
*Disclaimer - I work in the mobile development field, doing developments for both Android and IPad
An "American" company that manufactures in China. I've been an Apple fan since my first 128k beige box, but calling Apple an American company is stretching it a bit. And have you tried their tech support lately? The only place I hear those accents in America is in cheap motels that smell like curry.
One problem pal. Android is simply a free smartphone OS laid atop many smartphones. For instance, Motorola has life since Droid's introduction and HTC is certainly making headway. However, each of these manufacturers on their own are not doing anywhere near Apple's numbers.
These are different business models. I would say Android is more akin to Windows mobile. An OS slapped on the phones of many manufacturers. Anyway, Apple will be fine. They can't make enough Iphones to keep up with demand already. And suppliers are limited of the specialized glass and electronics needed to produce the product.
Still, haters will hate. Me, I like to see an American Company strives and gives its customers their money's worth. I wish them nothing but success.
And that about sums up the similarities. That Android has the potential to generate significant app and hardware competition, much more so tha Mickey$oft based smartphone offerings to date, is welcome. That some like the closed Apple environment is fine, but others prefer a bit more choice. Not everyone is enamored with the "bees knees" as it were.
<deleted>
Remember... go where the puck is going and not where it is!
;-)
8% think Apple has the most "open" platform on the market? Either they didn't understand the question, or Apple can always sell any kind of iGarbage to those fanboys.
Toys for tots.
Zactly - if America is to ride into the future on the back of Apple's "innovation" in making geeky, frivolous toys, we are in deep trouble.
Please. You guys kill me. Yeah, Apple, the company that created the wave that others are now riding is going down. That would be a real shame for everyone else - who are they gonna rip their ideas from? Get fucking real.
There will always be issues with cutting-edge tech; but Apple will continue to innovate and others will follow. Now go defrag your PC.
In a very strange response to their "dropped call" problems, Apple posted a youtube video showing the android phone also drops calls. Rather than solving the problem they attack the competitor. On "the tech guy show (couple million listeners on Saturday Morning nation wide), Leo LePorte discredited the Apple youtube charge saying that he was unable to duplicate the dropped call problem with his android phone and challenged Apple to disclose the conditions used in their charge. Leo implied that Apple is losing its golden touch.
Hmm, "An iPhone recall will hurt Apple..." Didn't happen, will not happen. The storm in a teacup has blown itself out. The problem is not unique to Apple, otherwise Nokia RIMM and HTC would have sued Apple for their recent antenna videos.
The most open aspect of the Android in the US is that you don't have to use AT&T. That is the noose around Apple's neck. AT&T's network also seems to be the reason why the antenna issue caused such a fuss, it isn't an issue in Australia, or Canada or Europe where network performance is better. If Apple makes a CDMA phone they will surge ahead again.
AAPL is toast, their growth is seriously threatened. Reggie, it would be interesting to know how much of AAPLs revenues comes from iPods - cause that gadget is officially dead with connectivity everywhere and streaming music services... Which brings us to iTunes, which will also be f*cked if they don't start streaming.
apple is moving toward a streaming service for itunes. this is public knowledge. the fact that one day last month apple accounted for 20% of all actual trades on the NASDAQ is why we are really talking about this. a bad apple day is a flash crash. bet on it.
I posted the information from the 10K awhile ago. If you look at AAPL prior to the iphone, ipod devices in 2001, their stock was $7 and they had stagnation in their computer sector. Once it looses its dominance I can see the stock returning to near these levels........Is this a shorting opportunity forming?
Although you didn't differentiate, I assume you're referring specifically to the "classic" iPod, rather than the touch. I agree that the "classic" iPod is effectively dead, but for more reasons than you list:
1 - The differentiating factor vs. the touch and the iPhone is greater memory, which is important to a smaller number of customers. This would be true irrespective of the rise of streaming, but that of course exacerbates it.
2 - Lacks the App support of the touch and the iPhone.
3 - You can carry the iPhone or a phone AND an iPod. Which is easier?