Now, I have been warning of this occurrence since Android was actually in last place, early last year.
- Math and the Pace of Smart Phone Innovation May Take a Byte Out of Apple’s (Short-lived?) Dominance
- Android Now Outselling iOS? Explaining the Game of Chess That Google Plays in the Smart Phone Space
- Empirical Evidence of Android Eating Apple!
- More of the Android Onslaught: Increasing Handset Revenues and Growth
- The Complete, 63 pg Google Forensic Valuation is Available for Download
- iSuppli Continues to Validate BoomBustBlog’s Original Thesis: Android as the Viral Game Changer!
- BoomBustBlog Research Hits Another One Out the Park! Google up nearly 10% after hours, true blowout earnings
The reasons for Android's ascendence are multi-fold, but the two primary factors and a tertiary factor that many may not believe - performance and capability. Yes, as capable as Android is, tech is not the reason for its success. It is the business model upon which it is predicated. Since Google is primarily a services and ad company, it can afford to give away such technology and wait patiently for contingent returns as the market eats at itself until margins are dropped to near zero. No other competitor (except for possible Microsoft, who had anti-trust issues and big company-I can't get off my ass-itis) could have afforded such a long term, binary option strategy. Now Google, as did Microsoft in the '90s, can benefit from both rampant growth in the market and destructively competitive margin cutting as it sits back and reaps the benefits of its longer term investment. This is one of the best attributes of this company - it invests strategically for the long term and ignores performance now for this quarter to please Wall Street fever. Youtube, Android, Admob and Grandcentral (Google Voice) purchases have positioned this company to do very well in the mobile space - which according to Steve Jobs is the new PC space. Here's why Android has taken over the smartphone space and why it will quickly take over the tablet space as well.
- The Android OS replaces a deep and ongoing cost of research and development for hardware vendors with a null line that costs them close to nothing and probably has a negative costs since Google splits revenues with them. Android also engages in revenue sharing with carriers. Which OS would you rather sell, iOS which charges you a participation fee as a carrier or Android which actually kicks back revenue? Which would you rather do as a vendor, dump money into an OS which has been getting beat up by iOS or outsource it at no cost to Google, and still benefit from a humongous app store and state of the art tech - all the while getting a cut of revenues? As you can see, there is a very legitimate reason why every major (and minor) carrier is carrying a whole portfolio of Android products. There is also no mystery as to why so many hardware vendors are jumping on the Android bandwagon - particularly since so many carriers actually lost money selling iPhones despite high volumes.
- Android is progressing very, very, very quickly. It has development cycles that literally run circles around ALL of its competition. The major reason is because it is a popular open sourced product, hence benefits from literally hundreds of thousands of developers and coders adding to and perfecting its code base. No single, or even group of companies can compete with that. The result: A development year for Apple or RIM is akin to a development quarter for Android, and that's being pessimistic.
- As a result of number two, the Android tech is now constantly cutting edge - no actually bleeding edge. Any distance that it has gained technically over Apple, Microsoft, Nokia and RIM will simply be exacerbated as more and more sources such as XDA and Nookdevs add features and ideas to the code base that are incorporated over (a very short) time or added unofficially through cooked ROMS and kernels which serve as proofs of concept for the next iteration.
Just imagine if Google offers to give retailers a slice of ad and service revenues in exchange for carry its products. Android everywhere. Instead of buying ad space they will simply purchase the retail space directly. This is the power of the Google model! This unique and powerful business model is taking its toll on market darling Apple (and to a much greater extent, RIM - but I will get to that in a later post), but that toll is invisible to many due to the extraordinary growth in the mobile computing market.
Apple is pulling phenomenal numbers in terms of revenues and profits. Much or those numbers came from fantastic growth and outmaneuvering the competition. Since Android has become ascendant, those numbers are increasingly being derived from another - much less desirable source.
As you can see from the chart above, for two out of three quarters, Apple has grown market share slower than the actual market has grown - clearly indicating that the growth of iOS products is being buoyed by the mobile computing market's explosive growth. Looking below, Android has consistently grown at many multiples of the market's growth.
It is this explosive market growth that kept RIM in the game, and it is also giving a distorted view of Apple's performance relative to other OS vendors. be aware that it is quite possible that this market growth can shrink considerably with another economic collapse or dramatic spike in input costs, which is currently occurring.
Of course, component manufacturers benefit no matter who wins the wars, as long as the mobile computing market keeps growing - making them marginally less risky.
Monetizing the Mobile Computing Race
We have a pretty firm idea of who is in the pole position as of now, but that position is both risky and volatile, not to mention medium to long term in nature – see Navigating BoomBustBlog Subscription Material To Find The Google Valuation Drilldown.
A more risk averse strategy is to go long on the component vendors who supply those battling for pole position. Last week we released the document Long candidate #1 – Hardware: The Mobile Computing Wars to subscribers that outlined who our number one pick was after an initial scan. This is not necessarily the absolute final say on the matter since we have yet to perform a full forensic analysis, but the company does look good in comparison to over 120 peers. Non-subscribers should reference The Potential Equity Investments Most Likely To Prosper From the Google/Apple/Microsoft Mobile Computing Battle.
I am releasing the draft of the full shortlist of prospective long candidates as of now (17 pages, 5 companies) to subscribers. Please be aware that is a draft document and work in progress, but it is quite informative nonetheless. See Mobile Computing Vendor Long List Note WIP. Those who wish to subscribe should click here.
Click here to read up on all of Reggie Middleton’s Mobile Computing War opinion, analysis, and research.