For the past couple of years, Apple fans have responded to the Android threat with an evolving series of arguments about why Android isn’t a threat:
- Initially, the argument was that Android phones sucked compared to the iPhone, which was at least a year or more ahead
- Then, when Android phones improved and the gap closed, Apple fans pointed out that that the iOS platform was was still much bigger than Android and therefore much better for developers
- Then, when Android became the smartphone market-share leader, Apple fans pointed out that Android phones were made by several different manufacturers and that Apple was still the biggest smartphone maker and that the App Store was still the best platform for developers
- And so on…
But now Android isn’t just the operating system market share leader. Now, a single Android manufacturer, Samsung, has blown past Apple in global handset sales, shipping a 28 million units in Q3 while Apple only sold 17 million iPhones.
Yes, there were some mitigating factors. Q3 was a disappointing quarter for Apple iPhone sales, because consumers were waiting for the iPhone 5. Samsung’s shipments were sales into the channel, not end-user sales. Samsung’s smartphone sales include some Windows phones. And, yes, Apple will likely have a monster Q4 on the back of the iPhone 4S.
Android has now blasted past iOS in the smartphone platform market. Samsung has now blasted past Apple in the global handset market. Samsung and Motorola phones have now come very close to the iPhone in terms of design and performance, so much so that even some former Apple fanatics are defecting to Android. And Android has become an increasingly viable and important platform for developers (and, if past is prologue, is on its way to becoming the most important).No matter how you look at it, in a race for global smartphone platform domination, this is a worrisome trend for Apple.
As the history of the tech industry has demonstrated again and again, technology platform markets tend to standardize around a single dominant platform. Although several different platforms can co-exist while a market is developing, eventually a clear leader emerges. And as it does, the leader’s power and “network effects” grow, while the leverage of the smaller platforms diminishes.
In the case of Android, this growing power will not lead to enormous profits for Google, because, right now anyway, Google is not selling Android. (Instead, Google is building a “moat” around its wildly profitable search business and making it easier for people to use Google search from their phones. This may change when Google acquires Motorola and starts selling integrated handsets itself.)
But the better Android phones get, and the more market share Android gains, the more Android’s network effects will increase, and the more Apple’s leverage over the iPhone ecosystem will diminish. And that can only be bad news for Apple’s ability to continue to command exploding profits from iPhones, app developers, musicians, media companies, and others who now must pay it big distribution fees because they have no other choice.
Similarly, the bigger other global handset manufacturers get relative to Apple, the less (relative) leverage Apple will have over partners in the global parts-and-manufacturing supply chains.
As we’ve noted frequently, Apple learned some key lessons after getting clobbered in the PC platform market in the 1990s. And it has three key advantages that it didn’t have then:
- Its products are priced the same as, or below, the competition (In the 1980s and 1990s, Apple’s Macs were always “premium” priced)
- The “platform” aspect of smartphones is not as all-powerful as the platform aspect of PCs, because so many apps are built into all phones and/or are cloud-based or otherwise platform agnostic, and
- Android is still a fragmented platform, with several different versions that aren’t cross-compatible, reducing the advantages of a common platform
All these advantages have helped Apple continue to thrive over the past couple of years. But Apple’s decision to move the launch of the latest iPhone back three months, as well as its decision not release a revolutionary new phone until next year, have helped Android close the gap. And the ongoing Android share gains, as well as Samsung’s blowout quarter and the disappointing Q3 iPhone sales, should be wake-up calls.
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