Above the Crowd

Android or iPhone? Wrong Question

January 5, 2010:

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In a recent New York Times article, Kathryn Huberty, a Morgan Stanley analyst was quoted suggesting that Apple’s iPhone is the key catalyst for an important new technology trend. “Applications make the smartphone trend a revolutionary trend – one we haven’t seen in consumer technology for many years.” This argument rings true in that the “after iPhone” smartphone market is dramatically more interesting than the “pre-iPhone” smartphone market. Later, Ms. Huberty made an even bolder statement, “The iPhone is something different. It’s changing our behavior…The game that Apple is playing is to become the Microsoft of the smartphone market.”  Or perhaps not.

Many analysts and bloggers have worked hard to position “iPhone vs. Android” as the title fight of the decade in the technology industry. It is an easy comparison to want to make. Both phones use rich microprocessors, are graphical, both have GPS and Wifi. They both run a sophisticated operating system, and they both give you access to thousands and thousands of third party applications. In most practical ways, they seem similar. However, there is one fundamental difference – business model choice.

When Apple launched the iPhone, it was able to secure an unprecedentedly strong business relationship with AT&T. Not only did Apple want control over the user interface, something carriers had been extremely reluctant to cede, it also wanted previously unrealized economics for a handset or OS designer. Apple insisted on upfront revenue dollars as well as a cut of the cellular service stream. AT&T, desperate for a win vs. Verizon, acquiesced.  The product was launched to rave reviews from analysts and consumers alike. It really was a brand new market and a brand new product. As noted earlier, we only “thought” we had seen smartphones before the iPhone. This market, as Ms. Huberty notes, looks like one that is Apple’s to lose.

With the iPhone’s massive success, it would be hard in retrospect to challenge the thinking behind Apple’s business model choice. After all, it will always be true that Apple was the company that “cracked open” the famed Walled Garden of carrier-land. They also did it with style, demanding golden economics as it disrupted a previously obstinate industry. And although AT&T may have become “comfortable” with its choices as a result of the iPhone’s success, other carriers suddenly had an “iPhone problem.” Enter Google.

If Apple’s business model is aggressive relative to the carriers, in contrast Google’s seems unrealistically accommodating. You want to control the user interface? No problem. Want access to the code? We’ll make it open source. What kind of economics do we want? Nothing at all.  What the hell, we will pay you!  That’s right.  Google will give the carrier ad splits that result from implementing the Google search box on any Android phone. FBR Capital Markets suggests that Google is taking this idea one step further in its November 24, 2009 report titled Implications of a Potential Share Shift to Android-Based Wireless Devices. “Recent support for Android-based devices appears to be correlated with significant up-front financial incventives paid by Google to both carriuer and handset vendors.” FBR goes on to suggest that these incentives may be as high as $25-50 per device. This is simply an offer that no carrier can refuse, particularly when U.S. carriers are currently in the habit of paying $50-150 per handset sold in subsidies.

While Apple may have opened the proverbial Walled Garden, it is Google, with its aggressive Android offering, that aims to obliterate it. Make no mistake about it; Apple was the pioneer with the amazing revolutionary product. Also, with no iPhone, there is no Android. This is not to say that Android copied iPhone, but rather the impetus to adopt and trust Google’s Android offering was driven by a market dynamic that resulted directly from the iPhone’s success.  Without the iPhone, it is possible that most carriers might have opted not to use Google’s OS solely for the reason that letting a powerful company like Google in the front door can be a risky strategic bet.

All of this is now history. The iPhone does exist, and it is wildly popular. There are an estimated 55 million iPhones in use around the world. Despite this remarkable success, history will also show that Apple intentionally chose a business model with plenty of room for disruption underneath its pricing structure. It also chose a single carrier as a partner, which resultantly threatened others. Then Google built a product and a strategy that allayed the carrier’s relative fears. Google gave them what they wanted, and then even gave them money. It could afford to do this because Google aims solely to protect the great business they already have in advertising, not to make money directly from the product (HW or SW in this case). Microsoft Windows, Internet Explorer, and Mozilla’s Firefox represent choke points on the personal computer whereby Google could lose search share, or at least be forced to pay a toll. In mobile, they see a chance to potentially eliminate the toll-takers.

With a business model that allows for much broader distribution and price points that are well beneath the iPhone, Google’s Android won’t compete directly with the iPhone.  For the iPhone loyalist, like Stewart Alsop who railed against Android, Android is simply not an option.  This price insensitive user demands the very best experience they can possibly have and this is still the iPhone. Users won’t switch in mass from the iPhone to the Android. It’s the other 3.95 billion cell phone users that are highly likely to consider Android a step up from their current feature phone. The Android strategy results in phones at much lower prices with much more diversity which will hit a braoder set of demographics. Apple can and will quintuple its current market share and still have a small portion of the overall cell phone market.

This is why the two products do not compete head to head. With its super aggressive model, Android will be the choice of the masses, and with its sleek design and non-compromising price point, Apple will rule the high end. Many have suggested that Apple is perfectly happy with its high-margin spot at the top of the food chain. They are doing exceptionally well with that position in the personal computer market – in fact, they are currently gaining share at an accelerating pace. So no need to worry about Apple, they are doing just fine (as their stock price suggests). They are just not currently executing a model to become the “Microsoft” of the smartphone market.

Some will argue that the best product will win the market and that Apple will still dominate the smartphone market. The history of the personal computer market is no omen for this thesis. If you think about it, the people that know this better than anyone are the exact Apple loyalists who have been frustrated for years at Apple’s lack of dominance in the PC market. Disruptive business strategies can and have trumped better products. And with no change to the current market, the Android leveraged position in the market could result in staggering unit share gains. This is not to say that the Google Android is better than or as good as the Apple iPhone. The key point is that it does not have to be. It only needs to be dramatically better than the current feature phone. Which it is.

While Apple will be fine as Android gains steam, the amount of shrapnel flying around this new marketplace is immense, so expect innocent bystanders to be compromised.  Recognize that as Google’s play here is as much defense as offense, they have less of a need to “make a profit,” at least right out of the gate.  This type of attitude always makes for a messy competitor.  Also, because of the sheer breadth of the effort in terms of number of handset makers and number of carriers, Android will be marketed extremely aggressively.  Lastly, the early application leaders are beginning to believe it’s a two horse race.  Currently the iPhone is priority number one.  That said, increasingly these application vendors are seeing Android as the primary second platform to support.  Others are falling further and further behind.

Also, Android doesn’t appear to be an OS that stops at the smartphone market.  Expect much experimentation with a variety of hardware manufactures and almost any and every embedded device market from navigation devices to e-readers to tablets and beyond.  Android gives every Korean, Taiwanese, and Chinese manufacture whoever wanted to approach these markets a huge head-start.  Additionally, the more of these vendors that build on Android, the more Android will evolve for the better.  The number of applications will increase, and the problems will get worked out.  Just like Microsoft worked its way from Windows to Windows 3 and eventually to Windows 7, Android will improve with time as well.

With its disruptive and leveraged strategy, it is Google that is attempting to be the Microsoft of the smartphone market.  Perhaps ironically, Apple is well positioned to be the “Apple” of the smartphone market.

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  1. Steven Sherman January 5, 2010

    One of the best articles I have read on the “Smartphone” war.

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  3. fred wilson January 5, 2010

    such a great post Bill

    it really proves that companies are reflections of their founders/leaders and that Apple’s greatest strength and greatest weakness is Jobs’ desire to control the entire user experience.

    that desire is what opened up the opportunity for Microsoft to do Windows and now for Google to do Android

    it’s really fascinating to think we may witness essentially the same events transpiring all over again

    • Edwin Khodabakchian January 5, 2010

      Jobs definitely want to control the core of the experience but in a year or so, all mobile apps will be web based (and Apple despite offering a native SDK is leading that transformation by making webkit the best/richest/fastest mobile browser). At that point, Apple will not no longer need to control the extended experience (the same way they do not need to control what the user does in Safari to offer a great laptop experience). It will be interesting to see if the history repeat itself: I think that operators have a lot less brand powers than mentioned by Bill in his post (and this is why Google needs to push his own phone to have a chance) so it will really be a Google vs. Apple branding fight and it will not be an easy fight

    • PXLated January 5, 2010

      “that desire is what opened up the opportunity for Microsoft to do Windows”
      No Fred, it was IBM handing the entire desktop “business” space to Microsoft on a golden platter and 90%+ was “business” computing. By the time the Mac came out, Microsoft had that market sewed, Apple wasn’t going to take over the world no matter if they were open or controlling. It was the lock-in that provided Microsoft the opportunity for Windows.

  4. Eric Wiesen January 5, 2010

    Bill – I agree with you that Android is about far more than high-end smartphones (or phones/PDAs in general).

    However… not to seem daft, but if the entry-level iPhone is $99 (as it is today), how much can Android-based phones really undercut it? Presumably when the next generation of iPhone comes out, Apple will have the opportunity (which they may or may not take) to drop the 8Gb model down to “free with contract” much as RIM has done with the previous-generation Blackberry Curve.

    • bgurley January 5, 2010

      Based on what i have seen to date I would not think that Apple will chase Google down a price war path.

    • Eric Wiesen January 5, 2010

      Perhaps not, but would they necessarily see it that way? They went to a $99 price point not because Google was there first. If devices are largely point-of-sale opportunities to sell music, apps (movies, books…) then offering a previous-generation hardware rev at a very low price point may be rational for Apple.

    • Milind January 5, 2010

      Bill, Amazon is selling the Droid Eris for $10 with a 2 year contract. Expect prices to go below $0 as they did with many feature phones. Apple simply can’t compete.

  5. Edwin Khodabakchian January 5, 2010

    Great post. One question though: Apple’s product is currently priced at $99 and Google’s product is priced at $199 to $529. Currently Apple is offering a better product and creating a deeper emotional connection with its users at a lower price. Android will emerge as a competitor but it will not be an easy fight for Google.

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  8. Arun Mathur January 5, 2010

    Another interesting tie-in here is Google’s new bundled set of geolocation capabilities. Android, Nexus One, and even the dropping of the mapping providers received good press, but Latitude and Favorite Places have been comparatively stealthy initiatives. This bundle really closes the gap on companies, applications, and APIs in this space. Geodelic, Foursquare, and CauseWorld/Shopkick come to mind.
    Thanks for another highly informative write-up!

  9. Daniel January 5, 2010

    I like your style of thinking, altough I don’t agree with your conclusions on this one.

    Why would Android’s competition in the high-end and low-end have to be mutually exclusive?
    As I see it, with the release of Nexus One Google is aiming at both of them. You’ll have a lot of Android devices with sub-par app performance, and Google’s certified gadget being performance-wise on equal grounds with iPhone.

  10. Paddu Govindaraj January 5, 2010

    While Apple can make money and follow a successful business model with iPhone, I guess as consumers and businesses, we need Android. A more open platform is a necessity for the common good. People who can afford iPhone can keep buying (just like they buy Macs) and Apple can remain a luxury brand used by top 2-5 percentage of the consumers. I don’t see any issue with that.

  11. andy idsinga January 5, 2010

    Thanks Bill I really like your posts.
    One thing I like about both of these platforms is the fact that they both have excellent browsers – that reach down in the device’s hardware capabilities. I think that’s a very good thing for web apps / web app developers.

  12. Pingback: Android Versus iPhone: The Illusory Cage Match « Twilight in the Valley of the Nerds

  13. rossor January 5, 2010

    Interesting article, Bill.

    So what could go wrong? Google’s long-term goal here is to entrench its ad business further. What happens when the ad business evolves (and it will)? Android could become an albatross rather than an asset.

  14. Jon January 5, 2010

    In what I’ve seen, it doesn’t seem like Android phones are much (if at all) cheaper than iPhones. At least not now.

    The Droid on Verizon is $200 with a 2-year contract; the same as tthe comparable 16gb iPhone 3GS on AT&T.

    Other phones range from $130 (T-Mobile G1) to $150 (Verizon Droid Eris).

    Those don’t seem like huge savings if you’re calling the iPhone “the best” and Android “good enough”. Popular feature phones are *free* after rebate, and Android phones seem far away from that right now.

    • bgurley January 5, 2010

      You are looking just at consumer economics and not carrier economics. On the iPhone, AT&T is giving a piece of the monthly service revenue to Apple. That doesn’t happen with Android.

    • sgnew January 5, 2010

      AT&T no longer gives a piece of the monthly service revenue to Apple for the current models. It only did for the original iphone and revenue sharing was discontinued with 3G iphone

  15. Pingback: Google’s Nexus One: It’s Not About the Phone, Really « Rob Hof's Blog

  16. kevin January 5, 2010

    AT&T no longer gives Apple a piece of the monthly revenue stream. That only occurred for the original iPhone that sold for 599 (and then down to 399). Subsequent iPhones have been subsidized up-front with no stream.

    That said, your analysis is still excellent. Because of advertising revenues, Google could commoditize hardware and thus outflank Apple, who relies on hardware sales. I’d like to see what Apple’s next move is (that is, the move after buying Quattro). Will Bing become the preferred search engine in Mobile Safari (and Safari)?

  17. goldfinger80 January 5, 2010

    good post, a few comments, agree with Android being the #1 player in terms of customer reach. However, similar to some of the other comments, I don’t see why being ubiquitous and the best is mutually exclusive. Google aims to be #1 in terms of providing the best products in all their catergories, so I don’t see them being content to be #2 in the high end catergory. If nothing else, I can see some of their phones being as great as the iphone in the high end catergory.

    • Nabeel Hyatt January 5, 2010

      Google does not aim to be the “best” they aim to be the most ubiquitous. Try using Google spreadsheets — it is quite obvious they compromise functionality & experience for ubiquity if it calls for it.

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  19. Augustus January 5, 2010

    A thought provoking post, no doubt.

    Where I disagree though are in the following ways:

    1. Android is not a feature phone in that it costs $80 odd bucks monthly just as the iPhone.

    2. The Microsoft OS driver was the wide range of applications. People stuck with MS-DOS and Windows because of the number of applications (just like Betamax vs VHS wars).

    Not so with the iPhone. The iPhone has the largest number of apps and there is no driving force to use an Android phone except maybe to avoid AT&T.

    These two points makes it a radically different market than the PC model.


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  22. Nabeel Hyatt January 5, 2010

    Great post Bill. I always thought one of the major reasons that no one was able to make much of a dent in the MP3 player market after Apple took over was the approach. Almost everyone was trying to “out-Apple” the iPod, and competing on the same basis as the leader is incredibly difficult as any startup person knows.

    Google, at the very least, is competing on a different set of terms – largely because they have a somewhat different set of goals. That’s reason to be optimistic.

  23. Charlie Kemper January 5, 2010

    Great post Bill. The question to ponder is whether the market will evolve as Macintosh and Windows did or whether Apple will hold ground & continue to grow. Will, over time, the Mobile OS world sustain multiple providers or will we end up in a world where one OS dominates market share?

    Is there a developer, application, and user network effect in the mobile world? Any kind of network effect could impact this outcome uniquely.

    On the face of things, it would seem to me that Google is taking a page from the Microsoft Windows playbook and Apple is taking a page from, well, the, uh, not so successful Apple Macintosh playbook.

    It could also just be that the Mobile OS world can end up looking very much like the video game console industry, with three players (Microsoft XBox, Sony PlayStation, & Nintendo Wii) today equally vying for market share along with several other players (Sega, Atari, 3DO, NEC, RCA, etc) making waves here & there. What about RIM in this above discussion? And, dare I say, Palm?

    Although more free market examples would imply a standard Google & Microsoft analogy, only time will tell how the Mobile OS world evolves differently.

  24. Pingback: Android or iPhone? Wrong Question | Bill Gurley | Voices | AllThingsD

  25. Leslie Grandy January 5, 2010

    A very thoughtful analysis. Having worked at T-Mobile on the launch of the first Android device, the T-Mobile G1 and at Apple on the Online Store team, I have seen both companies operate. I would add to your above comments this perspective: Apple makes hardware with skills and precision throughout design, engineering and the supply chain that Google does not possess nor express any interest in developing. Quite the opposite. That part of the overall business model is hugely impactful. Paralleling Microsoft’s evolution, Andy Rubin today lamented that backwards compatibility between the hardware and software for mobile phones would stall innovation. Yet Nexus One is really only optimized to run fully on the T-Mobile network in the US. Rubin further compared the Nexus One to his laptop from four or five years ago, a machine that wouldn’t run today’s version of Windows, he pointed out.

    Apple would never release beta products the way Google has (How long was Gmail in beta?) and Google’s version of an online storefront is pretty underwhelming from a marketing or technology standpoint. But in every way, we’ve seen Google’s agenda is to zig where Apple zags and by being the anti-Apple, they become the Microsoft of the New Millenium.

  26. Gert Steens January 5, 2010

    Great post, reminding us that Android is not just the Nexus One. I particularly like the analysis of your last sentence.

    I find it interesting that Google with its handset web shop is trying to find a way to protect the branded user experience, not unlike Apple’s hardware control strategy.

    It could be a good business model for both scale (“anybody can use Android as pleases them”) and branded quality (“but only the good ones get a Google Web Shop stamp”).

    Is it fair to say that such a hybrid platform model is better suited for Google’s scale-hungry advertising earnings base than for Apple’s margin-hungry hardware earnings base?

  27. Pingback: Forfriskende artikkel om iPhone vs. Android | Making Waves

  28. stratosferik January 6, 2010

    Interesting take on thesmartphone war, going way above the usual “functionality, price, coolness” factors.

  29. Haydn January 6, 2010

    Interesting Bill – but what of Nokia? Yes Android and Apple are disruptors but in the PC market Windows and Microsoft never went away (never really diminished in strength until lately). On that basis Nokia has thirty years of market dominance left without really trying to hard.

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  32. blackwatertown January 6, 2010

    Interesting stuff, thanks.

  33. Rob Wilmot January 6, 2010

    Thanks Bill, an excellent, unbiased and carefully explained analysis of the market – which is a rare occurrence amidst the background noise and rival doctrines of the churches of Apple and Google.

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  35. Scott Nesbitt January 6, 2010

    Excellent post.

    My question is why does Apple not open up the iPhone to other carriers? If they are going to be the Apple of smart phones then they need the top 10% of users from every carrier out there. Many people refuse to use an iPhone simply because of AT&T loathing.

    Also, ignoring the masses has a tendency to shrink market share more than desired. I would not be shocked to see it go below the coveted 10% to, say, 4%.

    • hisfool January 6, 2010

      Why does Apple not open up the iPhone? My guess is because that has always been their business model, closed OS, & closed architecture has always been the Apple way. (Well there was that one short foray into the open market in the early 90’s as I recall.) They seem content to have a much smaller abet pricey market share.

    • Ed January 6, 2010

      Apple will open to other markets. Apple already is untethered in Canada. Also, an AT&T rep told me that the iPhone will be available on other networks starting in 2010 in the US.

    • Sam S January 6, 2010

      Apple “CAN NOT” sell through other US carriers.

      AT&T gave them a deal that looked foolish way back when in exchange for exclusivity contract. Verizon turned down the same offer.

      Its not all that a great deal though. For all the $100/month they pay AT&T’s network is not being fully compensated for the heavy toll that iPhone users exert on it.

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    • palosny January 6, 2010

      You are just wrong about Apple not opening the iPhone to other carriers!

      Apple has indeed opened the iPhone to other carriers: albeit Internationally.

      Take Canada, for example.

      It’s strategy of signing on with ATT initially (introducing the phone in the U.S. with an extending contract ) was what allowed them to break into the mobile market to begin with.

      Rest assured, their game plan all along has been to diversify: my ATT iphone contract expires in June ’10, and I’m holding off upgrading with ATT to 3Gs from 3G iphone until then, and possibly be able to switch to Verizon. 🙂

  37. Hmm January 6, 2010

    very interesting. But kind of think that your thesis is based on price disparity between the two — and I just don’t see it (at least not to the extent that you propose will bifurcate the market). So does that mean your argument falls apart?

  38. NQ Logic January 6, 2010

    Google is moving down in the stack to challenge B2C opponents with an open architecture and new sets of standards. In creating a post-revenue business model, Google can only manage success if consumers accept a co-branding and outsourced manufactured device … NQ Logic recommends reading about the rest of the new Google’s mobile strategy at http://www.nqlogic.com

  39. racking January 6, 2010

    very interesting. I would have both cell phone
    if have enough money

  40. AdamC January 6, 2010

    One thing you had left out is what will advertising do for the iPhone. A free 8gb iPhone supported by ads?

    Apple hasn’t been sleeping like what you and other bloggers and and have been saying. Will they repeat the same mistakes of the eighties when a sweet water salesman was running the company or will this be a different Apple run by people who had tasted the sour apple, well only time will tell.

  41. mehd hash January 6, 2010


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  44. Kenster January 6, 2010


  45. Aaron Burke January 6, 2010

    But what isn’t explained is that you MUST change to a very specific rate plan, and if you have a multi-line family or corporate plan, you’re out of luck and must pay the full price, even if you’re otherwise eligible for a fully discounted upgrade for any other phone! This is a shady practice and must be changed. Sign the petition here: http://www.petitiononline.com/nexusone/petition.html

  46. Uday Subbarayan January 6, 2010

    Apple needs to open up at least “good enough” on the closed platform for it’s continued success.

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  49. Greg McDonald January 6, 2010

    An interesting post, for sure, and no doubt a future HBS case study. Many commentators have recognized the margin-focused strategy of Apple vs the scale-focused approach favoured by Microsoft & now Google. In the developed world, Apple will survive as a leader, but this will be at the expense of its developing-market leadership, where an Android-familiar mass market will throw up a plethora of Android-focused apps.
    The post is US-biased in its focus on a single carrier, in AT&T, but in the equally large, more sophisticated European market, Apple has learnt to move away from single-sourcing (O2 in the UK) to multiple-sourcing (Orange & now Vodafone have been invited to the party!). Don’t underestimate the Apple!

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  51. keithmansfield January 6, 2010

    The question is wrong because the US has always lagged several years behind the rest of the world in cell-phone technology. Apple, from the terrible original spec, has caught up a little ground, but not enough to make it a sensible choice for anyone other than a follower of fashion. It has to be Nokia for me – stunning usability and ingenious design. Just as Windows tried to give PC users the look of a Macintosh, the iPhone has tried to give the sheep who worship at the alter of Apple the look of a Nokia. And now Android is apparently trying to copy the iPhone which copies Nokia’s smartphones. Personally, I think I’ll stick with the original and best. As for Google, doesn’t everyone realize we’re all better off with a little diversity? Why is it everyone who gets big tries to take over the world?

    • Jan B January 7, 2010

      you are joking about the Nokia part right? I sure hope you are. Nokias Symbian based smartphones is among the worst phones in ease of use

    • George Mason June 13, 2010

      Sheep? People who, for their own reasons, prefer Apple are merely part of a flock of sheep who worship some Church of Cupertino? Please go somewhere with your Nokia and lighten up.

  52. Derek Kerton January 6, 2010

    Hey, I don’t usually drop to offer compliments, but that was an excellent piece, well rounded, which touches on a variety of historical, strategic, and forward-looking topics, and nails every one of them.

    Lots of commenters here writing about Apple working with an exclusive carrier, or many. People, the answer is: they needed to strike an exclusive deal at first to penetrate the market. No carrier wanted to offer the iPhone, because it represents a great loss of power/control for the carrier. It was a prisoners dilemma: if all the carriers refused it, then all carriers could retain their control. But if one accepted, that one would have a “killer handset”. But no carrier would accept Apple’s terms without some exclusive benefits. Thus, sans exclusives, we would never have seen the iPhone. We would have seen an Apple entry that looked more like the Moto Rokr. Now that the iPhone is a well-known product by the world’s consumers, the carriers can no longer block it and act like it doesn’t exist, thus Apple no longer needs or wants exclusives. So they will not renew most exclusives, over time, region by region.

    You’ve captured the important way that (in an almost choreographed succession of self-serving moves) these OSes have upended the market, and market power in the USA. Apple jammed in the crowbar into the walled garden’s doors, and then Android pried the doors. Pandora’s box is now open.

    As for the great OS battle, I think the two in your article will compete on many fronts – certainly more than you suggest. The market is just not that discretely segmented. But both will succeed along the lines you argue. The real competition story is the impact these two OSes have on RIM, Nokia, MSFT, etc. Of those three, RIM has repeatedly shown an ability to scrap, compete, innovate, and execute. Nokia has trouble with UI and execution. These are the guys that should buy WebOS, but will instead keep floundering with Symbian for some time. And MSFT…where to begin. Looks like MSFT may be the Linux of the mobile space…shunned by consumers, and relegated to a few IT departments with special requirements.

    I wish all those companies the best. The more competition, the better. But for now, some are falling behind instead of catching up.

    Derek Kerton

  53. Dave Rothschild January 6, 2010

    Bill, the title of your post is promising but the analysis doesn’t carry it through. In the analysis, you seem to segment the market based on devices. But your title implies it’s not about devices, correct?

    Being the student of disruption that you have proclaimed, I would think your analysis would spend more time setting up a clearer segmentation using something like the “jobs-to-be-done” approach advocated by Christensen.

    Surely, everyone that has a feature phone is not trying to get the same job done. Many of those consumers consist of a segment that only want a very simple, inexpensive, low cost way to communicate. Smartphones are not a great solution to this job….they do the job but at a cost of size, battery life, weight, acquisition price and at times contract commitment.

    Smartphones are mis-named. They are mobile computers. The “phone” aspect is just an app and the initial beach-head to do the market making for small mobile computers that are always connected.

    The benefit consumers of smartphones are buying is mobile computing. The beauty of mobile computing is that it eliminates the constraints of computing that desktops and laptops create (too big to use in small snippets of time).

    But more importantly, a wide base of consumers love mobile computing apps because they can then make their mobile computer unique and relevant to the circumstances by which they live their lives, not how the vendors decide how they should live their life. The mobile computer “smartphone” with apps allows for mass personalization to meet the needs of many, many different consumers living within many, many different circumstances. It becomes unique and relevant to the consumers circumstances and that drives usage, loyalty and word of mouth.

    So the title of your article could be: “Android vs iPhone: It’s Transportation Not Railroads that matters….”

    A product, in the eyes of the buyer, is the benefit the product delivers. Recall Ted Levitt’s “Marketing Myopia” comment about trains not realizing they were in the transportation business. Smartphones, mobile OS’s, iSlates, tablets, netbooks, etc. are about the benefit they deliver…. Mobile computing is the broad way to say it but that’s not quite it….but it at least frames the problem and segment in a way that can help all of us analyze and predicate winners, losers, opportunities, threats and more.

    • bgurley January 6, 2010

      i have to call them like i see them. Learned today that Google is sharing the app revenue with carriers (Apple is not). These types of economic differences matter.

    • Edwin Khodabakchian January 6, 2010

      Great point Dave!

    • Dave Rothschild January 6, 2010

      Another point about yesterday. The big winner was HTC. Their CEO and company gets lots of press because they are the only device. HTC continues gets free media and Google support to further build their brand, something they chose to do after dropping the traditional Taiwan ODM model.

      And, they probably got Google to fund the development of the handset through NRE, commit to volumes and buy those volumes at higher prices than a more sophisticated buyer, like a carrier, would buy it at. So even if Google doesn’t sell that many HTC wins big. They also get the halo affect of being the “official” Android provider. All other Android providers must be very upset.

      Why was the Moto CEO, Sanjay, at part of the Google event but didn’t get a phone in the Google store? Especially since Moto today announced a new Android phone? It could be because Moto doesn’t want to upset the carriers, their primary customers. But HTC sells to carriers also. So something is going on related to economics I’d bet.

  54. Kontra January 6, 2010

    “The Android strategy results in phones at much lower prices…”

    You base that assumption on what current facts?

    Also, virtually the same argument was made for the likely outcome of digital music industry. “One OS, many manufacturers” flag bearer Microsoft was going to come under the Apple’s price umbrella and just marginalize it, like it did in PCs. Didn’t happen that way. This is not the ’90s and Apple is not the same hapless company. And manufacturers have a better appreciation of and bitter experience in the necessary commercialization MS/Google strategy dictates.

    I touch on those here:

    Fragmandroid: Google’s mad dash to Microsoftdom

    • bgurley January 7, 2010

      i think what is specifically true is that the entire ecosystem has lower costs — particularly the carrier. over time, becuase of market dynamics, it should lead to much lower consumer prices. in the short run, it creates huge favortism by the carriers on promoting Android.

      AND, according to this (which you could refer to as “current facts” – it is a lower landed cost. http://www.billshrink.com/blog/iphone-versus-palm-pre-versus-android/

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  57. Pingback: Process for the Enterprise » Blog Archive » Google Nexus One is Out. I Still Like Apple’s Chances.

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  59. medlaw January 7, 2010

    I like the article. Think back to the days when Apple ruled the personal computer roost with the Macintosh then, inexplicably, refused to license the operating system. Result: Microsoft had room to gobble up market share with a then much inferior OS. Apple stayed the course at the high end of the market. I see a parallel here again with iPhone.

  60. Pingback: The Google Phone: The Empire Strikes Back « leaving the flock

  61. Me January 7, 2010

    Good points, I think I will definitely subscribe! I’ll go and read some more! What do you see the future of this being?

  62. Pingback: The mobile platform will play out the same way as the PC platform « ecpm blog

  63. Pingback: Google Dismissive of Microsoft as Mobile Rival « Twilight in the Valley of the Nerds

  64. Adam January 10, 2010

    good stuff!

  65. Pingback: Should You Get a Google Nexus Phone? : Callstyle.com

  66. Pingback: links for 2010-01-12 « Raw Stylus – A blog by Chris Hoskin

  67. Joe Jablonski January 12, 2010

    Bill – I was hoping you would go into the FCC requirements on non-locked phones when using the LTE technology in the 700MHz frequency spectrum. This is where Google really but the dagger into the Apple.

  68. mathew January 15, 2010

    Apple didn’t break open the walled garden; they just moved the wall to make it their wall instead of the carriers’.

  69. Pingback: Really Annoying Flaws of iPhone User Interface - Jan’s Experiments

  70. Anon January 19, 2010

    Rarely do I read an article and think, this writer is brilliant. One of those times. Nice work, right or wrong.

  71. Pingback: Even with Android and Nexus One, Google Still has Apple Envy « @ the intersection

  72. Pingback: SiliconANGLE — Blog — Even with Android and Nexus One, Google Still has Apple Envy

  73. Pingback: Stuck in Android Limbo | OverExpressed

  74. Pingback: Mobile OS Wars, Part 2 of 3 – Carrier Combat « SlalomWorks

  75. Eric Ver Ploeg February 5, 2010

    I completely agree with the main points of this post. But the headline seems off-base, at least from the perspective of an entrepreneur deciding where spend their precious cycles. “iPhone or Android?” is exactly the question they have to ask and answer. While iPhone has a clear installed base advantage, the momentum, breadth of coming headsets, superior business model (at least from the perspective of gaining market share), and easier/faster app approval process, are increasingly pointing to Android being the rational first choice for app developers.

  76. Chip Davis February 19, 2010

    There are interesting philosophies in play here between the two platforms. The Android philosophy takes the MSFT approach and loads everything it can into the feature set. The Apple approach offers substantially fewer “out-of-the-box” options sort of indicating to users…”you make think you want this and that but you are not getting it.” Normal human behavior is to be feature gluttonous without regard to the real need. Android plays to this and throws everything it can into the box. The product feels substantially less like a consumer product than an industrial product. As an example, the applications home page in the Android system doesn’t refer to a phone as a “phone”. It is labeled a “dialer.”

    You and I may innately understand “dialer” but my wife does not. She understands “phone”. Android feels like the windows experience all over again (which to me is complicated). I talked to a sales person at an AT&T shop that indicated a lot of complaints and returns have occurred. Complaints are generally a function of expectations. I wonder what was the source of the expectations.

  77. Pingback: Twitter Updates for 2010-03-02 | Brian Magierski

  78. Pingback: The re-entrant coder » Android or iPhone? Wrong Question « abovethecrowd.com

  79. memesage March 5, 2010

    very interesting, but wearying to see statements like this:

    “This price insensitive user demands the very best experience they can possibly have and this is still the iPhone.”

    This simply cannot be stated as established fact, not for a quite some time. I use Blackberries, iPhones, and Android regularly in my profession.. Switching between Apps in iPhone is a pain. Dealing with push notification is a pain.

    Use an android for any amount of time and you’ll realize its just a tiny little computer with a Desktop. Apple seriously has some work to do. Android phones are the sensory extensions of the distributed semantic networked intelligence of Google.

    I confess this is scary. The iPhone is fun, but scary wins. And what networked intelligence gets fed more by the iPhone itself?

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  81. Steve Gurley March 14, 2010

    Although phone features and price are important, it will be the ecosystem surrounding the phone that will ultimately dictate the outcome of the Apple/Android slugfest. The ecosystem is composed of many things:

    1) A copious source of easy-to-access content (e.g. music, videos, educational material, info, etc)

    2) An electronic commerce platform/relationship(e.g. an easy/safe/secure way to buy things while mobile)

    3) A repository of innovative solutions (e.g. a rich/open pool of high-quality smartphone app’s)

    4) Access to one’s own information (e.g. at a desktop, at the enterprise and/or in the cloud)

    5) Seamless access to fast, broadband data networks (e.g. 3G, 4G and Wifi)

    While the capabilities and features of the growing cadre of Android-based phones are impressive, the ecosystem surrounding these phones is far less uniform, polished and integrated than that of Apple. Google and its partners simply lack the ease and consistent user experience that is offered by Apple and iTunes… particularly for the technophobe. Buying content or apps from iTunes is an easy, seamless and understandable process. This is much less so for Android-based phones. The commerce relationship built over seven years between Apple and its iPod and iPhone users give Apple a clear legg up. And applications… sure Google has apps, but it is clearly apparent that their affinity for openness has allowed some pretty rough-looking apps to get into the party. This will ultimately dilute the confidence of Android users as they compare their more rough-looking apps to the more polished-looking app’s available from Apple’s developers. In terms of personal information management, Apple flatly provides users with more choice. After all, if you can’t store and access your personal information where you want it, then you’re not going to play. Finally, since Apple appears able to call the shots with just one carrier (AT&T in the US), a developer can have confidence that every phone will be equipped with an unlimited data plan. This is both less predictable or understandable with the growing pool of Android devices and carriers.

    Don’t get me wrong, I whole heartedly believe that Android will be a powerful force in the burgeoning smartphone sector; however, Apple’s control of the ecosystem will make the iPhone a better bet for influencing how ordinary, non-technical people manager their lives. After all, it’s not just about having a cool phone, its about having a phone that has all of the component pieces required to positively influence one’s lifestyle and make one’s life easier. In the end, I believe this will dictate the winner of the Google/Apple handset battle and as of right now, I think Apple and the iPhone have it hands down.

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  84. info March 17, 2010

    iPhone versus Android. Pick your favorite and see if you’re on the winning team!

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  86. Pingback: Which platform should I choose? iPhone vs Android | Innovatia

  87. Pingback: Android (Google) y iPhone (Apple) no son competencia directa | Undernews - Internet, negocios y tecnología, de bloggers para bloggers.

  88. rbnolan May 12, 2010

    I think there is a classic battle to own the platform for smart, handheld, devices. Google is trying to disrupt the market by introducing a different business model, but I do not think that that means that they are not competing with Apple directly.

  89. yoshiman May 24, 2010

    i have a iphone and my freind has an android but we keep arguing which is better but i am sure iphone is as it has better touch and is totaly cooler

  90. Michael Mortimer July 28, 2010

    Interesting… albeit I suspect Apple wants to be king in the smartphone market or the “Microsoft” of it.

    Steve Jobs does not want a repeat of what happened in the PC wars.

  91. Anup August 5, 2010

    Great analysis!! My guess is apple did not realize how big a game changer the iphone OS was and entered into a long term contract with ATT. Lets see what Steve Jobs does in the near future.. its heating up

  92. Victor Wong August 17, 2010

    Both Apple & Google are going after a business model that is non-linear. This is where the battle really begins – which platform do you want to join? And in the long run which platform will be the biggest and most profitable? In the long run my bet is on the Google platform.

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  94. Linda September 1, 2010

    I don’t have an iPhone nor an Android. I am thinking very seriously about getting one or the other, that is how I came by this article. Unfortunately, I still have not found enough information to seal the deal for me one way or the other. If I am going to drop almost $400.00 into a phone, not counting the data usage plan and being stuck with it for 2 years, I want to make sure I am making the right choice.

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  98. Diseño Web October 24, 2010

    I”ve read an interesting post in AboveTheCrowd about this war. The conclussion that I obtained reading it and some other good posts is that Google’s

  99. arquitectos en cordoba October 28, 2010

    Great analysis!!
    made some good strides for openness and data portability. Google is definitely in a strong position to revolutionize the mobile phone

  100. Pingback: Timothy Chen » Blog Archive » iPhone Versus Android – Not About Head-to-Head Compete

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  102. Phone December 9, 2010

    Hi, While the capabilities and features of the growing cadre of Android-based phones are impressive, the ecosystem surrounding these phones is far less uniform, polished and integrated than that of Apple. Google and its partners simply lack the ease and consistent user experience that is offered by Apple and iTunes… particularly for the technophobe.

  103. Excogitate January 6, 2011

    so… android is a mass-market only OS? not high end, huh?

    i think you need to re-think your, “see your competitors catching up to you in the race so you declare you were never in it it in the first place” arguement.


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  105. Pingback: Weekly Research Update | January 8, 2010 « The Xplanation

  106. Pingback: The Freight Train That Is Android « abovethecrowd.com

  107. Adam Snow March 25, 2011

    Was just thinking about these last couple of sentences today, in light of RIM’s Android move, and various other recent events (AT&T/TMobile, Microsoft/Nokia).

    I get the sense the mobile market (tablets included) is really begining to reflect the mid-80’s desktop market as well — very much Apple vs. PC clones all over again.

    If that’s the case though, I worry for non-Apple phone/tablet makers, because it feels like they are destined for low-differentiation, low-margin clonesville as a result. Buying a phone/tablet could, within a couple of years, be basically no different than buying a TV. In fact it sort of implies a not-too-distant future where the world just consists of virtually identical hardware in different sizes.

    When you think about the feature set, a phone is not that different from a tablet, is not that different from a laptop (as phone/tablet processing power increases a bit and software slims down / goes into the cloud), aside from screen size and basic input devices (remote/keyboard/fingers).

    • bgurley March 25, 2011


    • Murli June 1, 2011

      “a phone is not that different from a tablet, is not that different from a laptop”

      …is (soon going to be) not that different from a TV, is (in some bleeding-edge cases already) not that different from the video screen at the back of an aeroplane seat, etc etc.

  108. Pingback: Android May Be the Greatest Legal Destruction of Wealth in History [Android] | That Soviet Guy

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  112. Alex Ponebshek March 27, 2011

    “This price insensitive user demands the very best experience they can possibly have and this is still the iPhone.”

    This is an insane claim to make. Sure, there will be always people who prefer the iphone, because they prefer iOS and their familiar iOS apps. But these benefits are purely subjective. From an objective standpoint, the market is full of android phones that cost less than an iphone but have it spanked on hardware capabilities.

    If you’re run android 2.2 or 2.3, then I’ll argue that you’ve experienced a version of android that’s now at *least* as polished and easy to use as Apple’s offerings. Now again, this is obviously a matter of opinion.

    What I can tell you is that you’re totally missing the point if you think android is just for the low end of the market. These days, lots of totally price-insensitive users (especially those with any computer savvy to speak of) will go look at the highest dollar android offerings to be found.

    I will point out that Google’s policy of allowing carriers to do whatever with it’s OS is a double-edged sword. Apple got where it was partially by completely controlling the user experience. When Google lets a manufacturer slap their shitty closed-source user interface on android for a given phone, it runs the risk of buyers of that phone getting a bad impression of android.

    For my part I have an HTC g2. It’s a very nice phone (even including a keyboard, so I can type messages without staring at my screen like a jackass!) If someone swapped my g2 for an iphone 4, even one unlocked to run with my t-mobile plan, I’d feel like I got the crappy end of that deal.

  113. Pingback: Android May Be The Greatest Legal Destruction Of Wealth In History

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  115. bhavya kamboj March 30, 2011

    Yes its 100% true. Android is giving an iphone like experience to the masses who prefer to pay 1/4 th price to get similar or same applications for ther phone. I also chose android because in India iphone is still a luxury that only few can own. But given the features of android, its impossible for any other platform to compete in India, including symbian, microsoft and crippled java

  116. Pingback: Techspot.com: “Android Crowned King in the US,” As LightYear Shifts To 100% Android Smartphones « Antipaper's Digital Tsunami

  117. niels April 4, 2011

    I gotta say, I have an iphone and buying an Android, cause I’m sick and tired of fighting Job’s little control schemes on everything I try to do.

    Of course, there are other perks; better, bigger screens, memory cards, way better cameras, etc etc

    Even in the cheap segment, Motorola makes an Android phone with a much better screen to overall size ratio than Apple, and its water and dust resistant to boot.

    sure, the shatter phone is an interesting object of art and Bauhaus design. But I can’t deal with what they put inside.

    I’m thankful that Apple disrupted the market, but that was only the first step in an evolution that I think has far to go yet.

    A lot of people buy iPhone just cause they think it a status symbol… I guess its a common reason for the masses to buy stuff, so they can feel they have somehow separated themselves from the masses… good luck on that 😉

    • Greenenvy April 6, 2011

      Oh please, what are Jobs’ “control schemes” doing to affect your overall mobile experience? By the way, it looks like Google is going to close that “open” system they once touted to fight the fragmentation of the Android platform – so who looks like the idiot now?

      As for the “bigger, better” screens… good luck with that too. No screen has as many pixels per inch as the iPhone, and some people don’t want to lug around a toaster-sized phone like the Droid X. But the most important part about a touchscreen is the “touch” part, which Apple delivers 10-times the experience of and Android hardware manufacturer. After all, if the touch doesn’t register (or lags behind) then what’s the use?

      The bottom line? Apple has created a device that developers only have to write applications for one time… and can therefore dedicate their time to adding new and inventive features. Meanwhile Android developers sometimes have to write dozens of different versions of the same App to deliver to Android’s vast array of hardware, software, screen sizes, etc.

      That’s why Android might win the “overall handset” race by selling the equivalent of the 2003 flip phone… but they’ll never compete with the high-end phone/mobile computer market… which is where the iPhone and iPad are now competing in.

      To see where Android’s tablet presence is going, one only needs to look at the flaccid sales for the Motorola XOOM.

    • -N- May 1, 2011

      ” No screen has as many pixels per inch as the iPhone”
      Its not always about PPI you know.
      Just look at Samsung’s Galaxy S devices.

  118. pk de cville May 29, 2011

    Writing 17 months later:

    We’re on the other side of Nokia’s OS collapse; Definitely road kill on Android’s highway. RIM, Motorola, HP, Msft are not doing too well either.

    Apple, OTOH, is still killing it. Although Android is a monstrous strategy, I’d love your thoughts on the other card up Apple’s sleeve; might it be an Ace?

    One aspect of PC-Mac that is never attended to is how Apple was killed by the poor Motorola/IBM execution on the PowerPC chip. When Intel’s i86 left PowerPC in the dust, it was the beginning of the end for the Mac.

    Not surprising, that Apple bought two chip design teams to develop it’s System-on-a-Chip ARM based chip. The A5 combines the latest dual processor ARM with Imagination Technologies advanced GPX architecture on a single SOC chip. That’s some kind of power and efficiency (10hr battery on the iPad).

    Over the next three to five years I believe Apple’s chip design teams will significantly outperform the industry’s best efforts – Intel, nVidia, AMD, Samsung. Why? Because they must! And the most valuable employee options grants will go to engineers working for Apple.

    Jobs will get the best out of these teams just as he’s gotten the best out of Johnny Ives, the Toy Story guys, the Mac OS and iOS teams, and other teams.

    The magic juice in Apple’s culture is excellence in anything that’s really important and I think proprietary mobile chips is where it’s at. (Note the several Intel invitations to fab a proprietary Intel based mobile SOC for Apple.)

    I believe Apple will deeply partner with Intel and it will be off to the races as Apple designs SOCs around Intel’s advanced process i86 architecture.

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  121. estudio villegas June 28, 2011

    Interesting… albeit I suspect Apple wants to be king in the smartphone market or the “Microsoft” of it.

  122. escorts en cordoba July 2, 2011

    Use an android for any amount of time and you’ll realize its just a tiny little computer with a Desktop. Apple seriously has some work to do!

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  127. Actively Social July 14, 2011

    A great blog on iPhone and Android! Thanks for posting this!

  128. Pingback: “The Freight Train That Is Android”; more on Google’s moat… | GregSpeicher

  129. Pingback: Mobile OS Wars, Part 2 of 3 – Carrier Combat « The Slalom Blog

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  143. John Z May 23, 2013

    Bill predicted this one 3 years ago – See #1

    1. Android. The company announced that there have been 900 million Android activations to date, with 48 billion apps downloaded. You may think that Apple owns the mobile market, but did you know that 75% of all smart phones sold in the past quarter were Android based? The Android operating system allows a business to have a uniform look and feel across many devices from multiple manufacturers and synchronize contacts, calendar and other data among employees. The system is arguably more open for developers to create new custom applications for a business. And a Galaxy tablet, for example, is about the same cost as an iPad Mini so equipping your employees with different Android devices from different vendors is an easy proposition for a business with many people out in the field. The Android platform continues to become more flexible, reliable and cost effective for small businesses

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