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Smartphones’ ecosystem dilemma
Why is the Motorola Droid apparently gaining traction in the smartphone market, when Microsoft and Nokia are failing so miserably?
The Droid, built on Google’s Android mobile operating system, sold 250,000 in its first week on the market. That’s way behind the 1.6 million iPhone 3Gs sold in the first week after its launch, but it’s still enough for Motorola to see possible salvation after years of decline and for Google to feel self-congratulatory about its venture into mobile.
Some of the success of the Droid, and the increasing number of Android-based phones available, can be ascribed to its clean and versatile operating system. Reviewers and users agree that Android still lags the iPhone, but the gap is closing. In contrast, Microsoft’s Windows Mobile has stumbled through numerous iterations — it’s now on version 6.5 — and endless renamings. No one has ever liked it.
Nokia once ruled the roost with its Symbian-based smartphones, but its market share has been declining steadily. Nokia still sells more mobile phones than anyone else in the world, but Apple — which sold 7 million phones versus 113 million for Nokia in Q3 — astoundingly makes more profit, $1.6 billion on handsets in Q3 this year against $1.1 billion for Nokia.
The operating system alone, however, doesn’t explain the Droid’s initial success, or even the iPhone’s ascendancy. What Apple has done so successfully is build a thriving ecosystem around its product. The various Android-based phones are following the same path. There are now more than 100,000 applications (dubbed apps) for the iPhone, with hundred more appearing every week. As the advertisements tell consumers, there’s an app for that, whether it is timing your cooking for a complicated dinner party, using Facebook, tracking FedEx packages or getting snow reports from ski resorts.
As more apps are developed, there are more and more reasons to buy an iPhone rather than the competitor, the phenomenon economists call network effects. In contrast, there are about 10,000 apps available for Android-based phones. That probably covers the vast bulk of what most users want to do, but the perception is that the iPhone can do much more (hence the Droid’s advertising slogan: Droid Does).
Apps, overwhelmingly built by third-party developers, are nothing new. Apple’s innovative idea was to put an app store on its device, so users could browse, choose and buy apps casually and spontaneously. You didn’t need to search for different vendors, or download apps to your computer for future syncing with your phone. So the ecosystem becomes the phone itself, the app store and the thousands of developers.
Apple defies gravity
Here’s how bullish Steve Jobs and his colleagues at Infinite Loop in Cupertino feel: After a blowout September quarter, the forward guidance they are offering for the December quarter is comically modest. In the tech world, people have long known that Jobs loves messing with the expectations of both competitors and his legions of Apple fanboys. He plays his games with the financial world as well.
In the middle of a global recession, Apple has reported its biggest ever quarterly net profit, $1.67 billion, on revenue of $9.87 billion, its second highest quarterly total ever. Gross margins of 36.6 percent were the highest ever. Apple sold more than 3 million Mac computers, up 17 percent in a global market that grew just 2 percent. It also sold 7.4 million iPhones. Apple’s cash pile grew to $34 billion, which it still plans to use for preservation of capital.
After a quarter when revenue soared 25 percent from a year ago, Apple’s forward guidance calls for the brakes to be slammed in the next quarter with growth of only around 10 percent. The guidance is for margins to fall as well because of the different seasonal mix, more air freight and higher component costs. No one believes either of these forecasts.
You have to be very dark-hearted to see clouds ahead for Apple, but there are two areas where doubts might arise. Microsoft (don’t laugh) introduces Windows 7, its latest operating system, on Thursday. After the justly maligned flop of Windows Vista, independent reviews of Windows 7 have been generally positive. The Wall Street Journal’s influential Walt Mossberg declared in his assessment, “In recent years, I, like many other reviewers, have argued that Apple’s Mac OS X operating system is much better than Windows. That’s no longer true.” Microsoft and the makers of Windows-based computers will be pouring money into promoting their computers, which are generally less expensive than Apple’s offerings. That should slow some of the growth in Macs.
On the phone side of the business, more phones are coming out that use Google’s Android operating system, a smartphone rival to the iPhone. RIM’s BlackBerry continues to hold its own in the corporate market. Microsoft continues to invest in Windows Mobile, although its gains have been harder to spot. But the iPhone is overwhelmingly the standard to beat. On the earnings call, Apple chief operating officer Tim Cook said, “People are trying to catch up with the first iPhone which we launched two years ago. We’ve moved way beyond that.”
His comments weren’t just bravura. Apple’s huge advantage comes from the ecosystem they have built around the iPhone, just as previously they built an unbeatable ecosystem around the iPod. The AppStore, where iPhone users can download new applications for their phone, now lists 85,000 applications (by contrast, RIM’s BlackBerry has perhaps 2,000 applications and Android applications have just crept into five figures). There were 2 billion AppStore downloads in the last year, and a half billion of those were in the September quarter. “That’s a country mile more than anyone else,” Cook said.
The entry into China should also provide a significant boost for the iPhone business. Cook declined to quantify the China effect, but the arrangement with China Unicom calls for the iPhone to launch at 1,000 points of sale. The world’s largest mobile market isn’t yet the largest market for smart phones.
two words: snow leopard … they rushed a bug-filled piece of junk to market; i lost a week’s work fixing it — and now i’ll ALWAYS think twice about buying anything apple.
Humbled giants eye business phone market
LONDON, Aug 13 (Reuters) – Once they were warriors battling one another on the digital battlefield. Nowadays, Microsoft and Nokia are worriers, huddling together for comfort.
The world’s top phone and software companies need each other to compete with Apple, Google and Blackberry-maker Research in Motion (RIM), whose products increasingly define what users expect from phones and charge premium prices in consequence.
In the market for so-called “smartphones”, Deutsche Bank estimates Apple and RIM now take home more than half of all profits, despite producing less than a third of high-end mobile phones. Nokia held a 45 percent share of the smartphone market in June, according to Gartner Inc. (Table 2 in Gartner release)
The news this week that Nokia will feature Microsoft’s office software — features such as Word and Excel — on phones aimed at business users is symbolic of what is possible rather than significant in itself. It fell short of predictions in the gadget trade press that Nokia might introduce phones running on Microsoft’s own Windows Mobile software.
But that doesn’t mean their collaboration should be dismissed. There’s more to this budding relationship than meets the eye.
First and foremost, Microsoft and Nokia say they are taking on the Blackberry email-phone, a must have among corporate professionals. So far the they haven’t done very much, for all the big talk. But they have pledged to make Microsoft Outlook work smoothly on Nokia phones.
This is crucial in overcoming Blackberry’s key advantage — the underlying software that companies rely on to securely manage corporate e-mail.
Nice article, Eric. Also in terms of what it elegantly understates – that nobody in the lucrative U.S. phone market is remotely satisfied with their phones or the cost of ancillary services the subscriber has to come up with.
There’s a lot of room for growth, if somebody would just listen to what the customer wants and deliver something like that instead of slowly bleeding users to death with costly add-ons and phony rebates instead of decent service at a fair price on a not-too ugly handheld device series.
Apple’s iPhone is a promiscuous lifestyle product unhappily married to the ogres of AT&T while flirting with the enterprise user market. Microsoft has Windows and Outhouse to contend with, tripping over its own necrotic brand software in the process of whatever they might try to do next. The Windows decal on any phone is a deterrent to buying it, at this point. I mean, what size of chip would one really need to store all the viruses and spam you’d be getting if one went down the MS route? That one hasn’t been invented yet.
At times like these, one might expect your last sentence to ring true with the makers and sellers of such devices. Hopefully, they’ll get the message soon.
Revolution?
Video compression technology can be interesting, really.
Most people forget how online video worked before YouTube popularized the embedded Flash video player. Remember the frustration of making sure you had the right video player to play this or that web video? It was YouTube that popularized giving people one-click access to videos.
On Wednesday, Google said it had agreed to acquire On2 Technologies, a maker of video compression technology, in a deal that could have sweeping effects for how video works on the web. The Internet search leader has a bland blog post about how it intends to use On2 to innovate in how video working on the Web, but it isn’t at all clear how far it Google is ready to go.
There’s lots of speculation that Google may choose to open source, or give away, On2′s video compression technology, undercutting royalty-bearing video compression technologies in use across the Web. That could undermine Adobe and its widely used Flash player, Microsoft, with its Silverlight alternative, not to mention Apple Inc and RealNetworks. Dan Frommer at Silicon Alley Insider spells out how far-reaching the Google gambit could be. As a counterpoint, Dan Rayburn of StreamingMedia.com argues the Google move is no big deal.
Google is only paying $106.5 million in stock for the American Stock Exchange listed-firm based in Clifton Park, New York. Because the deal involves two public companies, there’s an outside chance that a competitor may want to mount a rival bid. The On2 board would have to consider a richer bid for fiduciary reasons. Google might have more on its hands that it bargained for.
(Images: Beet.tv, Google Finance)
http://wayonda.com/index.php?page=videos §ion=view&vid_id=100106 Interesting historical perspective on the company and it’s investor relations leading up to the deal.
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The Wall
Is the smart, droid market actually worth all the hype?
I have a Straight Talk Phone With all you Need $30 monthly I get 30mb data on Verizons network and find it is enough for a email and a bit of searching. what is so much better with all the applications? a normal phone works just as well in my opinion and possibly easier.