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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.
Tech Links: Phones, more phones and communion wafers
Better luck next year for Android Taiwanese smartphone maker HTC has warned of a revenue shortfall, saying it has too many new phone models chasing too little revenue. Revenue growth will turn negative in 2009, instead of growing 10 percent, as the company had previously forecast.
Chief Executive Peter Chou says: “Momentum on both the Windows Mobile and Android platforms are also turning out to be weaker than expected.”
HTC said it is boosting its marketing spending to more than 15 percent of revenue from 13.5 percent to fend off market leader Nokia and the Apple iPhone juggernaut.
My favorite line: ”Investors have been relatively bearish on the company this year, with HTC’s shares having risen about 36 percent so far, far lagging the 54 percent advance on the TAIEX share index.”
Bharti looks ready to raise price for MTN Bharti Airtel and MTN have agreed to a month-long extension to merger talks to seal a deal that would create the world’s third largest mobile phone company in subscriber terms.
This looks like the prelude to Bharti raising its bid for MTN, answering resistance to the deal by investors in the South African company. It all follows weeks of jockeying by Bharti to line up funding with banks and key shareholders.
The merger appears to be moving ahead despite signs of growing worker unrest in MTN’s homeland. Over the weekend, South Africa’s Communication Workers Union said workers at the fixed-line operations of Telkom SA will hold a two-day strike this week.
What I wish these phone maker companies would start working on is an Internet Cell Phone. One that uses the internet to communicate voice thru. They will compete against Cell Based Systems and this will force the Cell Companies to Lower their Prices to Decent Levels.. This current Contract/subscriber system is old and Monopolistic. If Google or Sony or or Somebody could develop this phone that worked as tranparently as the current cell system then the next wave of Telecommunications could begin and Give these Cell Companies LOTS of Competition. Thus Lower Prices to the end user. Right now My next phone will be an Internet Based Phone NOT a Cell Phone.
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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.