Monday, January 31, 2011

'Open' will ALWAYS Beat 'Closed' Myth. The 'Clueless' Apple-haters Cheering Not Realizing iPhone rising to 41% of Worldwide Smartphone Profits

Just scanning the web I see a whole bunch of Android fans and assorted Apple-haters cheering (mindlessly) as apparently Android smart- phone market share rises vs iPhone.

Note: that's smartphone, not total iOS devices. Smartphone numbers don't include about 50% of iOS which is on iPads and iPod Touches. Actually latest from Google and Apple quarterly financials released in January (and not analysts estimates) puts Android activations at 300,000 and iOS at 366,000 a day.

This 'market share' gains has led to this myth : 'Open'  Many OEMs will always beat 'Closed-lone-wolf-Apple'. (Questionable how open Android actually is as many Droid phones are locked down etc but that's a topic for another day)

Always beat Apple? Well perhaps I should remind people of iPod!!

Ipod where Lone-Wolf-Apple beat Sony, Samsung, Sandisk, LG, Toshiba, Microsoft, Creative Nomad, Phillips, Saehan, Kenwood, Panasonic, iRiver etc etc.

Somehow or another all these many OEMs, some with massive bankrolls, decades of music business experience (for example Sony had sold 400 million Walkmans and had incredible links to the music business including actually owning recording studios) lost to iPod. Apple's music player now controls 80% of the market. Why didn't this humungous bunch of OEMs beat Apple when the iPod was a relatively simple device and Apple was struggling financially? Apple didn't even have iTunes at the start and there were plenty of rival music download services.

Also OS2 supported by IBM and a host of OEMs is long dead while Mac OS is still chugging along and  a mighty profit engine. Closed Blackberries from Rim too had a good run against the many WinMo manufacturers.

Perhaps iOS won't get a commanding lead as iPod due to reasons not under Apple's control. For example not all carriers might not get the iPhone and carriers might want to dilute Apple's influence (or load their crapware which Apple refuses) by pushing other devices. Still the idea that Apple must lose to get 5% (or some miniscule) of the mobile market is just mindlessly speculation.

In the old days of Mac PC Skirmish 1 in the 80's there was a huge advantage of cost for PCs due to various reasons. Apple (mostly not under Steve Jobs at the time) wanted to charge a premium, Apple went with low run rate Power PC chips, had their own expensive manufacturing facilities etc. Today iOS devices are very competitively priced. Tim Cook and Jobs have repeatedly said that Apple will not let competitors have a price umbrella for new products. Today with the number one ranked manufacturing and supply chain (better than Dell or Walmart!) Apple can compete in price.  Similar high end smart phones cost the same or more than iPhones (when you factor in the contracts especially) and iPads are cheaper than competitors (the 5 inch Dell Streak sold at $599 vs the 10 inch iPad at $499).

There's also the point of how smartphone market-share is counted.  Analysts loosely define what a smart-phone is. Analysts count every Android phone as a smart phone even as Asian manufacturers are loading them on every phone they can as it's free,  some are locked down, released with Android 1.6, equipped with cheap resistive (as opposed to capacitance) screens and half dead processors. (That's why Nokia apparently also sells so many 'smart' phones as Nokia feature phones that barely compare to an iPhone are counted. Seriously if it were true all those multiple millions of Nokia phones sold were actually smart-phones of iPhone class how come we don't read much about Nokia iPhone 'killers'? Truth is most of the phones just like many Androids are not in the iPhone standard).

This is supported by a recent IDC report that says much of the Android gains are in the low end.

BusinessInsider says this "low-cost phones using Android were a significant factor in 18% growth in mobile phone shipments in Q4, across Asia, Europe and North America. Chinese vendor ZTE’s fourth-position sales of 16.8 million units were attributed to Android-based devices such as “Blade” and “Racer.”

This jives closely with just released reports from Canaccord Genuity  as reported by MacObserver which says that iPhone profits is now 41% of worldwide smartphone profits rising from 31% from year ago quarter. 

Asmyco on Jan. 31 says that Apple now takes in 51% of the profits of the 8 largest cell phone makers in the world. That is 51% of all phones smart and dumb.

As I've mentioned in previous articles Google says it makes 1 $billion in mobile profits a year. Apple is heading to $40-50 billion a year. (Last quarter iPhone alone made $10.47 billion. That doesn't count iAds, iPads, App Store etc. ITunes alone made over a billion that quarter).

One of the big reasons you want larger market share is that it encourages developers to write applications. In the Mac PC Skirmish 1 in the 80's market-share affected application development. But then  PC had something like 90+ % of the market. Today iOS as I mentioned above has higher activation rate than Android and with Android disintegrating into a fragmented mess (a huge percentage of Droids are not upgraded, many even one year old models cannot be upgraded, to the latest version) iOS has a commanding lead of App development. 

IPhone growth is so far constrained by one major issue : lack of carriers in the two big phone markets: China and U.S. IPhone is going to Verizon in a couple of weeks. The U.S is one third of Apple's iPhone sales currently - expect Verizon numbers to explode iPhone worldwide sales.  Apple is just starting in China. They got the Wifi iPhone not long ago (it was banned originally by Chinese law) and recently the App Store and the iPad. Apple made $2 billion in revenue in China last quarter. It has just 4 Apple stores now but 20+ planned to be launched and reports of Foxconn which just got Apple's licensing plans to open 500 Apple retail outlets. China Mobile with 500 million subscribers (much larger than Apple's current single Chinese carrier China Unicom) might get the CDMA iPhone. 

All these numbers confirm what Apple top executives said about what they consider the major problem facing iOS is (they don't talk much about competitors): the big concern is not being able to make the devices fast enough. To deal with this Apple is opening a new screen factory with Toshiba, reports also say Apple is buying more of  Samsung's mobile chips than Samsung uses itself which is making Samsung to open a new factory in Austin Texas to meet demand. Apple and iOS isn't slowing down at all but growing in leaps and bounds.