BusinessInsider posted an article a couple of days ago entitled GOOGLE’S DIRTY SECRET: Android Phones Are Basically Used As Dumbphones. I’ll ignore the linkbait title and just address the content (though I won’t be linking to the article). There is really one fact that forms the gist of the article. Here it is, in my words:
As much as 80% of the smartphone market is Android-based, but roughly 80% of the purchasing on smartphones is from iOS devices.
BusinessInsider simply says “It doesn’t make any sense.”, followed shortly with “What the heck is wrong with Android users?”
The piece goes on to compare the smartphone market with an island, 20% of which is occupied by Apple’s “gleaming steel and glass tower”, while the 80% Android controls is “undeveloped countryside”.
The article concludes with this gem:
But in the short-run, it seems like the users on the majority of the island aren’t interested in modern life.
Stark Pricing Differences
I don’t have an MBA, but BusinessInsider’s analysis is lacking. In mid-November, IDC issued a press release regarding smartphone markets. The release was picked up by a number of trendy tech blogs, including Mashable and ReadWrite, as well as reputable analysis sites like Statista. The IDC report said a number of obvious and reasonable things that BusinessInsider failed to point out. As far as spending discrepancies, one need look no further than pricing to account for the difference. Android is just cheaper than every other alternative, while iOS is much more expensive than every other alternative. And the difference is stark. In Q3 2013, the average selling price (ASP) for an iOS smartphone was $635, while the ASP for an Android smartphone during the same period was $268 (a mere 42% of iOS’s price). In China, where Android is even more prevalent, the ASP for an Android phone is only $233. In short, Android devices are simply targeting a different demographic than iOS devices.
This is nothing new. Apple has always targeted the wealthy. Back in 2008, Apple had 8.7% of the desktop market share. At the same time, Apple controlled 91% of the market for desktops priced over $1000. That outlines Apple’s strategy quite well: Apple targets demographics that have a lot of money. It allows Apple to spend a lot of money on design, build luxury devices, and market them heavily. Apple rarely has a majority market share, but that doesn’t matter, because there’s plenty of money to be made on the wealthy.
Smartphone Market Growth
The biggest factor that BusinessInsider failed to mention was the growth of the smartphone market. The IDC report had this to say:
Android and Windows Phone continued to make significant strides in the third quarter. Despite their differences in market share, they both have one important factor behind their success: price,” said Ramon Llamas, Research Manager with IDC’s Mobile Phone team. “Both platforms have a selection of devices available at prices low enough to be affordable to the mass market, and it is the mass market that is driving the entire market forward.
ReadWrite’s coverage of the IDC report expands on this point. Global smartphone shipments grew 39% YoY 2012-2013, but you’d be hard pressed to notice that growth in the U.S., which is a mature market with high smartphone market penetration. For that reason, the U.S. isn’t really representative of the global smartphone market. As ReadWrite points out:
Yet between the relative affluence of the U.S., the mass of marketing dollars spent to get American consumers to buy gadgets and the carrier subsidy model that makes it easier to afford a new gadget, the U.S. is a misnomer in the world economy.
I’m not sure ‘misnomer’ means what they think it means, but the point is sound: the smartphone market is growing dramatically, and that growth isn’t coming from the U.S. As ReadWrite points out:
In the rest of the world, smartphone adoption is very clearly tied to price. The cheaper smartphones are, the more likely that consumers in emerging markets will be to purchase them.
It’s in those price-driven markets overseas that Android is gaining so much marketshare. The smartphone market can’t grow if you’re selling $600 smartphones in areas with an average annual income of $3000.
Shock: The Wealthy Can Spend More
BusinessInsider is rightfully focused on the worth of various market segments. Nevertheless, I’d assert that saying people in developing countries “aren’t interested in modern life” because they don’t live in a “gleaming steel and glass tower” demonstrates poor taste.
It’s not hard to look at the data and see why iOS users spend more money: they have more money to spend. This is a major boon if you’re writing apps that cost money or operate under a freemium model where revenue is driven by in-app purchases. For companies driven by advertising, however, the playing field is more even. Correctly targeted advertisements, even to people in lower income demographics, can be quite valuable.
That’s why Google’s strategy with Android is significantly different than Apple’s strategy with iOS. Apple makes money keeping users on a hardware upgrade treadmill. The fact the they can make money selling developers’ apps in a closed ecosystem while doing it is gravy.
In contrast, Google has bet on the web as an advertising medium. They are most concerned with maintaining the ability to reach every user on every platform with advertisements, which often involves promoting web standards. But they are also concerned with growing the overall market, which includes bringing smartphones to developing countries and increasing global broadband penetration. That’s why Android is based on open-source, Google is providing wireless internet in Africa, and Google is focusing on providing ultra-high speed internet even in mature markets. When the internet grows, so does Google.
Some might consider that a ‘dirty secret’, but to me, it’s just common sense.