Gruber put up a curious little post yesterday, Web browser market share numbers. The link is to one of many reports that show that Mobile Safari is where the mobile action is, but Gruber’s comment was that it’s “...still the biggest mystery” why web market share doesn’t reflect Android’s dominant market share lead. Perhaps he’s just being ironic. He’s got a wry sense of humor and maybe I’m just not getting the joke. One thing is certain: This isn’t a mystery at all!! It’s just that the story takes years to play itself out. It may look like a mystery to the ADD type, but not for someone who has been following the action like Gruber has.
Sometimes a one-sentence DF comment like this isn’t enough to make the point. Too much of the story is omitted. I think it is worth it to watch the slow-motion replay.
The story goes something like this:
Google hatched the Android gambit in the pre-iPhone days. The gambit was defensive. They feared that if Microsoft ever got its shit together and re-entered the smartphone business, they really would substitute their services for Google’s. Google needed to block that, so they invested in a mobile OS that would undercut Microsoft’s position with the vendors who needed a mobile OS.
It all made sense. Google would give away the OS and roll over and play dead for the carriers in the hope that Google services would be on these devices.
Also implicit is the assumption that there were no important differences among smartphones — except that only some used Google services. They needed to make sure that the great majority of smartphones served Google advertising and used Google services.
How could a plan like that ever go wrong?
I. ACT I: iPhone
Then came the iPhone. This really was the “game changer.” That’s because it invalidated the unstated assumption that smartphones from different vendors were basically alike. Customers who understood that iPhone was a compact and mobile general purpose computer took to it like ducks to water. Ironically, the initial versions were, at best, average in the cell phone’s traditional job of making calls. This point was made by social commentators as diverse as Dan Benjamin and Jon Stewart. Its saving grace was that it excelled in doing new jobs that the smartphones of the day could not do nearly as well. That’s why all the ducks headed straight for the water and the other birds flew right by, wondering what all the fuss was about.
Instead of being preoccupied with undercutting Microsoft, Apple was preoccupied with undercutting the (hated) carriers. Uniquely, Apple placed itself as the primary contact point for the customer. The carrier was relegated to the role of a newspaper’s delivery boy, while the device manufacturer was elevated to the role of newspaper’s Editor-in-Chief. If you have a problem with the paper, you contact the editor, not the newsboy. The customer could bring all issues to the vendor and the vendor would take responsibility for handling all the software updates. This is still unique in the industry.
The (expected) effect was that Apple grabbed the highly valued customers — the ones that “got” the smartphone concept. The leftovers were people who didn’t want a true smartphone anyway or customers who didn’t like some aspect of Apple or the iPhone design. In the early years, this included lots of folks who just needed to make and receive calls reliably, as Mr. Stewart so graphically pointed out.
This sucked from Google’s point of view. The Android Gambit was all about market share, since they were not concerned about any particular brand of device. Google’s posture was recumbent because they wanted to appeal to both the vendors and the carriers. Thus, Android was on all kinds of mobile devices. The original assumption was: The bigger the Android market share, the more “eyeballs” in front of Google advertising. But this would only remain true if the cellphone universe remained free of disruptive influence.
At the end of Act I, Android was a raging success in its stated objective, but Apple had grabbed the lion’s share of the most desirable customers: Cellphone customers who were also using them for web surfing and, more relevantly, for mobile commerce.
ACT II: The iPad
Act II is comic relief in our little drama. After a few years of practice/refinement with small-screen devices, Apple revealed a full-size mobile device. It was half the price of their cheapest laptop, but with a twist. Instead of being a cheaper and less capable version of a full-price laptop, it was designed to be better than a full-price laptop, but only in a limited number of ways.
This really set Google scrambling: iPad was even better than iPhone for web surfing and, especially, internet commerce. Although there were many more cell phones than tablets (a.k.a., iPads), more internet commerce is from iPads than cell phones. This was reported by Gigaom and AppleInsider has reported similar stories. In terms of Google’s original business plan, Android-based tablets are dead in the water. Gigaom reported that nearly all the tablet-based internet traffic comes from iPads, not Android-powered devices.
Though Google has majority market share in mobile devices, its become clear that they have the lion’s share of the wrong type of mobile device! Most mobile-based commerce is coming from tablets, not cell phones! This disparity is so overwhelming that it is comical — if you enjoy humor at Google’s expense. For example, consider this “analysis” of the tablet market share that was published at Appleinsider. It all looks reasonable until you note the Y-axis. It’s a joke that is masquerading as a market analysis.
ACT III: There’s a Fire in my market share!!!
When we left our drama, Apple has gone for jugular. It’s grabbing the most of the customers that Google needed and originally assumed they would get. Instead, they’re left with the leftovers. In Act II, their predicament got worse since they have no solid products in the all-important tablet category.
In Act III, the action takes a surprising new twist. I suppose that Google expected that all the Android vendors would be obedient little clones — just like the Windows clones — and churn out tons of low profit-margin devices. However, Amazon figured out how to subvert Google’s business plan. They worked like hell to herd the Kindle Fire customers to their own store!! To do so, they sold the Fire at no profit or possibly at a small loss in the hope that they would make their money as the happy Amazon Fire customers shopped at amazon.com! This pricing also undercuts the conventional Android clones who are innocently trying to sell their tablets at a profit.
In this year’s Kindle Fire rollout, Bezos said that Amazon didn’t want to make their money at the time the tablet is sold. Rather, he wants to make money at the time it is used. I suppose that the pundits who were asleep thought that he was trying to challenge Apple, but the big news is that it is a direct challenge to Google! He wants Amazon to make money as the Fire is used — not Google!!
So where does that leave Google?? Google is the one who’s on the hook for the entire development costs of Android — not to mention the legal bills and troll acquisition costs that they’ve picked up along the way. But mean old Bezos took advantage of that Android “openness” to send his mobile shoppers to his store!
In Act III, we see a new kind of Android fragmentation. Up until then, the word “fragmentation” referred to fragmentation of the version of Android that the various vendors use and inability to upgrade Android devices. Most vendors use an “obsolete” version of Android that cannot be upgraded. One reason is because the carriers would much rather be in the business of selling new devices instead of upgrading old devices!
In Act III, we’re now seeing fragmentation of the Google business plan. The Fire doesn’t run Android’s latest version, but that’s not the type of fragmentation that’s interesting.
This is just a long-winded way of saying that there’s no “big mystery” in those market share numbers. Its just one point in a long story that takes years to play out. It only looks mysterious if you have not reviewed the history of Android. If the cellphone universe had remained stable, then Google’s reasoning probably would have worked out. But it has been subjected to two enormous disruptions by Apple and a relatively minor tweak by Amazon. The former changed the universe forever and the latter illustrates the risk that’s inherent in betting on future sales rather than taking your profit up front.
The Android gambit is not working out well for Google. They've got a civil war within the Android tablet space and they’re only gaining another tablet competitor this month. But somehow it doesn't stop them from chanting “Android is winning.”