Google, Motorola and iOS

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Google’s purchase of Motorola Mobility has been hailed as an excellent strategic move. Pundit’s have praised Google for outwitting Apple & Microsoft in the battle for smartphones. Many have alluded to Motorola’s trove of patents as the trigger behind this move. Some, notably Apple blogs, have declared this as a vindication of the Apple Way and Google’s acknowledgement of it.

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Apple has always believed in tightly controlling both the hard ware & software experience – leading to it being labelled a closed environment, Apple’s ‘Walled Garden’ etc. Google now has a chance to control both the hardware (mobile handsets and tablets for now) and the software that enhances the user experience. My 2-bits on the scenario:

Mac vs PC-era and Android

First, let’s rewind a bit. For over 2 decades now, Windows has remained the most dominant player by far with 90%+ shares on PC’s & Desktops. Apple is a niche (insignificant for some) player,  in that segment with a less than 5% share. In some markets, Apple’s share could be slightly higher but there’s no doubting that the world’s PC’s run onWindows. But the critical difference is that those who chose to use Apple MacBooks and iMacs wanted to do so. But most of the PC users needed to do so -simply because their office demanded it. So in a way Apple consumers believed in the brand and many of them (lay consumers, not geeks) turned into evangelists. Very rarely did one see this kind of loyalty and belief in the PC platform – yes, there are Microsoft loyalists who took on the Apple fanboys but most of them were geeks. The regular bloke who used PC’s simply found comfort in the familiarity of the UI and software wherever he encountered a PC. Add to it the licensing of Windows platform across several brands (Dell, Sony etc.) meant that all the PC brands were fighting each other on differentiation. There was perhaps even a tinge of envy among PC users when they came across an Apple product.

Cut to circa 2011. I am sure Apple haters will grudgingly acknowledge that Apple ‘changed the game’ with the iPhone. Smart phones are all the rage now with touch screens, App Stores and Apps being de rigueur in the category – Apple set the trend. Though Apple was mocked by Fandroids for copying some of the features of Android in iOS 5, there is no mistaking who is copying whom. All the tablets look like clones of the iPad too. But there is a significant trend that is impacting iPhone & the iPad: people who choose Android want to do so and don’t need to do so.  So in mobile devices, Android seems like an attractive option to iOS and is gaining market share globally – at least on smart phones. This is something that Apple must acknowledge  – there is as much evangelism about Android as there is about iOS.

Android vs iOS: what are they chasing?

Given the different business models, Android and iOS have charted different courses as far as deployments go. Android is widely distributed across different manufacturers, handset configurations whereas iOS is just the opposite. Each has its pros and cons. It’s not surprising that Android has a larger market share than iOS because of its sheer presence in so many models. But sound bytes like ‘Android overtakes iOS in market share’ or ‘iOS losing market share’ will only strengthen the halo around Android among the general public and fuel the ‘I want it‘ syndrome. Over time, Android will be seen as the cool thing, especially in markets like India, where Apple is weak.

But is Apple chasing market share alone? Sure they would hate to be marginal players like in the Windows-dominated PC world but I feel they are chasing a particular segment with focus. They consciously avoid being everything to everybody and go after a segment that is willing to pay a premium for Apple products. They don’t aspire to be the choice of every mobile phone user – whereas Android is present everywhere – from entry level handsets to super premium ones. So, the Android vs. iOS war in market shares is not comparing apples to oranges – its not fair to compare an OS system present across 1000s of handsets versus something that is present in 3 devices – iPad, iPhone and iPod Touch.

The real victory for iOS is in this: Apple controls 28% of revenues and 66% of profits among smartphone sales in the world. And its market share in smart phones – 28%. And their overall share is likely to be in single digits. If I remember right, when launching the iPhone, Steve Jobs talked about a 10% global share in mobile phones.

The power of focus

Sometimes I wonder what business Google and Apple are in? Steve Jobs defined Apple as being in the intersection of  technology and liberal arts. It translates into using technology to create an experience in which hardware design, software & UI go hand in hand. Their foray into other areas – advertising for example, with iAds haven’t taken off. In my mind, Google – a company I greatly admire & respect – is still about ‘organizing the world’s information‘.  Their approach to software & design principles are  commendable. Yet, I am unable to fully comprehend their presence in the hardware business. Just as I am foxed with Apple’s presence in batteries.

So, what next?

No one can predict with certainty what’s next in the mobile devices category. It has changed beyond recognition in 5 years – the next 5 may well be even more revolutionary. In the short term, my hunch:

– iPhone 5 will attempt to regain some of the halo around the brand: Samsung has upped the ante with Samsung Galaxy 2

– the Google:Motorola deal will put the Android OEMs in a dilemma: do they continue to push Android? Or build their own OS like Bada? Will it be a game of unequals if Google gives preferential treatment to Motorola?

– iOS will continue to lose share globally unless they have an aggressive push in terms of marketing or lower-priced models. But it may not go down to single digit levels and become a marginal, insignificant player.

– the iPad will continue to grow and make life difficult for competition. In markets like India, the 7-inch Androids may gain traction since we are all about packing in everything in a gadget at an affordable price.

What, dear reader do you think will be the fallout of the Google:Motorola deal? Will it be a 2-player war for mobile devices? Or will Microsoft gain share with their next OS? Do comment in.

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  1. Good sensible article – glad to see a perspective on this that doesn't use war-like rhetoric for Google and Apple 🙂

    As for the Google Motorola deal, it appears unlikely that Google would want to vertically integrate like Apple. As a friend (massive Apple-fanboy) once said "You can't out-Apple Apple".
    From Google's perspective the decision to vertically integrate will be a function of what they perceive as their ability to out-Apple Apple. They will no doubt weigh it against losing the ad revenue from the Android devices they sell through other OEMs like Samsung, HTC. Given that Google's Android strategy was shaped out of self-defense against an increasingly powerful Apple (who would otherwise have had the power to lock Google out of it's bread and butter of advertising (on mobile), it appears unlikely that Google would give up the massive installed base it has been able to achieve with Android.

    The fact is Apple continues to set the agenda the smartphone market because others (Android, WP7) haven't yet been able to come up with a refined final product from a user experience perspective that matches or exceeds the Apple experience. That does not mean that they never will. Already we see both platforms improving by leaps and bounds (Android of course has a headstart).

    We already know iPad gross margins are a lot lower than iPhones. Yes, it prevents competitors from undercutting on tablets but it also reduces Apple's profit margins. It means Apple realized competitors could make a comparable tablet that would sell well if there was a reasonable price differential. There is no reason to believe the same downward spiral in pricing can't happen to iPhones as well.

    The big question is how long can Apple maintain its massive aura both in developed and emerging markets and keep that price differential. To be able to do so, it will have to ensure the gap between iPhone and everyone else not only stays constant but in fact grows.

    If they're able to pull it off, more power to Apple. But history is not on their side. For how many years has any product in any (non-luxury) market been able to maintain almost a 100% price markup to its competition? Exactly.

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