“The network effect is the single most important determinant of the success of a software platform. It was the primary driver of the Windows operating system’s monopoly,” Bert Danner writes for Seeking Alpha. “No software platform has ever succeeded and endured without a self-reinforcing network effect driving value creation and increasing participation and profitability.”
“Apple’s (AAPL) position in the Post-PC mobile industry will continue to become more and more dominant as their platform and ecosystem accelerates in popularity,” Danner writes. “The majority of new customers joining Apple’s ecosystem will continue to power the engine of the network effect through their desire and ability to engage in ongoing platform commerce. The most important takeaway is that Apple will continue the capture the majority of the Post-PC mobile industry’s profits. This makes Apple the investment opportunity of this generation.”
Danner writes, “Market share is mistakenly being used by Wall Street as a proxy for platform value and dominance. According to comScore, as of November 2012, Android is ahead in market share at 52.6% versus Apple at 34.3%. However, Apple generated 71% of the entire mobile industry’s operating profits, according to Canaccord. In any other industry, the analysis would end right here, as investors and analysts would never seriously contend that market share is more important than profit share.”
Much more in the full article – recommended – here.
MacDailyNews Take: As we wrote back in November 2012:
Android can be widespread and still demographically inferior precisely because of the way in which and to whom Android devices are marketed. Unending BOGO promos attract a seemingly unending stream of cheapskate freetards just as inane, pointless TV commercials about robots or blasting holes in concrete walls attract meatheads and dullards, not exactly the best demographics unless you’re peddling muscle building powders or grease monkey overalls.
Google made a crucial mistake: They gave away Android to “partners” who pushed and continue to push the product into the hands of the exact opposite type of user that Google needs for Android to truly thrive. Hence, Android is a backwater of second-rate, or worse, app versions that are only downloaded when free or ad-supported – but the Android user is notoriously cheap, so the ads don’t sell for much because they don’t work very well. You’d have guessed that Google would have understood this, but you’d have guessed wrong. Google built a platform that depends heavily on advertising support, but sold it to the very type of customer who’s the least likely to patronize ads.
iOS users are the ones who buy apps, so developers focus on iOS users. iOS users buy products, so accessory makers focus on iOS users. iOS users have money and the proven will to spend it, so vehicle makers focus on iOS users. Etcetera. Android can have the “Hee Haw” demographic. Apple doesn’t want it or need it; it’s far more trouble than it’s worth.
The Android engagement paradox – November 26, 2012
People buy more Android phone units and do less with them vs. Apple’s revolutionary iPhone – November 14, 2012
Study: iPhone users vastly outspent Android users on apps, respond much better to ads – August 20, 2012
Apple utterly dominates mobile device market with 6% market share – and 77% of the profits – August 6, 2012
Game over, Android: Apple owns 84% of mobile gaming revenue – May 7, 2012
Wealthy smartphone users more likely to have iPhones; less likely to play games, tweet – April 2, 2012
U.S. Apple product users split evenly between Republicans and Democrats; Half of U.S. households own at least one Apple product – March 28, 2012
Study: iPad users more likely to buy – and buy more – online than traditional PC users – September 29, 2011
Apple iPhone users most open to mobile payments – August 22, 2011
iPhone users smarter, richer, less conservative than Android phone users – August 16, 2011
Apple iPhone users spend significantly more on their credit cards than non-iPhone users – November 5, 2010
Study: Apple iPhone users richer, younger, more productive than other so-called ‘smartphone’ users – June 12, 2009
Nielsen: Mac users are better educated and make more money than PC users – July 12, 2002
There is no denying that Android is a threat to iOS. I hope Apple continues to innovate
Innovate where it benefits the customer and creates profit.
But never change for the sake of change. You can create change by shooting yourself in the foot. It changes your foot, but….
I deny it.
Yeah, that’s really not hard to deny. Android has way less actual users than iOS does despite the former’s supposed marketshare, it sucks to develop for, it’s not making money for anybody except possibly Samsung, and it doesn’t seem to be stealing away potential iOS users.
I defy somebody to explain how it’s a threat, like, at all.
Give a call to BR-549, ya hear?
That looks like a young Mitch McConnell.
Why drag the “Hew Haw” demographic into this. They are smarter than you think. The “Hew Haw” demographic is part of the NOW iOS dominant iPhone users in the USA. Android get the scraps or the sales where the iPhone is not yet available. This is changing world wide. That is why these people keep using last summer’s data. Real data is coming this month with Apple’s quarterly report.
Apple’s profit share is broadly double its market share. If we’re generous and say that there are more similarly profitable customers out there using other platforms it would take about 50% of the market to potentially have 100%.
Obviously there are some very broad assumptions there, but it illustrates that a large portion of the market (nearly half) is unprofitable, or barely profitable at best, and thus not worth having.
The only way to get it would be to reduce margins by selling cheaper products, and so called analysts seem to do Apple down on any sign of reduced margins, but at the same time they do them down for not having a larger market share. It’s almost as if they don’t have a clue what they’re on about.
” It’s almost as if they don’t have a clue what they’re on about.
As an Apple shareholder, it seems to me Apple’s profits mean very little to Wall Street. They’re only interested in market share. What’s the point of a company making huge profits if it’s only going to make the overall value of the company decline. The more money Apple makes, the lower the share price drops.
I know it doesn’t make much sense why this is happening, but Wall Street wants growth and they’re saying Apple has no growth potential. They’re indicating it has less growth than either Cisco or Microsoft at this point with the P/E Apple has. Apple really needs to do something to address this “no growth” problem. Supposedly, it’s this future valuation argument that’s currently crippling Apple’s share price. Of course, I’m not 100% sure about this reason, but loss of market share is certainly talked about more than any profits Apple makes. Apple’s only been down heavily for about a quarter, so there’s no need to panic yet, but all the background noise is probably distracting shareholders and potential Apple investors.
Desktop searches are down like 25 to 30%! Mobile web surfacing & purchasing is dominated by Apple’s iOS. Many apps make link searching obsolete. Voice searches is gaining more & more traction and is going more & more the like of Siri- directly to the source or database- no ads. Ain’t looking good for Google.
…hence the never-ending river of FUD—Google and its champions using an arsenal of misdirection to slow Apple’s onslaught—while Google’s top scientists work feverishly on secret weapons.
Unfortunately, most people are using MS Windows and remember how Apple lost out. The vast majority of smart phone users are also Window users and many see market share as the only metric when it comes to investing. They see Android overrunning iOS like Windows overran MacOS and OS X in the past. Many people just want to do similar things that a great system will let them do and are willing to settle. The market has spoken in the past and will speak the same now. Apple will continue to reap huge profits and Android will take market share for the poor and the clueless.
That’s not correct. iOS share in the U.S. is very high, and particularly very high among higher income people (i.e., decision makers in companies). I have not heard anyone comparing iOS v. Android to Mac v. Windows. Most people in fact view the iPhone as the top dog and Android as second place, but some buy Android because it’s cheaper than an iPhone 5.
I agree that most people view iOS as top dog but I am saying that they don’t believe that Android won’t overtake it because they remember that Windows overtook MacOS in the past. They think it will happen again.
You missed the point of the article.
Microsoft had both market share and the platform to back it up which begat a continuous cycle of generating revenue for Microsoft. Windows was an operating system that doubled as a platform. The Macintosh was held down and others completely pushed out because Microsoft made it hard for competitors to remain compatible with their platform. Windows was an extremely closed, proprietary platform: everything from network protocols, office file formats, web technologies, digital rights media, server services, etc. were all Windows only technologies. This all allowed Windows to grow and thrive. Developers and IT technicians paid thousands of dollars to become “Microsoft Certified” and in turn these people pushed hard at making sure Windows was the number one choice.
Android has none of this going for it. In fact, Google pushes all of Android’s services and apps to other platforms as well. There is nothing special about Android – it’s just an operating system. Google has no vested interest in Android other than making sure there was an alternative to “closed” systems. The reason Google bought Android was because they were afraid Microsoft was going to rule the mobile world and push Google’s services out of the market. No one knew that Apple was going to come along and close the book on the first chapter of mobile computing and open a new one.
Eventually OEMs had no choice but to go with Android, all the other “open” phone operating systems at the time were too far behind iOS. Android’s dominance has nothing to do with how good or bad iOS is perceived to be, it has everything to do with how lethargic OS vendors were at bringing an iOS alternative to market. Android’s massive lead in market share isn’t because it’s better than iOS, it’s because it’s better than all the previous licensable alternatives. Android is taking all the leftover market share that iOS could never possibly attain.
The mobile phone market is a commoditized market. In such a market, commodity devices will have a major share and luxury devices will always only attain a fraction of the market. (This is the same reason Macs have such a small piece of the computer market, it has also been commoditized.) Cheap phones running a free OS will always come out on top in this market.
The problem with this is that Android is not sustainable. There is no value and investment in sticking around if something else – something better – were to come along. OEMs will adopt the next big thing and push Android out, just as they did with Symbian. Or, as has already begun, OEMs will fork Android and build their own platform from it, so that they can control the experience and gain revenue by tying their own services to the platform. Android’s ascendance was not unexpected, it was inevitable, just as their eventual downfall is.
How investors can only look at market share and determine that Android is winning, I’m not sure. Android is not the new Windows, iOS is. In ten years time, Android will be history maybe alive on Motorola devices only, iOS will still be around and doing well. In fact, I believe there will even versions of iOS, “embedded” for devices such as feature phones, smart remotes, network routers, media servers, and even iOS “desktop” for an ARM based laptop and all-in-one desktop.
Although I totally agree with you and know these points well, the point I am making is that it is about perception and not reality. Perception is driving the market and peoples beliefs. In the end, it is about how well each story is told and who believes it. It is not about the truth.
I believe the opposite happened: the market is driving perception and forming beliefs. And the market is reacting to its own delusions.
Experts and investors should already know what makes a business sustainable. It seems to me they’re just playing the market and manipulating it.
Eventually, reality will smack them in the face.
The stock market is the only market I care about. I don’t care if Apple has market share as long as they make great products that I love to use. The stock price is a reflection of what investors think and fear. Right now, they fear that Apple’s run is over and Android is taking over. If they pump money into Android manufacturers and take it out of Apple, then we get the fix we are in now. Apple is undervalued for every metric we can find and yet the market says that is how much they are willing to pay for the stock.
Two very big factors will determine the mobile OS winner:
1. App Developers. If they profit from developing for your OS, they will continue to do so. If your OS is difficult to develop for (due to fragmentation, etc.) and you spend 10x hours to make 1/3 the money, you won’t develop for it. Right now, developers make far more money developing for iOS than any other platform and do not face fragmentation or 50 various handset issues.
2. Handset Makers. Companies like HTC, Nokia, etc. can’t afford many missteps and still make a profit because their profit margins are very thin, particularly when they have to discount their products (BOGOs, etc.). Apple doesn’t have this concern.
Sounds like you’re trying to claim that Aston Martin is “winning” against Jaguar. Whatever…
Why do people constantly make the mistake of assuming Wall Street had a rational reason for slamming apple, there is none. Apples current and future potential continues to vastly outshine any competitor. The closest competitor, google, has a steady ad supported business, but everything else is smoke and mirrors. It’s tiring to see people try to explain what is obvious market manipulation. It’s incredibly easy riser through, on a micro scale (deliberately false rumors), and macro scale (AAPLs decline over the past 6 months with no justification). Please don’t reply trying to convince me otherwise, it would take too long, and invariably someone always comes up with some bullshit, unprovable excuse like, “investors have lost confidence.” Spare me.
And Google is well represented on iOS. They are not losing here.
A company I am involved with develops apps for mobile devices. These apps are music oriented and fan targeted. The apps are free to mobile users worldwide. These native apps are written for iOS, Android and Blackberry devices.
Recently we looked at the install base of 32 such apps and found that while there are differences depending on the country being reviewed, the results are pretty much inline with the following summary. Note that in certain countries Blackberry is still a major player – especially in music. The UK is a prime example.
32 App averages:
iOS – 46.33%; Android – 13.51%; Blackberry – 40.16%
The apps are designed to look and feel the same regardless of platform. Marketing is identical since it points users to a common redirect based on the device used at the time.
We are hard pressed to understand why Android is so vastly under-represented except to note that many (most) Android device users have no idea what their phone is, does or could be used for. They simply took the cheapest (free) offering from the Telco that looked okay. With iOS devices people know that it is more than just a phone while Blackberry users seem to well aware that apps are the new way of doing things.
Any other suggestions?
As a former iPhone user, I can assure you that some of us have switched to Android not because we are cheap or poor, but because some of the newest devices (mine is the Note 2) have features that make iOS and the iPhone feel generations behind. Why should we be constrained to a 4″ screen? Why should we have to jailbreak our phone to customize the interface, or access files? Why can’t we share files between apps? For that matter why can’t we have true multi-tasking? The newest Android offerings are giving us these features. Some of us are tired of waiting for them from Apple. Love the creativity, but not so hot on the “control everything” nature of the company.