Google has lost control of Apple
Maybe disposing of Android creator Andy Rubin was dumb. Maybe buying into the "Year of Chromebook" meme was dumber. Maybe making strategic decisions in anticipation of European Union trustbusters was even dumber. Maybe selling Motorola was dumbest. Take your pick, or add to the list, because all of the above apply. Google has squandered what should be in 2015 platform riches, ceding to Apple what shouldn't have been.
In October 2009, I asserted (before anyone else) that "iPhone cannot win the smartphone wars", as the stage was set for Android and iOS to mimic the platform battle between Windows and Macs during the PC era. By the large number of Android devices shipped that analysis is true today. But Apple's mobile platform wins the mindshare—and by other measures profit-share—wars, something Google could have, and should have, easily prevented. Time is overdue for course correction that requires smarts, not dumb-ass thinking.
The Numbers Game
Consider Android's setback, following the release of iPhone 6 and 6 Plus. For the three months ended in November 2014, with exception of Japan, iOS share of the smartphone market rose in all countries that Kantar Worldpanel ComTech tracks. Android market share declined in Europe and the United States. On the Old Continent, Android share fell 3.2 points to 69.9 percent. Here, iOS rose 4.3 points to 47.4 percent share. During the time period, iPhone 6 captured 19 percent of U.S. smartphone sales.
Apple benefits from pent-up demand—customers wanting but not being able to purchase a larger iOS handset until September 2014. Then there is the single-brand advantage. Android is everywhere on many devices, which compete against one another. iPhone stands alone and against them, which makes marketing, and selling aspirational digital-lifestyle benefits, all the easier.
The iOS platform, around which iPhone is flagship, benefits from commitment. Apple generates most of its direct revenue and profits from the handset. Google generates none directly from Android and perhaps a little from Nexus devices, among which the newest smartphone model is perennially sold-out at Google Play (presumably more from short supplies than great demand). During calendar third quarter 2014, iPhone accounted for 56 percent of revenues. Add iPad, and the two major iOS devices represent 69 percent of total revenues. That's a whole lot of incentive to be committed to the platform.
Apple announces calender fourth-quarter results on January 27. If UBS Research estimates prove accurate, iPhone will account for 64 percent of Apple's projected $68 billion in revenue.
Now contrast against Samsung, upon which Google depends most for Android's success. Last week, the South Korean electronics giant previewed Q4 earnings, indicating a 37-percent year-over-year profit decline, representing the fifth consecutive quarter that income falls. The mobile division drives profitability but fights a two-front war: Apple at the high end and Chinese manufacturers selling low-cost, and largely less profitable, smartphones at the other end. It's a lose-lose formula not just for Samsung, but Google, since the manufacturer accounts for the largest chunk of Android market share and all smartphones—24.4 percent, for the latter, based on actual sales during calendar third quarter 2014, according to Gartner. That's down from 32.1 percent a year earlier.
Some more numbers: Eighty-one percent of smartphones sold during Q3 had Android compared to just 12 percent for iOS. How those numbers shift because of iPhone 6 and 6 Plus won't be known until Gartner tabulates and releases Q4 data, which is expected in February.
But the larger measure of any platform's success is money, and who is committed. Apple's commitment is unquestionable and empowers application developers and peripheral manufactures to support iPhone, which also benefits from hardware and software uniformity. As such, people buying the device have more choices. Just look at all the add-ons available, for example, compared to any competing smartphone.
Something else: Presuming Millennials favor iPhones over competing handsets, Apple's foothold among the digital-native demographic that most app developers and content distributors want to reach is a huge platform advantage.
Where's the Commitment?
Google lacks commitment, in part because its profit center is elsewhere. Android is a giveaway. Meanwhile, the information giant generates about 90 percent of revenue from content and services that need to reach all platforms, including Apple's. Too often, the best apps on iOS are made by Google, for example.
I don't know Google's inner-workings regarding the turf wars that led to Andy Rubin being sidelined before exiting the company. But you can be sure that as Android's founder, he was committed. It is my strong observation reporting about Apple and Google that the energy around Android is less today than when Rubin led the platform.
But his departure is a simplification. About three years ago, Google started separating core apps and services from Android. The approach helped overcome enormous platform-version fragmentation that remains today, since the company's revenue-generating products are no longer encumbered. According to Google data, devices running 7 different Android versions—all the way back to two-point-two—accessed the Play Store for the 7 days ended January 5. Because newest version Lollipop has less than 0.1-percent share, it doesn't show up at all. By contrast, 68 percent of iOS devices run the newest version, according to Apple. Android 5 released on new devices in mid-October and iOS 8 about a month earlier.
App-and-service separation also responds to Google's ongoing antitrust problems in Europe, where leverage from search dominance draws continued criticism. My question: Should concerns about what regulators might do dictate corporate strategy? By making core apps and services available as updates separate from Android, Google shows where its commitment lies (e.g,, what makes money), enables continued platform fragmentation, and leaves problems in place that need long-term solutions.
Meanwhile, following Rubin's demotion, Google combined Android and Chrome platforms oversight. I see that as signaling in part the company buying into the ridiculous "Year of the Chromebook" meme. Reality is this: Laptops running Chrome OS largely are successful in a single market (K-12 education), and longevity of success is uncertain. If Google wants to lock in young users (e.g., Millennials) now, hooking them on devices they own (e.g., smartphones, phablets, or tablets) matters much more. Guess where Apple focuses?
Macs moved into the top-5 for global PC shipments during 2014, according to IDC. In fourth quarter, Apple shipped 5.75 million computers globally and 2.25 million in the United States, the majority selling for $900 or more. Gartner estimates global Chromebook sales of 5.2 million for all 2014 or less than the number of Macs shipped in the most recent quarter. While I am a Chrome OS fan, it distracts Google from what matters more: Android, which commands greater presence and in a device category that grows.
Perhaps Google's Android commitment would be greater if the company kept Motorola, which was a brilliant purchase and WTF sale. Granted, the hardware company sapped Google profits over many quarters. But the long-term value was product development, meaning the synergy between hardware, software, and services. That's something Google could have kept without competing too much with Android manufacturing partners.
Motorola put a tangible face on Android and Google—branded devices consumers could hold in their hands. Moto handsets should be the reference designs for all Androids, something that could be said about Motorola-made Nexus 6 in 2015. So there is two-fold benefit: One is marketing, the other is product development.
Apple demonstrates real commitment to iPhone and iOS, because they generate massive amounts of profits. During 2014, Google demonstrated uncertain leadership with respect to Android. Mindshare matters, and you can be sure Apple will command plenty after announcing calendar Q4 earnings in 11 days. You won't read about Android market share but how much goddamn money iOS generates for Apple and its partners.
If Android is to be anything more than the operating system that cheap-ass phones run—and that's a not-to-unlikely scenario when 2015 closes—aggressive and improved aspirational marketing is the first line of defense. Google must not let Apple control the story line. In business perception is everything. OK, Google, it's time for more leadership and commitment.