In a future where every 3rd party thing you do on your phone is done using some sort of web-based UI, phones are only differentiated by (in no particular order):
- Industrial design
- Battery life
- Performance of web apps on the device
- Quality of UX for essential built in functions (e.g. voice calling)
That is, no app platform differentiation. No virtuous cycle where developers target the platform with the most users and consumers choose the platform with the most apps. Imagine the PC/Mac industry today without Windows dominance and you might not be far off.
Put differently, in a future of pure web app domination, the handset OS is irrelevant and there is no horizontal platform for Android (or any other OS) to win.
So I find it interesting that some people are both web app proponents and bet on Android having some sort of meaningful dominance at iPhone’s expense. To me these are contradictory points of view. I imagine their belief is based on some combination of the following factors.
Google is such a visible defender of openness and the web. This is misleading though, because for their core technology (search algorithm) they are even more closed than Apple, as they should be. In the case of mobile specifically, the openness is essential to convince OEMs that Android is not a re-run of the DOS/Windows platform dominance movie. In fact, Google’s support of the open web might be in direct contradiction with Android’s long term dominance, but they might not care. Web platform dominance and the continued relevance of web search and advertising, Android or no Android, is the higher order bit.
Much of Apple’s current success is driven by the App Store and the virtuous cycle it creates for iOS. The mistake here is to believe that Apple falls when the App Store’s relevance goes away. Even if it were to happen and iOS apps became less of a differentiator, the same would will also be true for the apps on every other mobile OS. Meanwhile, the initial boost that the App Store provides in its heyday will position Apple far ahead of every other handset manufacturer in a game that will increasingly center around marketing and manufacturing economies of scale.
Disruption normally ousts the incumbent. But not always. The iPod is currently being ousted as the dominant digital media player… by Apple’s own iPhone. It is remarkable how aggressively they disrupted their own product line and shifted their revenue mix from media players to phones.
A belief that low cost phones that access the web will undercut Apple’s premium iPhone. There is a fundamentally flawed implicit assumption that other manufacturers (even small ones) will somehow be able to build phones at a lower cost than Apple can. From a cost point of view, consumer electronics is a scale game. Given its footprint, Apple will negotiate significantly lower prices on components. It might even buy up so much supply that other manufacturers will be starved (something they did with the iPod). Their buying power is enhanced by the fact that they share at the very least supplier relationships, and sometimes even actual components, across their iPhone, iPod, Mac and Apple TV product lines. And if that weren’t enough, Apple develops key components like the A5 SoC in-house.
Apple is not vulnerable to low cost competitors, it is the lowest cost competitor in the categories it serves. It isn’t the lowest price competitor, but the only thing stopping Apple from shipping a lower priced iPhone is that they don’t need to. It would cannibalize their existing line and reduce their profit margins at a time when there is no credible low price alternative. But when the time comes, their past actions suggest that they won’t hesitate to launch downmarket offerings.
The bottom line is that a web-only world changes Apple’s strategic options, but it doesn’t kill the iPhone. What’s more, it’s a world where handset vendors are relevant and OS vendors are not. And where it would be harder for an OEM to hide a sub-standard product behind an OS platform brand like Android.
If you had to bet today on a handset manufacturer that could lead this kind of market based on the five potential areas of differentiation I listed above, who would it be?
I think Andy Rubin’s team are doing an amazing job. As OS platforms go, Android is a great product and adoption among OEMs is phenomenal. But I think that people are missing the point of Android and its importance to Google. Even if Android doesn’t exist 10 years from now, it will still have been a fantastic success1. Google staved off complete iPhone dominance by propping up a bunch of software-incapable OEMs with a good OS and a great web browser, and they accelerated the progress of web standards on mobile. They have probably shortened the time-span that Apple can milk the App Store, a model of distributing content that is completely untouchable by Google’s traditional search and advertising machines2.
Personally, I think the future is going to be more complicated and more interesting than web wins or native wins. But If you do believe that the web will dominate and that native apps will decline, then you must also accept that standalone operating systems, while serving the purpose of positioning the handset manufacturers in the near term, will be near commodities in the longer term.
- In the language of the value chain (the set of vendors that together deliver a user experience in the simplistic mobile value chain above): Google and Apple are not direct competitors in their core businesses (Google doesn’t build devices and Apple doesn’t have a search engine), but they are competitors for profits in the value chain. One simple rule of thumb is that the piece of the value chain that has the least competition grabs the most profit. Good examples are Microsoft’s success with Windows in the PC value chain, and Google’s success with search on the Internet (in stark contrast to the fortunes of PC OEMs in either value chain). They dominate their respective pieces of the value chain. Apple dominating the phone handset is a fundamental threat to Google’s position in the mobile value chain (where Google search and advertising is less established). Android is one way they can neutralize this threat. Their goal is not so much to take away Apple’s business as it is to loosen Apple’s hold and allow more of the value to flow to Google’s core business.
- Android will have other effects too. For example, their Android dependency is stopping OEMs like Samsung and Motorola from developing true internal software capabilities, or at least slowing their internal efforts down. So if and when HP and the Nokia/Microsoft partnership get their acts together, it will be that much easier to scoop up the piece of the market that Apple doesn’t already own.
Posted: April 8th, 2011 under Mobile.