iPhone, Android and how market share impacts exclusivity

iPhone, Android and how market share impacts exclusivity

Summary: Reports indicate that Apple's iPhone is losing market share to Google Android smartphones, despite its latest and greatest model. Here's why that hints at the end of AT&T exclusivity.

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A major headline appeared yesterday evening on the Internet: "Apple Continued To Lose U.S. Marketshare Despite Spike From iPhone 4 Sales."

The news: Apple's iPhone 4 did not reverse its slide in marketshare in the U.S., which dropped by 1.3 percent in the three months ending in July. Worse, the share of smartphones using rival Google's Android operating system grew by five percentage points, according to ComScore data.

It's easy to jump to conclusions here: that Motorola, HTC, Samsung et. al. are doing what they had advertised they would do: wash over the AT&T-only iPhone with an Android army on all U.S. carriers. (To broaden the scope, the same tactic stands for overseas markets -- dominate areas where Apple's exclusivity contracts won't allow it to.)

Until now, Apple's strategy has worked. It has bent carriers' wills toward its own terms (no carrier crapware, etc.) on a global scale. But as Tricia Duryee points out, the holes in its contractual plan are starting to show as Android expands its global reach:

Interestingly, it's not because Android is more widely available. In fact, Android is only available on 59 carriers vs. 154 for iPhone, but the issue is that Apple lacks deals with some of the world's largest wireless carriers—Verizon Wireless (VZ, VOD), Vodafone (NYSE: VOD) Germany, NTT DoCoMo (NYSE: DCM) and China Mobile.

Of course, the real question isn't how many carriers, but how many customers those carriers have. The numbers suggest that time is running out for Apple to keep consistent market share with its current deals, at least on a global average. (Naturally, some markets can still support iPhone exclusivity.)

That means Apple is reaching a tipping point. One of the most popular questions I receive as a ZDNet editor in a daily basis is, "Do you think Apple will bring the iPhone to my carrier?" The answer to that question is always yes, eventually. But when?

Season after season, the tech press gets excited that maybe, yes, possibly Apple will bring the iPhone to Verizon. Or T-Mobile. Or even Sprint. But it all comes down to the numbers: is the iPhone still a hot enough item that Apple can afford to be exclusive?

Like an Ivy League college, if Apple sees slowing demand, it must open its doors to those who it previously would not have let in to keep attendance in check. (In this case, those would be folks who refused, or were unable, to swallow the bitter pill that is AT&T.)

There's no doubt that the iPhone 4 is a hot, in demand product. But if that's not enough to woo users to AT&T, Apple's got a business case to move to another carrier: it's sitting on a hot item, but AT&T has become a blocker to reaching those customers.

These latest market share figures suggest that's the case. (Though for a complete picture, we'd need to see the latest figures on how Verizon, AT&T, Sprint and T-Mobile are growing or losing subscribers.) Not content to lose business -- and with AT&T at a saturation point -- Apple will open up to the next carrier.

That deal won't be as sweet as the first, but it will be favorable, and the carrier that wins will be the one that's most willing to give in to Apple on its demands.

(My hunch? T-Mobile, who lacks a marquee handset the way Verizon (Droid) and Sprint (Evo 4G) do, and in turn, continue to lose U.S. subscribers. But it all depends on how confident carriers are in their own Android prospects; e.g. was the Evo a one-off success for Sprint or not.)

The bottom line is that it all comes down to negotiations; that's business. But to all doomsayers who suggest that Android will overtake Apple -- "the analysts suspect that Android’s install base could outnumber iPhone's in as few as five quarters," Duryee writes -- that's making the big assumption that Apple won't do anything about it.

There's no doubt that Apple would eventually lose market share. It had a critical first-mover's advantage for the modern touchscreen smartphone as we know it today, and continued to ride that for the last few years.

But as that lead fades -- and it must, as the marketplace becomes more saturated with competition -- Apple's mission shifts to continuing to set the pace, stay one step ahead of rivals and convince every customer it can that the iPhone is a superior product.

From what I've heard anecdotally, that's already the case. If the iPhone were offered side-by-side with an Android handset for the same price on your carrier, which one would you choose? For most people, I'm inclined to think the former.

Topics: Apple, Enterprise Software, Hardware, iPhone, Mobility, Smartphones

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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41 comments
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  • Cue the shifting metrics

    Here comes the parade of Apple zealots who, for the last 3 years, have been going on and on about how iPhone's marketshare is skyrocketing and how fantastic that is but now that Apple's marketshare is plummeting, marketshare will suddenly turn out not to be the least bit important.
    NonZealot
    • RE: Cue the shifting metrics

      @NonZealot <br><br>Plummeting? That seems a bit melodramatic.<br><br>I currently have a Droid because my company chose Verizon for the coverage. It's an OK phone, but the INSTANT that Verizon offers the iPhone, I'm switching. I prefer the better UI of the iPhone.<br><br>gary
      gdstark13
    • hey NZ read Fortune Mags take on numbers

      @NonZealot

      Fortune:
      "Android vs. iPhone: Wait just a minute!"
      "That's because the U.S. smartphone market grew 11% in the period covered by the data. So although comScore has Apple's (AAPL) market share dropping 1.3 points from pie 1 to pie 2, its sales were actually increasing. Of the smartphone operating systems covered in the data, only Microsoft's (MSFT) shrank.

      But the bigger problem is hinted at in the title of the second chart: "3 Month Avg. Ending July 2010." Can you guess what it is?


      Consider the dates. The iPhone 4 was launched in the U.S. June 24 and promptly sold out. Sales been limited by short supplies ever since.

      But more important, for most of the three months covered by the data in the second chart, the iPhone 4 wasn't available for sale at all. And in fact, sales of the iPhone 4's predecessors were almost certainly suppressed for all of May and most of June thanks to Gizmodo, which published photos of the new iPhone in mid-April. Who wants to buy the old phone when you know a new one (and price cuts on the old) are just around the corner?"

      http://tech.fortune.cnn.com/2010/09/16/android-vs-iphone-wait-just-a-minute/
      Davewrite
      • What a ridiculous apology

        @Davewrite
        [i]The iPhone 4 was launched in the U.S. June 24 and promptly sold out. Sales been limited by short supplies ever since.[/i]

        If Apple is too incompetent to manage its supply chain, that is Apple's fault and it deserves to lose sales. What a stupid apology. And all the pent up demand was satisfied by the June release of the iPhone and is all covered in that quarter. To say that quarter doesn't count because of pent up demand would only make sense if the release date was AFTER July. It wasn't. Stupid apology.

        I also [b]love love love[/b] the apology that while marketshare is dropping, sales are increasing. Funny how you Apple zealots never accepted that as an argument when Windows marketshare was falling. Cue the double standards!!!

        So thanks for the apology article. It gave me a good laugh. :)
        NonZealot
    • Without doubt iPhone's merketshare IS skyrocking!

      @MSZealot

      There's no such thing as plummeting marketshare!

      According to ComScore they have lost some marketshare in the so-called smartphone sector, but despite losing share to Google's Android they continue to gain subscribers as the smartphone market overall continues to grow.

      And if Gartner's forecast is accurate, Apple will gain subscribers in dramatic fashion.

      http://www.areamobile.de/bilder/77096-original-im-jahr-2014-werden-sich-symbian-und-android-einen-heissen-zweikampf-liefern-prophezeit-das-marktforschungsunternehmen-gartner-foto-anbieter

      Gartner predicts 41 mio. iPhones sold globally in 2010 and 130 mio. in 2014. By then more than half of all mobile phones will be smartphones.

      So iPhone's marketshare will continue to skyrocket. Not in the smartphone subcategory but in the mobile market as a whole.
      HerbertH_02
      • Nope, Apple's marketshare is plummeting

        @HerbertH_02
        Sorry if that makes you cry. :(
        NonZealot
      • @NonZealot: It's better to have 10% of a billion then

        25% of a million
        --- market-share sage.

        (Also according to Asymco Apple already makes 48% of worldwide cell phone profits $$$ - both smart and dumb phones combined. Apple is not sweating about market share.)
        Davewrite
      • @Davewrite: Please read my first post

        I predicted you.

        [i]Here comes the parade of Apple zealots who, for the last 3 years, have been going on and on about how iPhone's marketshare is skyrocketing and how fantastic that is but now that Apple's marketshare is plummeting, marketshare will suddenly turn out not to be the least bit important.[/i]
        NonZealot
      • Ah NZ NZ

        @nonzealot:<br><br>you say: "I predicted you.Here comes the parade of Apple zealots who, for the last 3 years, have been going on and on about how iPhone's marketshare is skyrocketing and how fantastic that is but now that Apple's marketshare is plummeting, marketshare will suddenly turn out not to be the least bit important"<br><br>A fallacious argument NZ!<br>When iPhone etc was starting out from ZERO of course marketshare was important. Gaining market share was vital and Apple fans were cheering it on! Then when it gained market share, passed the earn-back-the-R&D. etc -bucks point and then ZOOMED into the profitable stratosphere then marketshare isn't that important anymore ESPECIALLY WHEN THE PIE IS GETTING BIGGER and SMALLER marketshare still means MORE units sold!!! . GET it? and Apple marketshare is hardly "plummenting" as you put it lol! <br><br>When you are zero market share your profit is zero. Developers don't like it when you have zero and investors don't like and at zero start of course Apple fans shouted when Apple gained share. <br> but now with Apple dominating profits and with apps at 200,000 plus... market share although still important is less do or die as it was. especially as i said before the TOTAL numbers sold is actually going UP. In fact Gartner's CONSERVATIVE estimates shows Apple's total units sold will DOUBLE in a few years.<br><br>of course apple fans have changed their position as Apple's position has changed. (but of course Windows fans find it hard to grasp 'change' as Msft and all its associated with: PC manufacturers, technology, fans seem to be continually stuck in the past.. like the 1980s... EXAMPLE: singing Michael Jackson during WP7 celebration! LOL! Without Apple Msft will still be selling command line DOS only) <br><br>Anyhow I suspect Google's marketshare to stall in gain and if it does it'll mostly be low end devices. Practically every place Apple gets on a carrier Android doesn't do well.
        Davewrite
      • RE: iPhone, Android and how market share impacts exclusivity

        @NonZealot,
        First of all, what a mis-nomer... Anti-Apple has some of the most Zealots of the nonzealots. :-)

        "Here comes the parade of Apple zealots who," yea, whatever. LOL

        HerbertH_02, right on vs the profits. Dell has market share and its going broke. :-)

        And lastly, these anti-Apple fans (Android, WM 7, etc) keep forgetting what is important......

        iPhone, iPod touch (with facetime), iPad, iTunes, AppleTV and of course Macs.... its a complete environment. Get Android - get a phone... get an iPhone, get ease of use, move media easily, sync, connect, etc. And while geeks will love Android and WM7, the vast majority of people willing to spend money on a phone, mp3, etc are moving to Apple.

        Just a thought,
        en
        eldernorm
    • Aha NZ, : AMR: UNPRECEDENTED!!! Apple No.1 Supply Chain 3 years in a row.

      @NonZealot <br><br>ah you say "If Apple is too incompetent to manage its supply chain, that is Apple's fault and it deserves to lose sales"<br><br>supplychaindigital June 2010 :<br><br>"Last week, AMR Research revealed that for the third consecutive year, Apple had topped its Supply Chain Top 25 rankings. The companys supply chain strategy has been greatly admired for many years now but to remain in the No. 1 position of AMRs findings is unprecedented."<br>"The rankings also took into consideration the companys groundbreaking transformation of the supply chain into a value chain by designing its network around the consumer."<br><br>UNPRECEDENTED!!! GROUNDBREAKING!!!<br><br>whatever Apple does Apple does the BEST.<br><br>Even with the No 1 supply chain Apple still Can't keep its lusted after masterpieces of technological wonder in stock. Imagine how many they're selling! <br><br>
      Davewrite
      • RE: iPhone, Android and how market share impacts exclusivity

        @Davewrite
        If they were that good at supply chain management, they wouldn't constantly be out of stock on everything they make and you guys wouldn't use that as an apology for plummeting marketshare.

        MS doesn't use "we were sold out" as an excuse and MS makes even more revenue and profit than Apple. That isn't a coincidence.
        NonZealot
      • @NZ with KIN and ZUNE of course Msft doesnt have supply chain problems!

        @Nonzealot:<br><br>you say "MS doesn't use "we were sold out" as an excuse and MS makes even more revenue and profit than Apple. That isn't a coincidence."<br><br>With products like KIN and ZUNE of course they don't have supply chain problems.<br>Ballmer and Gates could probably build all the KIN sold in their garages and hand deliver them all by themselves!
        Davewrite
    • RE: iPhone, Android and how market share impacts exclusivity

      @NonZealot

      Bring on the Windows phones. I already have the Apple UI on my Windows mobile (Winterface 19.95) and every other device in the past 5 years uses the same old tired crowded desktop UI.

      Yes it's old and not very efficient with data siloed by application.

      At least the Windows 7 phones are moving on rather than throwing even more icons on a small screen.
      tonymcs@...
    • RE: iPhone, Android and how market share impacts exclusivity

      @NonZealot

      And the original argument made by the Apple people back in the days before they had any mainstream products namely 'you don't have a large market share to be profitable, and profitability is the most important thing' was correct all along.....I always found it a bit disingenuous that they started emphasizing market share
      Doctor Demento
  • RE: iPhone, Android and how market share impacts exclusivity

    Jeopardy theme tune continues to hum...
    Shigemichi
  • You learn from history

    Apple has been down this controlling proprietary path before when PCs were introduced and Apple had they're vaunted Apple series. They tried to dictate the market with proprietary hardware, dictate software and protocols, and they lost miserably to the PC. Here we go again with Apples Iphone. They are trying to dictate or control what the market will bear or wants and they will ultimately lose again.
    grissinb
    • I'm not so sure you can say they lost

      @grissinb <br><br>Apple stayed afloat as a PC maker for years and years, even as MS powered solutions took over.<br><br>I made this same post elsewhere, but it applies here, too, so I'll just repost it:<br><br>I dislike both Apple and Google as companies. The former's tight control over everything I find distasteful, and I marvel at the all-too-real reality distortion field they cast over their customers. Google, on the other hand, is this millennium's Microsoft: a vicious competitor riding a single monopoly (online advertising revenue) to crush competitors in unrelated areas. Like MS did to WordPerfect, 123, Netscape and Realplayer, all of which were once truly great and market-leading products, by leveraging Windows, Google is slowly doing to cell phones, online mapping, online video, and other areas by leveraging search. That being said, over the near term, at least, I see Apple as being in the much stronger position in the cell phone space, even as Android, and presumably soon Windows Phone 7, begin to encroach and even surpass their market share. The reason for this is that, at the end of the day, market share is only a means to an end, and that end is profits.<br><br>I apologize in advance for playing fast and loose with the data here, but the point is sound, I hope: By way of comparison, Apple is far-and-away the most successful seller of personal computers in the world at this time. This is despite the fact that I believe there are many, I really don't know but maybe as many as a dozen, larger sellers of computers, by volume (e.g., HP, Dell, Lenovo, Toshiba, Acer, etc.) ahead of Apple. Nevertheless, Apple takes in something like a full quarter of all PC profits.<br><br>The same is true with Android, at least for now. I am sure Google is losing money hand over fist on Android right now. That's fine, they can afford it (possibly indefinitely) if it keeps competitors from gaining a significant platform from which to challenge them. It may even make business sense: how much money did MS have to make from IE to make crushing Netscape a good idea? Apple, on the other hand, is playing a different game. I have read expert opinions that have their market share dropping to around 10% over the next few years, while at the same time their share of cell phone profits rises to >70% of the entire mobile phone industry's. They are simply playing a different game.<br><br>(Anyway, I'm rooting for WebOS <img border="0" src="http://www.cnet.com/i/mb/emoticons/happy.gif" alt="happy">)
      x I'm tc
  • Not sure.

    Apple might cede some market share to Android (in the U.S.) just to avoid having uber-control-freak Verizon dictate that they put Verizon-specific crapware on the "pristine" iPhone. It's the Battle of the Control Freaks! Enjoy the show!
    Userama
  • RE: iPhone, Android and how market share impacts exclusivity

    They have simply dismissed markets like India where there is a pent up demand for smart phones. Samsung is entering the market with all its Galaxy S phones and the last I heard, they are being snapped up after demos. 3G is still not big here, but you have a bunch of people willing to throw their money on the Iphone to support their vanity.
    idiot101