Is Android's market share really a 'joke'?

Is Android's market share really a 'joke'?

Summary: Google is seeing some 1.5 million new Android devices being activated daily, but is the Android ecosystem too focused on market share rather than profits?

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There's little doubt that when it comes to the battle of the mobile operating systems, Android commands a massive lead over the other players. But is market share all that matters?

On the face of it, having a strong market share might seem good. After all, increased market share means more people using the product, which in turn means more buzz and a healthier ecosystem. After all, seeing 1.5 million new Android devices being activated daily can't be a bad thing, right?

Problem is, market share numbers ignore one vital factor: profit margins. And, as investor John Kirk reminds us in a piece over on Techpinions, there's no point losing money on every sale and then trying to make it up in volume. All you're doing is digging a deeper hole.

He reminds us of the old joke where two farmers buy a truckload of watermelons for five dollars a piece which they later sell for four dollars each. Counting their money at the end of the day, they realize that they've ended up with less money than they’d started with.

"See!" said one farmer to the other. "I told you we should have got a bigger truck."

According to Kirk, there are a number of better ways to work out who's winning and who's losing in a particular market, and market share isn't a factor in any of them. The only factor that counts in his eyes is profit.

And, as Kirk quite rightly points out in another piece over on VentureBeat, many of the big names in the Android ecosystem are losing money or, at best, barely breaking even.

Apple, on the other hand, is doing very well indeed from iOS.

So, while Android might be crushing iOS and the competition in terms of market share, Kirk believes it is doing so by sacrificing the lifeblood of all businesses: money.

"But," Kirk points out, "market share isn’t necessarily a leading indicator. Profit comes from a combination of market share times margins, and people are completely ignoring margins."

Parallels are also drawn between the Android/iOS war and another similar war that has been raging for years, which is the war between the PC and the Mac. PC OEMs increasingly cut margins in order to capture market share from one another, until prices were driven to the point where it became hard for anyone to make a profit from PCs. Compare this to Apple, which kept prices at a healthy level, and worked on its margins rather than obsessing over market share.

"Market share is like advertising," says Kirk. "A huge audience is fine, but it’s much better to have a very focused, targeted audience."

While what Kirk says makes a lot of sense, there are some points which I think he ignores.

Does Kirk expect the Android players to simply pack up shop and walk away from the smartphone and tablet markets in the face of Apple's might? Competition is what makes the economy work, and there are always winners and losers. Kirk seems to be advocating that we jump straight into calling Android a loser and move on.

Some players, specifically Samsung, are making money from Android. Here, playing the market share game seems to have paid off.

Then there's the whole issue of the smartphone market being oddly skewed because of subsidies. As analyst Sameer Singh points out, this could lead to a "profit trap" for the dominant players.

"Profit share in the smartphone industry is currently skewed, because of the economics involved," Singh writes. "Smartphones sold in markets with higher purchasing power are mostly subsidized, which ensures that today's major brands dominate. Smartphones sold in markets with lower purchasing power are mostly unsubsidized, which ensures the dominance of low-end phones, and a number of low-end vendors (with far lower profits)."

The problem comes when the lead that the big players have is eroded as the competitors' products become "good enough."

"However, as products become good enough, pricing pressure and supplier bargaining power limits profits. This 'profit share trap' becomes more problematic as investors & analysts continue to expect the same, unsustainable level of growth and profitability. The only way to escape this trap is by diversifying (IBM is an example), becoming a services/software/component supplier to the increasingly competitive OEM space (Samsung has the advantage here) or by the riskiest approach: attempting another disruption (Apple's rumored iWatch seems to be such an attempt)."

It's far too soon to write off Android.

Topics: Mobility, Android, Smartphones, Tablets

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87 comments
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  • PC market...

    Windows crushes all. Is it a joke? If so, then Android's in the mobile market is one. If not, Android's not. Listening to investors about the worth of something is potentially stupid. Does it maximize their money? That's all they care about. Not saying that's a bad thing- it just paints a picture using only a couple colors.
    ikissfutebol
    • Android

      The fact that someone owns an Android Phone doesn’t make them a real computer user. Including all the Android phone Users and comparing them to OSx or Windows users makes no sense. It would be like comparing brands of home toaster to brand of bread oven used by bakers and then pretend that KitchenAid has the biggest market share amongst bread oven.
      gbouchard99@...
      • Ah yes the REAL computer (aka Windows)....

        The REAL computer which must by definition must weigh as much as a brick, run hot and noisy, store all its data and apps locally so that you need to carry the hot, heavy, noisy around with you everywhere you go, and not least of all, it must have a huge range of computer viruses and worms to run, along with the necessary anti-virus software to deal with it.

        The problem is the REAL computer (aka Windows) comes with REAL viruses, a REAL maintenance hassles, REAL security issues, and is a REAL pain in the butt to own, use and maintain.

        I think this kind of explains why Microsoft only has 18.1% of the total market for portable computers including laptops, compared to Android's 59% and Apple's 19.3% due to customers skipping REAL computers and opting instead for UNREAL computers like Android, iOS and Chromebooks which are light, portable and leverage the cloud and wireless services in rapidly increasing numbers.

        http://www.canalys.com/newsroom/smart-mobile-device-shipments-exceed-300-million-q1-2013
        Mah
        • Two Points...

          One, gbouchard99 was saying that a comparison between Android and OSX or Windows is not reasonable because they are not similar products. Android is mobile. OSX and Windows are primarily desktop. It's comparing apples and oranges.

          Two, how long has it been since you've used Windows? "weigh as much as a brick...run hot and noisy...computer viruses and worms to run...REAL maintenance hassles, REAL security issues, and is a REAL pain in the butt to own, use and maintain." None of that has been true in decades. That argument doesn't work anymore.

          You're focusing on the word REAL, but missing the point of the comment.
          scophi
      • Yes ... and No

        Your point is valid, to a degree ... but you also have to admit that there ARE a certain percentage of people who make very undemanding use of their PCs, and are starting to use a smartphone or tablet to do all those same tasks (and in some cases, have nearly abandoned their PC).

        The validity of the marketshare-of-Android/iOS-vs.-Windows/PCs rests entirely on what the mix is - and it's not a simple picture, and as far as I know, no one has rigorously studied the degree to which users are in fact replacing their PC use cases with smartphone/tablet use cases.

        One complicating factor is that basically no PCs have "aged out" during the time that it became even arguably viable to replace one with a smartphone/tablet. It could very well be the case that a high percentage of consumers, when they next face a decision on whether to replace a PC, opt not to. But even if that "looming cliff" exists in PC sales, it won't be evident for a couple of years.
        daboochmeister
    • Not the same. Windows is MS and they have always

      maintained very good margins regardless of OEM margins. They are also keeping their margins up on their own hardware, not racing to the bottom like android OEMs.
      Johnny Vegas
      • ... and WHO CARES?

        Adrian is focused on an irrelevant angle here.

        Why should anyone but a Google shareholder care about this?

        Even as an Android user, why should this be of any concern. A user doesn't need to have much concern about updates, fragmentation (different versions), etc. unless the device is broken and doesn't work.
        Schoolboy Bob
    • Point totally missed

      Apple makes money from selling devices, and thus has a profit margin from device sales. Microsoft makes money mostly from selling software, and thus has a profit margin from software sales. Google isn't making any money from Android sales. There is no profit margin when a device is sold. Google makes money from advertising and is doing extremely well financially.

      The fact that Android (Linux) is the number one operating system shouldn't surprise anyone. Linux is free to use and modify by anyone and everyone, so if you make a printer or router or super computer or giant mesh of computers like Facebook, or a tablet or a smart phone, Linux is the obvious choice.
      StevenAbaby
    • Android is about numbers

      Having a leading market share is simply a numbers game. That's all it is. That's all Android has ever been about. Everything Google has done from the very start is to go for the numbers, not profit, not quality, not loyalty, not image... it's all about numbers. And, they have succeeded!

      By spreading an OS that will work on any manufacturer's device, and practically giving it away, Google has shown over and over that quality is not what they've been aiming for... that is why Android phones cover the entire spectrum of devices. The OS is on some of the very best smartphones available, though it's highly arguable that they are on the best. But what's not arguable is the other end of the market... the really bad smartphones that barely work and barely do what they're supposed to do. Android totally owns that market!

      And to make it worse, for years there's been a plethora of Android phones that sport differing variations of the operating system.

      This article is about Android not producing much profit, but it could also have covered the other aspects of the OS as well... being the strength of the OS is in it's numbers, not making money. That's it. You can't walk into any cellphone store without being bombarded by Android. It is the operating system for the masses... whether the masses like it or not.
      camcost@...
  • Criticizing Android Market Share as the sole measure of success, not Androi

    "Does Kirk expect the Android players to simply pack up shop and walk away from the smartphone and tablet markets in the face of Apple's might?"

    I never criticized Android. I only criticized using market share as the one and only way to judge success in mobile computing. Samsung, for example, is doing great in mobile. But some 50% to 60% of Android's market share is making only 5% of the profits. That's unhealthy.

    And that market share is not strengthening the Android platform because it doesn't fully participate on the web and fails to buy content or apps. The mistake being made is to assume that all market share is alike. One can't judge the viability of a platform solely on market share unless the quality of that market share is known.
    Falkirk
    • Network effects and quasi-standards

      Could it be you are overlooking network effects and issues of becoming the "standard" operating system? The more people are using Android, the more attractive Android apps and Android phones are. And if the market share is continuously expanded to the point were the vast majority of mobile devices runs on Android, supporting other operating systems becomes increasingly unattractive.

      Failing to make a profit in the short term is not necessarily unhealthy if it allows to make a greater profit later on. And it's up to each player to ensure that they have the stamina to hold on that long - and their investors the patience to wait that long.
      hydroxide
      • The trick is knowing the value of the market share being added

        "Could it be you are overlooking network effects and issues of becoming the "standard" operating system?" - hydroxide

        Not at all. The mistake being made is that people are assuming that more users always increases the network effect or that each additional user is as valuable to the network as another. It's relatively easy to count sales and activations. The trick is knowing how valuable those sales and activations are to the platform.
        Falkirk
        • Don't buy it.

          Sorry, but I don't buy your claim that you are not overlooking network effects. In your analysis, you wrote "Less than a 1-to-1 ratio of profit share to market share demonstrates that a company is buying market share; that the company has not been able to differentiate its product in the market and is likely competing primarily on price. - See more at: http://techpinions.com/androids-market-share-is-literally-a-joke/16709#sthash.oLfYa1Al.dpuf"

          Yes, so? If you grab your next best microeconomics textbook, you will likely find this almost verbatim as the explanation of how to use a network effect. Give it away for free, heck, pay people to use it, until your product is THE product to use. Then you can still cash in.

          The trick, as you say, is knowing how valuable those sales and activations are IN THE LONG TERM.
          hydroxide
          • How do the OEMs "cash in".

            Without any services to differentiate themselves, all the value of the network effect exists 100% with Google. This is why Samsung is putting custom services and options on their handsets in front of Google's. They even have their own applications market place for Android APKs. Samsung is trying to create network effects for Samsung products unique from Android. This is helping Samsung (look at their growing profits) and hurting Android (look at its dwindling profits).

            Basically, if LG sells at a loss there is nothing to keep users coming back to LG instead of HTC, ZTE or Sony the next time. In the PC space, OEMs never got quite got that cut throat and when they came close, there had been many years of very profitable growth. The land-grab in mobile has happened so fast, only Apple and Samsung have had a viable approach to provide long term success.
            Bruizer
          • Funny that you cite PC space....

            "Without any services to differentiate themselves, all the value of the network effect exists 100% with Google"

            Wrong. You can differentiate yourself in a whole lot of ways - up to and including customer service, technical product reliability and, gasp, design.


            "This is why Samsung is putting custom services and options on their handsets in front of Google's."

            A lot of which are subsequently dumped by people rooting their phone and cursed by those who don't.

            "Samsung is trying to create network effects for Samsung products unique from Android. This is helping Samsung (look at their growing profits) and hurting Android (look at its dwindling profits)."

            Please, learn what network effects are before commenting on them. Pointing at dwindling profits while discussing network effects suggests you don't understand them.

            "Basically, if LG sells at a loss there is nothing to keep users coming back to LG instead of HTC, ZTE or Sony the next time."

            False. If LG sells at a loss but people are highly content with workmanship, durability, battery life, screen resolution and luminosity, colour balance etc., they have every reason to come back.

            Much like I didn't come back to Samsung after their customer service in my country proved a bunch of ignorant jerks. (Sample? "Please reset your phone to manufacturer settings" "Folks, I just told you that it's a touchscreen phone which refuses to boot! How do you suppose me to tell it to do anything?" "Oh, sorry...")

            "In the PC space, OEMs never got quite got that cut throat and when they came close, there had been many years of very profitable growth."

            In the PC space, Apple already once learned what happens when you let a competitor become the quasi standard.


            "The land-grab in mobile has happened so fast, only Apple and Samsung have had a viable approach to provide long term success."

            The land-grab happened so fast that it is silly to assume that network effects are already in the prophet-reaping phase. If you look at the market shares, it is clear that this is not the case. There is no one overpowering OS that could afford to start tightening the profit screws without risking dramatic loss in demand. Which means nothing less than that a lack of profitability for Android at this point in time is perfectly expectable.
            hydroxide
          • I am amazed you don't understand network effects

            But use the term over and over as if you do. I don't know where to start.

            "In the PC space, Apple already once learned what happens when you let a competitor become the quasi standard."

            Yep, you end up with 8% market share and almost 50% profit OEM share. I would love to loose like that.

            "Wrong. You can differentiate yourself in a whole lot of ways - up to and including customer service, technical product reliability and, gasp, design"

            Only for a very few niche vertical markets like ruggedized and such. Look at the PC space to see the race to the bottom.

            "Please, learn what network effects are before commenting on them. Pointing at dwindling profits while discussing network effects suggests you don't understand them."

            If you can't see what Samsung has done, you really don't understand the concept and principles of network effects. I mean this in a serious way. Samsung is transferring the wealth of the other Eco-system players to Samsung using unique network effects within Samsung products. Sony, LG, Motorola, HTC, ZTE and others not being Samsung are seeing dwindling profits in the Android space. Samsung alone is seeing profit growth in Android OEM land.

            "The land-grab happened so fast that it is silly to assume that network effects are already in the prophet-reaping phase."

            The error is applying software services business principles to hardware OEM business models. Once you figure that one out, come back and perhaps we can converse intelligently.
            Bruizer
          • Oh, really?

            "Yep, you end up with 8% market share and almost 50% profit OEM share. I would love to loose like that."

            you would love to come to the edge of bankruptcy? Now THAT's solid management.

            Sorry, but even Steve Jobs disagrees with you:

            "What ruined Apple was not growth … They got very greedy … Instead of following the original trajectory of the original vision, which was to make the thing an appliance and get this out there to as many people as possible … they went for profits. They made outlandish profits for about four years. What this cost them was their future. What they should have been doing is making rational profits and going for market share." (http://www.forbes.com/sites/richkarlgaard/2012/12/10/steve-jobs-warns-apple-dont-be-greedy/ )

            "The error is applying software services business principles to hardware OEM business models. Once you figure that one out, come back and perhaps we can converse intelligently."

            That paragraph alone suggests that you will never qualify to do that.
            hydroxide
          • WTF are you talking about?!?

            "you would love to come to the edge of bankruptcy? Now THAT's solid management."

            Care to state, exactly, when Apple was close to bankruptcy. Clue: At NO point in their history was Apple close to bankruptcy. You are, quite simply, arguing off a meme instead of facts. Please bring up the myth that MS saved Apple with their measly 150M in non-voting stock purchase so you can be laughed off the internet.
            Nor would it matter if it had been true at one point (and again, it was not) as that is not the case now. Apple has been solidly in the black for years, even using whatever weird metric you are using, and is sitting on the single largest cash horde of any corporation in the world. So yeah, 8% marketshare with 50% profit is a fine place to be.

            Second, you repeatedly go on about network effects, and spew nonsense about OEMs going for marketshare, which leads to more incentive for app developers, which bolsters the platform, which increases marketshare and around we go. All nice, except that none of it is true. This is demonstrable both logically as well as empirically.

            To begin with, marketshare is NOT a currency. It can not be spent, or exchanged for goods and services. App devs do not create apps for marketshare, investors do not invest in startups for marketshare, they do so for PROFIT. As such, marketshare is only useful insofar as it increases this profit. Sometimes is does, as in Apple's case, and other times it does not, as in Android's.
            All that matters in the end to devs is profit. Getting marketshare alone gets them nothing. Without revenue, they are dead. Which is why the fact that almost no Android devs are making money is a serious problem for the platform. And also why the app count still lags behind iOS. While devs rush in on the hopes that this market share will translate into profit, they just as quickly leave the space as it turns out that it doesn't. If you are a business and you can't translate marketshare to profit, you lose. Period.

            Besides, which, the idea that Android is winning in the market share space is misleading anyway. While they may appear to be from the uninformed standpoint of overall numbers, if you look at it on a carrier by carrier basis, the numbers tell a different story. In fact, there is not a single carrier on the planet, that carries both iOS and Android devices, where the number of iOS units does not exceed the number of ALL Android devices sold, COMBINED. As such, the only reason Android is "beating" iOS in marketshare is because iOS is no available on as many carriers.

            Finally, as study after study has shown, repeatedly, money spent per user in the ecosystem for iOS dwarfs by an order of magnitude that spent in Android. It is THAT number that draws debs, not market share. If you want money, you go where people actually spend it, not where the last purchase the user ever makes is the phone (which itself is often sold at a loss).

            The only one who wins there is Google and the carriers.
            .DeusExMachina.
          • debs=devs

            .DeusExMachina.
          • Prophet

            Prophets don't reap, pedant, they sow,
            dheady@...