Posts Tagged ‘iPhone’

Android Catching iPhone

February 5th, 2010 2 comments

Actual customer usage is the best leading indicator of success in the marketplace.  Usage begets usage, and is the source of the most important ingredient for success: happy customers.  When it comes to Mobile OS’s, the best publicly available proxy for actual customer usage of the kinds of things mobile startups care about (ie, use of apps, browsers) is the AdMob monthly ad request data.  This is end-users voting with their time, and demonstrating that they are seeing true utility from these platforms.

% of World Wide Ad Requests, for Android & iPhone only.

There is a great two-horse race between Android and iPhone, with iPhone clearly advantaged by their head start, and Android with better momentum and a broader set of devices coming to market.  Steve Jobs may be able to continue to wow the market with great selling devices, but the long term trends favor Android.  As long as Google continues to support the effort, Android is the clear favorite in this race.  Either way, it will be a great race to watch, and we in the mobile space are hugely fortunate to be the beneficiaries of the opening of the mobile space driven by Apple and Google.

I hear my friends in Europe reminding me that Nokia/Symbian is still important, and that we Americans have a very parochial view of the mobile world.  Perhaps.  Or, maybe we’re just excited to be the center of the action for the first time in the history of the mobile industry.  But, the data shows that activity on Symbian has been essentially flat over the time when Android and iPhone have seen tremendous growth.

World Wide Ad Requests. Android & iPhone Growing Robustly.  Symbian Essentially Flat.

There are clearly initiatives in the works at Nokia/Symbian attempting to change this trajectory–including a potential wholesale shift to Maemo.  Nokia is to be congratulated for recognizing the problem and for demonstrating a willingness to consider bold steps to address it.  And, if one were to bet on any big company to successfully make a transition as big as this, perhaps it is the company that transitioned from being a rubber boot manufacturer to a mobile phone manufacturer a couple of decades ago.   But, Maemo is too little too late for Nokia.  By the time a meaningful number (tens of millions) of Maemo devices are in the market, Android and iPhone will have completely dominated the Mobile OS space.  The basis of competition in that space is about the apps and services that can be provided to the end-user, and it will be just about impossible for a new platform to reach parity given the huge head start Android and iPhone have.

The sooner Nokia commits to Android the better.  It would allow Nokia to focus on their strengths of handset physical design and manufacturing prowess. Besides, the OS game in Mobile is much different than the OS game in the PC world.  “Owning” the Mobile OS isn’t the monopoly opportunity it was in the PC business.  When Google open-sourced Android, they gave away the ability to collect economic rent from the OS platform.  This change is so fundamental that all the old business thinking around OS’s is obsolete.

Nexus One Review

January 20th, 2010 1 comment
Cracked Screen of my Moto Droid

Cracked Screen of my Moto Droid

First, I’m not a Google employee, nor am I a paid Google Fanboy reviewer.

Second, the “iPhone Killer” expectation for the Nexus One, or the Moto Droid, or any other single Android device, is sort of silly. It’s like asking if the Dell Inspiron is a “Mac Killer”. That’s sort of missing the point of an open OS–there will be many more choices, and that multitude of choices will outsell the limited range of devices coming from the closed OS approach.

I was most recently using the Moto Droid on Verizon, which I bought the day it became available. I liked the Droid well enough, but the velcro on the darn cheap Verizon holster stopped sticking after a month, and eventually my Droid bounced out and fell on the pavement. Ouch.

The broken Droid gave me a good excuse to try the Nexus One. T-Mobile’s coverage is pretty iffy at my house, so I bought the phone unsubsidized and put it on my AT&T family plan (shared minutes, and only an extra $15/mo for unlimited data). The Nexus One doesn’t support AT&T’s 3G band (bizarre modem choice), but EDGE is fast enough for all the applications I care about, and I guess I can deal with the lack of simultaneous data and voice (like when I was on Verizon). I just got back from a five cities in five days road trip, where I used the Nexus One exclusively. Overall, the Nexus One is clearly superior to the Moto Droid. Here are some of the high points:

  • Most importantly, the Nexus One didn’t get bogged down once I loaded it up with apps, the way my Moto Droid did (and the G1 before that).
  • The Nexus One is noticeably smaller and lighter. The rounded edges make it seem even smaller than the specs indicate.
  • Typing on the Nexus One screen is faster than typing on the Moto Droid physical keyboard for two reasons. First, the auto-correct capabilities on the Nexus One are very good. Second, the Moto Droid physical keyboard is very poor.
  • Across both devices, the behavior under spotty/no coverage is poor. As with Google’s other products, they assume you’ve got a perfect connection to the Internet 24/7.
  • Across both devices, the Gmail, Calendar, and Contacts apps are OK, but nowhere close to parity with BlackBerry. And the Google client to access Google Docs is non-existent; the best third-party app I found was Gdocs, but not much effort has gone into it, presumably since Google’s been saying for over a year that there will be a native Google Docs client for Android.

Bottom line. If you’re on Google for mail and calendar, or you want to see first hand where the mobile phone industry is going, the Nexus One is your best superphone option. If you’re a road warrior on Microsoft Exchange, BlackBerry is still your best bet.  If you don’t travel a ton, iPhone can’t be beat for ease of use.

Monetizing Mobile Applications: Apps = Songs to Apple

December 16th, 2009 1 comment
Billions of Apps Served

Billions of Apps Served

Lots of folks are questioning the economic viability of being a mobile application developer for the iPhone, Android, or BlackBerry.  The basic story line is usually along the lines of “many iPhone app developers have very little revenue to show for their many hours of effort”, followed by some complaining about the way Apple (or Android, or BlackBerry) has set up their app store making it hard for developers to make money.  Apple should want to have developers sell apps, so they can make money from 30% cut on the apps, right?  WRONG!

I am big believer in the ability to build real businesses from iPhone (and Android, and BlackBerry) applications, but I don’t think it is likely to happen with apps that take the straight up the middle approach of trying to sell their app for an up-front perpetual license fee.  But, one has to understand Apple’s incentives before one can construct a reasonable business model.  Let’s look at the revenue numbers on where iPhone (and iPod Touch) makes money for Apple.

Apple’s Apps. There are about 200M apps downloaded per month at this point.  About 10% of these are paid apps, with an average price of about $2.50.  Therefore, after the 70% revenue share with the developer, Apple is making about $15M per month in revenue from apps.

Apple’s Hardware. There are about 2.5M iPhones sold per month, at about $500 per phone to the mobile operator, yielding Apple $1,250M per month in revenue from phone sales.  83 times as much revenue from hardware sales as app sales!  Of course, there are cost of goods sold for the hardware, which are on the order of 50%, but then there are all those Apple employees who are working feverishly on approving apps, so there are costs on that side too.

Bottom line. Profit from the sales of iPhones dwarfs profit from apps for Apple.

Apple has run this play before.  They completely disrupted the music business by doing an inverse “razors and blades” model. Much to the chagrin of the music industry, Apple “gave away” songs (ie, delivered them to end users at very low gross margin) as a way to sell high gross margin iPods.  If you want to understand Apple’s behavior with respect to apps in the App Store, just think of them in a directly analogous manner: Apps are a means to an end — selling more iPhones (and iPod Touches).

Apps as Basis of Competition in Mobile

November 20th, 2009 No comments

In the old days–you know, more than two years ago–the basis of competition in the mobile space was primarily the price and industrial design of the phone, and secondarily the quality of the network it was running on.  Obviously, these bases of competition strongly advantaged handset vendors with great design and manufacturing capabilities like Nokia (and sometime Motorola), and operators with great networks like Verizon and Vodafone.

But this all changed over the last couple of years.  Thanks to the innovation around the iPhone (and secondarily Android and RIM), I would argue that the basis of competition has become the mobile applications and services.  This change in basis of competition is incredibly important.

  • It opens up the opportunity for young companies to interact directly with the end customers (as I outline in “five open paths“)
  • It creates a huge problem for Nokia, whose tremendous strength in industrial design and manufacturing prowess (lower cost of goods sold) have become secondary selection criteria.  It is stunning that iPhone, in just two years, is now producing more operating profit than all of Nokia phones (Reuters article).
  • It creates a huge problem for Verizon, whose tremendous strength in running a locked down, high reliability, network has become a secondary selection criterion.  Not only is Verizon losing subscribers to AT&T at an alarming rate; they are losing their BEST customers to AT&T at an alarming rate.  Because of the surprisingly small costs of actually hauling voice and data traffic over mobile networks, the lifetime profitability of a $100/mo subscriber is much more than 2X that of a $50/mo subscriber.

Look at the reactions from Nokia and Verizon.

Nokia has put an admirable level of focus on Ovi, but the natural fragmentation brought on by their relatively autonomous handset project groups is hard to address, and the Ovi message boards are mostly populated with complaints about getting such-and-such application to work with such-and-such phone.  I applaud Nokia’s apparent attempt to transition from Symbian to Maemo, but it begs the question: why not go to Android instead?  By the time Nokia has any critical mass in the marketplace with Maemo, they will be a handful years behind Android, and will be hopelessly behind when it comes to the apps and services subscribers want.  Android would allow them to play to their strengths in manufacturing and industrial design, and get the apps that subscribers are demanding.

Verizon has finally reacted, with a couple of completely open handsets (the Droids), with more on the way.  They will likely continue to get rave reviews on their network quality, until such time as explosive usage begins to cause cell capacity problems.  I use a Moto Droid as my every day phone, and it has some wonderful capabilities, and some significant rough edges in the software.  If Verizon can keep their commitment to openness, their network quality could still remain an important secondary selection criterion.

Will iPhone dominate like iPod does?

September 7th, 2009 No comments

Will Apple dominate the mobile phone market the same way they dominate the MP3 player market?

This question should be sounding alarm bells within the halls of Nokia, Motorola, Samsung, LG, and others.  Apple has clearly changed the basis of competition within the handset market – indeed within the entire mobile market.  Mobile handset competition used to be about industrial design – it was only a few years ago that all the demonstration phones inside mobile phone stores were hollow plastic dummies.  The Motorola RAZR was the pinnacle of this era of competition.  But now people are buying handsets based on the applications and services they can run on their phones.  The iPhone, with the App Store, is a market disruptor in this regard, and it is driving more change in the mobile ecosystem than anything else we’ve seen in at least the last decade.

The mobile application store itself is becoming an important basis of competition among the mobile industry.  Does it lend itself to a winner-take-all dynamic?  The most compelling existing argument in the affirmative seems to be the existence of the long-tail of iPhone specific applications.  With an order of magnitude more applications than exist in the next most popular mobile application store, there is bound to be some app that is of interest to any given user that exists only in the iPhone App Store.  But, is someone really going to choose their phone based on the availability of the seventeenth iFart application, which is so much better than the seventh one?  Seems unlikely to me.  If I were in charge of strategy at iPhone, I would be driving the use of applications that interact with other iPhones, and iPod Touches, to create a network effect among that community of users: I’d create, open up, and promote Apple-specific APIs that allowed for

1. compelling multi-player games over the network (we are starting to see some interesting iPhone MMORPGs);

2. documents and files of various sorts to be easily shared among other iPhone/Touch apps;

3. some form of payment system that could be used between users within an application, across applications, and even in real-world transactions; and,

4. the sharing of location, presence, status and other useful state information among mobile applications.

There may be internal efforts in these directions, but I haven’t seen external evidence of a coherent strategy in this regard.

Apple’s vertically integrated approach was their Achilles heel in the PC wars, but it worked phenomenally well in the MP3 player industry.  Can Apple repeat the iPod success, and run the table in the mobile phone world?  It is a possibility, but not a high probability in my mind, for two fundamental reasons.  First, as noted above, Apple does not seem to be taking the strategic steps that would allow them to capitalize on their current head start.  Second, the mobile operators need to differentiate themselves from one another, and one critical way that they do that is through different handsets. Since the majority of handsets sold worldwide each year move through operator controlled and subsidized channels, this is a huge factor.  Perhaps Apple can create enough differentiation among their handsets to satisfy this competitive need of the mobile operators, but it seems unlikely, given their current path.

Bottom line.  It seems unlikely to me that the iPhone will approach the market dominance the iPod enjoys.