Unbundling the iPhone – Rise of Android

Apple shocked the world when they introduced the Mac.  It was the perfect fusion of art and technology and unleashed the minds of a generation to user in the Personal Computer (PC) era.  But that was just the problem.  It was the PC era, not the Mac era.   Although Apple built and led the initial personal computer market, they did not ultimately shape its destiny – Microsoft did.  It seems like they might be at it again with iPhone.  Except this time, there’s a new player in OS land – Google.

Apple is the best in the world at creating fantastic user experiences delivered via the seamless integration of hardware and software.  The classic example of their prowess was with the introduction of the Mac.  It was a great consumer proposition.  The hardware, operating system, and core applications were all bundled together and had a consistent experience.  This made it easy for the first generation of computer users to jump on board.  Unfortunately for Apple, a number of players quickly dismantled this package, each taking pieces of the stack.  Companies like Dell specialized in cheap production and delivery of PC’s using standards-based components.  Microsoft dominated the Operating System.  And because of this key position, they ultimately dominated the application market as they were the key bottleneck in distribution.  Apple, of course, was left with a small market share in the PC market and, until the last decade, was struggling to reestablish its market position as a leader in computing.

Fast forward, Apple comes back.  Led by Steve Jobs, they introduce a line of new Apple computers and quickly revitalize the brand.  Perhaps more significantly, they quickly disrupt the music industry with their integrated ipod/itunes offering and now they are at it again with iPhone. Unfortunately, the very strategy that enabled the success of the iphone, an elegant vertically integrated package of hardware/os/apps, could now be their Achilles heel.  The same dynamic that occurred in the PC market, is now occurring in the smartphone market – unbundling.

Google has steered the creation of a new, platform agnostic operating system – Android.  Much like Microsoft did in the PC market, they are actively partnering with the major handset providers to help them create viable alternatives to the iPhone package.  And, guess what, it’s starting to work.  Today, Verizon announced Droid – their competitor with iPhone, following a slew of others that are quickly rushing to catch up.

My two cents is that, ultimately, a more open stack that allows competition at multiple layers (network, handset, os, applications) will win.  And, assuming Android doesn’t see any emerging competition, I would bet that more phones will have Android OS than Apple in 2-3 years.  To take it a step further, I ultimately think that the networks that currently provide voice and data will be cut out of the voice market by IP-based services like Google Voice.  In short, if you believe in an ecosystem versus a monopoly, bet on Google.

hoomanradfar Written by:

  • caribou honig

    It's all about value capture. I won't be surprised if Android is the OS for a majority of handsets shipped, a few years out. But recall that it's free. A loss leader. It does give them position to monetize some other assets — see their recent announcement re: free turn-by-turn navigation on Droid, which in turn (no pun intended) they will monetize via location-aware advertising.

    But units shipped isn't the name of the game. Monetizing directly for the iPhone OS (via captive sales of the hardware, and 30% cut of App store) creates enormous energy to redirect into the development flywheel. I.e., it's the same reason why Symbian's currently absurdly high market share is fairly irrelevant — it's not creating outsized profit, and thus incremental investment will fall away.

    Unless Droid can pretty rapidly attain 60%+ market share — unlikely, given Symbian + RIMM + Msoft + iPhone — it's going to fail to be a winner-take-all market, and iPhone can achieve long term 10% – 30% market share. And monetize that market share.

  • Hooman – Google Voice isn't a VOIP-based service – so I do not think it will disrupt the voice market, in the short term. At best it is an IP-based operator with the ability to listen in on voicemails, nothing more. In the long term I'm sure Google would like to disrupt that market, but they need much higher adoption before making that play.

    I agree that open is better, but disagree that having an open-marketplace will result in dominating. There were several different MP3 players _before_ Apple came into that market. There was Sony's proprietary format (ATRAC I believe) and MSFT's Play4Win or something like that. Both of those failed simply because of the complexity in the whole download/transfer experience for digital music.

    So it isn't as easy as a better/more open marketplace. The real differentiator is the overall experience. And though the Droid appears to have a great experience I continue to expect to see an open-marketplace approach lagging behind a coherent experience for at least another year.

    The catch in the open marketplace is ease of entry (not rewriting another OS for each phone model) but hard to differentiate between models. So a plethora of phones will exist, but why would a customer buy a new one every two years? I believe in the ecosystem, but that doesn't extend to the overall experience of using a hardware device.

  • Good points. My bigger question is who will have the control, the OS or Browser. The idea of 'Apps' on the phone seems short-lived to me. If you look a the PC browser market, the browser is getting more 'rights' to use PC assets like storage via HTML 5/gears. That said, ultimately, the best place to be in all this turmoil is the core web services that consumers ultimately use across all these phones (search, contacts, messaging, voice, mapping, etc)

  • James Watters

    There is certainly some historical wisdom in your thinking sir. The phone market lacks something though, and that's an Intel like dominant chip maker for the core executable applications. Without that I fear fragmentation may plague Google.

  • caribou honig

    re: App vs. Browser — it seems to boil down to trade-offs between effort-to-code (browser based is easier to code for multiple platforms, because it follows a x-platform standard) vs. demands on hardware & bandwidth ("native" app works better when processing power or bandwidth [both speed & availability] is the constraint).

    I like NYTimes app a lot better than nytimes.com on my phone, because it's faster in a bandwidth constrained world.

    It goes in cycles as the constraints get lifted. Processing power on the PC hasn't been the primary constraint in years, and bandwidth for a wired connection has become less & less of a constraint, thus enabling the shift to the next bottleneck, effort-to-code.

    Since processing power & bandwidth are both still very constraining on the phone, there's still a big reason to expend high effort-to-code to make native apps, as doing so enables much better performance for the end user.

  • Alanking