The smartphone wars: a global perspective
<p>While doing some research to check an assertion made by a commenter on <a href="http://esr.ibiblio.org/?p=2512">More dispatches from the smartphone front</a> I ran across <a href="http://www.zdnet.com/blog/btl/android-to-control-half-of-smartphone-market-say-analysts/38881">excerpts</a> from a very interesting report from investment analysts at Piper Jaffray on global smartphone market share and how they expect it to change in the next few years. </p>
<p>I can&#8217;t get at the full report, as Piper Jaffray has it paywalled and sells it to customers.  But I have to say that for bankers the excerpts I can see make them look pretty smart to me.  They&#8217;ve suggested a scenario for a radical change in market conditions that I actually think is quite plausible.</p>
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<p>Before I get into that, let&#8217;s consider what they have to say about current conditions. For months I&#8217;ve been hearing a story from commenters overseas that my prediction of near-term and irreversible Android dominance was founded on a U.S.-centric view that ignores structural differences in foreign markets.  According to this apologetic, Apple&#8217;s U.S. market-share crash since 4Q2009 is  really a result of it being bundled with  AT&#038;T&#8217;s crappy network.  Overseas, I was told, where unlocked phones are normal and carriers hawk SIM cards instead of tied hardware, Apple&#8217;s iOS is doing much better and still leads Android.</p>
<p>Of course, the prediction that goes with this that as soon as AT&#038;T&#8217;s U.S. exclusive ends in 2012 and iOS goes multicarrier, we will all learn that every Android customer in the known universe really wanted an iPhone and Android&#8217;s market share will collapse like a pricked balloon.  (Bear in mind this prediction has been enthusiastically seconded by the same fanboys that said Apple&#8217;s falloff in Q1 was due to customers holding off purchases until the iPhone4 came out and surely, <em>surely</em> Android&#8217;s market share would then collapse like a pricked balloon.  Well, we know how <em>that</em> rosy fantasy died.  iPhone4 didn&#8217;t even slow the rate of decline noticeably.) </p>
<p>Here&#8217;s another dose of cold hard reality: the belief that Apple is beating Android overseas is (according to Piper Jaffray) mythical.  They&#8217;re expecting final market share figures for 2010 to show iOS up by just 1% at 15.9% to 14.9%.  Backing this up is a <a href="http://www.canalys.com/pr/2010/r2010081.html">report from Canalys</a> that puts iOS&#8217;s 2Q2010 global share at 13% and, though it doesn&#8217;t give a figure, says the momentum is all with Android.  According to IDC, <a href="http://www.zdnet.com/blog/btl/apple-iphone-smartphone-market-share-surges-rim-slips/34181">Apple itself only claims 16%</a>.  And Gartner Research <a href="http://phandroid.com/2010/08/12/android-overtakes-apples-in-world-wide-market-share-according-to-gartner/">says</a> that as of August Android actually leads at 17% to Apple&#8217;s 14.2%!</p>
<p>The picture is clear: (1) iOS and Android are now at or near a statistical dead heat in global market share, and (2) every analyst expects Android to gain dramatically in the near future. What I notice in the data that they&#8217;re not saying is this: the world seems only to be lagging smartphone-OS trends in the U.S. by four to six months, suggesting that carrier bundling in the U.S. is having relatively little effect on those trends.</p>
<p>This puzzled me when I first tried to understand it, but I think I get it now.  The data only make sense if the rate at which U.S. consumers replace their phones (and move to Android) is substantially faster than their contract-expiration cycle.  The typical contract term in the U.S. is two years; if the rates match we&#8217;d expect to see a trend lag of a half cycle, about twelve months.  This is clearly not what&#8217;s happening.  The U.S. market looks more like the (unbundled) worldwide smartphone market than one might expect.</p>
<p>I can only guess why U.S. customers are replacing their phones that fast, but the simplest hypothesis seems also the most likely: a truly massive move is on from dumb &#8220;feature&#8221; phones to smartphones (and Piper Jaffray&#8217;s report agrees with my guess).  I think Android isn&#8217;t mainly stealing present customers from Apple; instead it&#8217;s doing hugely better among customers up-migrating from hardware like my old Samsung VT660.   And I don&#8217;t think we need to look much further than price for a reason; Android phones are cheaper and Apple just isn&#8217;t justifying its price premium for most. I also think the most plausible model is one in which once users land on a smartphone their choice is fairly stable, though with erosion towards Android continuing at a low rate. </p>
<p>That&#8217;s what&#8217;s happening now.  What comes next?</p>
<p>The consensus scenario among most of these analysts seems to be that Android clobbers the living snot out of  iOS in 2011, with its growth being especially strong in Asia.  Canalys is emphatic on this last point, and it makes sense; those customers are more price-sensitive than Americans.  But Piper Jaffray thinks something even more dramatic is going to happen.</p>
<p>Piper Jaffray thinks that Nokia and RIM are hardware companies in their DNA, and are soon going to be forced to face up to the fact that they&#8217;re just not very good at software &#8211; not good enough to compete with Google, anyway.  It&#8217;s expecting one or both of them to fold and jump to Android in 2011.  The ZDNet report on the Piper Jaffray study says there&#8217;s already been one bloody internal battle at RIM about this.</p>
<p>On due consideration, I think this is plausible and that I really should have spotted this possibility before Piper Jaffray did.  It&#8217;s following out the same pro-Android logic I did many months ago about software development being a cost sink for handset manufacturers that they&#8217;d best get rid of. Probably the only thing stopping Nokia is the amount of money and prestige they&#8217;ve sunk into Symbian, but it has to be dawning on them now that Android has Symbian seriously outgunned.  (I actually thought the Nokia acquisition of Symbian smelled faintly of doom back in 2008 before Android was a real factor.  I wasn&#8217;t sure why, there was  just that odor about it to me.)</p>
<p>So the international question reduces to this: is Android going to swamp iOS quickly on more less smooth continuation of present trends, or are Nokia and RIM going to fold and shuffle their userbases into the Android column even faster?  Not a lot of good news on the Rialto for Apple fans, and I suspect it&#8217;s  going to get worse before it gets worse.</p>
