How to Understand the Google-Apple Smartphone War

Written by Walt Mossberg

When thinking about smartphones — the most important digital devices today — it’s customary to think of the business as a simple market-share contest. The conventional wisdom is that, of the two players who count, Google, via its Android platform, has soundly trounced Apple, via its iOS platform. So, game over.

But, as with most conventional wisdom, this example is oversimplified and ignores many nuances. The game is not over. In fact, the two contestants are playing different games, in which success isn’t mutually exclusive. Both have been very successful, but by different metrics and different skills.

And each of these heavyweights is facing serious challenges, though rather different ones.

Google’s Android dominates in market share

First, the market-share facts. Globally, handsets running Google’s Android operating system absolutely dominate the smartphone market, with somewhere between 80 percent and 85 percent market share. This is split among scads of phone makers.

Apple’s iPhones — the only handsets Apple allows to use its iOS mobile operating system — have somewhere between 10 percent and 15 percent of global market share.

And Android’s share has exploded in recent years, while Apple’s share has shrunk from the glory days following the iPhone’s upending of the mobile phone market in 2007. (Android phones appeared a year later, and took years to become decent.)

This is a huge achievement by Google, and a real or potential problem for Apple. But there’s more to the picture than appears at first glance. …

… but Apple continues to do well 

For instance, the figures might suggest that iPhone sales are cratering. But the facts are far different. In its most recent quarter, ended Sept. 30, Apple sold nearly 40 million iPhones, more than most analysts had predicted, and a new record for the September quarter, up from about 34 million last year, the previous record.

And that figure reflected only a couple of weeks of sales of the new iPhone 6 models, in a limited number of countries. We won’t know how the new models are doing for a while, but early numbers and lines at stores suggest that they are selling strongly. Apple CEO Tim Cook boasted in late October that the two iPhone 6 models “have become the fastest-selling iPhones in history.”

The two rivals are playing different games

Second, it’s important to recognize that Apple and Google aren’t direct competitors in the smartphone market. Google doesn’t make phones, despite its brief ownership of Motorola. It licenses a no-cost mobile operating system — Android — and produces apps, for that system and for Apple’s. It makes money from Android and the apps, as it does from search, by gathering user data and selling advertising using that data.

By contrast, Apple’s robust mobile operating system, iOS, is only a component of its hardware products. It isn’t sold or licensed. And Apple’s homegrown apps aren’t available for other mobile platforms. Instead, it makes money on the phones themselves, which are a combination of its hardware, software and cloud services.

That difference in business models is the reason why, for instance, Google does better maps than Apple, but Apple is able to garner more trust from banks and merchants in its fledgling mobile payments product, since it doesn’t collect the data.

Apple’s real competitors are the Android phone makers, principally Samsung, which is the only one that has found major, enduring global success.

Obviously, without Google and Android, Samsung and the other Android phone makers wouldn’t likely be competitors. So Android’s dominant market share is by no means irrelevant. It’s just not as definitive as it seems, since it is fragmented among so many hardware makers, and even flavors of the platform. And many of these hardware makers, if not most, aren’t seen by Apple as serious competitors.

Further, Apple chooses to play only in the premium end of the smartphone market, so it isn’t even trying to compete with the many low-end, low-priced Android phones out there. Some believe this will eventually be its downfall, but for now it means that Apple is taking a huge, disproportionate amount of the profits in the global smartphone market.

So far, it looks as though both Google and Apple can thrive with these different models. Google gets the mass distribution, including low-priced phones in low-income countries, to support its data-gathering and advertising business. Apple can attract the premium, status-conscious buyer, not only in developed countries like the U.S. and Japan, but among the growing middle and upper classes in generally poor countries.

But both companies, and their platforms, face looming threats.

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