In the early days of the Android/iOS wars, people chose iPhones over Androids for one simple reason: Android was rubbish. It wasn’t the OS it is today, the hardware wasn’t up to Apple standards and there were hardly any apps for Android and tons for Apple. Now, Android is arguably better than Apple in many ways. So why are huge numbers of people still switching to Apple?
Android has the numbers. Apple has the money.
According to Apple’s Tim Cook, 30 percent of people buying iPhones in the last financial quarter were switching from Android. He obviously has a dog in this fight, so you can perhaps take his numbers with a pinch of salt, but you can’t say the same about the industry analyst firm Consumer Intelligence Research Partner, CIRP for short.
Its latest figures show that 26 percent of iPhone 6s customers were coming from Android. That’s a huge number, dwarfing the 12 percent of switchers who bought the iPhone 6 and comfortably ahead of the 23 percent who switched to the iPhone 5S.
That’s not all. The people who are switching are the ones who have the highest disposable incomes to spend not just on phones, but on apps and accessories and services, all the things that keep you locked into a platform’s ecosystem. It’s safe to say that most of those switchers aren’t likely to see the light and come back to Android anytime soon.
We’ve known for a long time that while Android outsells Apple by a huge margin, an even huger margin is Apple’s profit margin. Apple sells a fraction of what Android does, but it makes almost all of the smartphone industry profits. So not only is it making more money, it’s attracting the most valuable customers too.
What on earth is going on?
There may be trouble ahead
Let’s have a little look at the PC industry. Toshiba, which has just announced that it hopes to sell off its PC business, is the latest in a long list of big-name tech firms who can’t make money from selling PCs anymore. The market is so crowded and so commoditized – and so damaged by the rise of mobile devices – that hardly anybody’s making any money.
In an excellent analysis by UK tech journalist Charles Arthur, the numbers are stark: the average selling price of PCs is plummeting, and the average profit per PC is plummeting too. If a firm can make 15 bucks on a US$500 PC, it’s doing pretty good. The numbers are so bad that Toshiba won’t be the last household name to bin its PC business.
Times are really hard for every PC builder bar one. Guess who it is.
While PC sales decline by around 10-12 percent per year, the market share of Macs is soaring, even though the cheapest Macs cost much, much more than equivalent PCs. Apple is selling more Macs than ever before.
At heart, a Mac isn’t dramatically different from a PC. It runs the same Intel chips, often slower versions than the ones rivals use. It runs the same RAM, has the same hard disks or SSDs, gets its displays from the same manufacturers. What makes a Mac different is partly the way it’s engineered and partly the way Apple runs its supply chain, but it’s mainly about the operating system, apps and the services that tie those things together. That, and shedloads of marketing.
Back in the phone business, iPhones aren’t dramatically different from Androids. Androids are often faster, more powerful, more impressive on paper. But Apple has iOS, apps and the services that tie those things together. That, and shedloads of marketing.
It’s no wonder that the Android business is looking a lot like the PC business.
The same commoditization that happened in PCs is happening in Android. In February, Android’s share of smartphone profits fell to just 11 percent – and that money isn’t being shared equally between manufacturers either.
Charles Arthur has analyzed smartphone numbers too, and the conclusions are horrific: informed estimates suggest that while Samsung is probably making about US$24 profit per phone, HTC is making US$1 profit and Lenovo / Motorola is losing US$3 on every handset it sells.
Arthur is no iPhone fanboy. “I think Android is a boon to the world; quite possibly it’s the best invention of this century so far,” he says, but notes that “for handset manufacturers, Android isn’t such a boon… there’s little opportunity even for high-end Android OEMs to invest and innovate, because it’s not profitable enough.
“Only Samsung is an exception, because it’s part of a gigantic conglomerate. All are weak in software, and there’s no sign of that changing.”
Remember, it’s not just about the hardware: it’s about the OS, the apps and the services that tie those things together. And a shedload of marketing.
Android firms have to do better on those things, because if they don’t, exactly what’s happened in PCs to happen to Android phone manufacturers: household names pulling out of the market because they can’t make any money.
There are only so many scraps left to fight over once Apple and Samsung have taken the spoils, and for many firms there simply won’t be enough of those scraps to keep their bellies full.
I’m with Charles Arthur. Android is brilliant. I’m just not sure that it’s such a brilliant business to be in.
What do you think? Let us know below.
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