Winning

Monday, 12 September 2011

Yours truly, last week:

What I find interesting is the tacit admission from Sprint that it is at a competitive disadvantage without the iPhone. Seems obvious to me, of course, and probably to most regular DF readers. But how do the Android supporters who insist that Android is “winning” square that belief with this?

Aaron Pressman argues that I was “deliberately obtuse”:

Some customers want to buy an iPhone and Sprint can’t sell them one. Some customers want to buy an Android phone and Sprint can sell them one. There are in fact far more people choosing to buy Android phones than iPhones. But there are still lots of people buying iPhones. If Sprint could sell Coke but not Pepsi, they’d be losing some business even though Coke is the bigger brand. I mean, come on. Don’t be such a jerk.

Pressman is right, in a way. I was too flippant with the aforequoted question. What I mean by “winning” needs more context.

What I’m talking about is the argument that Android is, more or less, the new Windows1 — that what Windows was to the PC industry in the 1990s, Android is going to be in the mobile industry in the 2010s. It’s certainly not true that all Android proponents subscribe to this theory, but it’s definitely common.

Keep in mind what Windows did to the PC industry. It effectively killed all competing platforms save one, the Mac, and it left the Mac with but a niche of the overall market. When I say Android isn’t “winning” I don’t mean it isn’t doing well or isn’t growing, I mean that it isn’t relegating iOS to a ’90s Mac-sized slice of the market.

Statement of the obvious: if there exist people who want to buy iPhones and will accept no substitute, any carrier that doesn’t sell the iPhone will get none of those sales. The same was true with the Mac, back, say, in the early ’90s, for stores that sold computers. But there’s an enormous order of magnitude difference in the number of people who want iPhones today and those who wanted Macs back then.

Computer stores which didn’t carry the Mac in the ’90s were not at a significant disadvantage against those that did. What Windows did was destroy most of its competition, and reduced those that survived to marginal relevance. Macs accounted for a small percentage of total PCs sold, but, the bigger difference between then and now is that Mac profits accounted for a small percentage of the profits for the PC industry as a whole.

The iPhone, on the other hand, currently accounts for two-thirds of the mobile phone industry’s total profit. Mobile carriers need the iPhone today. Computer stores did not need the Mac.

It’s easy to pick and choose the numbers you want to back up the theory you prefer. So if you’re rooting for Android to dominate the industry, it is tempting to focus on unit sale market share, and to attribute Windows’s historical dominance to its massive unit sale market share. But you can flip that around, and argue that because I am rooting for the iPhone, I cherry pick the data to fit the story I want to see unfold — and so I say profit share is what matters, not unit sales, only because that’s the figure that puts Apple’s position in the best light.

But I like the odds that I’ll be proven right. Money is how you keep score, because it’s the one thing whose value everyone agrees upon. That’s what money is. The Wintel platform dominated every metric — market share and profit share. That’s where almost all the hardware profits were, and it’s where almost all the software profits were. Market share without profit is a Pyrrhic victory.

I’m not arguing that iOS is the new Windows; I’m arguing that there is no Windows in mobile.2 The market is fundamentally different. Android is thriving market-share-wise in the phone market. iOS is doing well market-share-wise, and dominating in terms of profit share. Both platforms are succeeding, albeit in very different ways. Pressman’s Coke/Pepsi analogy is a poor one in many ways, but first and foremost it fails because Coke and Pepsi have the exact same goal, and compete with each other on the same terms: selling soft drinks for profit. Google and Apple, on the other hand, are playing different games from each other with Android and iOS.

I’ll close with this, though: with its purchase of Motorola, Google seems a lot more interested in playing Apple’s game than the other way around.

  1. Perhaps I should say “DOS/Windows” rather than just “Windows”, because it’s always been my belief that Microsoft secured its dominance of the PC industry in the DOS era. It was Windows when PC sales exploded, but Microsoft was in a position of OS market share dominance because of DOS. ↩︎

  2. You might argue that while iOS will never attain Windows-like monopoly dominance of the phone market, it might in the tablet market. But I think fundamentally, tablets like the iPad are simply portable computers. Tablets are a segment of the computer industry, not an industry unto themselves. Perhaps I’m underestimating the magnitude of the iPad, though. ↩︎