Android is in its death throes! Well, this may be overstating a bit, but I do believe that the Smartphone OS landscape will be very different in 4 years - and that Android OS, by Google (GOOG), will be the loser. My basic thesis is that Windows Phone 8 and BlackBerry 10 will take massive market share from Android (In Part 1: Why? for rationale -- see links below).
In It is viewable in chart form here, I gave my view of how the distribution of market share would change by the year 2016. Several people thought that four major players was not realistic. Here I address that issue.
I. The Issue
In Part 3 of this series, I presented what I think is a reasonable view of how market share might be distributed through 2016. To my mind, too many analysts and pundits look only at the past and project forward from there, failing to think clearly about what is coming. Trend projection has its place, but it is no reason to disregard potential changes to the status quo.
Essentially, I think that the future will likely look something like this:
2012 Market Share
2016 Market Share
iOS - Apple (AAPL)
BlackBerry OS - RIM (RIMM)
Windows Phone - Microsoft (MSFT)
It is viewable in chart form here.
I would like to note here that I would be very surprised if the number in 2016 were to be exactly as I have listed. The point of the exercise is to suggest what the trend will be, not to be a crystal ball. Still, if you want a chart, you need specific numbers.
II. The Complaint
FreeChoice4all -- It is viewable in chart form here:
My only argument with the analysis is how cleanly the four OS options average about 25% each. Life is never that clean so I would expect at least one disruptive element to skew the numbers.
IndieInvestor -- It is viewable in chart form here:
I agree. There is not an industry, that I am aware of, with 4 equal participants.
Apple and Google at 80-90%, everyone else scrapping for the rest. Only Apple makes money on phones, Google pure ad play.--
Wrschindler -- In Part 4: New Contender Windows Phone 8:
Marketing 101 says that the first and second to market get 75% or more of the market share for good products.
And finally, relayer75 -- it is viewable in chart form here:
…your thesis of a steady Android decline is definitely contrarian thinking, compared to just about everything I read.
One thought -- you have the 4 horsemen (AAPL, Android, MSFT, RIMM) basically each having one-quarter of the market in 2016. My observation in technology over the years has been that this almost never happens, 4 or more competitors having roughly equal share. 3rd and definitely 4th place tend to fizzle and die pretty quickly. Think Palm, they had the best smartphone for a bit 5+ years ago and now they're gone. Symbian is dead. My guess is one or two of the 4 horsemen will be gone or in single digit market percentage in 2016, and it won't be Apple. You're definitely right that Android has the most to fear from a resurgent Blackberry or Windows Phone. [emphasis added]
First, I repeat that these numbers are indicative of what I project as a trend, and should not be taken too literally.
Second, one has to look at 2016 not as an endpoint, but rather as a point in continuously evolving time. Some think that WP8 will dominate eventually (for example). This may or may not be true, but if it does, then it will have to get there from where it is now (3%) and given the current circumstances, this probably will not happen in just four years. Therefore, it will need to pass through the given 26% share on its way to dominance.
Finally, however, I disagree totally with the premise that four is too many players in the smartphone arena, and that there must be one truly dominant among them.
A. Other industries
The U.S. auto industry, for example, was once dominated by the big three. Now share distribution looks like this:
[Chart: WSJ - link]
Here GM dominates, but not by much, and the distribution is in a narrow range. Note that even in this well seasoned industry there are constant fluctuations.
Cars are not electronics. Let's look at televisions market share. Here is another mature industry with many players. The Q1 rankings were:
[Table from iSupply - link]
While this shows that two companies do dominate somewhat, the distribution is not huge for the top five. Of course, this might be different since almost one half of sales goes to the others category. Still, it shows that in a large electronics industry many players can coexist and market share does not have to be heavily skewed.
But wait! You say. We are not talking manufacturers here, we are talking Operating Systems. This is a very different thing. We are talking communications.
B. Reply - Why smartphones are not desktops
There are people who believe that, in the smartphone space, there can be only one or two dominant players, and all others will fade to at best marginal position if not to history (á la Palm). I think the mistake that they make is that they believe the smartphone market must be like the desktop market.
In desktops, DOS and then Windows slowly and relentlessly drove virtually all competitors out of the market. Mac OS and later Linux were marginalized. Microsoft did this in large part by using its virtual monopoly to drive other players out in both the OS arena and in software.
How did it come to monopolize the OS space? There are a lot of interplaying factors here, but I think one dominates. Microsoft capitalized on a very strong force within the business community - the drive for standardization around a single system. It works like this.
You want to hire a secretary. You use Word Perfect in house. Two thirds of your applicants have only worked with MS Word. Now you start thinking of moving to Word. The same is true, even more true, of the OS. As Windows OS reached a critical point in adoption, it just became easier to conform than to resist. When people began to get personal computers for home, they naturally took up the systems with which they were familiar - MS Windows.
So I got to thinking, what are the relevant differences between the smartphone and the desktop? I see three.
First, we have the shear numbers of people involved and the adoption rate. The desktop was a slowly evolving adoption as prices slowly came down over the years. In 1990 a PC was $2000 or more, now one can be had for $200. Adoption was slow, and so the many OSs that existed earlier were already marginalized by the time home purchases took off.
With smartphones this is different. Hundreds of millions of people have already bought in.
The state of intercommunications has changed. While cloud services create a "stickiness" to users of one particular smartphone OS, the state of intercommunications is such that there is a lot more interoperability. People can choose a system based on personal preferences, and while some functionality may be limited (e.g. you can Facetime chat only with other Apple users, Samsung photo sharing may only work within their system), for the really important systems such as web browsing and email, these features are independent of your choice.
I think this is the most important one, as it is the most fundamental. I talked above of the forces within enterprise that fostered adoption of a single standard, and how that got pushed out to consumers. In smartphones it is different.
The computer was a business technology that got pushed out to consumers. The smartphone is a consumer technology that is getting picked up by business.
This is the crux of the matter. Therefore, there will be less emphasis on standardization. The mix will be determined in large part by consumers, and consumers want to pick a phone that suits their personal needs.
For the reasons above, especially the last one, the ultimate mix of market share will be determined by a combination of business demands and consumer choice. There is an interaction here (see In part 2: Titans Clash), but it will not be to the point of businesses determining one single system.
IF, however, there is one system that is eschewed by business, then this will be gradually pushed to the sidelines and marginalized by the others. This is precisely my main argument against Android from Part 1 (due to security issues). QED.
Android is Dead? Series posts:
In Part 1: Why? I put out my thesis and basic arguments.
In Part 2: Titans Clash, I note corroborating analysis from a Goldman Sachs report titled Clash of the Titans.
It is viewable in chart form here, I proposed a 2016 market share scenario, complete with numbers, in which Android had lost significantly to Windows Phone 8, and BlackBerry 10.
In Part 4: New Contender Windows Phone 8, I discuss the new Windows Phone 8 operating system, and a couple of particular devices.
In a future article, I will do a similar analysis for Research in Motion's BlackBerry 10 OS.
Disclosure: I am long AAPL.
Additional disclosure: I may open long/short options positions in AAPL in next 72 hours