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 (NASDAQ:GOOG), will be the loser. Here I discuss how Android's vast reservoir of apps acts to counteract this trend.
My basic thesis is that Microsoft's (NASDAQ:MSFT) Windows Phone 8 and BlackBerry's (NASDAQ:BBRY) BB10 will take massive market share from Android. See Part 1 for my rationale, and particularly part 3 - The Numbers where I speculate as to how these systems will perform. I also hold the position that they will take little share from Apple's (NASDAQ:AAPL) iOS (the iPhone and iPad operating system).
The question remains, will these two late-entries to the market have a chance for survival? Aside from deep pockets, both MSFT and BB need to convince users that they have systems that are not only reliable, but viable.
In my original posts in the series, I emphasized that WP8 and BB10 would need to be reliable systems without the major bugs and inadequacies that plagued earlier entries into the smartphone OS arena. It appears that both of these companies have indeed met this goal. There may be criticisms against them, but I have not seen a lot said against the stability of either operating system. While various aspects of the look and feel of each OS itself may have its detractors, they also seem to have their fans. BB10 is very new, of course, but WP8 phones have proven to be popular with their owners, with one study showing them to have a much higher satisfaction rating than Android phones. This has been led by the well received Nokia (NYSE:NOK) Lumia series.
This is the issue that I wish to address here. While reliability is a base concern before anyone would want to buy a particular phone or OS, the number of customers will be severely limited if the platform does not convince users that it is viable. By this I mean that it will have enough sales and momentum to continue to exist in the future. Users want to know that any investment they make in their phone or tablet will still have value in a few years' time. A user invests not only the purchase price, but more importantly, there is:
- Time spent learning the platform features,
- Money spent on accessories,
- Time spent transferring media to the device,
- Money invested in purchasing apps.
There are many things that give a platform credence in this area. Nobody expects that Microsoft is going to abandon WP8, and they will always have someone around to make hardware for them. For BB10 - this is less sure.
One of the biggest factors in overall consumer acceptance of a platform is the availability of apps. (To me it is amusing that the Windows fans always used to knock the Macs for not having all the applications available on MS Windows, but now they keep harping "Who needs 600,000 apps?")
Yet this is a serious question with both the new platforms touting their performance in adding new apps to their listings. Of course it is not just how many apps, but which apps one has. Overall, people want what has been popular on the two lead platforms, Android and iOS.
So how are WP8 and BB10 doing? According to a new report from analyst firm Canalys, not very well. They report that both the BlackBerry World and the Windows Phone Store app stores are seriously lacking in the most popular apps from the top two platforms. They write:
Of the top 50 free and top 50 paid apps featured in the Apple App Store and Google Play in the United States, based on their aggregated rankings over the first 20 days of May 2013, just 34% feature in either the Windows Phone store or BlackBerry World (as of 21 May 2013).
The number of apps from the top 50 lists that can be found in the corresponding app stores is listed in the table below.
Granted, there are a few specialized apps for a given platform, and also some utilities on the new platforms that perform the same function as top apps on iOS or Android. However, Canalys editors write:
Taking this into account, the picture can be made a little more optimistic, but the presence of clear gaps in their inventories cannot and should not be masked.
Finally, Canalys Senior Analyst, Tim Shepherd writes, "The availability of key apps is a factor in motivating consumers' initial mobile device purchasing decisions, and it will only become more so. But moreover, it is a major factor in determining ongoing consumer satisfaction."
Perhaps the company most at risk here is BlackBerry. Many people view BB10 as their very last chance to recover from their downward spiral.
True, they do have millions of customers - but they have been losing them at an alarming rate, down from 79 million subscribers to 76 million the past quarter.
True, they generate a great deal of profit from their Enterprise Service business. Indeed, some believe, as noted in the Financial Post: The Key to BlackBerry's future may be services, not smartphones. Today, most of BlackBerry's profits come from their BES services. On the other hand, Analyst Alexander Peterc of Exane BNPParibas thinks (according to Barron's), that BES is a dying enterprise. He writes:
Moving away from a proprietary BES franchise that yielded USD1.5bn in annual revenue with 85% gross margins for BlackBerry in FY13 into the MDM market is certainly going to present revenue generation challenges for the vendor.
If he is right, then the very existence of BlackBerry itself depends on the success of their new smartphone platform, and that depends on user acceptance. If the lack of apps drags on this acceptance, then it is a very serious problem. There is no reason why this company could not go the way of Palm.
On the other hand, with the current depressed valuation, a success with BB10 could totally rejuvenate the company, and it could reclaim itself as a major player in the smartphone market. This provides a potential windfall for the adventurous investor, but clearly the risk matches the potential gains.
Microsoft also has a lot invested in its WP8 platform. To be sure, it has little chance of following Palm any time soon. Its MS Windows is still the dominant operating system on PCs and there is little that really challenges that. (Apple Macs may be making huge gains in market share for them, but that still translates into fractions of a percentage point per year.)
But this is not to say that the WP8 game is frivolous or unimportant. We talk of the end of the PC era, but no rational person believes desktops and laptops are going to disappear. There will always be the need for larger machines for larger production needs. All complex computing needs much more processing power than any tablet can offer.
Still, tablets are replacing PCs in terms of numbers shipped and soon the annual PC market will be a fraction of its current unit count. PCs will be caught between two trends. The first is the success of the tablet that replaces the low power needs of most users. The second is the fact that current PCs are so powerful that they continue to meet the needs of the majority of users for many years. There is no longer a need for an update every year or two.
For these reasons, Microsoft needs to be a major player in the mobile world. If not it risks becoming totally irrelevant except in a shrinking PC market. It risks becoming a wraith of its former self.
So, the development of apps is of crucial importance since, once again, even Microsoft cannot afford to lag in mobile.
Note: Personally, I believe that both BlackBerry and Microsoft will be able to pass through this time of lower app count. For many users, neither app count nor any specific set of apps is crucial in their decision which platform to purchase. There will probably be enough for of these customers to build both systems up to a point where they will have sufficient share to warrant the attention of almost all developers and most significant apps will be filled in.
There are many factors influencing any given customer's decision on what model smartphone to buy. While they can be very personal, most people are affected by the general perceptions amongst their friends, you might say their personal cultural group. If the general availability of apps is an important part of this group, then the new contenders BB10 and WP8 will be disadvantaged. Additionally, if there are very specific apps that are not available (suppose someone absolutely needs the United Airlines app, for example) then if this should be missing, then the particular platform would be automatically dropped from consideration.
All this leads to a real force within the consumer universe that acts as a drag on the adoption of WP8 and BB10. Both are working hard to beef up their respective app stores and they have been filling at a surprising rate. Whether this is enough to satisfy customers remains to be seen.
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.
In Part 3: The Numbers, 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 Part 6: Nokia Triumphs, I discuss Nokia's recent success with its Lumia models.
In Part 7: WP 8 Ratings, I discuss the high ratings that the WP8 phones received.
In Part 8: Samsung Strikes Back, I discuss the new Galaxy S4.
In Part 9: Is Google "Nefarious"?, I discuss potential repercussions of the revelation that Google Play sends purchasers' personal data to all apps developers.
Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.