A bevy of Android devices will ultimately mean that Google’s mobile operating system will control largely half of the smartphone market, according to a Piper Jaffray report. Apple’s iOS will probably top out with market share of 20 percent to 30 percent in the long run.
The big picture? Android and Apple (AAPL) will squeeze rivals such as Nokia (NOK) and Research in Motion (RIMM), according to the Piper Jaffray report. These also-rans will duke it out for the 20 percent share left on the table.
Android will grab half of the smartphone market ultimately just because of its product cycle and multiple partners. The HTC, Motorola (MOT) and Samsung Android device barrage is impressive. In the end, RIM and Nokia will cave and adopt Android as an operating system and give the operating system a massive market share boost.
We’ve heard from reliable sources that RIM has at least pondered a move to Android. There was a power struggle within RIM management that led to the Android faction getting the boot for the most part. Piper Jaffray’s team of analysts argue that ultimately RIM will regret making a wrong turn at the Android cross road.
An excerpt from the report:
We estimate Google will control 14.9% of the smartphone market through Android in 2010, growing to 23.2% in 2012. For Apple, we expect the iPhone 15.9% of the smartphone market in 2010, growing to 17.6% in 2012. However, we believe the question is where the two platforms top out in terms of market share. An important factor for Android is that we ultimately believe that Nokia and RIM do not have the core software competency to be competitive in the smartphone space and will eventually need to adopt Android or potentially Windows Mobile Phone 7. Ultimately, we believe Android is likely to control over half of the smartphone market in the next five years. Apple’s essentially two phone focus (low price 3GS and higher price 4) will likely limit how much of the market Apple can control and we believe ultimately Apple’s smartphone market share tops out between 20-30%, which still offers significant room to grow.
Now it’s not all about market share. Apple will command half the profits of the smartphone industry. Piper Jaffray analysts estimate that Android will contribute $1.35 billion in revenue to Google (GOOG) in 2012. For comparison, Apple generated $1.5 billion in operating income in its first quarter.
For Piper Jaffray’s projections to play out there is one significant wild card: Nokia and RIM have to cave and go to Android. How much pain would those two companies have to feel to abandon software?
We believe one reason major competitors are having difficulty competing with the smartphone market share gains posted by Android and the iPhone is a fundamental identity problem. Google is clearly a software company focused on making Android a great mobile OS. Apple is clearly a software company focused on making iOS a great mobile OS and take it a step further by providing integrated hardware. We view competitors like Research In Motion (despite its acquisition of QNX) and Nokia as hardware companies that are dabbling in software. While there have not been major changes in share from RIM and Nokia as Android popularity has ramped, which we believe is due to Android largely replacing a lot of lower tier proprietary smartphone OSes, we believe long term both RIM and Nokia will be share losers in the smartphone space because they do not have a core software competency.
“Over time, we do not see the benefit of RIM and Nokia continuing to push proprietary software that can’t compete with the market and eventually expect one or both to capitulate and move to utilizing third party software,” say the Piper Jaffray analysts.
Given this Android/Apple smartphone duopoly there are a few other items worth watching. To wit:
- Apple will have to separate the iPhone from Google as Android becomes more competitive. For instance, Bing could be the default iPhone search engine. Maps would also be replaced with Poly9, a mapping company bought by Google.
- Carriers are more profitable with Android devices. That fact is going to push carriers to favor Android devices and bolster marketing support.
- Microsoft has a window here. Microsoft is the only smartphone player with real software expertise. It’s quite possible that Nokia, already a strong Microsoft partner, could adopt Windows Phone 7 at some juncture.