Apple just lost the global smartphone war to Google.
Apple just lost the global smartphone war to Google.
Sep 19 2014 By Curt
Prins
Much has been reported about Apple’s biggest volume day
to date — selling 4 million iPhone 6’s in 24 hours worldwide this past Friday.
It’s a tremendous achievement for any company.
Less has been said on how Google will sell 2 million
smartphones by year's end in one country alone — and how it will beat Apple in
the process.
Google launched a smartphone that can’t be bought in the
US, in a country where most Americans can’t find on a map and at a profit
margin that made Wall Street boil.
It’s the Android One, it was just released in India, and
it’s proof that Google gets the global smartphone game.
The iPhone 6’s markets are saturated; the Android One’s
markets are not.
Many pundits classify Apple as an “aspirational”
brand--they make products that more people want than can afford. It's a great
position for any company to be in, but the cachet can come at a cost:
arrogance.
For the last decade, Apple has thought locally and
applied it globally. So in their mind what works in Cupertino will also work in
Beijing, Mumbai and Mexico City. They've gotten away with it until so far, but
now there's a problem: saturation.
In Apple’s primary market—the US, it controls 42% of
smartphone sales. That’s a problem because the US is saturated with
smartphones--roughly 75% of Americans own one. Most developed economies have
similar ownership levels. When you factor in that growth within the high-end
smartphone market--their sweet spot--has plateaued, Apple should be exploring
new markets.
Instead of adapting to price sensitivities within
emerging markets, Apple’s iPhone 6 starts at $649 (without contract) and tops
out at $949. That's an impossible purchase when the average household income in
India is just US$7,700.
While Apple's CEO Tim Cook might claim that China is now
its biggest market, the company gave up 30% of its market share in the last
year to local competitors Huawei and Xiaomi. (This happened despite blistering
iPhone sales.) After flubbing the iPhone 5C launch in China, he still has not
set a release date for the 6 and 6 plus—despite it being manufactured there.
In Mexico, its share dropped by 50% in the last 12
months. In fact, Apple has lost ground in almost all major economies in that
same time period. Apple has lost its global mojo.
Google’s Android One launched in India this week for just
$105, and carrier subsidies will drive that price down into the $60s. Amazon
India's massive inventory sold out in a matter of hours. Google understands
what works in Mountain View might not in Mumbai or Manila.
iPhone 6 sales are mostly upgrades; Android One sales are
all new.
The last major iPhone update was over two years ago.
That’s a lifetime in the fast-moving mobile world. Their pre-sales figures show
how pent up the demand is today and will likely remain in the months to come.
While the iPhone 6 will eat into some of Samsung’s
higher-end market share, a majority of these revenues will come from upgrades
from existing customers. This will generate massive revenues (and profits) for
Apple, but lead to minimal growth in its market share at best, and not help
them long term.
In contrast, Google didn't design the Android One for the
1.75 billion people who already have a smartphone. They have created it for the
5+ billion who don’t and priced it accordingly.
The iPhone 6 is sourced globally; the Android One is
sourced locally.
Apple’s hardware is often second-to-none in its quality and
build. A vendor's success is nearly guaranteed when Apple selects them. This
pattern also happens within two other companies: General Motors and Ford. It
doesn't take a logistics expert to tell you how global sourcing drives up costs
and production times. (Maybe that’s why the iPhone 6 is delayed for release in
China.)
Google took a different approach. It worked with local
chipmakers and phone manufacturers to control costs in India.
Likewise, they’ll partner with other manufacturers like
Alcatel, Lenovo and Panasonic to ensure that this sourcing model will be
replicated in other emerging markets.
The iPhone 6 software is locked by Apple; so is the
Android One by Google.
Apple has a long history of tightly controlling software
on all of its platforms. That hurt them in the PC age, but has helped them
improve the user experience in the mobile age.
Google took notice. Manufacturers like Samsung load up
their Android devices with bloatware to the angst of users. Google limits
Android One manufacturers to its stock OS.
Google has also eliminated OS access from wireless
carriers--like Apple did with AT&T seven years ago. Google took it a step
further by understanding the great expense of mobile data for most users within
India. They partnered with Airtel to allow Android One users to get free OS
updates for the first six months—in time for a critical update to their more
energy-efficient Android L OS. These users will also get up to 200MB of free
data for app downloads per month.
Unless there are radical changes coming to Cupertino,
Apple just lost the global smartphone war to Google.
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