The September comScore numbers are out, and the market transition hinted at by the June numbers seems to be under way. Growth in the U.S. smartphone market is slowing, and the flavor of the competitive game is about to change.
Until Tuesday (2011-11-01), I am sort of half-cut-off from the Internet. I can browse, I can blog, and I can push commits to my project repos, but I can’t do IRC or mail. This is a heads-up for my GPSD and other collaborators; I’m still here.
How this happened is a case study in 21st-century Internet vicissitudes…
The article states that Sprint’s cost to run the iPhone is $15.5 billion over four years. Unclear to me what that “cost” means from the article. The iPhone won’t have a positive impact on Sprint operating income before depreciation and amortization until 2015. The article then implies that outside of that cost are the costs of upgrades to network to support iPhone data useage on its unlimited plans, resulting in a “cash shortfall of up to $5 billion” through 2013. Again, vague what that exactly consists of. Sprint says that the estimated wholesale cost of the iPhone is 40% or $200 more than other smartphones.
If Apple is running margins that essentially suck the profit out of the wireless phone telcos and into its own pockets, then there is another way that dropping market share can rapidly attack Apple’s margins – and that is by removing their leverage against the wireless phone companies
The article is oriented around a reference made by Hesse, CEO of Sprint Nextel, in a earnings call where he made a reference to “Moneyball” about how smart the iPhone is to him. But the article points out, that the Moneyball theory is low wage value players not high wage players, and claims that Hesse got his metaphor backwards.
SPQR is quite right, but to understand the degree of wishful thinking Hesse is exhibiting here you have to bear in mind the huge Damned Fact that drives the behavior of Sprint and other telcos: the real rates of return on carrier cell networks are negative! The carriers are burning capital, all day, every day.
When ROI is negative, you become desperate to drive down costs or pull up margins. Desperation makes CEOs stupid; Hesse is exhibiting that kind of stupidity by placing a bet that even if he shovels most of Sprint’s present profits down down Apple’s throat, the iPhone will push Sprint’s margins up soon enough for the deal to be a net positive in four years.
Meanwhile, in the real world, Android’s U.S. market share is probably passing 50% right about now. I wonder how long it will take for Sprint’s board to realize they’ve been had and fire Hesse’s ass?
I had been planning to defer commenting on the death of Steve Jobs long enough to give its impact time to cool a little, but Against Nostalgia puts the case I would have made so well and so publicly that it has changed my mind.
I met Steve Jobs once in 1999 when I was the president of the Open Source Initiative, and got caught up in one of his manipulations in a way that caused a brief controversy but (thankfully) did the organization no lasting harm. The author of this piece, Mike Daisey, does well at capturing Jobs’s ruthless brilliance. Jobs was uncannily perceptive about the interface design and marketing of technology, but he was also a control freak who posed as an iconoclast – and after about 1980 he projected his control freakery on everything he shaped. The former trait did a great deal of good; the latter did a degree of harm that, sadly, may prove greater in the end.
HP replaces the hapless Leo Apotheker in a manner not very well calculated to reassure anyone that HP has a bright future. Granted, Apotheker’s performance – typified by the now-it’s-dead-oh-maybe-not fumbling around the TouchPad – was dismal. But the new CEO’s first move was to reassure everyone that Apotheker’s cunning plan to turn HP into a low-rent clone of SAP is still on track.
How are the mighty fallen. HP was a great company once. Then they spun out the instruments division to focus on printers and lost their culture of excellence along with it. Now they’re thrashing. Sad.
In other news of the stupid, there’s evidence that Nokia (remember Nokia?) is developing a Linux-based OS for its low-end phones. Yes, that’s right, they dropped Meego/Maemo — which actually worked — only to start an entirely new OS development project.
On a more cheerful note, Samsung is pushing kernel source code out the door. This after hiring the Cyanogen lead. Good stuff; they actually seem to get this open source thing.
From the excellent StackOverflow site, a report with statistics indicating that Android passed iOS in developer mindshare on that site at the beginning of 2011.
The business press had already begun to notice that Apple is chasing Android’s tallights. Then Apple announced the iPhone 4S, and it’s a big yawn. iCloud? Me-too voice recognition features? Really, Apple? Is this the best you can do? Gawker has a hilarious post on how overblown the media hype was, but even that fails to convey what a boring, derivative-seeming product the 4S is. How are the mighty fallen.
No grand unifying theme in this installment of our smartphone-wars coverage, but a bunch of short takes.
Running a cellphone network is a brutally capital-intensive business with thin profit margins, and subject to heavy regulation. Any economist will tell you that all three of these factors favor size – capital concentration confers a stronger advantage, thin margins can only yield a decent profit at high volume, and larger organizations can better afford the costs of capturing their regulators.
The Washington Post has an interesting graphic on the results in the U.S. wireless-carrier market:
Steve Jobs resigned as CEO of Apple yesterday, handing the reins to designated successor Tim Cook. It could hardly happen at a more difficult juncture – for though Apple’s cash reserves and quarterly profits are eye-popping, the company faces serious challenges in the near future. Its strategic position rests on premises that are now in serious doubt, and it is on the wrong end of a serious example of what Clayton Christensen has called “disruption from below”.
The business press is abuzz today with the news that HP is pulling the plug on its WebOS smartphone and tablet lines. This won’t be any huge surprise to people who’ve been following the discussions on Armed & Dangerous; WebOS has looked terminal to us for a long time.
Still…WebOS didn’t suck, technically speaking. It was certainly better constructed than the turd-with-frosting that is WP7. It’s worth taking a moment to reflect on the circumstances of its demise, and what its difficult history tells us about the future.
This morning came the news that Google has agreed to buy Motorola Mobile for $12 billion. I was half-asleep when A&D regular Jay Maynard phoned me with a heads-up, but not surprised for a second; as I told him, I’ve been expecting this for weeks.
We’ll see a lot of silly talk about Google getting direct into the handset business while the dust settles, but make no mistake: this purchase is all about Motorola’s patent portfolio. This is Google telling Apple and Microsoft and Oracle “You want to play silly-buggers with junk patents? Bring it on; we’ll countersue you into oblivion.”
There’s been a lot of talk in the trade press over the last month by people who believe – or want to believe, or want us to think they believe – that Android’s momentum is slowing, and in particular that the multicarrier release of the Apple iPhone was a game-changer that will eventually pull Apple back into the dominant position in smartphones. Most of these talkers have been obvious Apple fanboys; a few have been contrarians, or tired of reporting the same old Android-wins-again stories, or merely linkbaiting.
The last week has not been kind to these people. First, Canalys reported that in a survey of usage in 56 countries, Android has reached 48% market share worldwide. Then the comScore figures on US installed base up to June 2011 came out, and report only 40% share here.
I think comparing these sources is instructive, particularly with the longer-term trends as context. It’s also worth noting a couple of other recent developments that cast doubt on the Apple-comeback scenario.
There I was, within earshot of the smoker’s bench outside the front entrance of the hotel hosting the World Boardgaming Championships, when I overheard the word “Android” from the three college students sitting on and around it, who I mentally tagged the Guy, the Gamer-Girl, and the Hottie. I moved a bit closer, to polite conversational distance for a stranger, and when they noticed me asked if they were talking about smartphones.
One of them (I think Gamer-Girl) said “Yes” and within about ten seconds I learned that they all had Androids and were huge fans, and had been discussing apps and fun things to do with the device. I smiled and told them I’d written some of the code in their phones.
The Hottie, a slender but pleasantly curved redhead in a tight black dress and fishnets, sat up a bit straighter and asked me what parts I’d written. I settled as usual for explaining that I wrote significant pieces of the code Android uses to throw image bits on its display. The hottie did a silent “Oooh!” and gave me dilated pupils and a flash of rather nice cleavage.
So yes, geeky guys, Android development can pull hot chicks. Well, it was either that or my rugged masculine charm; you get to choose your theory.
I had to run off to lunch, but I did learn one other interesting thing during this interlude. When I said that I was pleased that Android is attracting such loyalty from people who aren’t techies, they assured me that all their friends either have Androids or are planning to get them.
This being WBC, my sample was probably a bit above average in IQ and likely to lean towards early adoption. Still, it makes me suspect the iPhone is losing its grip on one of its core markets.
If style is truly the contrast of expectation and surprise, it’s been a very stylin’ couple of weeks in the smartphone world while I’ve been on vacation.
I have plotted the May 2011 comScore data. There are two conspicuous things to notice about it. One is that recent rumors of an Android stallout seem utterly bogus, and the other is that Apple appears to be actually gaining some share rather than simply bouncing around 25% in a random way.
I’ve been chronicling RIM’s death spiral, and much more willing than most to call it as a straight-up suicide by bad planning and management, not just a “bad things happen to good companies” episode. Now comes an open letter from inside RIM describing the unforced errors in excruciating detail.
In other news, the trade press has been abuzz for the last week with stories of a dramatic turn in Apple’s smartphone fortunes – Android supposedly stalling out, with significant gains for Apple from the Verizon iPhone. This report now looks like a classic case study in how to (a) lie with statistics, and (b) get the trade press to inflate a non-story into a nine days’ wonder.
It’s been a quiet week in the smartphone wars. The three most interesting developments are (a) stock analysts have begun hanging crepe for RIM’s funeral, (b) HP has priced its WebOS tablet to die, and (c) the iPhone 5 is now not expected in September, being constrained by iOS 5’s ship date.
For months I’ve been predicting that a flood of ultra-cheap SoC-based Androids is coming at us from China, motivated by the prospect of Third World and BRIC sales volume in the billions and beginning in 3Q2011. The iCube announcement was one harbinger; today we have some others. It’s worth another look at what this trend is going to do to associated markets.
A few weeks go, I reported a conversation with a Chinese-American investor who confirmed my suspicion that the next game-changer for the smartphone market is going to come out of mainland China.
He wouldn’t name the company, but I think they’ve just unstealthed. ICube matches the hints he was dropping exactly.