The newest comScore report contains some fascinating statistics on the state of the U.S. smartphone market. And this is where I get to intone “All is proceeding as I have foreseen”, because the prediction I made and was duly calumniated for early in the year has come true right on schedule.
comScore is not just tracking new-unit sales, where Android has been winning for about a year. They’re tracking total subscribers, and Android is now at effective parity with the iPhone and (unlike the iPhone) actually growing share at above statistical noise level. This tracks my predictions from 1Q 2010 when Android was just beginning to slam the hell out of everyone else in new-unit share; I said to expect crossover in 4Q 2010 and it’s happening.
And this is before the marketing around the Nexus S hits, which as I pointed out in my last report represents the first direct push into the iPhone’s turf. It will be very interesting to compare Christmas-season sales figures, if we can get them. The iPhone needs to not just beat the Nexus S during the Christmas rush but make it look like an ignominious failure; otherwise, app developers and others making strategic bets are going to have grounds to suspect that Apple can’t even hold its core demographic in the longer term.
Or, to put it another way: if the Nexus S outsells the iPhone over the next thirty days, it’s game over for Apple – their chances of holding a profitable niche at the high end of the market basically evaporate. If the Nexus S and iPhone sell at rough parity Apple has to do something – another product rollout, a multicarrier announcement – to prove they’ve still got game against the relentless flood of ever-improving Android devices. Only if iPhones outsell the Nexus S by a minimum 5%-6% can Apple afford to continue executing on the same product strategy.
Once again, the fundamental problem Apple has is not the Nexus S itself; rather, it’s that they’re stuck in a comparatively fragile single-vendor/single-product strategy, facing an multi-vendor army that in aggregate has more financial mass, more capacity to innovate, and more freedom to innovate. The Black-Scholes theorem applies; a portfolio of options is more valuable than an option on a portfolio. If the Nexus S fails to take core-demographic share from the iPhone over Christmas this is only a reprieve, because the Android army is going to be driven by competitive dynamics to keep making bets until they get that right; on the other hand, if iPhone doesn’t win decisively, Apple’s only bet fails and Apple’s strategy with it.
What’s even worse for Apple is that with the release of NFC capability in the Nexus S the iPhone is now playing technological catch-up. If they fail, Google will probably lock up the market for phones as portable electronic-payment devices over the next year; if they succeed, they’ll be seen to be chasing Google’s taillights, which would pretty much be death for their brand image. And NFC is not going to be the last bullet in Google’s magazine, so the question becomes: how many bullets can Apple dodge?