The Smartphone Wars: multicarrier breakout fail

The news is out that Verizon sold 2.2M iPhones in the roughly 60 days from product launch to their quarterly report. I’ll fess up; this is well over what I was expecting, based on the reports of unimpressive first-week sales.

But I also underestimated Android new-unit sales by a larger factor. Even on the very optimistic assumption that Verizon sustains its pace through Q2, Android phones are selling so much faster in aggregate (ratio of about 10:1) that iPhone 4V is barely going to budge the needle on the market share numbers (if that). Focusing too much on the the quarterly numbers is ignoring the forest for the trees.

Forest vs. trees notwithstanding, I’m going to be scrupulous about pointing out the possible ramifications of my mis-forecast now so there won’t be any accusations later that I’ve tried to sweep it under the rug. 2.2M units in 60 days means the plausible range for Q1 and Q2 together tops out at about 6M units; a more realistic estimate would be 4M (which is in line with Piper Jaffray’s launch-day prediction that I was skeptical about; props to them). They’re likely to beat 2.6M that I set as a threshold for “anemic” pretty easily, like in another three weeks. And if Android volume now had been where I thought it would be when the iPhone 4V launched, this would be pretty serious news. But it isn’t; it’s much higher.

The iPhone didn’t need just moderate success on Verizon, it needed the massive multicarrier breakout various Apple fanboys were confidently and gloatingly predicting for over a year on this blog. It needed to rack up sales numbers high enough to exceed Android’s growth over the same period to dent Android’s momentum. That didn’t happen, and quibbling over the odd million or two error in unit sale projections is not going to change the fact that it didn’t happen.

In fact, it didn’t even come within an order of magnitude of happening. 6 million units, the top end of the now-plausible Q1+Q2 range, is – depending on how you predict rate of growth in Android activations – between 14 and 17 days of Android sales.

I got this far in thinking out the implications before, in a comment. Now I’ll extend the analysis.

The only plausible comeback scenario for the iPhone after Android blew past it in November 2010 was that there was huge demand for the iPhone being pent up by customers’ inability to use it off AT&T’s network. In this narrative, customers were merely settling for a cheap substitute that they would drop like a rock when the real thing became available.

This fantasy is now dead. Over the last two months, both the total volume of Android sales and the rate of Android growth have exceeded corresponding figures for the iPhone by brutally large margins. The long-awaited multicarrier breakout was a strategic fizzle. And the news from outside the U.S., where Apple’s market share has been nosediving over the last year, is worse.

Accordingly, I no longer think there is any plausible scenario under which Android fails to achieve over 50% smartphone market share in the U.S. and worldwide this year. If Apple couldn’t spike the wheels on this juggernaut, there is no hope that RIM or any of the minor players is going to do it. And to give you an idea how robust that prediction is, Android could still beat 50% in the U.S. if its growth rate dropped by a full third.

Now add to this the fact that Apple’s smartphone market share has been essentially flat for two quarters. That’s a very bad sign in a market where returns tend to increase with scale and both gains and losses in share are self-amplifying. Apple is balancing on a knife edge.

I think we’re looking at the end stage of a successful technology disruption on the classic pattern. The question is no longer whether Android can be stopped, but when Apple’s market share will fall off a cliff. I think that could easily happen as soon as the next 90 days; one of the patterns in technology disruptions is that collapse often follows the victim’s best quarter ever.

But I could be way wrong about that short-term prospect without changing the overall picture. It wouldn’t be sufficient for Apple to gain a few points of share from the Verizon iPhone; it would have to substantially beat Android’s overall growth rate, which means pegging at least a 7% share increase. And that is not going to happen.

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