Android

Android instability

If you were a PC OEM from, say, 1990 to 2010, you operated in a very clear ecosystem. You outsourced much of the innovation to Microsoft and Intel. You knew exactly what WinTel were doing, both because their roadmaps for the next few years were actually public and because Microsoft and Intel had very clear and widely understood strategies. Moreover, the core, fundamental strategies of OEMs, Intel and Microsoft were pretty much aligned. Everyone wanted more PCs to be bought, and preferably a good number that were high-end and high-margin. Intel, Microsoft and CloneCo all lived for the same things. CloneCo didn't necessarily make great margins (and eventually got killed by Dell, perhaps), but it knew what the game was. 

The Android ecosystem today is superficially similar to the PC ecosystem, but I'd suggest that the clarity and alignment of interests of the PC ecosystem isn't present in anything like the same way. As an Android OEM you have very little idea what Android will be in 3 years - partly because Google itself may not have a fully-formed idea. There certainly aren't public roadmaps stretching out years in advance. 

It's also questionable how much alignment of interest there is. Google certainly wants Webkit everywhere, and arguable Android everywhere (or, more precisely, Google Plus everywhere). But that doesn't translate to a burning hunger for an aggressive phone replacement rate at high prices. Indeed, Google Play Services reduces Google's interest in device replacement as a way to drive service penetration. As an Android OEM, your ecosystem creator doesn't benefit directly from the health of your industry. A healthy PC market was Microsoft's driving objective - 'A computer on every desk and in every home'. That's not quite the case for Google and the sales of Android smartphones - they're reach, and a means to an end, but not the reason why Google exists. 

Next, it's not clear what a sustainable position for an Android OEM looks like. All the brands except Samsung are sub-scale and failing, and while Samsung looks dominant it is clearly feeling paranoid: the growth of the Chinese Android OEMs outside China is a huge question. Lenovo has made its first move by buying Motorola but the real story is whether 2, 10 or 100 others follow it, and if so how. 

Finally, Google's control of Android itself is a question. Amazon forked it, but with limited broader effects. Almost all Android in China lacks Google services but then Google is largely absent from China anyway. The ways that forks of Android might become relevant outside China (and Google's tools for preventing this) are complex and a topic for another post, but we can't rule this out. Indeed, a lot of the most interesting ecosystem innovation is being done on top of Android rather than as a would-be competitor to it. 

On one level, then, the smartphone platforms wars are over - iOS and Android both won. But actually, nothing is finished - we just move onto new questions. 

Ecosystem maths

I'm pondering Apple's results, sitting in a cafe in-between meetings. It's been apparent for years that Apple was camped out at the high end of both tablets and phones, and that Android would take almost all of the rest. But it's worth working out on the back of a (rather large) envelope exactly how that would play out, assuming that Apple's pricing strategy doesn't change and of course that nothing else changes (which of course are rather unsafe assumptions). Hence: 

  • Right now, on the basis of a 24m replacement cycle, there are perhaps 290m iPhones in use on earth. Depending on the second hand market, this might be larger. 
  • Apple has sold 195m iPads - perhaps 180m are still in use. 
  • There are also a fairly small number of iPod Touches in use - perhaps 20m

That adds up to a rough estimate of 490m live devices. For comparison, around 900m Google Android phones were sold in the last 24m, and probably another 110-120m Google Android tablets ('Google Android' = 'not China'). 

Where might this go? Apple now has about 10% of global mobile phone sales, rising steadily. It's important to note that Apple is not losing share of phone sales to Android - it's just not taking as much share as Android. There are between 3.5bn and 4bn people with mobile phones on earth (there are far more connections but many people with multiple connections). This number is also rising slowly, but all the growth is from the very low end. 

So. 

Over the next few years the great majority of that 3.5-4bn will convert to smart (and indeed the more important variable is affordable data plan penetration rather than smart penetration). If Apple continues the current strategy and share growth, it will end up with (say) 15% unit share. 15% of 3.5bn is 525m. (I told you this was a BOTE calculation.)

The great majority of the rest will go to Android (though quite what 'Android' will mean is an open question). That means perhaps 2.5-3bn Android phones in use. There might be some Windows Phone as well (assuming it doesn't become an Android fork) but we can ignore it for these purposes.

No-one has much idea what the total addressable market for tablets really is, let alone premium ones such as the iPad, and the recent sales trajectory is somewhat lumpy. If we assume a four year lifespan for iPads as the tech stabilises and look at the recent run-rate, that suggests a stable base of, say, 300-350m. This gives us a base of perhaps 850m iOS devices, with a lot of ownership overlap.

There will also be an ungodly number of Android tablets, of course, but we know neither quite how many nor what they'll be being used for (right now, mostly TV, it seems). 

What does this mean? What does it mean for Apple to have a platform with a minority of users, indefinitely, in mobile? An minority ecosystem with only 850m devices? Or even 490m?

Certainly, this isn't 'Windows versus Mac all over again'. There are now 490m iOS devices in use, but PCs only hit that number in around 2000, long after Apple lost the last ecosystem battle. Apple sold 51m iPhones last quarter - total PC sales in 1995 were 59.5m. That is, the iOS ecosystem now is much bigger than the winning ecosystem back then.

Even beyond that, all the other dynamics are different - the smartphone market is not driven by corporate buyers who demand commodity product based on bullet points and don't care about design or user interfaces, for example. The relative market share of an ecosystem is relevant, but it's not the only thing that's relevant. We need also to think about value share, engagement share, and all the other dynamics that drive the viability of an ecosystem. The assertion that an ecosystem with close to 500m users now and over 800m in a few years will not be viable because there's another that's bigger seems pretty simplistic. It can't be taken for granted that any 'winner takes all' dynamics will work like that. 

More importantly, though, these questions will probably have become irrelevant by the time we find out the answer. That happens quite often in tech. To me, the platform wars are now much less interesting than what happens on top of the platform. On the desktop internet, we had close to 15 years of stability with almost all online activity going through the web browser, but on mobile it is far more complex already and also far less stable. Nothing is settled on mobile. I have no idea what it will mean in 5 years time to say that I 'installed' an 'app' on an 'Android' 'smartphone'. All of those terms could change completely, and with it what it means to say 'ecosystem' or 'market share'. 

Note: for supporting charts, see this post

The meaning of really cheap Android

One of the big puzzles in trying to understand the tablet market is data. Apple is pretty much the only large manufacturer giving unit sales, and not only are Samsung and Amazon saying nothing, but there are hundred of Chinese companies making Android tablets, and few if any say anything publicly. In the phone business the story is rather easier, since Google says roughly how many Android devices are being activated outside China, and give a screen size breakdown, and the Chinese mobile operators have a good sense of smartphone sales inside China. But in tablets there is no-one with an overall view of sales. 

This means that analysts have to fall back on component makers. Though there are hundreds of companies making tablets, they almost all use more or less off-the-shelf chipsets from a handful of companies. These companies have a good sense of the overall number of tablet chips that are being sold into the manufacturers. So too do the screen markers - they have a good sense how many 7” panels are being sold. So you take an estimate of tablet chip sales and an estimate of tablet screen sales (and take into account people using ‘phone’ chips in tablets) and you estimate tablet sales, both inside and outside China.

The obvious problem with this is that these devices are being used in very different ways. It seems clear that most of the huge numbers of sub-$150 Android tablets now being sold do not have anything like the web or app usage that is seen on an iPad, Nexus or Galaxy Tab, and that many are mainly used as substitutes for TV sets, with maybe some gaming on the side. 

The deeper issue, though, is that estimating tablet sales in this way is a little like trying to estimate global car sales by working out how many internal combustion engines are being made, and how many tyres, but not adjusting for motorbikes, cranes, outdoor generators or 18 wheelers. Lots of ‘tablet' chips and ‘tablet' screens do not actually end up in tablets.

Consider this device, one of thousands of similar products on offer on Alibaba - an in-car video player running Android, complete (if the screenshot is to be believed) with the phone app. This probably doesn’t activate with Google, but it certainly looks like a ‘tablet’ to LG or Rockchip.


Then there’s this TV dongle - no screen, but does it have a ‘tablet’ chip? A ‘phone’ chip? If you used it to watch Youtube, what would Google think it was? (Note also the memory card slot, used for side-loading pirate movies.)

Now what about this, from Steelcase? An meeting room door with a 7” capacitive touch screen. To a component maker, this is also a tablet. I have no idea if it runs Android today, but if it doesn’t, it probably should. And if Nest doesn’t, the copies of it will. 

The important dynamic here is that a combination of very cheap off-the-shelf chips and free off-the-shelf software means that Android/ARM has become a new de facto platform for any piece of smart connected electronics. It might have a screen and it might connect to the internet, but it’s really a little computer doing something useful and specialised, and it probably has nothing to do with Google.

As should be obvious, this makes counting total ‘Android' devices as though they tell you something about Google or Apple’s competitive position increasingly problematic. But to me, pointing out that ‘Android’ doesn’t necessarily competed with iPad is rather boring - what’s really interesting are the possibilities that these new economics might unlock. 

A good example is this - a 2G Android phone wholesaling for $35 (just one of hundreds). 

Now, stop thinking about it as a phone. How do the economics of product design and consumer electronics change when you can deliver a real computer running a real Unix operating system with an internet connection and a colour touch screen for $35? How about when that price falls further? Today, anyone who can make a pocket calculator can make something like this, and for not far off the same cost. The cost of putting a real computer with an internet connection into a product is collapsing. What does that set of economics enable? 

There are other interesting hardware trends that overlap with this as well. Bluetooth LE is the obvious one - you can make a widget that broadcasts a location ID for $50 or less, stick it on a wall, and the battery will last for years. EInk is also interesting here: it needs no power to show something, only to change, and you can pass enough power over an induction touch point to cycle the screen. The problem here is cost, but why doesn’t my Oyster card show the remaining balance? Why wouldn't Coin (a product I'm rather skeptical of, mind) show the cards loaded onto it on one side with an eink display? How do these trends interact with cheap Android computing?

Marc Andreessen famously coined the phrase 'software is eating the world’ to describe the way that functions that used to be served by dedicated hardware are now being subsumed by general purpose devices - mostly smartphones. But there’s also the beginnings of a trend in the other direction - devices that weren’t smart and didn’t get merged into the phone gaining a digital presence of their own, and creating a new set of opportunities. 

Chinese app platforms

Looking at the Chinese mobile market today reminds me a lot of looking at the Japanese model in 2000 or 2001 - lots of very interesting stuff is going on, but getting reliable data is very tough.  

One triangulation point comes from app analytics platforms. You need to have some caution as to how representative they are, but the big ones give a good directional steer. Umeng (think Flurry for China) is one of the biggest. It puts out statistical reports every quarter or so - these are some of the key charts in the latest. 

First, platform size - this is their estimate of active devices that are using apps (not total devices), including tablets.  

Screen Shot 2013-10-08 at 15.33.55.png

Both iOS and Android are growing fast, and Android faster, as one would expect given the range of prices that Android devices are offered at. However, on this data there are probably more iOS devices in China than smartphones in the USA. 

Second, handset brands. Apple is the largest single brand in this data set, but shrinking. This of course is users, not ongoing sales, so some recent suggestions that (for example) Xiaomi outsold iPhone in the run-up to the iPhone launch may be compatible with this. 

Screen Shot 2013-10-08 at 15.33.43.png

Finally, and perhaps most interestingly, a window into the state of Android in China. As most people know, the great majority of Android devices sold in China are built on AOSP and have no Android services pre-installed (indeed, I've used a Motorola phone with no Google services present) - instead they have a range of apps from the local internet giants. 

This means that most Android phones have no Gmail, Google Now, Google Maps or, of course, Google Play, and most apps are installed form third party app stores or side loaded, either pirated or downloaded directly from publishers' sites. Some handsets do have these, either because people added them afterwards (which is not easy) or because they're using grey market imports. Estimates of the total with Google apps on them are mostly in the 20-30% range. However, on Umeng's data, Google Play amounts to just 5.6% of Android app installs in China. OEM app stores are 8.5%. This, for example, is why Baidu paid $1.8bn to buy a couple of app stores earlier this year. 

Screen Shot 2013-10-08 at 15.33.36.png

Platform updates and the rate of innovation

Apple, obviously, blew the doors off with opening weekend iPhone sales - 9m units in 3 days, up from 5m last year. Having day one launch in China and adding DoCoMo to distribution obviously helped, but there's clearly still strong underlying organic growth. And it appears that this is without substantial demand for the 5C (which is not an early-adopter/queue overnight sort of product). 

However, the really interesting thing is that there are now 200m people using iOS7, where last year 'only' 100m people upgraded to iOS6 in the opening weekend. The chart below shows what this means, as compared to Android, the other platform. 

Screen Shot 2013-09-23 at 15.11.30.png

Google, of course, is trying to address the fragmentation embodied in these charts with a shift to Google Play services, as neatly explained by Ars Technica here.  But though this means Google itself is less subject to fragmentation, it isn't much help to a developer wondering whether to use APIs that are only in Android 4.2 or later - let alone one wondering why their app crashes on one Android 4.2 phone but not another. 

This issue makes it hard for Google to drive the agenda for new mobile technologies within Android: it will take at least a year after announcement before a meaningful part of the base has access to anything new. Hence the focus on Google Play services and on the cloud with things like Google Now - moving everything several layers up the stack from the intractable fragmentation problem, and making the hardware OS less relevant. But of course, this reduces further the reasons to upgrade your OS, and makes it much less likely that third party apps will do anything on Android that they don't do on iOS (system utilities and other minority interests aside).  

Conversely, a developer can use anything that Apple announced in iOS7 and be confident it will work on all their users' devices. So anything innovative Apple does takes effect right now. Apple does have some fragmentation issues - some of the coolest features in iOS, such as Airdrop or iBeacon, have chipset dependencies that rule out older hardware. But Apple's integration means that it can drive innovation on the device much faster than Google. It can do Airdrop - putting that in the next version of Android and expecting it to work predictable for a meaningful proportion of the base any time soon would be much harder. 

Hence the paradox: the open platform is actually slower-moving in some ways than the closed one.  

Incidentally, the fact that Google seems to be moving more and more innovation away from the OS poses interesting questions about future roadmaps. Will 'Android' still be the main platform in the future, or will it be Chrome, or something else, with Android buried underneath?

Android's route to 1bn

This week Google announced that it has now passed 1bn cumulative activations. This is what that trend looks like. 

Screen Shot 2013-09-08 at 7.12.16 pm.png

Google generally releases these numbers at scheduled events, and they're pretty round, so we can't take them as exact. My model makes some allowances for the overall trend rather than trying to hit the exact number on the exact day of the announcement (since the figure might actually have been passed a week earlier anyway). 

If we aggregate this by quarter and split out tablets (also provided by Google recently), we get this chart, showing rapid but slowing growth and tablets as a pretty small share of the total. 

Screen Shot 2013-09-08 at 7.17.53 pm.png

This base, as everyone knows, is somewhat fragmented, with a wide mix of versions in use. 

Screen Shot 2013-09-08 at 7.33.49 pm.png

The interesting thing is that if you apply these percentages to the active base (on the assumption that trailing 24m activations are active), it appears that there is very little upgrading of existing devices: the growth of new versions of the OS seems to come solely from new devices.  

Screen Shot 2013-09-08 at 7.25.02 pm.png

Of course, what's missing from this data are the devices that are used in China and do not have any Google services on them, and hence do not activate with Google. There is, obviously, no good data on this, but most people in the Chinese market think that only, say, 20% of Chinese Android devices have Google on them. That means the overall Android market is rather bigger than 1bn, with well over 200m extra devices in China, and run-rate 'unactivated' Android making up perhaps a quarter of total Android sales. 

Meanwhile, as Ars Technica points out, Google is starting to get around fragmentation by putting all its services into a software layer on top of Android that it can update remotely. This solves the fragmentation problem for Google (their services are on every Android device outside Amazon and China), but doesn't help Android developers trying to work out why their app crashes on one Samsung model but not another. 

Is Google fighting a platform war?

The smartphone business tends to be cast in terms of a simple ‘platform war’ between Apple and Android, with market share and profit share tracked and compared. However, this does not really capture what Google or Apple are trying to achieve. It should be obvious Apple is uninterested in being the biggest manufacturer of phones per se, but the raw market share of Android is also several steps away from Google's objectives.

Google's fundamental strategic needs are to extend reach and gather data. Google needs to be on as many screens as possible, delivering as many searches* (and ads) as possible, and it also wants to have access to as much data as possible to index, understand and serve up in ever-improving search results.

The growth of the mobile internet intensifies these imperatives in two ways:

  • Reach: search happens on more devices in more places with greater frequency
  • Data: mobile devices can provide far more information about behaviour and intent that can help Google deliver more relevant search results

Hence, Google uses Android as a tool to extend its reach, both as a generic access platform that can go to Google.com and by embedding more and more ways to use Google Search within it. But the objective is reach itself, which it will take anywhere it can get it, including on the iPhone – and Google tries hard to put its services onto the iPhone.

In parallel, Google uses Google Plus to collect and understand usage. Talking about the low rate of social sharing on Plus misses the point. Rather, while the history of Google so far has been about understanding the web and the interactions and links within it, the future of Google is about understanding and learning from how people use the web. Plus is the mechanism to do that - it's PageRank for the users. This is why Plus is being stuffed into all manner of Google products - not to get you to share stuff with your friends, but to be able to draw conclusions from all of your activity in the same way that PageRank draws conclusions from all web links. 

This means that a helpful way to look at Google is as a vast, decade-old machine learning project: mobile will feed the machine with far more data, making the barriers to entry in search and adjacent fields even higher, while Plus is the database that ties that data to individual behaviour. The combination of the two strategies is (hopefully) self-reinforcing – reach and data collection produces better results, more reach and more data collection. The more control Google has of the mobile device, the more it feeds the machine: on an Android phone you will always be signed into Plus, even if you never think you're using it. But all devices on all platforms (outside China) are feeding the machine. 

(* Of course, things like Now and Glass point to changing future definitions of what 'search' means)