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Gauging the scale of the post-PC opportunity: "Mobile Is Eating The World"
Speaking at All Things D in 2010, Steve Jobs famously predicted that "PCs are going to be like trucks": specialised devices that only appeal to people with particular demands of their computing experience while ordinary people would come to prefer smartphones and tablets for all their computing activities. Last month, Enders Analysis consultant Benedict Evans gave a presentation at BookExpo America entitled "Mobile Is Eating The World." In it, he laid out a thorough series of metrics that suggest, when taken as a whole, that the scale of the post-PC opportunity is somewhere between 'ginormous' and 'staggering' -- and that Jobs's vision is coming inexorably to pass. Now, I don't want to spoil the whole thing. I urge you to read the slide deck for yourself. But I am going to cherry pick a few of the figures I found most interesting to whet your appetite, and add in some of my own ideas as to what this all could mean for the future. Before that, though, an aside about analysts. There's a strong meme circulating amongst Apple blogs that analysts are idiots and their writing to be universally shunned. Like most strong memes, this one presents a simple narrative; like most simple narratives, this one is wrong. Reality is far more nuanced than that. There are good analysts and bad analysts, as with people in all walks of life. Certainly, I cannot understand why Gene Munster is obsessed with the Apple TV, an idea that makes no sense to me. Evans is one of the good guys though. The scale of the post-PC opportunity Evans starts out by talking about just how big the post-PC device market could be in the future. Total global PC sales in 2012 were 350 million; there are 1.6 billion PCs in use, most of them shared between multiple users, and they are replaced every 4-5 years. For mobile devices (including smartphones, feature phones, and tablets), 2012 saw 1.7 billion sales -- almost five times as many as there were PCs -- to a total of 3.2 billion users, almost always used only by one person, and typically upgraded every two years. In other words, mobile is a whole different ballgame to computers, and it always has been. Dwell on those figures for a moment -- 3.2 billion means almost half the planet has a mobile device today (almost all of them low-end feature phones, of course). Still, mobile sales have outnumbered PC sales for decades; that's old news. What's changed about mobile is the rise of the smartphone and (to a slightly lesser extent, because it started later) the tablet. Since 2007, although feature phone sales have been declining slightly, smartphone and tablet sales have grown very quickly. Today, smartphones make up about one in every three phones sold, and that ratio is continuing to move in smartphone's favour. Furthermore, unlike PC sales -- broadly stagnant for several years now -- there is no sign of growth in phone sales slackening off. There's still half the planet to go, after all. So where does this lead? Evans predicts that in the next five years, we'll see no change in the size of the PC market -- but explosive growth in the smartphone and tablet space, three to four times bigger than where they stand today. That'll put tablet sales well above combined sales of desktop and laptop PCs, and smartphone sales far above that again. So it seems Jobs was right. The scale of opportunity in mobile technology is huge. But how well positioned is Apple to benefit from this? And what of its competitors? Is Microsoft withering on the vine? In a slide entitled "the irrelevance of Microsoft", Evans paints a stark portrait. As little ago as 2009, almost all online access was done via PCs and as almost all PCs run Windows that meant Microsoft's share of the "connected device" market was pretty large: 80% or so. But as more and more smartphones and tablets have been sold, which almost entirely run non-Microsoft OSs, so that share has steadily declined ever since. It's now down to 25% or so. Certainly, in terms of things like determining web standards, Microsoft is a much diminished influence. Does that bode ill for the company, however? Don't forget that although Microsoft's share of the connected device market has declined, that's mostly because the overall market itself has grown. PC sales, as I remarked above, have been largely static through this era, and therefore so has Microsoft's revenue from Windows licences. It had a revenue of $18.8 billion in the first quarter of 2013, and $6.06 billion in profit. Not too bad, right? This is because most of the mobile growth has been in smart phones, and very few people are buying a smart phone to use as a PC, so (so far) the affect of the growth in mobile tech haven't been felt in Microsoft's markets. However, in the last two years, tablets have also been growing explosively (although far behind smartphones) and this is a product category that can replace a PC. So PC sales have, finally, switched from stagnating to declining, and there's the real threat to Microsoft's bottom line. There's also another element to this story, which is Microsoft's other cash cow: Office. Office sales largely work through a sort of institutional inertia: the main value is that everyone uses it, so everyone shares files around in its formats, and no third party app has ever managed to do a flawless job of opening and working with those formats without munging the layout, breaking the fonts, or some other irritation. But today we're in a world where less than a quarter of people are using Microsoft devices online, and so less than a quarter of people online can choose to work on Office. Most of those of those people are on phones, of course, where it doesn't matter much -- only the brave and foolhardy are doing complex word processing on a smartphone. But many of them are also on tablets, and that could be a problem for Microsoft as tablets eat into laptop and desktop PC sales. Now, this is a line of reasoning that leads you to the conclusion that Microsoft should port Office to the iPad. I used to have a hunch we'd have seen this happen by now, but so far, it's chosen not to do so, and instead use the existence of Office as an extra selling point for its Windows RT and Windows 8 tablets. In other words, Microsoft is prioritising protecting Windows PC and tablet revenue over protecting Office revenue. It remains to be proven if that was a smart call or not; perhaps the release of Office 365 for iPhone means Microsoft's resolve is weakening, although I'd argue that's not quite the same thing. Few people would choose to use a smartphone rather than a PC for document editing, so the two products don't really compete; whereas people might well perfer to use a tablet to a PC, so the competition has more direct consequences. The "Four Horsemen" Evans's lists "four horsemen" of the post-PC world: Apple, Google, Samsung, and Amazon. (He sees RIM and Microsoft as rapidly becoming irrelevant and never gaining relevance, respectively.) How does Evans see competition between these companies today, and how does he see it playing out in the future? Consider the business of selling devices. In this, Apple and Samsung rule supreme: not in terms of units (Apple and Samsung combined sell less than 30% of all handsets), but in terms of profit (Apple and Samsung hold more than 95% of the profit in the entire handset industry, with the lion's share of that going to Apple). Note that it's a mistake to believe that this somehow means Android is a failure because Google doesn't make any money on it. Remember that from the very outset Android was supplied by Google to the handset OEMs (HTC, Motorola, Samsung, etc) for free. If one's plan is to make a lot of money, one doesn't generally start by giving things away. Android was never supposed to generate any direct revenue for Google. Google makes money by serving up ads, and to do so effectively it needs people using its various products -- search, email, maps, coughReadercough. Android was designed to ensure that no-one like Apple could establish a stranglehold on the future mobile market and freeze Google out. Or, as Erick Schonfeld wrote for our sister site TechCrunch, "search is Google's castle, everything else is a [defensive] moat [around it]". Evans also believes there will be significant growth in low-end Android tablets, with 7" screen sizes and prices below (often far below) the $330 price point for a poverty spec iPad mini. There could be as many as 125m cheap Android tablets sold in China alone in 2013, he claims -- compared to 120m tablets sold in the entire world in 2012 (of which 66m were iPads). However, as many others have pointed out, Evans underscores that Apple products seem to lead the market in usage, far out of proportion to sales; depending on the exact metric you believe, anything up to 80% of all tablet web traffic comes from the iPad. I've yet to find an explanation that entirely addresses this. It's easy to list factors -- some Android tablets are shipped but never sold to end users; some of them are awful, and after a few weeks end up gathering dust; some of them are used regularly, but for much smaller amounts of time per day than iPads; some of them are mostly used for purposes other than web surfing (e.g. in-car satnav and entertainment centers); some of the metrics are biased towards English-language sites, whereas Android is huge in China. But to my mind, none of that convincingly adds up to the size of the difference in the stats. Perhaps I'm wrong, though, and that's all it is; or perhaps there's some other factor I've overlooked. Please let me know your thoughts in the comments. The ecosystem is key Selling devices isn't the whole of it, though. For Google, Android devices itself are only a means to an end -- a way to make Google services more accessible and attractive to end users. It's about building and supporting an ecosystem. Evans finishes on differentiating between ecosystem types and sizes between the key software platform players: Apple with iOS, Google with Android, but also Facebook and Amazon with its as-predicted-by-me (why yes, I am still smug about this; thanks for asking) Android fork. He (rightly) points out that Apple is qualitatively different from the other companies discussed here. For Google, Facebook and Amazon the platforms are designed to facilitate and increase customer engagement with their services -- ultimately, to either serve them adverts or enable them to buy things. Apple, however, remains primarily a hardware company that uses a strong software ecosystem as a hardware differentiator rather than a end in its own right. If you're inclined to disagree with that, remember that iOS updates are free and OS X updates are cheap -- but iPhones and Macs are neither. Apple's main profit driver and main focus remains hardware sales. The bottom line Three years ago, Jobs predicted that mobile devices would come to compete with and ultimately domainate over PC sales, coining the phrase "post-PC" to cover mobile devices that overlap with PCs -- so, smartphones and tablets, as opposed to feature phones. He tied a significant chunk of Apple's future to this vision, by concentrating much of its effort onto iOS and the hardware that runs it. There's plenty of evidence that Jobs was right, and as these trends continue, so companies that are involved in this space -- Apple and Samsung being the most obvious -- will continue to thrive. If you like his data, I humbly urge you to follow Benedict Evans on Twitter and subscribe to his weekly newsletter, where he routinely shares his insight and data like this. I would also like to extend my personal thanks to Mr Evans for allowing me to reprint some of this slides in this writeup.
Smartphone wars: Android "has half of the UK smartphone market"
Kantar Worldpanel ComTech -- a prominent market research firm and a powerful figure on the Scrabble board -- today released its latest "smartphone OS barometer" report, and it has some noteworthy conclusions in it about the British market. Specifically, the report claims that in the 12 weeks ending 2nd October 2011, iOS market share in the UK was 18.5% whereas Android was more than two-and-a-half times that -- 49.9% of all new smartphone sales. Apple's share at this time last year was 32.9%, compared to 28.8% for Android. In the US, Kantar's numbers show an even stronger tilt in Android's favour: 66.4% Android, 21.5% iOS. Beyond the head-line grabbing Apple-vs-Android story, there is other interesting data in the report. In the UK, 69.1% of all phone sales in the last 12 weeks were smartphone sales -- and 43.8% of the population now own a smartphone. It also has the interesting tidbit that HTC does rather better out of Android sales than Samsung (44.8% of all Android phones are by the former, and 37.9% are the latter). Internationally, Samsung is a long way ahead of HTC. I need to address one common criticism of many market share comparisons. It goes like this: while Apple quotes its volumes in terms of units sold to end-users, many Android OEMs quote units shipped to distributors and resellers instead. This skews figures against Apple because it means unsold handsets languishing in stock rooms around the world count as "sold" stock. Kantar Worldpanel's methodology doesn't work that way. Rather, it gathers material from interviews with volunteers who have agreed to be tracked. It "conducts over 1 million interviews per year in Europe alone," which is certainly some substantial data gathering. A second issue people often bring up when discussing market shares is carrier availability. In the US, the iPhone was (of course) only available on a single carrier until relatively recently. This factor doesn't affect the UK market. All six of our mainstream carriers have been selling subsidized iPhones since the release of the iPhone 3GS, and all six also offer Android handsets as part of their ranges. It's a level playing field. I spoke with Dominic Sunnebo, the author of the report, and asked him for more information on Kantar Worldpanel's testing methods. He told me: In order to generate the insights you have seen published we have a longitudinal panel of demographically (age, gender, region & ethnicity) representative individuals in each country: for example we track 15,000 people in the UK, 20,000 in the US, and 26,000 in Brazil. We interview the same individuals every 4 weeks, to see if they have had any change in their mobile ownership e.g. new phone, new tariff, new network, etc. The day/date of these changes are recorded, and these figures are then collated into time periods e.g. "12 weeks ending 03rd October 2011" (as in our latest report). As it is the same individuals we interview each time, this also allows us to accurately track switching between brands, OSs, networks, etc. Now, there is an important mitigating factor to Apple's seemingly poor numbers, specifically the iPhone 4S launch timing. We know that Apple phone sales dipped throughout the last few months as people waited for an updated iPhone, followed by explosive sales of the iPhone 4S. It seems sensible to expect Apple to regain some of those market share points in future reports from Kantar Worldpanel. Given the size of the gap between Android and iOS, though, it's difficult to imagine it closing completely. The report also mentions that consumers in the UK are particularly price-sensitive to smartphones, preferring to choose a lower-end handset on a free-with-monthly-plan pricing to higher end phones where a purchase price is charged. This, of course, was a market Apple was not addressing at all until the iPhone 4S launch just a few weeks ago, at which time the iPhone 3GS became "free." If Kantar's analysis of consumer preferences is correct this should also give Apple a boost in the future. It's also debatable just how much market share matters. As Charles Arthur says in the Guardian, Apple's relatively low market share in the computer market hasn't stopped it from making a mind-boggling amount of money. If you could be the CEO of a company that makes all the widgets or a company that makes all the money, which would you choose? The opposite point of view, proposed by Henry Blodget of Business Insider, is sometimes referred to as "the Highlander Principle" after that film's famous line "there can be only one!" Technology platforms always converge onto one dominant platform, goes the reasoning, as developers concentrate support on the OS with the greatest numbers of users and users flock to the platform they are most familiar with and has the widest range of apps available. Certainly, this happened in desktop OSs, with Windows maintaining its two decade stranglehold to this day. Therefore, Blodget surmises, iOS is doomed and Apple "FANS" (his article was sub-edited by cAPTAIN cAPS lOCK) are clinging to a dying platform. Blodget ignores significant areas in consumer technology, however, where the Highlander Principle hasn't happened at all -- such as mobile phone OSs at any point in history up until now, or games consoles, or even social networks (which should be more vulnerable to network effects than most -- and yet Google+ and Twitter and Facebook all co-exist). Blodget even concedes that as so many modern apps are cloud-based, the strength of the "platform" in a modern smartphone OS is somewhat diluted. Yelp is still Yelp, whether you use its iPhone app or its Android one. Meanwhile, to muddy the waters further, Android users are far more thrifty than iOS ones. Even if Android outsells iOS forever, this factor means devs could easily make more money on Apple's platform. It remains far from clear what the future holds. To my mind, the question isn't whether Apple is losing ground to Android; that seems pretty certain, at least in the narrow terms of the numbers of handsets sold. Rather, it's: what sort of handsets are they? Some amount -- perhaps most -- of the sales that Android is picking up comes from thrifty consumers buying low-end phones and not spending a lot of money on apps. It seems a deliberate part of Apple's strategy to leave that part of the market unaddressed -- consider that the cheapest pre-pay iPhone in Britain is an astronomical £320 ($510) for an 8 GB 3GS. That may or may not be the right strategy in the long run.
