This editorial is part of our GREAT DEBATE feature on Android Vs. iPhone.
This is a difficult comparison because the iPhone is a phone and Android is a set of files on an FTP server.
In order to make a meaningful comparison it’s necessary to use some measure of performance that both share.
The challenge is that they share few measures which are directly comparable. As a product, the iPhone’s market performance is measurable through standard financial metrics.
It has an average selling price, it has volumes of shipments, it has sales value and, with a bit of inference, we can measure the operating profit it generates. On the other hand, Android is not a tradable good — there is no money or contract or property changing hands between a buyer and a seller.
It has no price and hence there are no ways markets can signal demand or value creation. Furthermore, Android is not being offered to users like the iPhone. Android’s “customers” are phone vendors who package the software with additional value-added hardware and sell the combination to operators or distributors who then package it further with services and offer the total to end users.
So obviously, comparisons between Android and iPhone center on instances of Android used in real products and the “market performance” of Android therefore relies on these proxies for Android — the aggregate sum of products that have some form of Android in use.
There is another slight wrinkle in that market measurements for these products sometimes count units which are not using bona fide Android but versions which have been “forked” and are not what Android’s developers intended. Thus activations and the total number of units sold may not match. Absent any way to measure the difference have to rely on the best estimates and that may include Android and Android-like versions.
Instances of use will allow comparison of volume (and hence share) but do not offer any measure of value, a necessary second measure of performance. Since Android does have a cost in terms of development, the value assumption behind Android is that the usage rather than the sale creates value for Google. Therefore in lieu of sales value and profit we need to measure the increase in value to Android’s creators, namely the impact on Google itself.
So my task becomes to compare market share of the platforms vs value change of the companies involved. The result would be a measure of shareholder value created for every unit of market share gained over time. ($/unit of share over time.) To that end I prepared the following two charts showing the market share vs. share price performance of Apple and Google over the lifetimes of iPhone and Android respectively.
The patterns themselves are as interesting as the endpoints of the paths. iPhone has gone through cycles of share gains and share declines corresponding to the generations of iPhone products. It has gained share overall in spurts and the company’s share price has increased overall but not always in concert with the share increases.
Obviously there is more to Apple than the iPhone but it should be noted that a vast majority of Apple’s profits are now due to iOS products and hence one should presume that there is more correlation between share price and share of smartphones in the recent past. To date the iPhone could be said to have contributed $4.3 of share price appreciation for every point of market share gained per year.
Android entered the market after the iPhone and I tracked its share since January 2009 when Android devices became more widely available. Unfortunately that period of time was in the depths of a recession so Google’s price was quite depressed and perhaps not reflective of inherent value. The stock price recovered back to $500 within three quarters. During that time Android share increased from zero to 3%.
After that, Google’s share price has remained uncorrelated with Android. Platform share grew monotonically to nearly 60% but the stock price remained in a narrow band. The data shows that Android created $1.23/point of market share/year over the market life of Android. However if we measure value creation from October 2009 after the recession lifted, we get about 21c of share price appreciation for every point of market share gained for Android per year. That’s a very small impact given the share price of more than $500.
Since Google’s non-Android business has grown throughout the period, it would seem that Android as an independent business has in fact been an overall value destroyer. Those pennies per share are very likely not higher than what the effort cost.
In defense of Android we could argue that markets are not efficient. Sometimes the benefits take time to show up and share prices don’t reflect all the value in a company. However, Android is coming up on three years of market presence. Its growth is phenomenal and highly visible and widely noted at 60% share and over 200 million users. There is nothing obscure and mysterious about this performance. Google shareholders must feel quite frustrated.
So the comparison of iPhone and Android is one of two successes of a different kind. The product strategy of Apple has been financially rewarding with a solid installed base of 250 million iOS units sold. The usage-first strategy of Google has also been a success with 200 million users obtained even more quickly. But this strategy it has not yet shown rewards to the company.
Looking forward, these 450 million combined points of use are but a drop in the bucket of a future 5 billion connected smart devices. There is much more growth to come against non-consumption. Even a modest market share of 20% of that total will be the equivalent of 1 billion units in use. That seems like a fine target to shoot for and one which both platforms are likely to achieve.
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