When thinking about smartphones — the most important digital devices today — it’s customary to think of the business as a simple market-share contest. The conventional wisdom is that, of the two players who count, Google, via its Android platform, has soundly trounced Apple, via its iOS platform. So, game over.
But, as with most conventional wisdom, this example is oversimplified and ignores many nuances. The game is not over. In fact, the two contestants are playing different games, in which success isn’t mutually exclusive. Both have been very successful, but by different metrics and different skills.
And each of these heavyweights is facing serious challenges, though rather different ones.
Google’s Android dominates in market share …
First, the market-share facts. Globally, handsets running Google’s Android operating system absolutely dominate the smartphone market, with somewhere between 80 percent and 85 percent market share. This is split among scads of phone makers.
Apple’s iPhones — the only handsets Apple allows to use its iOS mobile operating system — have somewhere between 10 percent and 15 percent of global market share.
And Android’s share has exploded in recent years, while Apple’s share has shrunk from the glory days following the iPhone’s upending of the mobile phone market in 2007. (Android phones appeared a year later, and took years to become decent.)
This is a huge achievement by Google, and a real or potential problem for Apple. But there’s more to the picture than appears at first glance.
… but Apple continues to do well
For instance, the figures might suggest that iPhone sales are cratering. But the facts are far different. In its most recent quarter, ended Sept. 30, Apple sold nearly 40 million iPhones, more than most analysts had predicted, and a new record for the September quarter, up from about 34 million last year, the previous record.
And that figure reflected only a couple of weeks of sales of the new iPhone 6 models, in a limited number of countries. We won’t know how the new models are doing for a while, but early numbers and lines at stores suggest that they are selling strongly. Apple CEO Tim Cook boasted in late October that the two iPhone 6 models “have become the fastest-selling iPhones in history.”
The two rivals are playing different games
Second, it’s important to recognize that Apple and Google aren’t direct competitors in the smartphone market. Google doesn’t make phones, despite its brief ownership of Motorola. It licenses a no-cost mobile operating system — Android — and produces apps, for that system and for Apple’s. It makes money from Android and the apps, as it does from search, by gathering user data and selling advertising using that data.
By contrast, Apple’s robust mobile operating system, iOS, is only a component of its hardware products. It isn’t sold or licensed. And Apple’s homegrown apps aren’t available for other mobile platforms. Instead, it makes money on the phones themselves, which are a combination of its hardware, software and cloud services.
That difference in business models is the reason why, for instance, Google does better maps than Apple, but Apple is able to garner more trust from banks and merchants in its fledgling mobile payments product, since it doesn’t collect the data.
Apple’s real competitors are the Android phone makers, principally Samsung, which is the only one that has found major, enduring global success.
Obviously, without Google and Android, Samsung and the other Android phone makers wouldn’t likely be competitors. So Android’s dominant market share is by no means irrelevant. It’s just not as definitive as it seems, since it is fragmented among so many hardware makers, and even flavors of the platform. And many of these hardware makers, if not most, aren’t seen by Apple as serious competitors.
Further, Apple chooses to play only in the premium end of the smartphone market, so it isn’t even trying to compete with the many low-end, low-priced Android phones out there. Some believe this will eventually be its downfall, but for now it means that Apple is taking a huge, disproportionate amount of the profits in the global smartphone market.
So far, it looks as though both Google and Apple can thrive with these different models. Google gets the mass distribution, including low-priced phones in low-income countries, to support its data-gathering and advertising business. Apple can attract the premium, status-conscious buyer, not only in developed countries like the U.S. and Japan, but among the growing middle and upper classes in generally poor countries.
But both companies, and their platforms, face looming threats.
The real threat to Apple
For Apple, the main threat is that even if it is content with a low market share, there could come a point at which that share dips so low that app developers will stop or slow efforts to create new apps for iOS. Apple may be the BMW of tech — low share, but high prestige and profits — but BMW doesn’t depend on such third-party support.
This would repeat what happened to Apple’s Macintosh computers in the 1990s, when their market share dipped so low that app makers stopped making Mac versions, and focused solely on Windows. (The Mac has recovered nicely in recent years.)
So far, this isn’t happening. App makers continue to churn out iOS apps, often before they ship their Android versions. This is partly because Apple’s platform is much less fragmented and much easier to develop for, and partly because Apple users tend to spend more money on apps and on in-app upgrades.
In my conversations with Apple executives, they vehemently insist that market share isn’t — and won’t be — their goal, and even go so far as to say that most public market-share numbers are somehow off the mark, though they decline to explain how.
One solution for Apple might be to make a midrange iPhone — not a cheap, crummy model, but a solid, feature-rich one that strips out some features and can sell for less, without tarnishing the brand. People might get tired of paying $650 off-contract for premium phones, and Apple has no publicly apparent Plan B, except to sell older models for less.
Motorola is having some success with this midrange strategy and a rising Chinese phone maker, Xiaomi, is producing beautiful phones (they look a lot like iPhones) for much less than the usual price of Apple and Samsung premium models.
But iPhone product manager Greg Joswiak, rejected that idea at our recent Code/Mobile conference. He said: “We were talking about some of the mistakes Apple made in the ’90s, and some of it was trying to do things like making cheap products that were chasing market share instead of chasing a better experience. You make that mistake once in your life, you’re not going to make it twice … maybe it is naïve, but we [believe] that if we make a better product and a better experience, that there will always be a healthy market for that. And a healthy market doesn’t mean we have to be market-share leader.”
And the key danger for Google
The threat to Google is more multifaceted. First, the biggest Android hardware maker, Samsung, is facing stiff headwinds, squeezed between Apple and a host of cheaper Asian phone makers. This is important, because most other Android vendors either aren’t profitable, or aren’t global, or have tiny market shares.
Samsung’s global smartphone market share plunged to 24.7 percent in the third quarter from 35 percent in the year prior, according to Strategy Analytics. Its profits are falling and, for 2014, are expected to be the worst in three years. It has announced plans to kill off some of its many smartphone models, and has fired some of its phone executives.
Second, and perhaps more importantly, Google faces the fact that more and more Android phones are shipping with the free, open-source version of the operating system, one that lacks the suite of Google apps from which the company makes money. Some estimates put the market share of these so-called Android Open phones as high as 20 percent.
Google is fighting back with a program called Android One, which it says will allow handset makers to create $100 phones for emerging markets that can carry the Google app suite. But we don’t know how that will succeed.
The bottom line is that this is a much more complex competition than simple market-share numbers suggest, and that both smartphone platforms face challenges.
This article originally appeared on Recode.net.