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How Android gets to 100% market share

TechCrunch TechCrunch 1/05/2016 Matt Heiman

Android already commands over 80 percent of the mobile OS market share globally, and just under 60 percent in the US. But you wouldn’t know it here in Silicon Valley — almost everyone I know has an iPhone. As the consumer technology landscape evolves over the next five years however, there are a number of reasons to believe that Android, and the Google stack more broadly, could take an even greater share and become the platform of choice, even here.

Loosening of the Apple ecosystem lock-in

Anecdotally, one of the most frequently cited reasons among iPhone users for staying with iOS is that they love the “blue bubbles.” iMessage, and its clever and seamless integration with iOS’s native SMS application, is an incredibly sticky feature of iOS.

Over-the-top (OTT) messenger applications have many advantages over SMS. The assurance of knowing that one’s message has been delivered and the synchronous knowledge that the other user is typing add a deeper level of intimacy and immediacy to the conversation. The ability to easily share media, the lack of a character limit, the seamless continuation of a conversation while switching between desktop and mobile, and the lack of per-message international charges all add to OTT messaging’s appeal.

But most importantly, OTT messenger platforms are valuable to users to the extent that one’s peers are also on the network. Since iMessage is built into the native SMS application on iOS, users also don’t ever have to switch to a third party application, and are automatically drawn into the network. No change in behavior is required. So OTT messaging in general and iMessage in particular exhibit powerful network effects. Hence the draw of the “blue bubbles.”

Does this story sound familiar? A mobile hardware manufacturer with a proprietary OS and a captive OTT messenger application? Research in Motion, now known as Blackberry, had exactly this positioning with its popular Blackberry smartphones. One of the big draws of Blackberry, outside of the corporate environment, was Blackberry Messenger (BBM). But ultimately BBM wasn’t a strong enough draw to keep people on an inferior OS and third party developers created cross-platform messengers such as WhatsApp. Today, Blackberry OS has only a 0.2 percent market share.

WhatsApp just crossed 1 billion users. It is not inconceivable that OTT messaging applications like WhatsApp could replace SMS entirely. Alternatively, the migration of SMS to the Rich Communication Services (RCS) standard could bring all of the advantages of messenger applications to texting. In either case, the network effect of iMessage would be significantly diminished, greatly lowering the barrier for those wanting to leave the Apple ecosystem. iMessage is not invincible.

While iMessage may be the most important example of Apple ecosystem lock-in, there are many other products where Apple lock-in could similarly be weakened. For example, the emergence of Google Photos as an application across Android and iOS significantly reduces the lock-in of Photos, the emergence of Spotify reduces the lock-in of iTunes, and the emergence of Drive and Dropbox reduces the lock-in of iCloud.

Gradual reduction of Android fragmentation

One of the biggest problems with the Android ecosystem is fragmentation: every hardware OEM can operate different versions of Android and can significantly slow down the release of software updates. Fragmentation is frustrating both for developers and for users. At the time of writing, I still cannot get Android Marshmallow on my Droid Turbo, despite Google’s release of the OS in October. In fact, as of April 2016, only 4.6 percent of Android phones globally had the latest Android Marshmallow OS installed.

In contrast, Apple can push out a new OS to all of its devices as soon as it is ready; the only gating factor is how quickly users choose to install the update. App developers often choose to release on iOS first specifically because releasing on Android requires tweaking the code separately for all of the different versions in the market.

But fragmentation is not solely the result of different versions of Android operating simultaneously. Many hardware OEMs, and even carriers, install their own software applications and layers on top of Android to customize the OS.

When a customer uses the iPhone for the first time, he/she gets the identical interface to everyone else with a new iPhone. The same cannot be said for an Android phone, where the default calendar, SMS, email, keyboard etc. could just as likely come from Samsung or Verizon, despite the fact that Google itself offers all of these products. Without the integration of the Google suite of products, the relative attractiveness of Android over iOS is diminished.

However, there is a possibility that in the coming years this fragmentation will be significantly reduced. Some OEMs, such as Motorola and HTC, are continually reducing the level of software customization on their latest models, bringing them closer and closer to stock Android.

Another driving force for the reduction in fragmentation could be the Nexus suite of phones and tablets. While these phones are still manufactured by third-party OEMs, such as Motorola, LG, and Huawei, they are done so in close cooperation with Google and come with stock Android featuring only Google software. Nexus phones get Android software updates immediately, because they are controlled by Google. To the extent Google is successful in proliferating these Nexus phones, it can mitigate the problems of fragmentation. Nexus could also represent an opportunity for Google to build a brand cache around its devices, making them more competitive with Apple at the high end of the market.

Decoupling of phones and plans

As of 2016, most US carriers have finally eliminated two-year service contract plans; going forward, Americans will pay for their smart phone and their plans separately. One of the unique features of the US mobile market in the past was a relative price-insensitivity of consumers to devices since they typically didn’t pay for their devices or paid a highly subsidized price. In fact, on many cell phone plans, if a member chose to upgrade to a lower cost device instead of a higher one, he/she would not receive any of the economic benefit.

This paradigm certainly encouraged individuals to purchase highly priced phones. But in a world where individuals buy their own phones at full retail price, they are likely to be much more price-sensitive. The current base price of an iPhone 6s, before any upgrades, tax, or Apple Care is $649. In contrast, the average Android phone can be purchased all-in for well below $250.

The emergence of Google as a desktop OS

Many may not even be aware that Google actually offers their own desktop OS, known as Chrome OS, which competes with Microsoft’s Windows and Apple’s OS X. Chrome OS today has less than 3% market share of desktops globally, which is not a critical mass to attract the attention of app developers. But there are a number of emerging trends which could mean that Google, rather than Microsoft or Apple, could be the desktop OS of the future.

Firstly, the relevance of software applications themselves is becoming less important as more applications move to the cloud. Even the dominant MS Office suite can now be accessed from the web browser with Office 365. With native software development becoming less important, and the browser becoming more important, the lack of scale in Chrome OS will not matter as much, since native applications are not necessary. Also, because Chromebooks are designed to leave most of the software and storage in the cloud, they have less expensive hardware components and sell for a fraction of the cost of Macbooks and most Windows computers as well.

Perhaps the larger catalyst is Google’s alleged plans to fold Chrome OS into Android within the next year. Doing so would instantly bring the world’s largest app ecosystem to Google’s desktop OS and would provide an even stronger value proposition for users to opt into an Android mobile phone.

Of course, owning the desktop OS is not as strategically important today as it once was, and will likely become even less so going forward. But owning a customer relationship across all devices and all technology use cases is more important today than ever. In a sense, Google as a desktop OS is the missing link in the picture: with a competitive desktop OS, Google could offer customers a consistent experience across all of their devices, further supporting the Android ecosystem and threatening Windows, OS X, and iOS.

Apple is the world’s most valuable brand and has consistently been at the forefront of device innovation over the last two decades. But as consumer technology evolves, software and Internet integration is gaining ever increasing importance over hardware. As the presence of the Internet continues to permeate more of our lives and the technology itself starts to “disappear,” the battle for the consumer may tilt in favor of the world’s largest Internet company over the world’s best designer of hardware.

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