Android Falters as IOS Strengthens

Apple is extending and broadening iPhone dominance over Android devices in the smartphone market, according to seven key benchmarks

By Kevin C. Tofel

Based on a growing number of data points, Android’s sales dominance may be nearing its apex while iOS is on the rise. Even as a daily user of both an Android smartphone and a tablet, I can’t deny the fact that Android’s partners are not doing as well as they used to. I am starting to think Android is on the decline for several reasons.

1. Early Android handset makers in free fall. In April of last year I noted that Android was a boost to hardware makers that had embraced the platform early. Specifically, I saw that an Android strategy helped Motorola Mobility trim losses, while HTC (2498:TT) was growing faster than a field of bamboo. Fast-forward to today and Google is attempting to snap up Motorola even as Moto has faltered. And HTC? Monday’s news confirmed what we reported late last year: The rising star has fallen and isn’t meeting expectations.

2. Apple grabbing huge share of mobile cash flow. We often talk about smartphone sales market share, which is important to a point, but money keeps a business afloat. Apple is sucking most of that out of the mobile market. According to the excellent Asymco blog, Apple has been the top handset maker in terms of operating profits for the past 13 quarters running. It has 75 percent of the market’s profit share and 39 percent of its revenue. With the exception of Samsung (005930:KS), Android competitors are beginning to fade away; you can’t expand a business when your product sales are in decline and you’re earning less money on such products.

3. Top three smartphones are all iPhones. This data point comes from NPD on Monday: Of the top five smartphones sold in the U.S. in the last quarter of 2011, the top three are all iPhones. Samsung’s Galaxy S II and Galaxy S 4G took the fourth and fifth spots. Why is this a problem for Android handset makers? Because consumers are more willing to buy the reduced-priced iPhone 4 or 3GS—handsets that are more than a year or two old—than some of the newer Android handsets. There are plenty of low-cost Android models that compete well on price, but consumers don’t think they compete well on the experience. If they did, they would bypass Apple’s older phones.

4. First-time buyers pick Android, but … NPD did note that first-time smartphone buyers favor Android over iOS (54 percent versus 34 percent), which I suspect is mainly due to price. These folks will become second-time smartphone buyers and may be willing to spend more for an iPhone unless Android handset makers can give them a reason to stick with the platform. Now that the U.S. has achieved more than 50 percent smartphone penetration, the pool of first-time buyers will be shrinking, not growing.

5. Even now, few apps hit Android before iOS. One of the reasons I pay attention to smartphone sales by platform is because of developers. Not every software shop can support every operating system, so common sense dictates that most developers will aim their apps at the largest audience possible. But even with Android sales growing fast over the past two years, very few developers bypass iOS as the first platform to develop for. They are simply making more money with iOS, so that’s where top-tier apps start out, which in turn helps boost handset sales. I don’t see signs that this is changing. Even for apps on both platforms, it often takes time for the Android version to gain parity with its iOS counterpart. Monday’s Android update of Rdio is a perfect example; until Monday, I was using the app on my iPhone, instead of on my Galaxy Nexus, because it simply served better on iOS.