The struggle for dominance in the smartphone market is heating up and Google Inc.'s (NASDAQ: GOOG) Android operating system for handsets appears to be winning the war against Apple Inc.'s (Nasdaq: AAPL) iPhone system.
When Apple debuted the iPhone 4 on June 24 it broke sales records. In the first three days, the company sold 1.7 million devices in the United States, the United Kingdom, Japan, France and Germany, the most for any version of its top-selling product.
But the popular device has been plagued by misfortune – including the suicide of a Chinese worker, lost prototypes, reception problems, and an inauspicious introduction to the press and public when Chief Executive Steve Jobs could not get the phone to connect to the Internet.
Now comes word that the innovative iPhone and its operating system software package, known as iOS, has been knocked from its lofty perch among U.S. technophobes by Google's Android handset software.
Android had 27% of the U.S. market in the second quarter among new U.S. smartphone users, compared with 23% for iOS, market research firm Nielsen Co. said on its website Tuesday.
And while the iPhone retained a higher share than Android among existing smartphone users in the United States, when you look at global sales, the news just gets worse for Apple.
Android Sales Soar
The global smart phone market grew by 64% annually in the second quarter of 2010, according to Canalys, a provider of market analysis for the hi-tech marketplace.
Nokia Corp. (NYSE ADR: NOK) retained a substantial lead in the worldwide smart phone market, achieving a 38% market share, shipping a record 23.8 million smart phones based on the Symbian operating system during the quarter. At the same time, shipments of Research In Motion Ltd.'s (Nasdaq: RIMM) BlackBerry smart phones grew by 41%.
But the two big players' lost some of their market dominance, as their performance was outpaced by growth in the smart phone market as a whole. And the reason is clear: the market is under attack from Android.
With key products from HTC Corp., Motorola Inc. (NYSE: MOT), Samsung Electronics, Telefonaktiebolaget LM Ericsson (Nasdaq ADR: ERIC) and LG Electronics giving new smartphone purchasers more options, shipments of smart phones running the Android operating system have soared.
In fact, even though the original Droid didn't hit the market until November 2008, second quarter sales were up a whopping 886% year-over-year.
"There's a massive hunger for smartphones, and the Android universe came out not just with one blockbuster device but with a whole series of blockbuster devices," Roger Entner, head of telecom research at Nielsen, said in an interview with Bloomberg News.
And in the United States, the largest smart phone market in the world by a significant margin with 14.7 million units accounting for 23% of global shipments, Android devices collectively chalked up growth of 851%, according to Canalys.
Android is also flourishing in China, the world's second largest smart phone market with shipments of 6.9 million units representing 11% of the worldwide total. Some 475,000 Android devices were sold in the second quarter, from no presence in the country a year earlier.
"The story in the Asia Pacific region is similarly optimistic around Android," Canalys Senior Analyst, TY Lau wrote in a research report. "Android devices are gaining good traction in markets such as mainland China and South Korea, with growing numbers of consumers wanting more sophisticated smart phones."
Missteps Haunt iPhone 4
Apple has released an updated version of the iPhone each year since the first model made its debut, including the iPhone 3G in 2008, and the speedier iPhone 3GS in 2009. The iPhone was Apple's biggest moneymaker last quarter, outselling the Macintosh computer and accounting for 40% of sales.
But Apple, which has built its brand on delivering cool, meticulously crafted designs, was plagued by bad luck during the development of the iPhone 4. Moreover, it's been shooting itself in the foot at almost every juncture since it released the device to the market.
On July 16, 2009, a 25-year-old Chinese factory worker leaped from the window of his apartment building and fell 12 stories to his death. He had been accused by his superiors of losing an iPhone 4 prototype.
Months after the incident in China, an Apple engineer out drinking at a pub in Silicon Valley lost track of the iPhone 4 prototype he was testing. It was subsequently sold to a technology blog that dismantled it.
Then, when Steve Jobs introduced the new phone in front of a huge audience of reporters and Apple developers, it failed to connect to the Internet.
And since the phone's release, it's been plagued by reception problems, even though one of its top engineers warned the company that the antenna design might lead to dropped signals and customer dissatisfaction.
Apple then committed a series of public relations gaffes by placing blame on everyone but itself. The lack of sensitivity has alienated customers and irritated its competitors and critics.
Apple's handling of the antenna revelations has been "uncharacteristically sloppy," Andy Hargreaves, an analyst at Pacific Crest Securities told the Los Angeles Times. "And [it shows] maybe even how little they really understood the depth or breadth of the problem."
The company's work-in-progress response "points out how much they were caught off guard by this," Hargreaves said.
Apple initially recommended that users avoid holding the phone in a way that could affect the antenna's performance. The company also said that a software error, dating to the June 2007 release of the first iPhone, has resulted in overstated signal strength, leading users to believe they had better reception than they did.
In defending the iPhone, Jobs showed videos of the BlackBerry Bold 9700, the HTC Droid Eris and the Samsung Omnia II losing signal strength when held in certain ways. And he offered free rubber cases, called bumpers, to all customers who bought or will buy the iPhone 4 by the end of September.
Still, Consumer Reports said it won't recommend the iPhone 4 following tests confirming the handset has a hardware shortcoming that causes signal quality to degrade. The publication had recommended the three previous iPhone models.
User Restrictions Could Hamper Future Sales
Buying an iPhone isn't the same as buying a car or a toaster. The iPhone comes with a complicated list of rules about what users can and can't do with it.
Apple products are heavily infested with Digital Restrictions Management (DRM) that prevents users from installing unapproved third-party applications.
iPhone owners can't unlock it and use it with the cell phone carrier of their choice – they are exclusively married to AT&T as the airtime provider. And Apple is unapologetic about these rules: A software update released in September 2007 erased unauthorized software and rendered hundreds of unlocked phones unusable.
Some iPhone owners have rebelled.
According to Toni Sacconaghi of Sanford C. Bernstein & Co., the top-ranked computer analyst by Institutional Investor magazine, users may have unlocked as many as 1 million handsets to run on unauthorized wireless networks, costing Apple between $300 million and $400 million in revenue.
Whether it's bad luck or bad management, surging Android sales represent a real threat to Apple's future, as Android dealers gear up to sell even more of the devices.
Handsets such as the Motorola's Droid and Droid Eris, which is sold through Verizon Wireless, the largest U.S. mobile-phone service provider, have been especially strong.
"Prior to launch of Droid, there had not been a lot of modern, touch-optimized smart phones available at Verizon," NPD analyst Ross Rubin told MarketWatch. Rubin added that the majority of smart-phone sales at a carrier typically come from customers who are already signed up to that carrier.
Verizon is expected to put heavy promotion behind the latest Android device – the Droid Incredible from HTC – for the next several months.
The latest data has also put pressure on Apple to expand its base of carriers for the iPhone. The device is still exclusive to AT&T in the U.S. market, with recent reports that it will expand to Verizon in January 2011.
Apple's European partners include Vodafone Group PLC, France Telecom SA (NYSE ADR: FTE) and Deutsche Telekom AG (PINK: DTEGY). Softbank Corp. carries the iPhone 4 in Japan
Android's startling success may mean Google will overtake Apple's iOS globally earlier than previously expected, Will Stofega, program director at research firm Interactive Data Corp. (NYSE: IDC) in Framingham, Massachusetts told Bloomberg. Earlier this year, IDC said it expected Android to overtake iOS globally in 2011.
"It could happen sooner," Stofega said.
News & Related Story Links:
- Bloomberg:
Google's Android Passes Apple Among New U.S. Users - Engadget:
Android takes Q2 smartphone market share lead in US with 886 percent year-over-year growth - Canalys:
Android smart phone shipments grow 886% year-on-year in Q2 2010 - LA Times:
Consumer Reports gives iPhone 4 cool reception - LA Times:
Could Apple's iPhone 4 be cursed? - Bloomberg:
Apple Users Unlocked 1 Million IPhones, Analyst Says - MarketWatch:
Android market share surpasses iPhone's, NPD says - Money Morning:
AT&T Rocks Smartphone Industry by Dropping Unlimited Data Plans - Money Morning:
Price Wars Likely to Spur Smartphone Explosion in 2010
Android is an OS for subscriber equipment. It is being used in phones, pads, set to boxes, etc… It is not a phone! It is offered for free as an OS platform by Google to everyone.
Each mfr using Android will have significant differences in their offered products to help them compete. So aggregating all Phones manufactured by different mfrs using Android to compare with Apple's iPhone is a bit of a distortion. Lastly, nothing that Apple did with the latest release materially impacted the deployment numbers of the various Android based phones. That is again another distortion.
iPhone Killer?!
please!
hype! misinformation!
cheap journalism!
don't believe all you read, even if MoneyMorning is supposed to be more responsible and astute than common media.
Simple question:
if iPhone exists since 2007, why is it that there have been countless iPhone "killers," yet none ever killed anything, and even self-destructed or imploded market-wise?!
Android is still in its infancy, it is too early to tell if it will hook the market beyond its initial euphoria. Anything new can be hailed or hyped as the next Best Thing with staying power. Otherwise, your article is based on wishful thinking, as nothing has been proven with Android yet!
Even Mighty Sony, Microsoft, IBM, Dell, Adobe etc all made huge mistakes, so many in fact, that their survival is at least heavily affected and they are running into increasingly more difficult times: the only way they will survive is if they stop screwing with their customers and completely reinvent themselves!
Apple or iPhone's maker does not suffer this fate, as it already restarted itself a decade ago, hence being ahead of all competitors, as it gets everything right, from being the only one that marries both hard-and-software plus does it right with R&D, manufacturing experties, ecology, business, marketing….on every level.
It is not easy to create viable business that is sound. It takes much thought, philosophy, attitude, responsibility, passion, humaneness, intelligence, courage, no debt, lots of cash – all of which no one else has, but Apple. That is fact – not your article. If your advice is financial, goodness help us in your other recommendations.
The reason we, in the West, are losing to Asia or South America, is because we have been thinking lazily like here. They have not stolen our economy because of outsourcing or playing dirty, but they have thought more and deeper than us, using more of their brainpower than arrogance and ego. Apple is the most deserving American firm, and in our dire straits as a nation bankrupt on every level akin to decadence or annihilation, we care to mock, deride, destroy the credibility of our best example of American ingenuity, rather than promote
You guys sound like you are eating your money. You paid outrageous price for a piece for hyped up iPhone junk, and now you have justify it. Distortions or not, a fact is iPhone DOESN'T work on Internet. And their fascist methods of preventing users from choosing their OS, of their ISP, denying them their basic right, FREEDOM OF CHOICE, are apparently OK with you.
Maybe you could take up yoga, and stand on your head, it may improve you connection, especially if you hold it in a weird ways, as per you head buffoon S. Jobs, who if you old enough to remember, has been the IT industry clown for decades.
my comments were cut off, here's the continuation…
…rather than promote intelligence. What will save us is thought, original thought, creativity, real open source (open mind) thinking.
i wrote more but MoneyMorning is not accepting it. as objectivity?
no report is legitimate if it is not counter-balanced by other arguments.
Rolf,
You ARE joking, right?
I mean you *are* joking with your testimony of undying loyalty to Apple… You have to be…
A human couldn't possibly drink _that_ much koolaid and survive… Could they?
Just remember Bernie Ebbers.
I'm afraid that the apple disciples Rolf and Pradeep are a bit guilty of blind faith in Apple and guilty of ignoring facts and market results. No one is trying to crucify Apple, just reporting sales numbers and shifting market shares. Every system has its pros and cons, but trying to ignore reality of numbers favoring the "competition" is rather futile and laughable.
test
wow, what a moron… or spin master. whatever, the most important point of all is that android ( 20+ phones, all 4 major carriers) only beat iphone (1 phone, 1 carrier) by 4 percent? how lame!!!!
and these numbers don't even include iphone 4 #'s, add the fact that sales slowed tremendously for iphone 3gs due to anticipation of the leaked iphone 4 and your point is moot. also, if you read much, you'll know that most of those 27% will eventually get an iphone….
ps.. find out what's on the other side of the coin before you flip it…. otherwise, you'll be wrong 50% of the time.
oh, and the droid eris is made by htc. loudly moronic.
I am not biased to either of these software. My company provides BB (growth of 41% was the largest number I saw in the article)
The article was emotional in some aspects .. but there was some data about growth that was interesting to me.
27% market share for Android against 23% for iOS. (I believe they are counting all Android based devices against just the IPhone 4)
and 851% growth for Android devices (is it YoY or this year or starting from Nov 2008 when the first Droid device was released)
I am not bothered about which company is winning. I am more bothered about the data that is presented (much better data compared to other articles on the same subject on the net)
But still have to agree that the statistics of growth for Android seem to be impressive for such a new software.
In the end the choice between an IPhone and Android phones is simply that.. A choice.. It is unfortunate that Apple has come across as arrogant to the extreme which no one can deny has hurt its social currency.. The basic choice comes down to whether you want to live in a gilded "cage" with everything working right but 'chosen' for you.. Or you go out beyond the garden walls and choose for yourself, YOU become responsible for your devices safety, YOU become an informed user of your device's strengths and limitations. For most users the iPhone is a good starting point.. When they feel too restricted with the iPhone it is more than likely they will be happy they have the freedom to choose something different that fits them. The 'one device for everyone' concept has never completely worked out..
As for the most technically advanced device winning out in the end.. Look no further than Sony's Betamax vs. the VHS.. The VHS won by being cheaper and having more manufacturers supporting it thus producing a variety of devices that appealed to a larger group of people, high-end and low. Thanks Apple for using your great reputation for making tablets and smartphones popular.. Too bad it's the 2nd mouse that gets the cheese.. (^_^)
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