Apple's iPhone could be last standing in smartphone 'race to the bottom'
Google's Android and Microsoft's Windows Phone 7 will compete for presence on handsets in a smartphone market "race to the bottom," one that could leave Apple's iPhone as the "last man standing," one prominent Wall Street analyst believes.
Charlie Wolf with Needham & Company issued a note to investors Friday in which he declared the "successful launch" of Windows Phone 7, the new mobile operating system from Microsoft. He expects Microsoft and Google to compete aggressively among the leading smartphone manufacturers, including HTC, Samsung, Motorola, LG and Sony Ericsson.
"In the short run, the turf war could put the smartphone manufacturers in the driver's seat," Wolf wrote. "Ultimately, however, commoditization, accompanied by deteriorating prices and gross margins, appears inevitable for licensees of the Android and Windows Phone 7 operating systems.
"With its growing brand equity, the iPhone could end up as the last man standing in this race to the bottom."
Wolf doesn't expect that much will change during the December quarter in terms of market share. But he believes the ramp of Windows Phone 7 in early 2011, along with the anticipated launch of the iPhone on the Verizon network, could result in a very different landscape come March.
Wolf noted that the Windows Phone Facebook app had just 135,000 active users as of Nov. 30, which could be an indication of how many handsets Microsoft has sold. While those sales are nowhere near the record sales pace of Apple's iPhone, Wolf believes Microsoft's company-wide $500 million marketing budget will play a major factor.
"We suspect the company will devote a material portion of it to buy the support of the leading smartphone manufacturers," Wolf wrote. "Indeed, if Windows Phone 7 is successful, it's difficult not to conclude that the Android platform will be impacted more than any other operating system because of the similarity of the two licensing models."
And if the iPhone does launch on the Verizon network in early 2011 as expected, Wolf believes that Android will suffer the most.
"Android benefitted from the absence of the iPhone on the Verizon network, because the carrier spent heavily to promote the platform as an alternative to the iPhone," he said. "Android effectively moved into a vacuum created by the implosion of Windows Mobile."
Charlie Wolf with Needham & Company issued a note to investors Friday in which he declared the "successful launch" of Windows Phone 7, the new mobile operating system from Microsoft. He expects Microsoft and Google to compete aggressively among the leading smartphone manufacturers, including HTC, Samsung, Motorola, LG and Sony Ericsson.
"In the short run, the turf war could put the smartphone manufacturers in the driver's seat," Wolf wrote. "Ultimately, however, commoditization, accompanied by deteriorating prices and gross margins, appears inevitable for licensees of the Android and Windows Phone 7 operating systems.
"With its growing brand equity, the iPhone could end up as the last man standing in this race to the bottom."
Wolf doesn't expect that much will change during the December quarter in terms of market share. But he believes the ramp of Windows Phone 7 in early 2011, along with the anticipated launch of the iPhone on the Verizon network, could result in a very different landscape come March.
Wolf noted that the Windows Phone Facebook app had just 135,000 active users as of Nov. 30, which could be an indication of how many handsets Microsoft has sold. While those sales are nowhere near the record sales pace of Apple's iPhone, Wolf believes Microsoft's company-wide $500 million marketing budget will play a major factor.
"We suspect the company will devote a material portion of it to buy the support of the leading smartphone manufacturers," Wolf wrote. "Indeed, if Windows Phone 7 is successful, it's difficult not to conclude that the Android platform will be impacted more than any other operating system because of the similarity of the two licensing models."
And if the iPhone does launch on the Verizon network in early 2011 as expected, Wolf believes that Android will suffer the most.
"Android benefitted from the absence of the iPhone on the Verizon network, because the carrier spent heavily to promote the platform as an alternative to the iPhone," he said. "Android effectively moved into a vacuum created by the implosion of Windows Mobile."
Comments
Apple's iPhone could be last standing in smartphone 'race to the bottom'
That means Apple would have to take a loss enough to make it unprofitable for Android devices to compete.
Google could start tapping their immense advertising revenue, much like Microsoft taps it's software revenue to compete the X-box against Sony's PS3 (which itself is being tapped by their entertainment arm)
No, Apple has no alternate revenue stream to compete. They will accept a minority share of the market and Android will rule the majority. Microsoft has already lost being so dam late to the game.
By then Apple will off making the next great thing anyway. Smart wrist watches. Opps..
That means Apple would have to take a loss enough to make it unprofitable for Android devices to compete.
Google could start tapping their immense advertising revenue, much like Microsoft taps it's software revenue to compete the X-box against Sony's PS3 (which itself is being tapped by their entertainment arm)
No, Apple has no alternate revenue stream to compete. They will accept a minority share of the market and Android will rule the majority. Microsoft has already lost being so dam late to the game.
By then Apple will off making the next great thing anyway. Smart wrist watches. Opps..
I think you missed the point. As the other vendors sell 100s of different units and try to recover their investment with 1% of the market share for each new device, Apple's model of one (ok, really 3) SKUs for the iPhone means that their development effort is amortized over a much larger base AND their unit production costs are reduced based on the tremendous volume they have.
That means Apple would have to take a loss enough to make it unprofitable for Android devices to compete.
Google could start tapping their immense advertising revenue, much like Microsoft taps it's software revenue to compete the X-box against Sony's PS3 (which itself is being tapped by their entertainment arm)
No, Apple has no alternate revenue stream to compete. They will accept a minority share of the market and Android will rule the majority. Microsoft has already lost being so dam late to the game.
By then Apple will off making the next great thing anyway. Smart wrist watches. Opps..
This is a pretty irrational comment, totally at odds with reality. So, Google is going to start subsidizing handset manufacturers, long-term, to make Android financially viable? Totally at odds with their business model, and not really a viable strategy for them over the long haul. No other revenue streams at Apple? Maybe you haven't heard of the Mac? The iPod? Plus, what do they need with other revenue streams, iOS is and will remain the the cash cow of mobile. And, of course, the main point of the article: Apple doesn't need to take a loss to make it unprofitable for others to compete, it already is that way, the situation the article is based on.
By the way, I can't help but to laugh every time I see a Windows phone commercial because they don't actually show any of the features. The just show the home screen! The hardware! What a horrible way to advertise, in my opinion.
That means Apple would have to take a loss enough to make it unprofitable for Android devices to compete.
...
My reading of the article is that the "Race to the Bottom" is between Microsoft Windows Phone 7 and Google Android. The iPhone would be the last man standing because the competition will have run themselves out of business.
This guy is dumb. Even though Microsoft has a giant marketing budget in place, that doesn't mean consumers are going to buy. People want quality. The iPhone provides that.
But he said that Microsoft's WinMob 7 launch was "successful".
I guess that means that they sold both of the phones that were produced.
My reading of the article is that the "Race to the Bottom" is between Microsoft Windows Phone 7 and Google Android. The iPhone would be the last man standing because the competition will have run themselves out of business.
my understanding was they were looking at Apple as the "hardware manufacturer" and not as the "software provider" (even though they are both). It's identical to the PC market - Apple makes the hardware AND the software, and thus enjoys fat margins while HP, Dell, and the rest enjoy huge volume but pathetic margins. The same will happen in mobile. Android will most likely become the most prevalent mobile OS, but the hardware partners will suffer. That is what this article is talking about.
That means Apple would have to take a loss enough to make it unprofitable for Android devices to compete.
Google could start tapping their immense advertising revenue, much like Microsoft taps it's software revenue to compete the X-box against Sony's PS3 (which itself is being tapped by their entertainment arm)
No, Apple has no alternate revenue stream to compete. They will accept a minority share of the market and Android will rule the majority. Microsoft has already lost being so dam late to the game.
By then Apple will off making the next great thing anyway. Smart wrist watches. Opps..
Jeez! I hope you're not drawing a salary as a busines analyst.
That means Apple would have to take a loss enough to make it unprofitable for Android devices to compete.
I will pile on and say that you totally misunderstood the article or are unaware of the distribution of industry profits in the personal computer market. Apple doesn't have to take a loss to remain the last man standing. They have never had to deploy such a strategy and never will. Jobs would rather exit the market than do an XBox billions-down-the-toilet play.
The article is saying that Windows Phone and Android hardware manufacturers will compete fiercely against each other driving down their margins to near zero while Apple goes merrily along with fat margins due to a. economies of scale and b. iPhone buyers don't consider Android and WinPho as equal-price substitutes. Which is basically what's going on in the Mac v. Windows race right now. Windows outsells Macs but the lion's share of industry profits go to Apple. In fact it's already going on in the smart phone market even before WinPho's release; the competition among the Android mfrs alone is already very intense. It'll just get worse as WinPho gets (or tries to get) deeper penetration.
So Apple will be the last man standing in the smart phone business in terms of profitability, not necessarily in unit sales. Although they already are the largest single smart phone hardware seller and I expect they'll stay that way. (Nokia's old gen smart phones don't count.)
This guy is dumb. Even though Microsoft has a giant marketing budget in place, that doesn't mean consumers are going to buy. People want quality. The iPhone provides that.
By the way, I can't help but to laugh every time I see a Windows phone commercial because they don't actually show any of the features. The just show the home screen! The hardware! What a horrible way to advertise, in my opinion.
You completely misread what he said. He said that MS'es giant marketing budget (1/2 Bn $) will be used to convince HANDSET MAKERS (not consumers) to use Windows Phone 7 instead of Android. Manufacturers switching, not consumers, will hurt Android a ton. This is a reasonable strain of argument, considering MS has done this before (IE, DOS).
The other problem is when the iPhone is available on Verizon, and Samsung, MOT, etc. see their Android sales DROP. They will be like, we gotta try something new, and jump onto the MS bandwagon.
I do agree, and blogged or tweeted on this ages ago that WM7 is a threat to Android, if it is successful. Google have such a lead and a powerful backend in their Google.com services that MS will have to create something a lot more compelling to stand a chance against anyone.
I think the new Sony Ericsson 'PSP' Android phone is going to hit WM7 hard as it will appeal to a large proportion of the youthful male demographic, leaving WM7 to the ladeez.
Jeez! I hope you're not drawing a salary as a busines analyst.
Why not he is about as accurate as most analysts.
....meaning has no real clue either
...the other day, I was shocked how confusing and over 'swipy' it was.
I completely agree with this regarding WP7. The swiping gesture is amongst my least favorite on the iPhone (it takes far longer than a simple tap). And WP7 requires you to swipe to essentially get anywhere.
Additionally, its extremely difficult to keep track of where you are. In the iPhone, its quite easy, and anytime you have any trouble knowing what status you are in, you always have the big hardware Home button to bail you out.
This phrase literally has no meaning, literally or metaphorically, when applied to smartphones.
In terms of quality, consumer demand determines sales. Both advertising and quality play the biggest roles in determining demand. Android sales are topping 300k a month. Apple iOS devices in total are 275k/month. Android outsells iPads, iPhones, and iPod combined. Now it would be hard to argue that Apple doesn't possess the strongest brand image in the industry. So its clear consumers see higher quality in Android devices than they do in the iPhone line, as the Price is nearly the same: The top selling android devices are the galaxy S ($200-$300) the Droid X ($200), droid 2 ($150) compared to the $200-$300 iPhone 4 and $99 iPhone 3GS. Despite Apple's advantage in advertising, Android is beating them in sales.
Facebook app activates don't equal sale, as most windows phones include facebook integration built in. But its clear consumers don't trust the windows brand when it comes to mobile computing. Windows is going for the enterprise, where RIM still is the only to provide certain features, but at a high cost.
In terms of profit, sure Apple enjoys huge margins on all their products. But again Apple is a vertically oriented company. Naturally they're going to have high margins compared to just the software developer like Google. However manufacturers of phones like the Droid X and Galaxy S enjoy almost the same profit margins and markup as Apple does on the iPhone. Look at tear downs of parts and its clear that Android phones are marked up almost as high as iOS devices. That combined with the shear volume of sales and I'd say android manufactures are in a good business. The only difference is they have to keep innovating to stay relevant while Apple can release the same copied features.
So if I were to predict a winner in the "race to the bottom" I would actually choose Apple, in market share, quality, and innovation. The only place they really win is mark up, so they'll always be able to make a good profit off a small niche. Naturally such a huge company like Apple (2nd most valuable in the world) will always win when compared to other competitors. Even so only a monopoly, or a socialistic country, would describe a competitive market as a "race to the bottom."
MS is charging manufacturers for their os. Until thart stops, there is no race to the bottom. Google doesn't even make money off android except indirectly through search. The second "insight" about android losing customers on Verizon when Verizon gets the iphone was about as insightful as predicting the sun will rise.
I have noticed that a lot of people are saying that MS has already lost or that they aren't a player because of X factor... my opinion... Don't Count Them Out!
MS has a lot of bucks and at some point or other (probably when they fire Ballmer) they might just wake up and turn the industry on its ear... Netscape comes to mind.
last week apple patented what i consider a spectacular game changer. watching 3d movies and television without wearing special glasses. just imagine the impact as the others strain to try and circumvent the patents.
3d television is just starting. watching it without special glasses will usher in a new paradigm.
"Race to the bottom"
This phrase literally has no meaning, literally or metaphorically, when applied to smartphones.
In terms of quality, consumer demand determines sales. Both advertising and quality play the biggest roles in determining demand. Android sales are topping 300k a month. Apple iOS devices in total are 275k/month. Android outsells iPads, iPhones, and iPod combined. Now it would be hard to argue that Apple doesn't possess the strongest brand image in the industry. So its clear consumers see higher quality in Android devices than they do in the iPhone line, as the Price is nearly the same: The top selling android devices are the galaxy S ($200-$300) the Droid X ($200), droid 2 ($150) compared to the $200-$300 iPhone 4 and $99 iPhone 3GS. Despite Apple's advantage in advertising, Android is beating them in sales.
Facebook app activates don't equal sale, as most windows phones include facebook integration built in. But its clear consumers don't trust the windows brand when it comes to mobile computing. Windows is going for the enterprise, where RIM still is the only to provide certain features, but at a high cost.
In terms of profit, sure Apple enjoys huge margins on all their products. But again Apple is a vertically oriented company. Naturally they're going to have high margins compared to just the software developer like Google. However manufacturers of phones like the Droid X and Galaxy S enjoy almost the same profit margins and markup as Apple does on the iPhone. Look at tear downs of parts and its clear that Android phones are marked up almost as high as iOS devices. That combined with the shear volume of sales and I'd say android manufactures are in a good business. The only difference is they have to keep innovating to stay relevant while Apple can release the same copied features.
So if I were to predict a winner in the "race to the bottom" I would actually choose Apple, in market share, quality, and innovation. The only place they really win is mark up, so they'll always be able to make a good profit off a small niche. Naturally such a huge company like Apple (2nd most valuable in the world) will always win when compared to other competitors. Even so only a monopoly, or a socialistic country, would describe a competitive market as a "race to the bottom."
What reality are you living in? Obviously not this one!
"Now it would be hard to argue that Apple doesn't possess the strongest brand image in the industry. So its clear consumers see higher quality in Android devices than they do in the iPhone line, as the Price is nearly the same"
Apple has no brand Image? Android devices are perceived as Higher Quality? That may be true in Bizarro world but not here. The main reason they sell what they do is due to the fact that the iPhone isn't on Verizon yet.
"The top selling android devices are the galaxy S ($200-$300) the Droid X ($200), droid 2 ($150) compared to the $200-$300 iPhone 4 and $99 iPhone 3GS."
Yeah when the android phones aren't discounted to a penny with buy one get one free. Maybe the manuufacturers are still getting the full amount of the phone but the consumer is buying due to the give aways.
Sorry if I missed the sarcasm tag but this is really so far from reality it's laughable.