2012 has been a fantastic year for smartphones, with penetration pushing past the 50% mark in key markets such as the UK and US (some estimates even put US penetration as high as 70%). Apple’s iPhone is the leading smartphone in most key markets but Google’s Android Operating System (OS) has much larger market share: c. 70% compared to c. 20% for iOS (Gartner estimated global market shares to be 64% and 19% respectively back in Q2 2012). But these market share statistics can be misleading, particularly when it comes to understanding the digital content and services marketplaces.
Android Fragmentation Complicates Content Strategy
The fragmented nature of the Android landscape is well documented but close analysis of key metrics reveals some startling trends with significant implications for content providers (see figure):
- 60% of iOS devices are on the latest version of the OS (iOS 6) compared to just 3% of Android devices on the latest flavour of Android (Jellybean). Additionally, 88% of iOS devices are concentrated in 3 versions of iOS while Android devices are spread across 10 different versions of the OS, of which 54% are on a version that is 4 releases out of date (Gingerbread).
- There are 260 different Android phone and tablet models, compared to just 6 iOS tablet and phone models.
- There are more than 50 different official Android stores, but just one Apple App Store
Of course there are many mitigating factors, but that simply does not matter from a consumer perspective nor indeed from a content owner’s perspective. Both iOS and Android have got vast App catalogues (750k and 650k respectively) and both have vast numbers of apps downloaded (35 billion and 25 billion respectively). Both also have huge installed bases of devices: 450 million iOS devices and 600 million Android devices. But there is only one clear leader in paid content: Apple.
Looking just at music sales, Apple’s music annual music sales (based on the last reported 12 months) equate to approximately $4.00 per iOS device, compared to just 50 cents per Android device. Apple wins in part because of its longer presence in market, but more importantly because it exercises complete control of the user journey in a closed ecosystem.
The Importance of Closed Ecosystems
The success stories of paid content to date are closed ecosystems: iTunes / iOS, Playstation, xBox, Kindle. Though the controlled nature of these ecosystems may limit user freedom, they guarantee a quality of user experience. In these post-scarcity days of content, the quality of experience becomes a scarce experience which people are willing to pay for. Google simply cannot exercise that degree of control because of its pursuit of a less-closed (but not wholly open) ecosystem strategy. It depends upon device manufacturers to determine the user experience and also gives other value chain members much more control, such as allowing operators (Vodafone) and retailers (Amazon) to open their own Android stores, as well as, of course handset manufacturers (Sony).
Smartphones with Dumb Users
In a pure mobile handset analysis this doesn’t matter too much. But from a content strategy perspective it matters massively so. The problem is compounded by the fact that that as smartphones go mainstream the user base sophistication dilutes. With so many consumers increasingly buying smartphones because they are cheap and on a good tariff, rather than for their smartphone functionality we are ending up with a scenario of smartphones with dumb users. (I am indebted to my former Jupiter colleague Ian Fogg for this phrase). This factor arguably affects Android devices more than it does Apple devices because a) they are more mainstream b) they are often cheaper. This matters for content owners because the more engaged, more tech savvy smartphone owners are also the ones most likely to pay for content.
Google Needs to ‘Do An Apple’ and Not ‘A Microsoft’
With growth slowing in the digital music space, it is clear that new momentum is needed. Google is potentially the strongest opportunity to bring mass market traction to the digital music space, but currently its music strategy, and paid content strategy in general, is falling short due to all of the reasons outlined above.
Google does however have an incredibly strong set of assets at its disposal, in terms of installed based and growing adoption. If Google is serious about making its Play strategy a success then it needs to start putting itself first. Back in the early 2000’s Microsoft expected to be the dominant force in digital music because Windows Media Player was the #1 music player and Windows DRM was the industry standard rights protection. But instead of pushing ahead with a bold Microsoft music offering it relied upon its hardware and services partners to do it for them. Just as Google now is sensitive to the concerns of its commercial partners, so Microsoft was then. Of course Microsoft lost the battle and their softly-softly approach was powerless to fight off the rapid onslaught of iTunes. Microsoft eventually realized that it needed to go it alone, launching Zune, but it was too little, too late. Interestingly there wasn’t much of a backlash from commercial partners when it did so. Launching a standalone music strategy was actually compatible with being a platform partner.
Now Google has an opportunity to learn from both Microsoft’s mistakes and Apple’s success by turning its recently acquired asset Motorola into a closed Play ecosystem to rival iTunes. This doesn’t preclude Android partners from continuing to build their own devices and app stores, but it does create a paid content beachhead for Google, from which it can build a base of highly engaged digital consumers who will quickly learn to value the benefits of a high quality, unified content and device experience. In a Motorola ecosystem Google can truly allow Google+ and Play to become the glue that binds together its diverse set of valuable assets. Without it though, Play will continue to struggle for relevance in a fragmented and confusing Android user journey.
Thanks, very interesting.
Thanks for the numbers, Mark. I’m curious, though. The sales for music with the Apple products.. is that from the iTunes stores? Does it include app sales? Are the music sales from the iTunes stores included on the Android numbers? Are you measuring all music sales on all devices?
My understanding is that music sales in general are going down from iTunes. Streaming music is up, but as yet, has not been profitable for either Pandora or Spotify.
The idea of 10,000 tunes in your pockets was a nice idea for the iPod and gave way to the ‘more songs is better’ than the actual quality of the content. Now, with streaming it’s even crazier.. take Sony Unlimited.. 15 million songs and 1 million users.. something is wrong with that picture.
It seems those of us in the music business are looking at a shrinking industry and need to rethink the value of the content. Wallpaper music is fine for the masses, but eventually it gets old and peels off the wall.
Thanks for your insights.. great work, as always.
Hi Cookie – the Apple music numbers are just for the iTunes store, so does not include all of the extra subscription revenue from 3rd party iPhone music apps. The numbers may well be understated also – I added a 25% discount to the total number of downloads to allow for free tracks etc,
But your point about growth slowing is absolutely true. And love your wallpaper analogy!
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