Blog Post

Apple vs. Samsung and the reality of the Android ecosystem

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

A winter ago, I postulated that thanks to Samsung’s ability to build and source mobile components — from memory to processors to screens — the company would be able to become one of the leaders in the smartphone ecosystem. The battle, in fact, would be between Samsung and Apple,(s AAPL) something that we have reported multiple times over the past year or so. Lately that battle is actually between the iPhone and the Galaxy brands.

Last week my colleague Erica Ogg wrote that Samsung sold an estimated 87.6 million to 94.6 million smartphones in 2011 (though it made a lot less money than Apple, which sold about 58 million iPhones during the first nine months of 2011).

Of course, people didn’t believe me when I pointed out that HTC was about to hit the skids  — it eventually did — and that Motorola (s MMI) is going to become an albatross around Google’s (s GOOG) neck. It will — and the missing profit targets are only a start.

“A Googorola vertically-integrated smartphone line could counterbalance Samsung’s influence,” said Jean-Louis Gassée, a former Apple employee and more recently an investor in technology companies. I don’t buy his argument. How is it that the company that was perpetually in trouble starts doing well because someone else bought it?

It may not seem obvious today, but in a few years, as the rest of the world moves away from feature phones to touch-enabled, Internet-connected phones, we will see Huawei and ZTE, two Chinese companies, go head-to-head with Samsung. And they are so dominant in Africa and parts of Asia that we are going to see them become major players in the low-to-medium end of the market.

With the emergence of Huawei (which launched a really thin and cool Android phone on Tuesday) and ZTE, which have their roots in the telecom equipment business, one should expect HTC and Motorola (and the rest of the wannabes like Sony and LG) to get squeezed out of the market. Samsung will become the high-end Android leader while the two Chinese companies will become low-end giants before they start their eventual march up the smartphone food chain.

Antonio Rodriguez, an entrepreneur turned VC (with Matrix Partners), writes on his blog:

What all of the talk of Android momentum and inevitability obscures though is that the dream of a common Android that developers can write/deploy apps to and users can become familiar with is burning. More specifically, three events in 2011 burned it and we’re now holding on to a charred corpse that is quite different: an Android so splintered that it will make the glass on your Galaxy Nexus S2 Prime Pie dropped on concrete look like an ice skating rink.

The three events: 1. Google buying Motorola and alienating all of the tier one handset makers (none of which to this day have the spine to state it publicly but all of which have now come up with their “plan B”), 2. Microsoft extracting licensing fees from these same handset makers in the form of IP indemnification and 3. Amazon shipping a wildly successful, yet unidentifiable, version of an old Android build over the holiday . . . and making it a wild success. Of the the [sic] three, #1 was completely avoidable but the other two may just have been the name of the game when there is so much at stake in the fight of who paints the interface for the next generation of computing.

These changes mean challenges for the developers who now need to make some tough choices. Over the holidays a developer friend asked me which Android his startup should focus its energies on. Since his company is making apps focused primarily on the U.S. and European market, it makes no sense for him to start obsessing about Huawei or ZTE, at least in the near term. Motorola and HTC are slip-sliding away.

My answer to him was to go for Amazon’s (s AMZN) Kindle Fire for tablets and Samsung for the phones. Samsung and Amazon are both spending an incredible amount of advertising dollars to promote their platforms, and it makes perfect sense for small startups (depending on their regional focus) to tie their lot with them. Between those two platforms, he would be backing winners that would bring the highest return on investment for his little company.

That is, and will be, the reality of the Android ecosystem.

35 Responses to “Apple vs. Samsung and the reality of the Android ecosystem”

  1. The only things that are fragmenting the droid ecosystem now is every manufacturers determination to differentiate their versions of android from others with the addition of custom ui layers/ launchers & bloatware, all of which slow the system down, there already is a device specific pure android experience, called Cyanogenmod & you don’t need a new nexus to have it, Mr Malik has totally forgotten one thing, what developer communities are doing to drive the progress
    of the platform

  2. IDontKnow

    Dear Om,
    I like reading your articles.

    I understand that you have seen something fundamental in shifts which are happening and your series of articles on Sammy and Apple.

    Yes, currently Sammy is doing great at the cost of others (Sony(E), Moto, LG, HTC etc). I think NOKIA did the most for Sammy by not joining the Android bandwagon and deciding to go with MS. Samsung did the smartest thing, not to decide anything, just go on all roads and let the market decide.This strategy is paying high dividends now as market is always a better judge than few individuals in any company.
    Meaning, the 30% credit goes to Samsung(for being lucky and smart) and 70% to its competitors for being ultra stupid.

    However, in the current chain, i see Sammy as the weakest link (someone who can loose the most). Below are my reasons:

    1) Initially, all Sammy had to do was to follow something/someone(be it technology, numbers, innovation etc). It is very different when you are number 1. You have to define the targets and that is when bad bets/decisions are made and panic decisions to contain them. One example is digressing from being a technology company to Media/Content play.

    2) Silent entry of whole new breed of players which have ecosystem to develop anything in electronics at very low cost and fast pace. What Asus, Lenovo, Huawei (big ones) and 100s of small ones are capable of is only a guess, but if if anyone studies the numbers carefully, Sammy is not the only one eating market share.
    MTK based while label handsets sweeping the 2g market in just 3 yrs(what big vendors made in 10 yrs) is a sign of what small ODMs in CHINA are capable of. Its a matter of someone (like MTK or Qualcomm) giving them a ready off the shelf solution for Android and it will be a bloodbath again. Qualcomm and Google, both are helping here actively.

    3) Only if 2 of the top vendors get their act together( expected from Sony and one more), again they will start to regain some of the market share.

    I think the privilege market for big vendors is only available for 12 more months. After that, it will be a “all equal” game. Big vendors can continue to enjoy the operator dominiated markets but Asia and Africa will be taken by surprise.

  3. Om, I agree 100% with the advice you gave your friend— by far and away the two best horses to back of all the Android splinters are Fire and Samsung with the latter only caveated by the fact that Samsung has got two other OSes that are fully theirs (high end and low end).

  4. Samsung is setting up its own Samsung ecosystem, including selling media and now ads, basically competing with the Google ecosystem. Amazon is doing the same. And Sony looks to be moving more in that direction too.

    How will the remaining Tier 1 Android OEMs respond, especially as they lose market share and have a smaller and smaller customer base? Do some move more to Windows Phone 7?

  5. I’m there with you on Samsung, Huawei, and ZTE, but you lost me after that.

    The expanding manufacturing rift between Samsung and Apple is a huge opportunity. Google-Motorola *could* slip into the void, pair high quality hardware with vanilla Android 4.0. Suddenly, they’ve got a very compelling product line, potentially available at very low price point.

    Increase Motorola activity primes Google for a direct IP showdown (i.e., Android vs) with MS/others. This may be something Google may actually want (hardware manufacturers obviously would too). Google also added a couple of patents to their portfolio by acquiring Motorola too…

    Lastly, there seems to be an assumption that the Amazon Fire is a loss for Google, but I’ve yet to see any compelling evidence as to why it is any different than any other Android device. Presumably, Android isn’t turning a profit from name recognition. Why are the two mutually exclusive?

    Apple’s curated consumer is obviously still the prime target for most mobile app developers, but doesn’t the huge growth in emerging markets that you hint at undermine your conclusion?

  6. The reality of the Android ecosystem is that it’s Windows vs Mac all over again, and Apple loses again. Short-sighted Apple relegates
    itself to the rich people fashion trinket niche again, while Android offers the masses enormous choices in devices at different price levels. Irrelevant Apple is going to need all that money it’s been making to survive, since it’ll be Google’s turn to bail out Apple this time around. Actually, it’s the glass iPhone that splinters while the US Army Android-based GD300 smartphone-style device bounces. The Army
    went Android since it realized iPhone is crap.

    • I agree that there are some similarities, but it isn’t exactly like the Mac product line is hurting Apple. Even relegated to the enthusiast/affluent niche, Apple will still make tons of cash.

  7. Mohit Khurana, CFA

    Also – though Samsung is becoming the talk of the town with it’s Android high-end smart phones, here are a few things that I just do not like about it:

    1. The screen / touch is good, but the overall body and the ‘feel’ of the phone is still like a cheap phone. They HAVE to think about the overall aesthetics of the phone

    2. Though this is a very small thing, but ticks me off big time – they (…and now many more manufacturers) use Apple’s look and feel of the on-screen touch keyboard. Why can’t they think of their own and bring something new? And, if am not wrong, Apple has already sued them for this (correct?).

  8. Mohit Khurana, CFA

    Very nice analysis, Om.

    Even I am wondering if Amazon can make success a true story with it’s Kindle Fire, a feature-full mobile phone should not be a distant dream.


  9. Tom Bramwell

    Which android should they develop their app for? You mean you have to develop your app to work with a specific vendor? Why wouldn’t it work on all android smartphones? Seems awfully limiting. If that’s how android works, no wonder more developers prefer developing for iOS.

  10. The big question for me is if Amazon will jump in with a phone – as the Fire has readily shown, they have the power to upend the market with prices that no one else can compete with. They’re already threatening to dominate the market for non-iPad tablets, and the Fire is rumored to be a mere prelude to higher quality devices.

    They have the ability to deliver a phone and the incentive. They’re vying to become a user’s primary content gateway and phones are only going to become more critical in that regard.

    I agree that Android is going to be dominated by a juggernaut and a few low-end manufacturers, but I predict that Amazon will quickly become that juggernaut. Google needs to figure out how to get the reigns back or else Android will turn out to be one big charity project for Amazon.

    • James Bailey

      It isn’t clear to me what Amazon gains by creating a phone. The tablet makes sense since reading is going to move almost completely to ebooks in the near future. They have to make sure that they aren’t cut out by DRM and other monopolistic mechanisms.

      But a phone is a different proposition altogether. Do they create their own network? Buy T-Mobile maybe? Do they form partnerships with the carriers? Why would the carriers treat them as anything other than another Android phone. If the carriers are partners in the OHA, would they cooperate with Amazon who isn’t playing the Android sandbox?

      Unless there is some big win for Amazon that I’m not seeing, it doesn’t seem to make sense for them to jump into the phone market.

    • AdamChew

      I may be wrong the Amazon Fire allegedly sold well because they are cheap and not because they are state of the art.

      Btw can an Amazon phone really beat the Chinese phone makers in price and technology I beg to defer.

      • Yes, I mentioned that pricing is Amazon’s strength. And yes, Amazon can beat anyone because they’re selling their products *below* cost (they subsidize the device, then profit off of ads and content sales). Combine that with their top notch software and hardware engineering and a prominent brand name, and it’s almost unfair…

  11. christopherdorr

    This is the smartest analysis of the Android marketplace I have read in recent months, in part, because it delves beneath the surface of the usual Android vs Apple theme that dominates the discussion. And it gets to the level of handset manufacturers and what is really going on with them. Thanks!

  12. As to why choose between HTC and Samsung, why is Google enforcing a common theme for ICS if there is no problem?
    I think what we have not seen yet and what lurks around the corner is the platform battle, from hubs to voice integration. Can Google control it or drop the ball as they did with Android the “standalone” phone[1]?

    For everybody’s amusement MG on Android, the years Google turned into MS:

  13. Grafton Reed

    Great article. I think IP indemnification will play a major role in the profit equation. Feature driven Internet phones will be the norm, even in the Third World. But you didn’t address “who will by the apps.” A real cash cow for Apple, and the Third World is not a part of their market share. How do the other companies succeed at this?

  14. Why would a developer need to choose particular handset manufacturers to cater too? The handsets are not the OS platform for which the developer would be creating the apps for and further more Google will be slowing the fragmentation of the Android ecosystem with ICS.

  15. todd ward

    I would have to disagree on HTC going under but android is fragmented to many forms of android for developers to work with that is why ios has more fluent apps imo

    • Todd,

      HTC is going to feel the heat on both ends – I have been hearing from a lot of my industry sources and the Samsung juggernaut is just that – juggernaut. I would respectfully disagree with you on this one point.

      Thanks for the comment.

    • The more fluent apps hysterical more to do with the stricter SDK of iOS v Android. Rubin and Duarte need to drop the hammer on Android devs.

      Theres too much differential aesthetically between Android apps and that needs to change. Some recent apps are still ugly as sin despite how much nicer ICS is compared to 2.3. I think app aesthetics should evolve as well.

  16. Douglas McDonald

    I’m not convinced that Android (except Amazon) is so fragmented that you have to choose particular handset manufacturers. You need to explain that in more detail.

    • Douglas

      I think the pain being felt by developers with limited resources is real. I am pretty sure large companies such as Evernote don’t have to play favorites, but if you are a team with a few people and bootstrapping, you need to make the right bets.

      • Om, I love reading your posts and I feel this post has some very solid points that I agree with. Designers I have listen to or talked to all agree that it is easier to develop for the Apple ecosystem. But, that said, I think that of the 100,000’s of apps on each ecosystem, 90% of them are not worthy of paying for or retaining for any length of time in my device. Almost all of the apps that I love have gone the extra mile and have stepped away from the lazy design/programming to work on all Android and or iPhone devices. If a company should make an app and it takes off and starts selling millions of downloads then I would expect that that developer would work on improving and updating the app to work with all the current devices and one in the future. Doesn’t matter the device, manufacture, ecosystem, or the OS.

      • Robert Kozak

        I am a developer and there is no way I can recommend writing for Android yet. The fragmentation of handset (tablet) makers is a red herring. The actual problem is the fragmentation of Android OS versions. Do we write for Froyo? Gingerbread? Honeycomb? Ice Cream Sandwich? Last I heard ICS was on a total of 6%, Gingerbread on 55%, and Froyo on 30.4% of all Android devices with most phones and tablets not being upgraded. Of course, this will change over time but in my opinion, I don’t see manufacturers bending over backwards to provide an upgrade path when it is easier to sell their customers a new device. Android for the next year or two will be a moving target.

    • Greg Pettit

      Agreed with Doug and other commenters. Not one person who raises this “argument” has ever shown me where on the Android Market I need to go to get my “HTC-only” apps, or where someone might go for their “Samsung-only” app.