Android

comScore reports that US smartphone penetration has decisively crossed over 50% in August. This should not come as a surprise as the penetration rate has been very linear.

Now that we've crossed this milestone, the thing to watch is the conversion rate from smartphone non-consumption to smartphone consumption.

The reason is that we don't know what "saturation" means in smartphones. We can assume it's at least 80% as about 80% of new phones being purchased are smartphones. What we don't know is how much above 80% it can be. It could  be 100% if feature phones simply stop being made but we can't be sure if there will be latent demand and how long this will last (similar to the market for black-and-white TVs after Color became commonplace).

To help keep an eye on this measure, the following graph shows the rate at which non-smart to smart conversion is happening.

It measures the addition of new (to smart) subs each week in a particular measurement period (three months ending the month shown on the x-axis). There is also a 3 period moving average shown as a line. Keep in mind that this shows net new users and therefore excludes smartphone switchers. It's a good measure of how rapidly non-consumers are being converted to consumers.

The data shows that there are as many first time smartphone adoptions in late 2012 as there were in late 2010. Or, the new-to-smart users are joining ecosystems just as quickly when penetration is 50% as when it was 20%. An encouraging situation when considering the opportunity space above 50%. The "S-curve" has not reached an inflection point.

If you're thinking about growth, so far so good. There is however one surprise in the data.

All the growth in the last 24 months (between 2010 and present) was due to Android and iOS. Android added 50 million and iOS added 26 million in the last 24 months. The net smartphone user additions were about 60 million (RIM lost about 12 million, Windows lost 1.5 million and others lost 2.6 million). Android therefore has gained twice as many users as iOS has in this two-year period. Put another way, Android captured 70% of the growth and iOS captured 30% of the growth.

However, if we look at the last 12 months, the split is 23.5 million for Android and 17.0 million for iOS. Android gained 58% of the growth and Apple captured 42%--a change in "spread" from 40 points to 16 in favor of Android.

The evidence also shows itself in the trajectory of platform market shares of installed base.

In the last six months, Android share growth is slowing while iOS is still gaining.

If this trend continues then the next 50% may not behave as one might expect (namely that late adopters would take the low-cost commodity offering accelerating Android adoption.) Late adopters may, in fact, be choosier than early adopters. And it's not at the cost of overall growth. Late adopters are still converting at the same rate of the early adopters.

Therefore, paradoxically, the late market shows that the prospect for iOS growth seems strong. Furthermore, as we do reach saturation, perhaps in another three years, the secular growth may end in the US but the loyalty of iOS usage may give iOS another advantage in a market where growth is determined by "platform churn"

The US is the crucible of the phone market in many ways so what happens in the US may be a harbinger for what happens world-wide.

[The following was originally published on LinkedIn.]

The US is in the forefront of smartphone usage. This has not always been the case. Five years ago only 3 percent of US phone users were using a smartphone, lower than the global average. At the time Palm and BlackBerry were the prominent devices in the US while in Europe Nokia's push with Symbian and Microsoft's licensing of Windows Mobile led to a smartphone adoption rate of about 7%.

All that changed with the iPhone. After 2007 the US began to rapidly catch up and eventually overtook all other regions in terms of smartphone adoption. The latest data from comScore Mobilens shows that the US is now effectively 50% penetrated. The following chart shows just how quickly this happened.

Image (media01.linkedin.com)

In December 2009 only 17% of Americans used a smartphone as their primary phone. As of August the total reached 49.8%. By today the US is effectively a majority smartphone usage country and it looks like there is no slowing. We might very well see the US reach saturation with 80% smartphone usage in another two years.

Of course, the US is not the first country to reach this threshold. Some northern European countries were there earlier, but North America is the first major region to get there. That means over 115 million smartphone users in one market. As a result, the US has become the crucible of the whole smartphone market. It's where platforms are most concentrated in use and therefore the most sensitive to the effects of that usage. That leads to more innovation, more discovery of new use cases and more ecosystem growth. Quite simply, it's where competition is most heated.

This prominent position implies that the US could now be seen as a leading indicator of global trends. It might allow a keen observer to predict what will happen from US data. So what does the mobile platform rivalry look like in the US?  We are fortunate because the data is finely grained in the US. We have montly updates from comScore and we get specific platform penetration data. The following graph shows the shares of the major platforms since late 2009.

Image (media01.linkedin.com)

It becomes immediately evident that BlackBerry has lost a huge part of its user base to Android and iOS. In 2.5 years share when from about 42% to 8%. In raw numbers that's 11 million users that switched to another smartphone.

Looking closer you can also see a consistent growth in share for the iPhone since mid 2010 with a slightly higher rate of increase of share than Android in the last few months. The problem is that this pattern of rapid decline in RIM and moderating growth in Android is not necessarily mirrored globally.

RIM just reported an increase in total users during the last quarter (from 78 to 80 million subscribers.) Google also recently reported 500 million Android activations globally with no apparently letup in growth.

So there seems to once again be a disparity between the US and global platforms. Do we take the US market to be anomalous or is it a pre-cursor to global trends?

Certainly the US market is in many ways unique with a very low rate of pre-paid usage and a relatively high ARPU and average device pricing due to subsidies. However, the global trend has been to increasingly mirror the US not vice-versa. The iPhone has radiated out of the US in terms of usage and so has Android. Attempts by other platforms to make inroads in the US have been unsuccessful. Symbian failed to gain a foothold and it seems Windows Phone is stumbling as well. Both of these platforms have had more success outside the US. The US operator subsidy model has also been "exported" more than pre-paid has been "imported". By 2007 Europe was moving away from subsidies as prices of feature phones were coming down and 3G was still in its infancy. That was reversed as the large screen smartphones became the device of choice. In addition to device and operator trends, most apps originate in the US and the major social media platforms are all American-based. In other words, the modes of usage are being conceived in the US.

On the other hand, the US is still a tiny percent of total consumption. It represents only about 6% of all phone users. Chances are that prices for devices in the US (especially the iPhone) can't be sustained for 5 billion consumers. Then there are "cultural" considerations where regions cling to their own usage habits and perceptions of value.

So it's still an open question of whether the US is the leading indicator for how platforms might change globally but I would watch this data very carefully. When it comes to mobile platforms, it might be that if it plays in the US it will play globally.

On October 5th, 2011 I asked Why is there no iPhone 5? The question was prompted by the pervasive media surprise that the 2011 iPhone launch was the "4S" and not a completely new design.

I answered this question with the conclusion that an iPhone "5" in 2011 would over-serve the market by offering more than most buyers would be looking for. That was because there could only be three groups of users the iPhone 4S would need to target: existing iPhone users, smartphone non-consumers and non-iPhone smartphone users. The majority of iPhone users in late 2011 who would be willing to upgrade were iPhone 3 or 3GS users and for them the 4S would be a huge improvement. Non-consumers would find the 4S attractive, as they would any iPhone; and existing smartphone users (mainly Android) would still be in their first contract and not likely to be looking to upgrade. Given the conditions at the time, the 4S was an adequate fit with customer expectations.

I wrote "The question will be very different a year from now when most early Android buyers will be looking for a new phone and when most iPhone 4 users (all 70 million of them) will be looking for a new iPhone. That would seem like a good time to introduce a new iPhone '5'."

It is now a year hence and we can consider how these same three targeted user groups see the new iPhone:

Read the rest of the post here: Why iPhone 5? | LinkedIn.

(Note: you can also follow me on LinkedIn now).

Matteo Fumagalli is a student of economics at University of Insubria, Italy. He is writing a thesis for a bachelor's degree analyzing the smartphone industry.

He asked me to answer the following questions:

-First question is about you. Why did you found Asymco?

I founded the company to develop software, mainly apps. I began writing the blog as a way to drive traffic to the site. I would have preferred to build a blog only but did not think it was possible to earn any money doing that so I treated it as a hobby. Even after the site became more visible I changed from development to consulting and did not expect that writing in itself could be self-sustaining. It took about two years before I felt comfortable with the idea that I could do writing and speaking exclusively. I am still exploring additional business models however.

-You worked 8 years as analyst and business development manager at Nokia and you anticipated their current crisis with your first post on Asymco. Do you think Nokia will have the chance to recuperate, and eventually what will be the role of Windows Phone?

Nokia may recover or remain independent, at least. But it will be far smaller. The idea of a return to dominance or 40% share seems very unlikely. As I pointed out in the first post, the organization cannot cope with the new marketplace. Large organizations require extreme stress and damage to change. It's a phenomenon at all levels of society that success results in rigidity. From the individual to the nation to the civilization, success makes change very, very difficult.

Windows Phone is an attempt to create a third ecosystem. I am concerned that the logic of having a third alternative is not solving a consumer need but an operator need. In other words, consumers are not asking for a third option and when they are presented with a third option they are not excited by it. The consumer does not think in terms of increasing their options. They decide once every two years which phone to buy and that is the end of their thinking on the subject. By focusing on the operator's needs the platform is fundamentally mis-positioned.

What Windows Phone needs to be positioned as is either as fundamentally different, solving a different job for the consumer. Or fundamentally better along a new dimension like price or convenience. These are some of the claims it makes but they are very weak claims right now.

-What about RIM, other company which is going through difficult times? What do you think about their decision not to move to Android and stake everything on their closed OS?

The decision to remain with their own platform may sound risky but it's a simple decision about retaining their business model. RIM is not a general-purpose manufacturer. They have always made an incremental margin on services, messaging and email. For them to use a third party OS would force them to build within the constraints of that OS or platform. That would result in a difficult competitive environment and not one where the company could sustain margins vs. larger competitors. In other words, the company faced two risky alternatives. They chose the risk they were more familiar with or the one that they already had an operating company organized for.

-Recently Apple lost market share in Europe and China favoring Android. What will be the impact of iPhone5 on this situation? As expert of Apple strategy, do you think Apple has done something wrong in these last months?

Apple lost market share when considering the smartphone market. I agree with management (and I've argued this before they did) that the market for the iPhone is all phones, not just smartphones. In that context, Apple is increasing its share consistently. Since Apple has only one product in the market (with some residual older versions as well), it's very seasonal. It would be natural to see variance in share through the year. What should be watched is a four period average performance. Overall, Apple is growing its iPhone business faster than the overall phone market so it follows that its share is increasing. I see a long-term potential for the iPhone having 20% share of all phones. That would give it an installed base of over 1 billion users.

-Smartphone penetration is reaching 60% and we probably talk about saturation in next 2 years. What will be for you the future role of tablets and phablets, they will be threaths of substitution for smartphone or maybe an opportunity to offer complementary products?

The evidence so far is that buyers don't mind having more than one device. It makes sense if each device is hired for a different job and it cannot be general purpose enough. We've seen this phenomenon with mobile phones where penetration in many markets is above 100%. That implies that even a basic feature like a phone number cannot serve all the needs on one person. To me it seems likely that one person will have more than one device and more than one form factor.

-What do you think about legal battle between Apple and Samsung? There will be consequences also for Google and Android?

I defer to my blog post Deus Ex Machina. Legal battles are not strategy.

-What will be the role of the possible entry of Amazon in the smartphone industry? It's too late for them?

Amazon is a retailer. I find it hard seeing a retailer becoming a platform provider. Not only is retail a difficult to expand business model internationally, but it's hard to imagine partners being comfortable building an ecosystem on top of retail. Retail is not sufficiently flexible as a business model.

``It’s costly and has unpredictable consequences. That makes it a very bad business model. I suppose both companies have agendas that are not visible in court and perhaps Apple is signaling to other parties, and perhaps Samsung is using it to raise its profile. It still seems that unintended consequences may arise and the result could be very bad for everybody,’’ said Horace Dediu, founder of equity-research firm Asymco, in an e-mail interview with The Korea Times.

The above was a quote from the article  Samsung can’t afford to lose Apple fight by Yoo-chul Kim from The Korea Times. Yoo-chul contacted me via email with a series of questions. I want to share all his questions and my answers as well:

Samsung wides market gap with Apple, according to research firms. You think the gap will further be widen and please tell me why

As Samsung converts its phone portfolio to be all smartphones, it is very likely to reach much higher smartphone volumes. One year ago Samsung sold about 56 million feature phones. Last quarter it sold about 43 million. The smartphone portion increased from 20 million to 50 million. At the same time, Apple has maintained a growth in its smartphone business of about 100% on a yearly basis. I expect that to continue into 2013 as well. Therefore it's possible that Samsung could sell 290 million smartphones in the next 12 months and Apple could sell about 200 million in the same time frame.

However, it's important to understand that the companies compete on different bases. What I mean is that what generates a profit (i.e. payment by the consumer above what a product costs) is different for each company. Apple is a platform company that sells access to the iOS ecosystem across many other device types. Samsung sells consumer electronics with limited "network effects" but desirable features. In this view, the gap in device sales is "asymmetric" and not reflective of the actual competition which is between Google's Android and Apple's iOS as forms of access.

Samsung's rapid rises mainly due to the company's heady dependence
on Google Android. If Google applies better software for Motorola,
then you think Samsung will face difficulties?

Think of Google as a supplier to Samsung. No manufacturer wants to have a situation where they are dependent on only one supplier, especially when there are huge substitution costs for another supplier. And even more especially if that supplier owns one of your competitors. However, it's unlikely that Motorola will become a strong competitor to Samsung. I also don't expect Google will damage their OEM "customers" by favoring Motorola. Motorola can't become big enough quickly enough to be a threat to Samsung. What is more likely to be a problem for Samsung is ZTE and Huawei. They are on the same trajectory that Samsung was on 10 years ago. For Samsung to beat them in the future it will need to develop products that nobody can copy.

How about software? Samsung is good to roll out price competitive
models, however, software is always problem. Any advice for this
issue?

Software is hard and expertise can't be quickly acquired. It takes time. Only advice [I have] is that efforts must be patient and there need to be many experiments like Bada and Tizen. Google started with Android in 2005 and Apple started with iOS in 2003 or 2004.

How about the patent dispute with Apple and Samsung. The patent war
is helping Samsung see a rise in its brand awareness and that also
worked for Samsung to grab more shares in smartphones?

It's very difficult to measure the impact of litigation, both in the positive and negative. It's costly and has unpredictable consequences. That makes it a very bad "business model". I suppose both companies have agendas that are not visible in court and, perhaps, Apple is signaling to other parties and perhaps Samsung is using it to raise its profile. It still seems that unintended consequences may arise and the result could be very bad for everybody.

Samsung wants to become a market creator not just a fast follower.
For me, it's quite negative for Samsung to create a wholly-new
eco-systems because Samsung's edges are coming from manufacturing, not creative thinking. What do you think? If Samsung wants to be a
creator, what conditions should Samsung need and what things should
the company do?

Unfortunately, manufacturing excellence is not enough to remain successful long term. US companies were successful, then the Japanese, Taiwanese, Hong Kong, and now Chinese. Companies either adapt or become irrelevant. Building ecosystems is the new basis of competition but it's not the only option. Unfortunately we don't know what will be necessary to build the next basis. What matters is experimentation and the building of new businesses. I can't offer specific recommendations as there is no recipe book for how to create new markets.

For your views, who is much better so far since the trial has begun
in the US. Samsung or Apple?

I cannot comment on this. Performance in court can only be judged by those present and I'm sure everybody present disagrees.

You think Apple is enjoying its so-called a homeground advantage
for the trial and is there any possibility that the issue to go for
the highest court in the US. My Samsung contacts say that's the
possibility, though.

Again, I don't have an opinion on legal matters. Broadly speaking, IP litigation is similar to playing the lottery.

Need your perspectives about Google's support for Samsung. Google
confirms its supports for Samsung for an united front against Apple
because the fight between Samsung and Apple is a kind of version that
represents Google and Apple fight.
Any comments about that?

I believe Google does support Samsung. I question however how this relationship will develop over time. I attached below commentary from a researcher at Deutsche Bank on Android in China. I think it has some clues about how Google treats its partners.

What are pre-conditions before Samsung making an action to sign a
peace treaty with Apple?

It depends on the motives behind Apple's actions. I think they want to see a "no copying" rule. They don't mind competition and Android could be a help in the long run by moving users from feature phones to basic smartphones which could later be upgraded to Apple phones. But what I think they want is to signal to others that direct copying is unacceptable. Essentially, the work of their designers is very important to them and copying destroys [the designers'] incentives to do breakthrough products.

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See also: Who Cares If Samsung Copied Apple? by James Allworth - Harvard Business Review

The second quarter showed continuing growth for Android with 19 points of share growth from a year ago. Only Windows Phone showed a gain y/y in share up 1.6 points to about 3%. In the same time, Bada lost half a point, iOS lost 2.1 points, RIM lost 7.2, Symbian 11.4.

The result is shown in the graph below:

I also show a "before-and-after" pair of pie charts which show the difference in smartphone platform market share from the same quarter three years ago. Android went from 3% share to 67% while Symbian went from 41% to 4% and RIM went from 19% to 5%. iOS increased its share from 13% to 17%.

If this trend continues Android could reach 50% of all phones sold in a few years. That's a run rate of 200 million per quarter. And it's likely that 100 million of those will be shipped by Chinese vendors.

However, looking at the global picture can also miss some important trends in local markets. Had one looked at the global smartphone business in 2005, the conclusion would have been that Symbian would be the dominant platform in perpetuity.

What affected the global market was a change in the US: the launch of iOS and thereafter of Android. The US, a smartphone backwater until then, became the most vibrant market and today it's the most penetrated and has the highest ratio of smart to non-smart of any of the major regions.

The curious thing about this vast market is that it's still not truly open. There are technology and political reasons why some platforms are permitted to sell in one region or not. The iPhone is not available on either the largest Chinese operator or on the largest Japanese one. It's largely absent from India because of distribution (i.e. subsidy) and much of South America. Even in the US, the iPhone is still, after five years, not available on one of the top four operators and has only reached another less than a year ago.

What intrigues me is what would the market look like if distribution were not an issue. What if there was equal choice to all buyers. We can't test this question directly but we can ask. But there is some pattern we can look at in the US data. Thanks to recent revelations at the Samsung vs. Apple trial we can see the effect of increasing distribution in the US.

The data on smartphone market share by carrier can be blended with data from carriers about iPhone activations (which are a proxy for sales, see note below) to give a more precise figure of market share in markets where iPhone participates.

For example, when the iPhone was only available on AT&T, one could measure iPhone market share vs. the global smartphone market, or the US smartphone market or within AT&T alone. Some assumed that the AT&T share would be reduced once the product would become available on Verizon or other US carriers. However there was no appreciable drop. Share in Q4 2010 was 63% at AT&T and it was 63% a year later after the iPhone was available for four quarters at Verizon.

So the share of iPhone within those operators which carry it tells a story independent of distribution.

The following graph shows the share of the iPhone vs. Samsung in the market defined by its availability. (I.e. the volumes of smartphones sold by AT&T throughout the time period, Verizon Q1 2011 to end and Sprint in Q4 '11).

The share of iPhone thus defined shows a slight decline but it's an overall number that is remarkably resilient as distribution increases and is remarkably high overall. Note that globally, the iPhone gets only about 17% share of smartphones--a value that has not varied greatly since mid 2009.

So at least in the US, on carriers where it's available, the iPhone is holding on to a significant share. In a global market it's expanding distribution but not yet covering the world. As a consequence it's keeping up with overall market growth and staying between 17% and 20% share.

The big question is what will happen if and when its availability matches that of Android in terms of points of sale. Or even that of BlackBerry or Symbian. Is America a different market from the rest of the world? It was different in being isolated while Symbian roamed globally. It was different in being a launch platform for BlackBerry and then iOS and then Android. But now that iPhone is beginning to be widely available there, will it be exceptional in how it rewards Apple?

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Note:

1. Activations data can be seen next to Apple's testimony of US sales in the following graph. Note that more phones were sold by Apple than were activated in total of the life of the product. 86 million sold and 80 million activated. This implies that an analysis based on activations undercounts the iPhone. 

Samsung has been selling smartphones for a relatively short time. Although the company sold Windows Mobile, Linux and PalmOS during the last decade, it did not gain significant volumes until it began selling Android phones in 2010 with strong operator support.

That support was substantial in the US. The company crashed the Android party in mid 2010 with its Galaxy brand. Trial evidence reveals that the sales level for Galaxy S1 series phones burst out of the gate taking Samsung from 90k units to 2.5 million units in one quarter.

The following graph shows the unit shipments recorded by Samsung for a set of US smartphones.

Note that the profile of sales volume shows a cyclicality with respect to product launches. Each new generation overlaps with previous generations and "fills in" while the older generation product tails off in sales. This is standard portfolio strategy. It also shows the cycle time of launches is approximately four quarters. As the S1 was four quarters old, the SII launched and the SIII follows after four quarters of SII.

What is surprising is that the overall sales volume is not growing. At least for the products catalogued (which exclude the Note) growth for the last four quarters has been: 5%, 34%, 31%, -53%. These are in stark contrast to the iPhone pattern shown in the outline bars behind Samsung's.

The iPhone ramped slowly in 2007 and 2008 and has been showing remarkable generational growth.

Perhaps it's still early and Samsung SIII product will ramp up as the contemporary iPhones do, but if it doesn't we have entertain the possibility that the iPhone does not compete along the same basis.

What does it mean to compete on a different basis?

The basis of competition is the aspect of an offering for which a customer is willing to pay a premium price. It's hard to know (or to put your finger on) what the basis actually is, but we can test whether it's the same by measuring whether two products capture prices the same way. If one product that seems to resemble another can obtain price advantage consistently, then perhaps it's being bought for a different reason.

To test this, I produced the following chart showing the prices that Samsung's phones have been able to capture through their lifetimes; and the same for the iPhone.

 

I've narrowed the analysis to the first four quarters and summarized the price erosion across all the products as well:

 

[Note: iPhone 4S, Skyrocket, T-Mobile Galaxy SII showing only three quarters]

As mentioned, it's still early perhaps, but the pattern for the iPhone has been different.

Samsung's pattern is not unusual. I've seen similar pattern for almost all Nokia products. Prices drop. It's a standard industry phenomenon.

Therefore the question is not perhaps what is Samsung's basis of competition: it's the same as the overall phone industry. The question is what is the basis of competition for the iPhone.

According to data from comScore, in the past 24 months 50 million Americans became Android phone users. In the same time frame Apple added 24 million iPhone users. As I mentioned in my Asymmetric Competition post, it would be unwise to consider this data in isolation. Consider the following graph showing the net change in users in the US.

Android and iPhone grew mostly at the expense of non-smart users. The BlackBerry lost 8.1 million users and all the others only lost about 4.5 million.

With penetration at 50% it's still impressive that there is so little "churn" between platforms. In fact, measuring churn as the net platform user loss as a percent of all smartphone users, we get something less than 1% per month.

The smartphone competition is still primarily with non-consumption.

That will change at some point when smartphone penetration (shown below) will begin to saturate. The basis of competition will have to shift from converting non-smart users to converting users of other platforms while maintaining one's own user base.

The market has not experienced this sort of rivalry on a wide scale. The defections of BlackBerry and Symbian users are relatively rare events.

Thanks to Angel Lamuno for sending me to a dry and boring lecture by Dr. Israel Kirzner from Feburary 1988. It got me thinking again about competition and how confusing it can be.

The lecture was in part about how the word "competition" is used by economists with directly opposing meaning from that of the layman and how that leads to confusion about the role of free markets.

I won't dwell on that, but instead I want to explain how this word can also be contradictory in meaning when applied in everyday usage in business analysis. Nowhere is this more evident than when we argue whether Apple competes with X or Y or Z.

Does Apple compete with Android or Google or Samsung? How could Apple compete with Google and yet cause it to be the default search engine in Safari thus enriching their competitors? How could Apple compete with Samsung and yet select their semiconductors for the heart of its most important and profitable product? And how could the people across the table from Apple agree to terms on these deals while being sued by them?

Some have tried to characterize this situation as "coopetition" or the co-habitation of conflicting strategies for a balanced optimum. I find this characterization uncomfortable and unsatisfying. The balance sought will be very fragile and change daily and no optimization is practically possible. It seems contrived.

Rather, I think about these situations as examples of asymmetric competition. This is competition where companies are rivals but they have different definitions of the basis of competition. In a way, they are like gladiators who have weapons which cannot be brought to bear or wielded effectively to counter the opponent's.

Consider the following question: does the iPhone compete with the Galaxy SIII? Well, obviously it does. The products have similar attributes. If we define competition as rivalry in a market for similar products then, by default, they compete.

But what about non-consumption? What if there aren't enough of either product to go around and people cannot actually face a purchase decision where both products are in front of them at the same time, under identical terms and conditions, waiting for a purchase to be made.

It gets worse. What if there are network effects related to each product such as brand loyalty, platform switching costs, media and data tied to either one that make them impossible to switch? What if advertising spending is skewing the buyer's knowledge of competing products?

If a product is unavailable, invisible or requires burdensome switching, does it really compete? When these exceptions are raised, you'll hear people say that Apple (or Samsung) don't compete with X or Y. They compete with themselves or with products outside the category. There may be many ways of rationalizing that  what appear to be similar products don't compete because of "differentiation" or "positioning".

In fact, jobs-to-be-done theory suggests that the only successful competition is against non-consumption, especially if you're an entrant. Non-consumption is easy to beat (because the alternative is no solution to the job) while an entrenched incumbent is very difficult to beat, and it's often inefficient to even try even if you have the resources. This is what I describe in talks as the "David vs. Goliath" approach vis-à-vis the "Charge of the Light Brigade" approach.

So the theory that competition exists on the de-facto basis of a similar feature set fails a whole series of tests in the real world. Consumers decide based on complex criteria and businesses actually conspire to make the choices as complex as possible reducing the decision to a single option.

But I want to step back and think about the situation from the competitors' point of view. In other words, how should management think about competition? Is it possible to develop a competitive strategy or should one even bother with competitive response?

Let's take a basic question: Does Apple think of Samsung as a competitor? When did it begin to think about it as such? What can it do to win?

Let me answer this by asking another hypothetical question. Assume it's 2008 and Apple is in the process of planning its product roadmap. Whom would they decide to count as competitors? Android devices have not yet shipped and the gorilla in the space is the BlackBerry with Symbian still overhanging the market with a huge volume lead. Should they then build products to compete with RIM and Nokia?

Assume further that their decision will define how developers will build apps and content makers will target your product. They have to account for the time scales that developers think about and they have to match hardware innovation to the rate of OS innovation and API innovation and toolchain innovation, etc.

So did Apple consider Samsung a competitor in 2008? A time when Samsung did not actually make smartphones? It seems hard to believe they did. Now you may answer that things have changed since 2008 and they have. But the decisions made in 2008 regarding the platform remain in place today.

Furthermore if you happen to look at the dozens of hardware designs that are making the rounds today (as evidence for a trial with Samsung) you'll see familiar designs first penned in 2004 or 2006. You quickly realize that the product design process is lengthy and largely isolated from the froth of main street (or mall) sales fistfights.

Few people appreciate the disconnect between the design process and competition. This because few people have spent time in an organization building mass market consumer phones. The time scales are staggering. If your product is a platform product you make decisions six years in advance. If you are a "fast follower" you can make decisions six months in advance. This is maddening, asymmetric competition.

One competitor sees one basis of competition and another sees it completely differently or sees a completely different basis. They are competing with each other but more as a guerrilla fighter competes with a nuclear missile.

Which brings me to another discipline. In military circles asymmetry has been noted as a valid form of warfare for some time. At least since 1975. It was in use long before it was recognized or studied, (e.g. in the American Revolution.) But the situation now exists where it's taken for granted that modern conflicts are almost always asymmetric. Drones vs. insurgents and citizens vs. armor and, the most sinister of all, unarmed-but-tightly-integrated-through-communication protest against established regimes. The impact of this realization is affecting governments around the world.

So it's time to elevate our thinking about business competition along the same lines. Yes, Apple competes with Samsung but it does so asymmetrically (as it does against Google and dozens of others). It's a multi-dimensional rivalry and one which requires a different form of analysis. It is something which I do instinctively but it's not something that is easily explained. Disruption theory helps. It turns out that asymmetric competition is the only form of competition that matters in a rapidly disrupting industry.

It is also why this site is called Asymco.

A year ago I noted that Apple could buy most of the mobile phone industry with cash on hand (excluding Samsung's operations).

Since then Apple's cash has grown significantly and the value of all phone vendors except Samsung has gone down significantly. The following chart shows the year ago and present day estimated market value of the industry participants.

Phone brands other than Samsung and iPhone have seen a reduction in market value of a combined 47%. That's actually being quite generous since I'm valuing Motorola and Sony's businesses at their acquisition prices. The operations of both those companies have continued to stagnate.

Based on the same multiple of estimated earnings Samsung grew its value by 157% and iPhone by 114% (note this excludes iPad).

In absolute terms the iPhone franchise created $244 billion in value while Samsung created $83 billion. The others destroyed $37 billion.

The good news is that the industry has had net value creation--always a healthy sign that innovation is being valued and absorbed.

The bad news is that there is vast income inequality. The rich are getting richer and the poor are getting destitute. This is an unhealthy sign. The concentration of power and wealth may indicate a peaking of experimentation and discovery of new opportunities.

Also noteworthy is that almost all the value from the Android ecosystem is concentrated in Samsung. I did not include Google in this analysis since its mobile is so small as to be not visible in its accounting. A separate analysis of Android economics shows that Google's benefit from the platform is modest. In contrast, Samsung, and Samsung alone, is benefitting greatly. It could even be said that today Samsung is the only Android profit engine.

According to comScore, as of end of May,  the ratio of consumer phone users in the US (aged more than 13) who use smartphones as their primary phone has reached 47%.

The question is whether this is reaching saturation. My guess has been that saturation will be at levels well above 80%. The data shows that during May the rate of smartphone adoption (first time users) was 630k/week. This number is a good recovery to above the historic mean indicative that saturation is not yet in effect.

50% penetration will happen this summer. A year ago the predicted "tipping point" date was also the same: August 2012.

The platform shares data is also returning to a historic consistency. A month ago I asked if there was "trouble with the robot"  because Android net adds dropped to a level unseen for two years and the decline in net adds had been going on for four months.

This last report shows a recovery in Android net adds to about 1.5 million new users.

[Note here too that there is no sign of saturation: The net user gains are far above net user losses. Even BlackBerry showed a gain. In a market where there is saturation, net gains and losses among platforms would balance each other out.]

In terms of share, Android shows two months of no growth. The following charts show the history of platforms in terms of share and actual units in area and line charts.

I'd say the jury is still out on whether Android has "peaked" in the US. Globally, the rate of additions seems to still be increasing but in the US we might be seeing the effect of upgrades as many first time Android buyers are reaching the end of their contracts. iPhone and Android "purchase rates" are already at parity but the install base might take some time to converge.

With half the population still not using smartphones, there is still headroom for the platforms, but the inter-platform dynamics are becoming very interesting.