Android

Charles Arthur, writing for The Guardian, has noted that court filings seem to be revealing Google's Android revenues. If this is the case, we have a significant breakthrough in understanding the economics of Android and the overall mobile platform strategy of Google.

The new data is a reference to a settlement offer Google made to Oracle of $2.8 million and 0.515% of Android revenues on an ongoing basis. The key assumption to make this data useful is that the $2.8 million offer represents 0.515% of revenues to date.

In other words, that revenues from 2008 to end of 2011 multiplied by 0.00515 results in $2.8 million. That implies that revenues from 2008 to 2011 were $544 million.

I think that's a fair assumption. I don't see why Google would offer a higher or lower royalty rate for years 2008 through 2011 than for years after 2011. The offer would seem to be 0.0515% in the future as well as retroactively in the past.

If we work with this assumption then the next question is how to distribute this $544 million over the four years 2008 through 2011? The installed base of Android has grown exponentially and it would seem logical to assume that revenues have followed in a similar pattern. Here is a chart of installed base given activation data supplied by Google.

If we assume revenues were distributed the same way we would get something like this:

The sum of the bars in this chart equals $544 million and the ramp is approximately the same as the installed base. The relationship between the first graph and the second is a multiple equivalent to the revenue per device.

Therefore a second assumption is that revenue per device remained fairly constant. In this model the revenue comes out to be about $1.70 per device per year. It's possible that rev/dev/yr. is increasing as Google services are discovered by users. It's also possible that the rev/dev/yr. is decreasing as later adopters are less likely to engage as early users. I just don't know how to adjust this value so by leaving it at the average, I can avoid introducing more assumptions.

Now we can stop and look at this figure and do a test. Does $1.70 make sense as a device revenue for Android? Google had spoken about targeting $10/device/yr. but we have no indication that they are nearly at that level. If they did achieve that level, with an installed base of 300 million, Google could be collecting $3 billion a year in Android income. Are they getting it?

As of October, Google mentioned that it had a $2.5 billion "mobile run rate". But we know that this figure is not only from Android. Mobile includes all mobile devices and services including those running inside iOS, Symbian, BlackBerry, Windows Phone, etc.  They could be counting ads on all mobile browsers as well as ads running inside all apps on all platforms. Furthermore, Google also testified that iOS accounts for two thirds of their mobile search revenues[1].

Adding run rate to the Android revenue chart results in the following:

So the step is to take the "run rate" figure of $2.5 billion and assume, as Charles Arthur did, that iOS income is what is left after taking out the Android part[2]. I also noted that Google previously mentioned a run rate of $1 billion and I will assign that run rate to 2010 and $2.5b to all of 2011. Since we know the number of iOS devices in use for years 2010 and 2011 we can calculate Google's revenues per iOS device in use.

If we thus combine all the data we know (revenues derived from settlement offer, units in use, run rate and iOS installed base) we get the following revenue profile:

This shows a positive trend for Google: revenues per smartphone per year is increasing. However, the growth is coming from non-Android devices which means mostly iOS. Revenues per device for Android is probably declining.

The story for iOS revenues however is not all rosy for Google. Google has to pay for that revenue. The mechanism is a payment that Google makes to Apple for the prominent and default placement of Google search on Safari.

We don't know the terms of the arrangement but if we assume $2/device Google needs to shave $2 from the top of the chart above with that money going to Apple (attached as iPhone/iPad service revenues.)[3]

That still leaves a healthy $8.33 in 2011 as operating income from mobile with $1.70 or so coming from Android.

However, to make this operating income into bottom line profit, we have to extract the R&D and SG&A associated with mobile at Google. This would be, therefore, Andy Rubin's yearly budget.

Andy Rubin has stated in the past that Android is profitable. That is certainly believable. The budget would have to be about $400 million/year in 2011.

Charles Arthur concluded that Google obtains four times more revenue from iOS than from Android. My estimates indicate that in 2011 the revenue ratio was closer to 5 but if we subtract the cost of those sales in the form of payments to Apple then the ratio could well be four to one.

Many of these figures begin to "hang together" as we balance assumptions about costs, revenues and statements made in public. There is a consistency within a comfortable margin of error. If that is the case, then the economics of Android begins to take shape.

My take is that it's not a bad business. But it's also not a great one. As long as there is exponential growth in units, Android will improve its position inside Google relative to iOS. But from Google's perspective, iOS is today a bigger business. And iOS is not standing still. It's growing not only in terms of units but in revenue per unit.

Strategically, and historically Android was never one thing. P&L considerations were not the only (or even at all) factors in investment for Google. Having a hedge against hegemony of potential rivals, having a means to learn and develop new business and having a role in defining the post-PC computing paradigm are all probably bigger considerations than profitability.

So in terms of returns, Android is sustainable. However, in relative terms the value created leaves much to be desired. Whereas Android generates $1.70/device/year and thus an Android device with a two year life generates about $3.5 to Google over its life, Apple obtained $576.3 for each iOS device it sold in 2011[4]. The economics of Android are nothing like the economics of iOS.

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Notes:

1. This figure is also not conclusive as search is not the only form of revenue on a mobile device but it does imply that Android is not the majority of Google's mobile revenues.
2. Clearly this is overstating iOS as the non-Android income is broken up between several platforms. We can only say that iOS is the vast majority of non-Android income.
3. Assuming a $2/device payment model means Google paid $312 million to Apple in 2011 and $171 million in 2010. This would go toward boosting Apple's revenue per iOS device. Naturally, if this distribution cost is higher or would be subject to re-negotiation then it could vary widely.
4. The iOS figure includes accessories and licensing of trademarks but excludes income from App Store, iTunes music, movies, TV shows, iBooks, greeting cards or textbooks.

In terms of platforms, IDC expects a relatively dramatic shift between 2011 and 2016, with the once-dominant Windows on x86 platform, consisting of PCs running the Windows operating system on any x86-compatible CPU, slipping from a leading 35.9% share in 2011 down to 25.1% in 2016. The number of Android-based devices running on ARM CPUs, on the other hand, will grow modestly from 29.4% share in 2011 to a market-leading 31.1% share in 2016. Meanwhile, iOS-based devices will grow from 14.6% share in 2011 to 17.3% in 2016.

Via: IDC - Press Release - prUS23398412

The company provides a stacked bar chart (follow link above) to illustrate their view of the market. I took the data they included and measured the implied growth rates for the product categories:

IDC is implying that in four years the tablet market will be growing at 10%, the Smartphone market will grow at 11% and the PC category will grow at 11%. In other words, five years from now the PC market is expected to grow faster than the tablet market and just as fast as the smartphone market!

What's more remarkable is that this situation is not going to happen in four years. The slowdown in growth is actually expected much sooner. The growth rates two years from now are expected to be: Tablets 17%, Smartphones 15% and PC 10%. IDC is unequivocal: by 2014 the good times will come to an end to the post-PC challengers. These growth rates would be catastrophic for share prices and the value propositions of the new platforms to developers, partners and consumers.

What's more, these growth rates are striking not only because they predict a collapse in the value of most market challengers but that they also predict a strongly resilient PC market. How can we test this forecast?

I tried to reconcile this doomsday scenario with what is known about the components making up the data. I.e. what "bottom-up" data is IDC using? In the quote above, IDC offers some insight into this market participant data. Based on the category and share data they published it's possible to infer the following:

Bearing in mind that neither iOS nor Android existed five years ago, we can observe they are bigger together than the PC market. And yet, IDC predicts a compounded average yearly growth rate of 16.7% in Android, 19.4% in iOS and 7.5% in Windows between today and 2016.

In aggregate, IDC forecasts that in the next five years Android will not manage to double and that iOS will only increase by a factor of 2.4. Is this believable?

I try to stay away from long term forecasts, but I do maintain a short term forecast based on recent growth data. My forecasts for this year and next year are shown below.

I super-imposed my short-term forecast (outline bars) on IDC's long term forecast (solid bars) and a several differences become apparent.

First, my 2013 forecast is nearly the same as IDC's 2016 forecast. To see why we need to look at each platform separately.

Perhaps we might (with difficulty) agree on Microsoft's potential. I believe Windows 8 will have a catalyzing effect and that Microsoft will begin to see its platform grow again. However, my expectations are modest. To increase Windows sales rate by 100 million units/yr between 2013 and 2016 is possible but ambitious.

The real problem is that our Android and iOS forecasts are outside any zone of possible agreement. Maybe there is a difference in what we measure. For a hint, we seem to disagree on the number of Android devices shipped in 2011. I used Google's own reports of activations to work out the yearly shipment estimates. Perhaps IDC is including versions of Android that are not Google sanctioned.

We also disagree on the 2011 iOS figures. I obtained 156 from Apple's own reports. Again, perhaps the difference is the inclusion of the iPod in my case.

Nevertheless, the difference in the long term cannot be accounted for only through these categorization differences. I would put the cause of the difference down to the methods used in forecasting. As can be seen from the first chart above, IDC's growth rate reductions are extraordinarily steep. Perhaps the approach used by IDC was to forecast the overall market growth and then assignment of shares to participants. This can be called the "top-down" approach. In contrast, my approach is to forecast growth rates based on recent growth rates and moderating these rates gradually. This can be called the "bottom-up" approach.

My experience and all the data I've ever collected about historic disruptions tell me that the entrants tend to win these types of paradigm shifts. They win through a vast expansion of consumption and the recruitment of non-consumers. Markets tend to experience vast shifts in composition. If we believe this to be true then the bottom-up approach focused on entrants is likely to be more effective vis-a-vis the top-down approach of projecting steady state markets and the implicit assumption of incumbent share preservation.

I truly believe, and many others in the company believe, that there will come a day that the tablet market in units is larger than the PC market.

Tim Cook Discusses Q1 2012 Results - Earnings Call Transcript - Seeking Alpha

Question is when?

I began by projecting growth rates of various market participants including the leading Windows PC makers (HP, Acer, Dell, Lenovo and Asus), the combined "others" and the Mac. I also added the iPad, Samsung's tablets, other Google sanctioned Android tablets and Amazon. I also projected a split between traditional and tablet Windows shipments.

The underlying assumptions are:

1. Mac growth continues at 25% as it has on average for a few years
2. Windows grows slightly in 2012 with the introduction of Windows 8 late in the year. However I anticipate Windows 8, including tablet versions, to mostly be upgrades with slow enterprise take-up within this time frame.
3. The tablet versions of Windows begin shipping in Q4 2012 with 7% of total Windows shipped. The ratio reaches 20% by end of 2013.
4. iPad growth will flatten for '12 and '13 at 100%, similar to iPhone's historic performance.
5. Android tablet growth will be significant in the current year and follow iPad growth pattern though settling at 80% during '13.
6. Amazon growth will be approximately 80%.

Building the platforms combined growth bottom-up gives the following forecast for the next two years (and historic growth shown for perspective.)

[FF = form factor]

Given these assumptions, the day when the tablet market (by units) will exceed that of traditional PCs will come sometime in the fall of 2013.

As yesterday's post noted, the tablet market will be additive. This can be seen in the vendor shipments forecast that accompanies the model:

The latest data from Google shows that the Android activation rate is increasing at a relatively steady rate (i.e. acceleration is constant). The data provided so far is in the blue circles below. The green line is the interpolation and extrapolation of that data.

As the graph is projected forward we get an activation rate of one million per day by mid August of this year. If it continues then we could see 1.5 million per day by end of 2013.

The corresponding number of cumulative activations is shown on the following log chart (with blue circles showing the actual data and the green estimates.)

The forecast is therefore that Android activations will cross one billion by November 2013.

The following chart compares the growth ramps of the various mobile operating systems indexed from the same starting points (measured in quarters after launch).

If Android does keep accelerating at the same rate then it will reach a billion users in five years. Of course, this total will not be a unified ecosystem in that many versions of Android will be co-existing. There will also be additional variants of Android which will not include Google services (these are not included in the totals above) which will compete to some degree with this platform.

However, it's still an amazing story. The crucial question is whether the billion Android phones will have an effect on the opportunity for new entrants like Windows Phone and future BlackBerry variants as well as Bada and other Linux-based platforms.

The answer is that there will be well over 6 billion mobile "connections" by the end of 2013. ITU reports that "By the end of 2010, there will be an estimated 5.3 billion mobile cellular subscriptions worldwide, including 940 million subscriptions to 3G services." It follows then that if this forecast is correct then by the end of 2013, Android will have about 17% penetration of the connections market.

The global mobile OS market shares for Q4 shows a continuing (but diminished) leading share.

At the end of last year Android's unit share reached 51% which is down from about 57% during the third quarter. iOS reached 23%, followed by Symbian at 12%, RIM at 9%, Bada at 2.4%, Windows Phone at 1.6% and Other at 1%.

When seen on a year/year basis Android gained 18 points of share in Q4 while Symbian lost 18 points. iOS gained 6 points of share and RIM lost 6 points. Bada gained 2.5 points and Windows lost 1.5 points.

This symmetry can also be observed in another set of data. Published in The Guardian Kantar Worldpanel ComTech data shows the OS share changes for January on a year/year basis for a select set of countries.

Android share gains do seem to be mirrored by Symbian share losses on a country-level.

This should be most interesting to Nokia and Microsoft as both have a lot riding on Windows Phone replacing Symbian sales. If there should be a recovery in the fortunes of these companies, it would seem that their strategies should focus primarily on stemming and then reversing the losses to Android.

Microsoft's strategy of increasing the cost structure for Android through IP licensing is certainly part of this picture but it's a slow process to turn that disincentive for Android into a large incentive for Windows Phone.

Indeed, the speed with which Android handsets can be developed seems to be a key value of that operating system and one for which Microsoft does not have a good answer.  Nokia is now one year into its commitment to the Microsoft platform and it has a very limited portfolio to show for it (and limited sales as well.) As a result, Nokia's Symbian business evaporated very rapidly. More rapidly than the company anticipated.

The dilemma for other vendors may well be how long will it take for them to develop a replacement for their Android portfolio in Windows Phone.

The opportunity cost of this switch is subtle and insidious but may be the root of why we don't see a stampede toward Microsoft. Conversely, Android contract-free, implement-at-will availability may be its greatest selling point.

 

Thanks to Jeremy Reimer I was able to create the following view into the history of computer platforms.

I  added data from the smartphone industry, Apple and updated the PC industry figures with those from Gartner. Note the log scale.

The same information is available as an animation in the following video (Music by Nora Tagle):

httpv://www.youtube.com/watch?v=8h-C6u4yLj4

This data combines several "categories" of products and is not complete in that not all mobile phone platforms are represented. However, the zooming out  offers several possible observations into the state of the "personal computing" world as of today.

1. We cannot consider the iPad as a "niche". The absolute volume of units sold after less than two years is enough to place it within an order of magnitude of all PCs sold. We can also observe that it has a higher trajectory than the iPhone which became a disruptive force in itself. Compare these challengers to NeXT in 1991.
2. The "entrants" into personal computing, the iPad, iPhone and Android, have a combined volume that is higher than the PCs sold in the same period (358 million estimated iOS+Android vs. 336 million PCs excluding Macs in 2011.) The growth rate and the scale itself combine to make the entrants impossible to ignore.
3. There is a distinct grouping of platform options into three phases or eras. The first lasting from 1975 to 1991 was an era of rapid growth but also of multiple standards and experiments. It was typical of an industry in emergence. The personalization of computing brought about a new set of entrants. The second phase lasted between 1991 and 2007 and was characterized by a near monopoly of Microsoft, but, crucially one alternative platform did survive. The third phase can be seen as starting five years ago with the emergence of the iPhone and its derivatives. It has similarities to the first phase.

We can also look at the data through a slightly different view: market share. Share is a bit more subjective because we need to combine products in ways that are considered comparable (or competing).

First, this is a "traditionalist" view of the PC market as defined by Gartner and IDC, and excluding tablets and smartphones.

This view would imply that the PC market is not changing in any substantial way. Although the Mac platform is gaining share, there is no significant erosion in the power of the incumbent.

Second, is a view where the iPad is added to the traditionalist view.

This view is more alarming. Given the first chart, in order for the iPad to be significant, it would need to be "visible" for a market that already ships over 350 million units. And there it is. If counted, the iPad begins to show the first disruption in the status quo since 1991.

The third view is with the addition of iPhone and Android.

This last view corresponds to the data in the first graph (line chart). If iOS and Android are added as potential substitutions for personal computing, the share of PCs suddenly collapses to less than 50%. It also suggests much more collapse to come.

I will concede that this last view is extremist. It does not reflect a competition that exists in real life. However, I put this data together to show a historic pattern. Sometimes extremism is a better point of view than conservatism. Ignoring this view is very harmful as these not-good-enough computers will surely get better. A competitor that has no strategy to deal with this shift is likely to suffer the fate of those companies in the left side of the chart. Treating the first share chart as reality is surely much more dangerous than contemplating the third.

I've used anecdotes in the past to tell the story of the disruptive shift in the fortunes of computing incumbents and entrants. I've also shown how the entry of smart devices has disrupted the telecom world and caused a transfer of wealth away from the old guard.

The data shown here frames these anecdotes. The data is not the whole story but it solidifies what should be an intuition.

[Update]

Additional platforms added to the first chart.

 

The latest data from comScore MobiLens is showing an uncharacteristic slowing in smartphone growth. In the survey period ending November, the number of smartphone users in the US was 91.4 million. This is equivalent to 39.1% penetration, an increase of 0.6% (i.e. up from 38.5% in the last period.)

The growth is equivalent to 1.4 million new smartphone users (i.e. users who switched from a non-smart device for the first time.) The problem is that this is half the growth of the previous period. The following chart shows the growth as the weekly add rate.

As you can see, the growth has fallen to a level not seen since 2010. The cause may be seasonal as last November was also a slow month. I added a three month moving average which shows that although there seems to be seasonality, the last period did not show the peak of previous periods.

To better understand what happened, I looked at the performance by platform. The following chart shows the net user gains by platform.

What appears immediately is that Android growth was the primary cause of a change in the pattern. The iPhone grew slightly more slowly sequentially but the difference between November and previous periods is not great (941k adds vs. an average of 904k over the previous 12 months.) BlackBerry moderated its losses and Windows is quite a small influence on the market.

Android gain was 1.2 million vs a trailing twelve months' average of 2.24 million. Android's slowing in the US is significant.

We also have access to additional data from Google themselves. We had an update that showed that by late November there were 200 million Android devices activated. We also had an update from mid October of 190 million activations. That makes the increase in activations of at least 10 million during the same period that comScore was measuring the US.

comScore's increase in Android users of 1.2 million then becomes even more interesting. It implies that the US consumers were responsible for no more than 12% of Android activations in the November time frame.

Furthermore we can derive from comScore's data the total devices in use in the US by platform: the figure for Android is 42.9 million (46.9% of 91.4 million smartphones in use). By the end of November, the total activations from Android adds up to about 204 million. Excluding some devices which may be out of use, we can estimate that about 20% of all active Android phones are in use in the US. Conversely 80% of Android devices are in use outside the US.

This means that the US share of Android activations is decreasing. From a cumulative average of 20% to a recent 12%.

So the mystery of what caused the slowing in Android (and hence in all smartphones) in the US remains. Seasonal effects would affect all platforms equally and that is not the case. I'm not comfortable ascribing a cause until we hear more evidence and the pattern is more established. But something does seem to be happening.

[Update: The source data is available here. Note:  multiple tabs.]

The following chart shows the reported (circled points) and estimated (lines) for Android activations. The resolution of the sampling is every seven days.

If we take these estimates and then compile a cumulative total of activations we get the green line in the chart below.

The wrinkle in the picture is that Google also occasionally reports cumulative estimates of total Android shipped. They are shown as the blue circles in the chart above. There is some room for error as the cumulative totals may not be reported the same day they happen and the assumptions in the activation rates may not be reflecting occasional slowing.

However that leads to a problem. By adjusting for the reported totals we get the orange line. The trouble with it is that it has these improbable "kinks" where the total is adjusted down, something that is not happening in reality. It's a kludge we need to make estimates fit reality. Normally, this is something we can sweep under the carpet, but with the size of the market, the errors creep up to tens of millions of unitis.

The first downward adjustment would have been 19 million in May. Today, the difference between the green line and the orange is about 25 million.

So the best we can say right now is that there have been between 224 and 253 million Android devices activated to date. Why Google does not report this data regularly and consistently remains a mystery.

Update: The data used in the charts above is available as a Google Docs spreadsheet here.

Here are the highlights from RIM's latest quarter:

• 14.1 million BlackBerry smartphones shipped, 13 million sold through
• 150k PlayBook shipped with sell-through slightly higher. 800k PlayBooks shipped so far.
• BlackBerry subscriber base up to 75 million
• High growth cited for U.K., France, South Africa, Mexico and Argentina, Indonesia, Saudi Arabia and South Africa. RIM is the #1 smartphone vendor in the Latin America and Caribbean region. Sales outside the US, UK and Canada were 61% of revenues. US is now 20% of sales, UK 11%.
• Hardware growth outside the US was 56%
• There are 630 carriers
• 50k apps in App World with 5 million downloads per day
• Forecasting 11 to 12 million smartphones next quarter

Given the channel fill with a new product, the device business was marginal at best. The company obtained -1% growth y/y in units but 31% sequential growth from a transitional quarter. The average selling price (inclusive of service revenues) is $354 and about $280 excluding service revenues. I estimate that operating margins have dropped to about 11%. Not a good story, but one we have been warned to expect.

But a crucial new twist to the story is that RIM announced that they don't expect new BlackBerry 10 devices until late next year. That came as a surprise and the stock sold off significantly, valuing the company at well below book value.

Stepping back, the biggest surprise is that the company seems to have had no plan for sustaining itself.

Let me explain.

If you go back to 2005 or so the world of smartphones was a mix of modular OSs and integrated platforms, much as it is today.  Not unlike Android today, Windows Mobile was successful in licensing to dozens of vendors who in turn released hundreds of products. Symbian also was licensed but most volumes came from Nokia and they held the lion's share. Then there was the BlackBerry integrated solution which worked smoothly and had devoted fans who upgraded every chance they had and operators who were joyous at the new ARPU. There was also PalmOS as offered by PalmSource trying to be a "third horse" and unseat stodgy old Microsoft.

It was into that fray that both Apple and Google jumped. Google acquired Android in 2005 and Apple was busy polishing a version of OS X that would became iOS. In three and two years respectively these platforms would be in the market.

Regardless of the actions of rivals, all competitors must have faced the same questions in 2005: As technology was changing rapidly and as they all had access to component roadmaps, what is the best technology approach to this market? Should they embrace certain innovations to sustain their business trajectory? RIM had a tightly integrated software, hardware and service offering. What could make it better? Nokia was also basing its products on a more loosely integrated offering (nominally it was modular, but only just). It saw the writing on the wall and began developing a Linux variant (Maemo) as a potential candidate to replace Symbian. Microsoft was basing its solution of a modular approach. Windows CE was ok as a kernel but they had layers on top which were optimized around stylus-based user experiences (analogous to mouse actions). Could it take on a rich computing experience?

There were many experience candidates. Stylus, keypad, keyboard all had adherents. There was a lot of hesitation. After the iPhone launched with capacitive (finger) touch, resetting user expectations, it still took a year for many of the vendors to re-consider their technology plans. The weakest changed first.

Microsoft felt the pain quickest. They also had the least to lose since revenues from Windows Mobile were paltry. By 2008 internally they turned 90 degrees. They embarked on re-building their user experience and orphaning the Windows Mobile ecosystem and many of the vendor relationships they had built. Palm dropped PalmOS and built WebOS internally quite quickly. They licensed Windows Mobile as a stop-gap. Around the same time Nokia doubled down on Maemo and joined with Intel to form MeeGo. They did not orphan Symbian though and kept trying to adapt it to the new experiences and input methods.

But RIM did nothing. Almost nothing. They were the healthiest competitor. They felt no pain from iPhone's entry. The platform they had built was still growing and they were tweaking it constantly. There were always improvements to point to but fundamentally the code was limited. It was very difficult to adapt it to touch input and the first attempts at a touch UI were embarrassing. But there were no signs of a new platform that reflected the Unix-like competition.

As I pointed out in an earlier post, Unix-like operating systems were having their revenge. To a computer scientist the future of mobile computing would mirror that of personal computing in terms of architecture. The foundations of the early smartphones were built on constraints that were disappearing while being unable to accommodate new input methods. In other words, the early efforts were optimized around those constraints and sub-optimal for rich user experiences. They had to be. There were limited processors, memories and screens and battery life.

It turned out that all the early mobile operating systems were unsuitable for the advances in technology that came after 2007. Companies which were able to adapt or embrace Unix-like operating systems in a mobile context gained the ability to grow with the new input methods. The sooner they "pulled the trigger" on the shift, the better off they were. This is in fact what enabled entrants to gain footholds. Entrants entered with Unix-like OSs straight away while incumbents had to justify changing and the more successful they were the harder it was to justify changing.

RIM had trouble justifying this change. It waited until 2010 to finally acquire the QNX asset that would offer them a stronger software foundation.  It still had to adapt this acquisition and it looks like it won't be done until at least 2012, seven years after they should have started. And this should be seen as a sustaining technological change. A new OS is not a disruptive technology to what is already a mobile computer.

However, delays like these can be fatal. We see the impact on Microsoft who was earliest to push the reset button in 2008. It still took two years to rebuild Windows Mobile into Windows Phone and is now still struggling to regain lost share (less than 2% today). We see the impact on Nokia which was unable to affect a transition to MeeGo due to a litany of issues and had to throw in the towel on self-determination. We see the impact on Palm which lost its independence as WebOS was a bit too little too late.

These companies had the right technical strategies but suffered from execution and business architecture issues. RIM is years late in embracing what appears to be a sustaining improvement.

But whenever you see what appears to be a coordinated effort by companies to fail simultaneously you have to ask if the change they struggle with is really sustaining or disruptive. The pattern makes me suspicious that what RIM, Microsoft, Palm and Nokia faced was more than a failure to embrace a sustaining improvement. I suspect that the failure is evidence of tectonic shifting of business models.

Before diving into the answer to the question in the title, there is some new data to digest.

The latest from comScore shows consistency with the previous months of smartphone growth in the US.

• The growth rate was 607k/wk new-to-smartphone users. This is slightly down from 654k/wk for the previous month but up significantly from 450k/wk the year before.
• The penetration of smartphones reached 38.5% (non-smartphones are at 62%)
• The penetration should reach 50% before September 2012 with about 1.2% being converted every month.

The following chart shows the weekly add rate with a three-period moving average:

This chart is important in that it should first show signs of inflection in growth. That does not seem to be happening yet.

The installed base by platforms is shown below:

Android is estimated to have grown to 41.7 million users in the US, adding 2.5 million users in the last month. Android is adding half of Microsoft's entire US mobile base every month.

RIM BlackBerry lost one million users in October. RIM's slide has accelerated again with over 3.7 million leaving the platform in the last six month. With 15.5 million subscribers, RIM has fewer users in the US today than it did in late 2009.

iPhone gained 1.34 million. Installed share increased slightly to 28% from 27.4% the previous month. There are now over 25 million iPhone users (above age 13) in the US.

Windows Mobile/Phone had no perceptible change (-34k) indicating perhaps that the losses in Windows Mobile are being erased by gains in Windows Phone. Microsoft's platform stopped losing significant users six months ago. Whereas the bleeding has been stopped, overall number of users remains at a rather poor 5 million or 5.4% share.

"Other" which includes Symbian and WebOS lost another 184k users to reach only 2.7 million users.

There are still 144 million smartphone non-consumers.

Android and iPhone now make up nearly three quarters of all smartphone ownership in the US. That's a total of 67 million users. With no sign of slowing, the chances are that there are at least 100 million users still remaining to convert. Sounds like an attractive target. But that target is shrinking fast. The rates of adoption signal saturation of most likely buyers will happen toward the end of next year.

At least 25 million new Android users will be gained and at least 10 million new iPhone users will be created in the next 12 months. That's 35% of remaining non-consumption. Assuming some acceleration, it's not hard to see 50% being claimed by the two entrenched incumbents.

This leads to an interesting positioning question. Is Windows Phone destined to compete with consumption or non-consumption? If traction is not forthcoming in the next 12 months, that leaves a very difficult last 50 million available as non-consumers. They are more difficult as they will be late adopters and perhaps more price sensitive and less motivated by features.

Windows Phone still has quite a bit of opportunity outside the US, but in the US (and in Europe which is not much different) the competition will increasingly be with rival incumbencies not with non-consumption. As the custodians of the Windows franchise, Microsoft should be well aware of the inherent difficulties with competing with installed platforms.

It has no price and hence there are no ways markets can signal demand or value creation. Furthermore, Android is not being offered to users like the iPhone. Android's "customers" are phone vendors who package the software with additional value-added hardware and sell the combination to operators or distributors who then package it further with services and offer the total to end users.

So obviously, comparisons between Android and iPhone center on instances of Android used in real products and the "market performance" of Android therefore relies on these proxies for Android — the aggregate sum of products that have some form of Android in use.

I wrote this in response to a very short brief: "We're looking for an editorial piece that comes down on either side of the debate of iPhone vs. Android". The challenge I saw was on the approach to the question of "iPhone vs. Android". I chose to measure value creation by the means available to shareholders.

Read more here: Horace Dediu Android Vs. iPhone on BusinessInsider.com

[I am posting this here in the hope that comments will accrue to this forum as well.]