The Android model is failing

This falls in the realm of big news no one is talking about but if you look at the Smartphone market the only company that is making money, and they are making a ton of it, is Apple. Basically we have one massively profitable company making Smartphones and a bunch of other firms that are increasing financial distress mostly on the Android platform. Yes Google is successful but their revenue is still mostly coming from their traditional sources.

I think it is time to talk about the fact that the Android eco-system is sick and largely because Android continues to be a poor clone of iOS. But even the app vendors just don’t seem to be able to pull the same kind of revenue from Android as they do from iOS.

Let’s talk about why.

No Clear Customer/OEM Hierarchy

Apple is tightly coupled and they are very focused on the final customer experience. This is because their revenue comes from that customer and if their customer buys something else it will be financially painful. Google gives Android away for free. This means the OEMs and end users have no leverage, Google instead focuses on advertisers so their focus is to mind more effective ways to get information about its users to advertisers and they seem to just look at Apple for product guidance.

It is kind of funny in that a lot of the OEMs used to complain about Microsoft being unresponsive until they worked with Google and saw how bad it could really get. This is because, as bad as Microsoft was (and they’ve apparently gotten a lot better) the fact that the OEMs paid them set a floor that they just couldn’t go below with regard to engagement but without the financial incentive Google has found a new floor and it is well below where anyone else has ever seen it.

Now Google could go around the OEMs to the customers and focus on them tightly but to Google the customer is the product that they sell to advertisers. You don’t ask the product what it wants, you ask the customer what they want and all advertisers want is more and more information on us and more effective ways to mine us for money. That’s very different from Apple’s focus.

Given this; it isn’t surprising Apple is doing better, what is kind of surprising Android continues to sell against it at all. I’ve actually never seen a product with this little customer focus do this well which, I think, showcases what a good example Apple sets and how good Google is copying them. But this isn’t a money making strategy.

Marketing

With the exception of a short term spike by Samsung, when they actually too share from Apple, there isn’t enough marketing funding to drive demand for Android. Part of Microsoft’s model was to kick back a large chunk of change earmarked for marketing to make sure the OEMs actually had money to market their products. But if you basically have the same ARM hardware and the OS is free so the OEMs compete on price which drops their margins to zero leaving no money for demand generation.

We saw how big an impact a huge marketing budget could have with Samsung but they couldn’t sustain it because there phones just didn’t have the margins. They took a ton of market share from Apple short term largely by outspending Apple significantly and Google could certainly afford to market at Apple’s levels but, because they don’t make money from Android either (basically it is a cost center to them) they aren’t funding the necessary marketing either.

Wrapping Up: The Android Model Is Failing

The problem with Android comes from its roots. It was designed to be a clone of iOS which ceded market leadership to Apple because you can’t be a clone and lead. Because their goal was to create something that mined users and fed advertisers the user and OEM focus has been too low and there has been little or no money available for marketing either from Google or the OEMs. The end result is that Android is failing while Apple’s financial performance continues to significantly increase.

That’s a model failure and the reason behind the decline of the Android OEMs.

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Rob Enderle

President and Principal Analyst at Enderle Group

As President and Principal Analyst of the Enderle Group, Rob provides regional and global companies with guidance in how to create credible dialogue with the market, target customer needs, create new business opportunities, anticipate technology changes, select vendors and products, and practice zero dollar marketing. For over 20 years Rob has worked for and with companies like Microsoft, HP, IBM, Dell, Toshiba, Gateway, Sony, USAA, Texas Instruments, AMD, Intel, Credit Suisse First Boston, ROLM, and Siemens.

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