iPhone versus Android and a little economics

At the end of our discussion, we will look at how the iPhone [“came]{dir=”rtl”} to rule the world,” focusing primarily on the numbers and economics of this phenomenon.

At first glance, the success of the iPhone was not as difficult as that of the iPod. If we look at any graph of iPhone sales, we see steady, uninterrupted, steep growth. There are no hesitations, as with the iPod, no slow sales growth that only breaks with the introduction of the groundbreaking iPod Mini. However, there is also no dominance like Apple experienced with the iPod, which at one point controlled over 90% of the digital music market, even after taking into account the influence of players in mobile phones.

Image: Number of units sold

If we look at the graph, we can see that iPhone sales are growing with only occasional fluctuations. What causes these fluctuations? Without exception, they are always caused by anticipation of a new model, i.e., the moment when users suspect that, thanks to the regular introduction of new models, a new model will soon be on the market that will probably offer much more for the same price. And since Apple releases new models shortly after their announcement, this strategy pays off for users. We can therefore always see a drop in sales when a new model is expected, as customers postpone their purchases.

At the beginning of iPhone sales, we can also see how much the phone benefited from a $200 price reduction. In retrospect, it was a brilliant move by Jobs to shift the phone from the luxury level, where many potential buyers would consider whether it would bring them sufficient value, to the level of choice, where there is no need to hesitate. Apple’s risk of lowering the price paid off, and it didn’t take long to confirm how good a move it was, but the question is whether something like this could happen in a normally functioning company where Jobs’ opinion does not essentially reign supreme. It is clear that the price reduction was something that significantly helped the phone spread among people, and its availability (we are talking about the US market, not ours!) was part of a good user experience.

Image: Apple’s quarterly earnings

Caption: Note that the iPhone now accounts for more than half of Apple’s impressive revenues. In contrast, the often-mentioned software and music sales are marginal, merely complementing the ecosystem and giving users a reason to buy iPhones. Computer sales also no longer have the influence they once had and have been overtaken by the iPad.

Image: Rough margin on Apple products

Caption: Even in terms of gross margin, the iPhone’s position among all Apple products is currently unshakeable. The rapidly growing iPad is also evident. With these figures, is it too bold to say that Apple is primarily a mobile company?

Apple’s position vis-à-vis Google’s Android is often discussed with great excitement. It must be said that we can still expect many surprises; it will be an exciting battle that we can watch live. And as is usually the case with such contests, each of the competing sides has its staunch supporters and opponents, both sides being able and willing, upon request (and often without it), to list a number of arguments in favor of their side’s victory and a number of fundamental mistakes made by the other side.

But that’s not the case. It’s not a war where there’s only one winner—or more precisely, it shouldn’t be, if it’s to benefit users, i.e., us. At first glance, Android and iOS are very similar mobile operating systems, based on similar technological foundations, but their philosophical backgrounds are completely different. Where Google embraces self-regulatory community mechanisms, Apple enforces its own vision and precise rules. Where Google leaves users free to choose and also requires them to configure and customize many things, Apple guides users and does not allow them to do much.

This is due to a different approach, which has its pros and cons. We have already said that in the case of both approaches, there are external corrective measures that actually bring the two approaches closer together in the end. While Apple will remove a political comic from the App Store as unacceptable criticism, user criticism will force it to return it and apologize to the developers. While Google allows developers to add their software to the Market with false descriptions and subversive features without checking, it is able to respond to negative feedback and remove the software fairly quickly. The result is very similar in both cases: both companies are aware of the limits of their model and are willing to adjust it flexibly according to the market situation, although even that has its limits. For example, Apple still does not allow pornographic apps and content in the App Store and iBookStore, but if developers want to sell it under their own brand from their e-shop, they can supply erotic literature on the iOS platform. However, pornographic apps are not allowed, and Apple has repeatedly made it clear that it has no interest in changing this rule. Porn magnates are then left with the option of

On the other hand, you can create pornographic apps on Android, and there are even a number of specialized stores for pornographic apps for Android, but their developers don’t make nearly as much money on them as they would on the iPhone, so Apple’s strict ban goes against their grain. In this regard, however, there are a number of indications that Apple will relax this strict rule—but again in a sophisticated way, namely by introducing age verification. Until now, Apple has cited the fact that children should not have access to pornography as the main reason for the ban, and at present, this is not easily solvable in the digital world. And the iOS platform is still very single-user, meaning that phones and tablets have the same settings for whoever is holding them at the moment. And parents’ tablets in particular are often occupied by children. Apple is therefore working on a system where logging into a phone or tablet will be done via Apple ID, settings and restrictions will be updated from iCloud, and children’s accounts controlled by parents will simply not have adult content, while adult accounts will have greater freedom. These settings will also include the option to set spending limits for children in the App Store via their parents’ credit card, i.e., to allocate something like digital pocket money. However, there is still a long way to go, and we are only mentioning it in passing to give you an idea of how difficult and time-consuming it can be to create a good systemic solution to a problem.

The advantage of the battle between the Android and iOS operating systems for users is the constant inspiration it brings. It is likely that if Apple had not competed with Google and seen entering the search engine market as one of the ways to fight its rival, Siri would not exist as a voice interface. And since Apple’s interest in this area inspires others, Google and Microsoft are suddenly interested in it too, even though both companies had previously scaled back their activities in this direction: Google with Aardvark, and Microsoft with PowerSet, which it bought in 2008 for $100 million.

Similarly, on the other side, we can see the consequences for Google. It is well aware of its strengths, such as maps and navigation software for Android, which the company is developing strongly. In this case, it is not just about map data, but above all about deeper data analysis that Google is able to obtain from Android-equipped mobile phones, whether it be surrounding WiFi networks, base stations, or even traffic intensity estimated by smart algorithms based on the speed of phone movement. Navigation included in the price, together with the traffic layer, which, incidentally, already works in Czechia, is an important factor for many users when deciding to choose Android, as evidenced by Nokia, which heavily promotes navigation in Symbian phones as a key competitive advantage. And the fact that navigation in Nokia phones with Windows Phone 7 is poor and unfinished is perceived as a significant handicap.

Neither side of the battle line is sleeping. While Google is working hard on its voice interface for phones and a number of other features where Apple is ahead, Apple is investing in areas where Google is pulling ahead. Maps, as mentioned earlier, are an example of how Apple is catching up with the runaway train.

Maps have been a standard feature of the iPhone since its first version and have been very popular from the outset. Apple representatives occasionally and randomly admit that Maps is one of the most used applications, which is reflected in the attention it receives. However, after Apple fell out with Google, it became uncomfortable to use the maps of its main competitor. Yes, gone are the days when Microsoft was the main competitor. So Apple began to invest heavily in developing its own maps, just as it decided to build its own navigation system. It is behind schedule, but it knows it. And it is using the weapons it has learned to use over the last ten years, primarily investment in experienced development teams. In June 2009, Apple bought the American company Placebase, a relatively small startup founded in 2001 and focused on creating map applications. The one that is at least somewhat known to the public is PushPin, which was an API interface to map data that, at a time when Google Maps had no API, was the only decent means for companies to cheaply connect their own data to maps. However, Placebase’s data was never among the best, which the company explained by the cost of the project. In 2009, there was considerable doubt that Apple would be able to quickly launch its own map application based on this service, although there was no doubt that Apple was capable of investing a considerable amount in map data.

When Apple released the iOS 3.2 update in April 2010, it turned out that it was already relying on its own database for location services, no longer using Google and Skyhook’s database, but its own, which it had quietly built up. Later, it also became apparent that, like Google, Apple was using iOS devices to collect traffic data, i.e., information about how fast a device was moving on the road and in which direction. It therefore appears that Apple is trying to build the same service that Google offers, but so far it has not offered it or confirmed it.

In the summer of 2010, Apple again purchased the Canadian company Poly9, which focuses on web maps and expanding their capabilities, for an undisclosed amount. The company’s product is (was) Poly9 Globe, a 3D geolocation data viewer used by a number of companies such as Sany, Skype, and LinkedIn, and the company also developed interfaces for a number of companies including Apple, Microsoft, and Yahoo. A year later, in the summer of 2011, Apple acquired C3 Technologies, a company focused on creating 3D maps, shortly after Nokia introduced an extension of its 3D maps based on C3 technology. Steven Elop, the head of Nokia, must have been delighted that shortly after the company received praise in the newspapers for its beautiful new 3D Ovi Maps, Apple bought the entire company behind them. However, since the introduction of these maps, there has been no further expansion.

The acquisition of three companies gave Apple enough underlying technologies: both APIs and presentation interfaces, as well as the ability to process 3D data. It helped build a large team secured by billions of dollars from Apple’s budget. However, by the beginning of 2012, no results of the work were publicly visible, and Apple Maps still does not exist, which is making all map and navigation companies around the world nervous. This means that something big is in the works, but very little is known about what it is.

The patents that Apple files can provide some guidance, but they appear with a certain delay. For example, in 2011, a patent for Schematic Maps appeared, registered to Apple, with Placebase founders Jaron Waldman and Moran Ben-David listed as the inventors. It is a concept for an application that displays essential information for finding your way in a simplified mode. It is not a full version of the map, but a map with useful information to help you find your way—important intersections, even if you are driving straight through them, landmarks, and, of course, turns. Several companies, such as MapBlast, have attempted a similar concept in the past, but Microsoft bought it in 2002 and eventually canceled the project.

Image: Schematic_maps

Caption: A sketch of the Schematic Maps application from Apple’s patent application gives us a rough idea of what it’s about, but patent applications tend to be schematic rather than showing the precise appearance of the application. So we don’t really know anything about Apple’s map strategy.

What Apple’s map project will ultimately turn out to be is uncertain, but if we dream big, it could be an interesting navigation option with real, smooth views of your surroundings, so you don’t see the turn in a map sketch, but directly in a real view of the surroundings, similar to what StreetView uses in Android navigation, only smoothly, not in jumps, all complemented by navigation around detours and calculating options based on the traffic situation. We can only dream, but Apple has all the necessary technology at its disposal, and if its subsidiary C3 is busy capturing images, the launch of the service in Europe and the US may not be far off.

Be that as it may, Google and Apple are strong sources of inspiration for each other, with Apple seemingly leading the way in terms of interface and user control customization, while Google is pushing forward with service technology. The example of maps shows that while Google (still on good terms with Apple) comes up with the technology, it is Apple that “simplifies” it—adapting it into a form that people are willing to use. While the first Google mobile maps were terrible, they quickly adopted the interface from Apple Maps, which was built on Google’s foundation, and subsequently incorporated it into Android.

Inspiration from other sources is much less obvious. It often happens that a smaller company comes up with an interesting concept or solution, but Apple, even though it would like the solution for its customers and users, cannot use it because the small concept does not address scalability to tens of millions of users. We showed in the case of Dropbox that it would not make sense for Apple to buy this company because it would have to rebuild the service from the ground up anyway, and Jobs had been dreaming about this concept for a long time, so the company did not even commit mental theft of ideas. It just had to wait until it was able to technologically refine the solution so that it could withstand the onslaught of users. And these are completely different procedures than those that are appropriate or sufficient for small solutions. That is why Apple, when it acquires a software company, primarily uses its team and often discards its product. From 2000 to early 2012, Apple acquired a total of 25 companies, three of which were technology companies specializing in processor design (P. A. Semi and Intrinsity) and flash memory chips (Anobit). The rest are software companies whose teams became the basis for corporate development—for example, the acquisition of Australia’s Proximity in 2006 was behind the development of the simple and user-friendly video editing software iMovie, and Emagic in 2002 was behind the development of the music software GarageBand.

Even less likely is the possibility of inspiration from other mobile operating systems, such as Microsoft’s WP or HP’s webOS. Apple has a relatively clear vision of the direction it wants to take with iOS, and it is clear that it is taking all steps to realize this vision gradually and thoughtfully. The only company capable of keeping up is Google; the others are essentially just following this duo. At one point, developments around webOS looked interesting, but it has now been dissolved into open source, underfunded and without any direction.

In practice, there has been no case of another company stealing an idea from Apple that Apple employees had not thought of and that would become popular in the mobile systems environment. The difficulties are more related to implementation, as there needs to be a certain convergence of software requirements with hardware performance and mobility criteria, especially battery requirements. A good example of this is facial recognition for unlocking phones, which Google introduced in late 2011 in its Android 4 Ice Cream Sandwich version. However, it soon became apparent that this protection could be overcome with a simple photograph.

Apple is also working on similar technology. In September 2010, it bought the Swedish company Polar Rose for an exceptionally confirmed $29 million. Polar Rose specializes in face detection and recognition, and its technology soon improved face detection and focusing in the iPhone photo app, offered sorting in the iPhoto desktop app, and is to be the basis for visual detection of iOS device users. This could detect device users and set up their profiles or restrict access to private data stored on their phones, but this is just speculation.

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iPhone versus Android and a little economics

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