In a tongue-and-cheek article, John Kirk (on his blog Tech Opinions) diligently explains the competing market decisions made by Google and Apple. He attempts (and in my opinion succeeds) in explaining how Android handset activation - despite outshining Apple in sheer numbers - does not necessarily result in a higher level of profitability.
The article is lengthly, and he uses many figures and indexes to illustrate his arguments. Kirk makes many points - many of which could be applied to other sectors of the technology market.
He outlines the pros and cons of the "platform business model," as defined by Wikipedia: “[a] computing platform includes a hardware architecture and a software framework…where the combination allows software to run. … A platform might be simply defined as a place to launch software."
The advantage of a platform business model is that once the platform is established, others do much of the work to make the platform valuable... Once it’s set up, the vendors do most of the work. The platform provider benefits either by taking rents or by taking a commission from each sale or by using their access to the customers gathered by the marketplace in order to sell some complementary product or service of their own
In economics, the "Network Effect" is used to describe the benefits of having a greater marketshare. The larger the number of users, the more users of that network benefit. A common example is the telephone (meaning the landline). Each person who joins the telephone network by purchasing a phone, inadvertently adds value to the network.
In the context of the Android vs iOS debate, Kirk argues there is a common misunderstanding when interpreting the network effect, as it does not universally apply to all technologies.
- Market share alone creates the network effect;
- Android has market share; therefore
- Developers, profits and all other benefits associated with the network effect MUST necessarily follow where Android's market share leads.
Not true, according to Kirk. He differentiates between mobile phone owners' presence and participation , and argues that we cannot measure success simply by how many phones are purchased.
It is fairly easy to simply add up all of the mobile phone sales and activations for a particular operating system. It is also fairly meaningless. The trick is to discern how much those mobile phone owners are participating and the value that their participation brings to the network.
Most mobile computing industry observers are measuring the wrong thing, the wrong way: Android can count more customers than iOS can, but they don’t count for much. The ranks of Apple’s iOS owners are filled with credit card carrying cash cows. As a result, Apple’s platform profits are udderly enormous. The ranks of Google’s Android activations are a lot less cash cow and a lot more Bull. It’s hard to milk a Bull. Dangerous too.
Kirk goes on to evaluate mobile platforms by examining their health, wealth, and stealth, and outlines the tradeoffs of the "open vs closed" business approaches. Most importantly, Kirk goes to great lengths not to side with either platform, but rather criticizes the overall debate.
(John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach.)