Global Smartphone sales in 2015 skyrocketed beating all the projections and estimation and iPhone has played a key role in the massive growth. Despite all the recent doom and gloom surrounding the future of the iPhone, one fact that cannot be denied is that iPhones have had a stellar holiday season clocking in their best 4th calendar quarter ever. A recent report by Kantar substantiates those figures as the numbers reveal that Apple Inc. (NASDAQ:AAPL) has managed to finish as the top smartphone brand in both US and China for Q4 2015. As the market leader among smartphone OEMs in two of the world’s most mature smartphone markets, one might wonder if Apple has anything to be worried about.
A closer look at the numbers indicates that Apple has troubled waters ahead. In the smartphone segment, Apple’s iOS, has slid down 8.6 percent points from a YoY basis in the home country, finishing Q4 2015 at 39.1% compared to 47.7% of Q4 2014. The worrying signs for Apple do not just stop there. While Apple as a hardware vendor, has done admirably in terms of sales figures, iOS vs. Android as an ecosystem paints a sorry picture especially, when it comes to smartphone market share. With Apple struggling hard to hold its iOS smartphone (iPhone) market share in most markets compared to 2014, the only light at the end of the tunnel is China. Apple has been able to increase their market share in China by 5.6% YoY and iPhones constitute the top three models of smartphones sold in urban China. With companies like Huawei and Xiaomi of the Android camp barking at its heels, is it going to be enough for Apple? Or, will an Android OEM manage to topple iOS and grab Apple’s crown. Stick with us as we try to find out!
Apple Wins the Battle Of OEMs, Android the War Among OS-s
One of the most interesting facts that are highlighted by the Kantar quarterly report, is the distinction between Apple as a hardware and smartphone vendor and iOS as one of the two OSs, that rule the smartphone industry. While there has been an increase in the smartphone OS sales market shares for Apple in every five major geographical regions in the report, what has been disappointing to see is, iOS losing ground to Android in all but one region in terms of a YoY basis. That provides us the perfect segway to take a closer look at what Android has been able to accomplish as an OS for the 4th Quarter of 2015.
Android Showing Strong Growth Across the Board: China and Japan Show Signs of Worry
Last year has been a mixed year for Android in general. Amidst reports of behemoths in the Android world like Samsung pulling out of the smartphone game and companies like Le Eco making a name for themselves in emerging markets, it’s been a roller-coaster ride, to say the least. Turning our attention to the numbers, Android has lost some ground in all the key markets when compared to the last quarter.
However, Q4 doesn’t provide a very accurate description of Android’s performance as, this quarter includes the release of the new iPhones and hence, Android numbers tend to be typically low as Apple fans go on a buying spree. This year we see pretty much the same thing happening with drop off percentage points in the matured markets of US and China being at 6.8% and 6% respectively over the previous quarter. The worst hit, however, came from Japan where Android lost 16.3% QoQ to end 2015 with 44.4% market share, the worst performance yet, in the 2015 calendar year.
It wasn’t all bad news for Android, though. Looking at the long-term perspective, we find that Android has improved its market share in most of the major geographical regions, except China and Japan, on a rolling 12-month basis. Android made its presence felt in Europe with a YoY increase of 4.9% in market share from Q4 2014 to Q4 2015. Driving sales for Android in the price conscious markets of Europe, are brands like ZTE, Huawei and others, especially in countries like Italy and Spain. In fact, one of the most significant achievement of Android was to record a YoY growth in Great Britain, courtesy of brands like Huawei, Samsung and LG. Speaking of Huawei, the OEM managed to grab the second spot in China with 34% of Android sales, leaving the second placed Xiaomi 10 percentage points behind. However, the Chinese market belonged squarely to iOS, a fact we will expand on in the next paragraph.
Apple Tames The Chinese Dragon, Fails To Lure New Customer to iOS
The holiday season has always been the best season for Apple and Q4 2015 continued the trend for Apple with iOS gaining market share in all major geographic regions, with the release of the new iPhones 6s and 6s Plus. Amidst all, the QoQ growth figures lurks a much more dismal tale. On a YoY basis, Apple has lost market share to Android in all major regions except China. We will look into what those numbers mean for Apple a while later, first a look at how the 4th Quarter stacked up in terms of the 3rd one for 2015.
In the US markets, the new iPhones did very well as is evidenced by the jump of nearly 10 percentage points from 29.2% of Q3 2015 to 39.1% in the US markets. Japan and Europe performed satisfactory, with iOS picking up around 15.8 and 7 percent point on a QoQ basis. However, the best market for Apple during this period, was the unfathomable dragon market where Apple was the top selling OEM and had 27% of the entire market. Apple has also managed to increase it’s fan base as customer loyalty in the US market is at an all-time high since 2012.
Despite all of this, we find that Apple has lost its market share over the period of the year. In the US, it has fallen by 8.6 percent points and now stands at 39.1%, a full 20 percent lower than Android. In fact, even in Japan, despite Android having one of it’s worse quarters, iOS wasn’t able to register an YoY growth, falling behind Q4 2014 by 6.1% in Q4 2015. This is a worrying red sign for Apple in general, as they depend solely on iOS sales for their revenues and their inability to expand their market has been punished heavily by investors following their recent quarterly announcement.
While the numbers may lend more strength to the predictions, they do not bring out any new trends for the industry. Having said that, it’d be hasty to cast off these numbers as just another Apple vs Android scenario. In fact, there are quite a few interesting observations that the numbers have brought to the fore. We outline them briefly below:
- Apple has managed to hold onto their users very well. User retention is a big factor as we see that a fair chunk of iOS users are stuck on older hardware and a stellar iPhone 7 will give Apple another stellar Q4 2016.
- Customer acquisition for Apple has been lowered, from 13% to 11% in the space of a year from Q4 14 to Q4 2015. The presence of an Android device as the top smartphone of 2015, lends to the theory that iPhones are no longer the top gun in the smartphone world.
- Apple has also failed to win over new smartphone buyers as the number of new entrants into the iOS ecosystem dwindled down from 20% to 11% over this one year period. Apple’s last roll of the dice, lies in releasing the 4 inch iPhone for the budget oriented masses and hoping to capture some of the marketshare in emerging markets.
After Apple, let us now check out Android’s side as well. We have listed them down below in bite-sized points.
- Android, definitely, has the advantage in terms of market percentage, but as Google’s recent report has unveiled, Android still has not become a major factor on Alphabet’s bottom line.
- As the proliferation of smartphones increases, we see more people upgrade from feature phones to smartphones and Android’s pricing diversity ensures they get a maximum number of the new entrants. In fact from 2014 to 2015, the percentage of Android users who upgraded from a feature phone has gone down only 3% to arrive at 31% of the total user base.
- As smartphone penetration increases and emerging markets become the new battleground for mobile devices, we find that companies with lower profit margins like Huawei, LG, ZTE and Alcatel, are growing in market share and pushing brands, such as Samsung and HTC, for the crown of Android OEM supremacy.
In a nutshell, he outlines for both the companies, Apple and Google and their respective OS’s iOS and Android, has been etched in the walls of time by various factors including their revenue models, leadership and ultimately their philosophy and ideas. And while iOS and Android continue their epic struggle among themselves, there seems to be very little space for a third competitor to make its presence felt. The current numbers provide us with little to hope for with regards to Windows OS despite the best efforts of Windows 10.
So, where does it leave the entire smartphone industry in terms of growth potential and where are the areas for app developers as well as hardware manufacturers to focus on?
“As consumers’ excitement about smartphones continues to wane and as mature markets approach saturation, vendors are seeking other ways to drive growth and margins,” says Carolina Milanesi, chief of research at Kantar research panel when speaking of the future of the industry. “Yet, smartphones are not going anywhere anytime soon, and will play an important part in what is to come, from VR to wearables to the connected home.”
And the takeaway from this report is summarized beautifully, in the quote above. As we head forward into a future of interconnected devices, companies must innovate in new ways to differentiate themselves from their competitors.
- For software companies looking to capitalize on the app revolution, building innovative content that can make use of the new hardware like IoT machines for communication, NFC for payments and Cloud Computing for Intelligent Advertisement becomes essential.
- As for hardware companies, they should look to get cross-platform compatibility with both iOS and Android ecosystems and build devices with an app-centric approach. To exist in a future where everything from Medicines, Wearables to Automated Cars have their central hub as the smartphone; it becomes imperative that a smart product is designed keeping the smartphone as a control center in mind.
Android and iOS have laid the groundwork for the smartphone revolution and while we keep an eye on their epic saga, we eagerly await for newer technologies in 2016 that are built on top of these two platforms!