Tag: Android

Non-Google Play Evolution Outside of China

An interesting trend in Android is how they are removing features from the core operating system (which is open-sourced) and adding them to Google Play Services which is closed source and requires a restrictive license from Google to install.

This is a way to solve the fragmentation problem that Android faces. More insidiously however, it is also a way for Google to pressure OEMs and exert strict control of Android.

The problem is, Google is incapable of imposing this restriction in the largest smartphone market in the world. In China, more than 70% of smartphones do not have Google Play services, which means that applications that require Google Play will fail to work for Chinese users.

This is a huge issue of itself. However, the future implications are even larger.

Because Google has removed core applications from open-source Android (AOSP), this creates an ecological niche for third-party developers. Chinese developers are free to create app stores, maps, calendars, chats systems, digital content distribution stores, payment systems, video apps, search apps, location services and a lot more without competition from Google. This is certainly what is happening right now in China. There is a thriving ecosystem with lots of competition in these areas, whereas in other parts of the world, Google tends to crush other players creating a much less vibrant market.

Within the vibrant ecosystem, competition will encourage players to innovate and improve their services faster than a single company, even if that single company is Google. These Chinese services will eventually rise to a level that is of higher quality than Google.

The next issue is whether these services will transfer to countries outside of Google. The Google Play Service licensing restrictions explicitly prevent OEMs from removing the Google search widget from a prominent location. This makes it difficult for Chinese services to replace Google Play on licensed phones. For the Chinese services to be emphasized higher than Google Play, OEMs will have to forgo Google Play altogether.

Is this possible? What would be the economic incentives to do so.

Although this scenario is at least a year into the future and anything may happen till that time, it is important to note that a free OS strategy (Android) is not substantially different from a cost for license strategy (Microsoft Windows). The fact that Android is free does not make it easier or harder for the Chinese alternatives to go to market.

For example, in the Windows PC world, PCs came bundled with all kinds of unnecessary and unwanted “crap ware”, because “crap ware” companies paid the OEMs to load it onto their products. In the future, some Chinese companies could pay Android OEMs to remove Google Play from their devices and instead preload their own offerings. In fact, that is probably what is happening in the Chinese market right now. I would be very surprised if the Chinese service providers did not try this as they launch in other countries.

In conclusion, the following in how I feel about Google’s strategy.

  1. It is understandable for Google to move desirable features out of Android open-source, and to move them into closed source so that they can exert more control.
  2. However in the long-term, it allows alternative services to thrive in certain niches. In the case of China, this niche is happens to be huge and vibrant.
  3. In a few years, these alternative services could mature to the point that they can challenge Google in markets outside their current niche.
  4. Instead of mostly ignoring China, which this Google Play strategy is doing, Google should think of ways to undermine the companies that are enjoying the Google-free void. The threat of these companies challenging Google could actually be larger than US companies like Microsoft or Yahoo.

Quick Notes On Google Play Revenue Growth vs. Apple App Store Growth

App Annie recently released their report for Q1 2014. I have commented on these numbers several times before in this blog. Here I want to jot down some quick notes;

Absolute growth vs. relative size

App Annie only sporadically reports total growth for each store.
They mention;

The iOS App Store remains comfortably ahead in worldwide revenue, generating about 85% more revenue than Google Play. This gap narrowed over the last quarter though, as Google Play revenue increased markedly in the United States and United Kingdom.

However, it is difficult to understand whether the gap is really closing, or is actually widening. To illustrate my point, let’s take a look at a graph from another App Annie report.

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In 4Q13 of this graph, we see that the relative size of iOS App Store and Google Play is closer in 4Q13 than 3Q13. However, in terms of absolute revenue gap, it is actually widening.

Unless App Annie gives us enough data to draw a graph similar to the one shown above, we cannot conclude whether the gap between the iOS App Store and the Google Play Store widened or narrowed. It is totally possible that the gap is widening in absolute terms.

South Korea

A year ago, South Korea was second in both downloads and revenue for Google Play according to App Annie data. A year later, South Korea is third in downloads behind the US, and fourth in downloads. What has happened?

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With the limit data that App Annie has released, we cannot conclude whether the decline in rankings is driven by increases in other countries, stagnation in the South Korean market or a combination of both. However, given that Distimo gave South Korea a very strong lead over the US in July 2013, it is reasonable to assume that stagnation must have occurred.

If South Korea stagnated, then it is also reasonable to infer that Japan, which also has a disproportionate level of app spending, might also be stagnating. This is even more likely since the largest carrier in Japan, DoCoMo, just recently started selling iPhones, resulting in a decline of Android market share.

Why the Fallacy of Android-First

Dave Feldman wrote a very interesting post on TechCruch (“The Fallacy of Android-First”) where he details why the startup that he founded (Emu) launched Android-first, but after sixteen months, they reverted to iOS only.

There are many interesting points in this post. Here, I would like to categorize his findings and to draw a typical general picture of an innovative market leader and a follower frantically trying to catch up.

The allure of Android

Followers generally try to catch up with the combination of a) price and b) more features. With both more features and a price benefit, it seemly looks like the follower’s offering is better in all accounts. However, if you look under the hood, you often find that the features haven’t been well thought out and that they are actually quite useless.

In comparison, leaders usually focus on actual benefits. If they succeed, the leaders prevail and the market separates into low-end which becomes a price war, and the high-end which is rather stable. If leaders fail and are dragged into the price war, then the market loses the leader and everybody chases features that look good on paper, but are not beneficial to the user.

This is a common theme in many markets. It is also what is happening in mobile.

The Dave’s article, he mentions the allure of Android as the following;

  1. On Android, you can replace the built-in Messages app, while still using the underlying SMS/MMS medium, saving the effort of building a communication service.
  2. Android apps were supposedly easier to build.
  3. Fragmentation was supposedly becoming less of an issue.

The reality

The reality was that allure #1 was a feature that was not well implemented. It was so bad that it was close to unusable from a developer point of view.

  1. Android’s SMS APIs are not well documented. The APIs have also changed over time.
  2. Individual apps can block each other from receiving SMSes. This means that the presence of other apps affects whether your app works or not.
  3. Other issues with MMS make it a nightmare to support.

So the feature was there on Android, but it was very difficult to use in the real world.

There are also other issues described in the post and they basically say the same thing; Android has the features and support, but it’s often not very useful.

The lesson

The lesson is that features which the followers implement are rarely useful. You can’t trust them to have thought out all the issues. Although leaders will also fail sometimes, followers are much more likely to introduce useless features.

日本人のiPhone好きは特殊か、それとも普通か？

なぜ日本人はiPhoneが好きか？

2014年1月15日にカンター・ジャパンが日本のiPhoneのシェアが69.1%で、Androidの30%を圧倒していることが紹介されました。そしてどうして日本人はこんなにもiPhoneが好きなのかということがネット上で話題になりました（例えばJ-Cast「日本人はなぜこんなにiPhoneが好きなのか ユーザのITリテラシーが低いから？」）。

理由ははっきりしていました。それは日本ではiPhoneの価格を補填していて、Android端末と価格差がなかったからです。場合によってはiPhoneの方がAndroidを買うよりも割安という状態でした。

「同じ価格なら、大多数の人はiPhoneを買うでしょう？」

というわけです。

もちろん他の要因を考えることはできます。理屈としてはかなり無理がありますが、例えば上記のJ-Castの記事では以下のような要因も挙げられています。

角川アスキー総合研究所主席研究員の遠藤諭氏に聞くと、考えられる要因を挙げた。まず、欧米と比べて日本のユーザーはITリテラシーが低いとの指摘だ。欧米の学校におけるIT教育の素地は、日本とは比べ物にならないという。そのため、スマホ入門者にとっては比較的操作がしやすいiPhoneに流れるのではないか、と推測した。

まぁ、どう考えてもこじつけとしか言えない、とんでもない理屈ではあります。

他にもいろいろなことが言われていますが、同程度に穴だらけの理屈がまかり通っています。

実は中国人も日本人と同程度にiPhoneが好き

つい先日、Umengという中国に強みのあるアプリ・アナリティックス企業がスマートフォンやタブレットの利用動向のレポートを出しました。その中でこう述べています。

High-end smart phones (pricing above 500US$) have a significant market share in China, contributing 27% of total devices.

… 80% of these are iPhone.

つまり500 US$よりも高価なスマートフォンを購入できるだけの豊かな中国人の間では、80%の人がiPhoneを購入しています。一言で言うと

「買うことさえできれば、大多数の人はiPhoneを買うでしょう？」

というわけです。

日本ではiPhoneが実質0円なので、「買うことさえできれば」というのはスマートフォンユーザの全員が満たしている基準になります。

ということで日本のiPhoneのシェア 69.1%と、中国のハイエンド・スマートフォン・ユーザのシェア80%というのは同じものを見ていると言えます。

結論として中国でも日本でも、

「買うことさえできれば、7-8割の人はiPhoneを買う」

と結論できます。

なかなかデータは手に入りませんが、日本と中国に見られるこの数字はおそらく世界の大多数の国でも同じだろうと私は推測しています。つまり日本人のiPhone好きは特殊な現象はなく、ましてやガラパゴスでもなく、普遍的なことだと思います。

The OS for Wearble Devices (Android Not)

Google is releasing an Android SDK for wearables this month (March, 2015).

So what is their vision for wearables is? The example that Pichai reportedly gave is a “smart jacket” with sensors.

Seriously?

The only wearables that I know of that are currently succeeding in the mass market, are the fitness trackers. The Nike FuelBand’s and the Jawbones. NPD has reported that the market for digital fitness devices was $330 million. Given the price of these devices, it looks like millions have been sold.

So the question is, does the FuelBand run Android? Does it run Linux?

The answer lies in the hardware that enables them to be small enough to comfortably fit on your wrist and last a full day on a single battery charge. It looks like the CPU is an ultra-low power ARM Cortex-M3 with 256 Kbytes flash (hacknikefuelband.com).

Not really enough to run Linux or Android.

Even the Pebble smartwatch which is a bluetooth connected notification center, uses a non-Linux OS (FreeRTOS) according to Wikipedia.

Simply put, the hardware that would comfortably fit on your wrist cannot run Android yet. Pichai is right; you need something jacket-sized.

64-bit Android

In September, 2013, just after the iPhone 5s was announced, I wrote that we would be able to gauge Google’s commitment to the high-end based on when the 64-bit version of Android would be released. I commented that Google might not prioritize 64-bit, mainly because their focus has shifted to the low-end with the departure of Andy Rubin.

Until now, I had not heard any credible reports on when a 64-bit version of Android would be available. Now, on March 11th, ABI Research reports that “the first 64-bit version of Android OS is expected in the second half of the year”.

At this point, there is no way of knowing how accurate ABI Research’s prediction is. There is also no way of knowing if Android and ARM’s 64-bit implementation will deliver a significant performance improvement like Apple’s A7 chip did, or whether the gain will be rather insignificant as most industry pundits claimed when the A7 was announced.

All I can say is that we don’t know yet.

2013 Smartphone Sales Decreased in Japan

MM Research Institute (MMRI) recently published a couple of reports (1), stating that in Japan in 2013, smartphone shipments decreased by 3.7%. This was due to a combination of the following factors;

  1. Total mobile phone shipments decrease by 10.2%.
  2. Smartphone penetration is nearing saturation at roughly 45% of total mobile phone subscriptions.

Smartphone saturation

Observer the following graph from MMRI. This shows the number of subscribers. Blue is for smartphones and pink is for feature phones. The last bar is for Dec. 2013.

You can see how smartphone penetration is saturating. The current smartphone penetration is 44.5% and it looks like it might stop at 50%.

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Additional information from the report;

  1. 52.4% of feature phone owners answered that their next purchase would be a feature phone. Only 34.4% said that their next purchase would be a smartphone.
  2. Reasons for not purchasing a smartphone include a) pricey data plans, b) no need for the additional features, c) difficulty of use.
  3. Smartphone users average 6,826 JPY per month whereas feature phone users average 3,746 JPY per month.

In interpreting this data, you have to understand that Japanese feature phones are pretty capable. They can do email (even email to/from PCs), surf mobile web sites (and there are many of these in Japan), play music, watch TV, take photos, play games and make NFC enabled purchases. You can even use LINE, the explosively popular messaging app although features are limited.

Also, virtually all smartphone data plans in Japan are unlimited data. There are some pay-as-you-go schemes but you quickly reach the ceiling after which your plan actually becomes the same as an unlimited data plan. Pre-paid plans are rare.

On the other hand, feature phone typically do not need data plans to access email or watch TV. A cheap voice plan is sufficient. You can subscribe to a data plan if you want to surf the mobile web or do more complex stuff, but I suspect that most of these users are now using smartphones.

Smartphone sales decline

MMRI data for 2013.

  1. Total mobile phone sales decreased by 10.2%.
  2. Smartphone sales decreased by 3.7%
  3. Apple garnered 32.5% (+9.2 points vs. 2012) mobile phone share, or 43.6% of smartphone share.
  4. Other vendors are Sharp (14.6% share), Sony (12.6% share), Fujitsu (9.7% share), Kyocera (8.8% share), Samsung (5.9% share)
  5. Percent of smartphones sold vs. total mobile was 74.1%.

Combining the subscriber base (44.5% on smartphones) to the annual sales (74.1% smartphones), it is clear that feature phone users are clinging on to their old models. This is probably because R&D on feature phones has ceased and no new features are being added. Additionally, carriers are not promoting feature phones.

Implications for countries outside of Japan

What this data means is that around 50% of Japanese mobile phone subscribers do not need the high-end features of smartphones, and would be satisfied with email and voice. They don’t need Facebook or LINE on their phones (although they could if they paid for a data plan). They just need a convenient way to communicate.

Now assuming that we can apply this 50% number to other countries. Since these countries do not have the feature-rich feature phones that the Japanese have enjoyed for more than a decade, we can assume that low-end Android phones on pre-paid plans are being purchased instead.

What I am trying to say is that although U.S. smartphone penetration is now at 64%, which is significantly higher than the Japanese 44.5%, a large proportion of this number probably includes subscribers on cheap pay-as-you-go or pre-paid plans. These subscribers may be using their smartphones in a manner that is similar to Japanese feature phone users, hence including them in smartphone market share is potentially misleading.

In other words, U.S. smartphone penetration may be significantly higher than Japan but the way that people are using mobile phones in general might be much more similar.

Smartphone penetration is not the right metric

Instead of looking at smartphone penetration, I propose that we should be looking at data consumption. We should be looking at what percentage of the subscribers use their smartphones to use services over the Internet thereby consuming lots of data, and what percentage use it only for voice and simple messaging. Instead of looking at the hardware, we should be looking at how people use them. If data consumption data is hard to obtain, we should be using their data-plan (unlimited, postpaid, prepaid) as a proxy.

Similarly, we should be looking at how many iPhone users consumer lots of data and how many Android users consume lots of data.

In other words, at the low-end, Android is not a smartphone platform. It is a platform upon which vendors build a feature phone.

Notes About Mobile App Ecosystems

Some short notes on how I view the mobile app ecosystem situation.

What business models are working?

There are three business models for earning money on mobile apps.

  1. Prepaid: The user pays upfront for the app.
  2. In-app-purchase: The user pays inside the app for additional features.
  3. Advertising: The advertiser pays for displaying or clicks on an ad shown inside the app.

There has recently been a lot of discussion on the success of the in-app-purchase model, and how the prepaid model is becoming less popular. In contrast, there has not been much discussion on how well the advertising models works.

In AppAnnie’s report, “The Future of Mobile & Portable Gaming” (you need to download the report for free), they clearly show that advertising does not generate much revenue. Prepaid is 44% of revenue while in-app-purchases are 51%. Advertising is only 5% of revenue.

The answer is, prepaid and in-app-purchase are working. Advertising is not.

In which countries are apps generating revenue?

AppAnnie has the answer for Q313.

スクリーンショット 2014 01 29 22 38 31

スクリーンショット 2014 01 29 22 38 40

What is immediately evident is that in the case of iOS, the rankings for “downloads” and “revenue” are similar. The countries listed are simply the countries with high GDP. This is totally expected.

The rankings for Google Play tell us a very different story. In downloads, the BRIC countries (countries with large, fast-growing economies) are making a strong showing with the exception of China which blocks Google sites. In revenue, the ranking is very different with Japan/South Korea dominating the scene. We also do not see the BRIC countries in revenue rankings.

My reasoning is as follows;

  1. The number of downloads is strongly correlated to the number of devices which are sold in that region. Hence iOS App Store downloads are high in the countries where iOS is popular, which are the countries which have high GDP. On the other hand, due to the availability of low-cost devices, Android is very popular in BRIC countries. Hence Google Play downloads are high in these countries.
  2. To rank high in revenue rankings, a country has to have high GDP-per-capita. This is because there is no such thing as low-end software. Software is the same everywhere and the prices are also the same. Most people in BRIC countries are hesitant to pay the same price as high GDP-per-capita countries for software.

Google Play Revenue Growth May Be Slowing

In mid-2013, I wrote (in Japanese) about the unhealthy dependency of Google Play revenue growth on Asia.

Google Play growth is dependent on APAC whereas iOS App Store is more balanced.

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Google Play is dominated by Japanese/Korean titles

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Google Play APAC revenue is dominated by Japan/Korea

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In fact, Japan revenue is so strong that AppAnnie released a report with the title “Japan Spotlight: Hey Big Spender! Japan Outspends US, Continues Its Meteoric Growth”. In this report, AppAnnie tells us that Japanese Google Play revenues are disproportionately high (twice normal levels in comparison to iOS);

In the last year, Google Play app revenue has caught up with iOS in Japan, compared to the rest of the world where iOS app revenue is well over double that of Google Play on an aggregate basis.

From these data points, I predicted the following;

  1. If DoCoMo started selling the iPhone, then worldwide Google Play revenue would stagnate and maybe even start decreasing.
  2. At the time when the above data points were taken, DoCoMo sold only Android smartphones and no iPhones. Since DoCoMo is Japan’s largest carrier, the vast majority of Android devices in Japan were sold to DoCoMo subscribers. Many of these people actually preferred an iPhone, but were bound to DoCoMo because of the breadth of their network.
  3. If DoCoMo started selling iPhones, it was obvious that the market share of Android in Japan would decrease for 24-months (the duration of a contract).
  4. A decrease in Android market share would mean that Google Play revenue from Japan would stagnate or decrease. Since Japan is Google Play’s largest market by far, this would significantly impact Google Play sales worldwide.

We may be starting to see this happening.

On January 8th, 2014, Distimo released an analysis of December 2013. In that report, they mentioned the following (bold styles added by me);

The month of December, including the holiday business, led to a revenue growth of 18 percent for the combined revenue from the Apple App Store and Google Play compared to November. Relative to July 2013, the combined revenue grew by 38 percent. Looking at the app store level, both graphs show a clearly steeper slope. This increase translates into a growth in revenue of 17 percent for Google Play and an even stronger 18 percent for the Apple App Store from November to December 2013.

Although it is irrational to draw conclusions from a single month’s worth of data, if we see this trend continuing, then yes, we might be seeing the effects of my prediction. Ideally, we would also like to see market growth broken down by country, data which AppAnnie may soon provide.

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