Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



How Google's Android Could Finally Crush Apple's iPhone

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Google's (NASDAQ: GOOGL  ) mobile operating system, Android, is now shipping on more than 80% of smartphones worldwide. As Android has exploded in popularity, Apple's (NASDAQ: AAPL  ) share of the market has declined and is now down under 13%. In the U.S., however, Apple continues to dominate, accounting for about 40% of smartphone sales, while Apple's iOS remains the premier platform for Western mobile developers. 

Nevertheless, I think it's inevitable that Google's mobile operating system will eventually overwhelm Apple's iPhone totally, even in the United States. Apple remains entirely dependent on the carriers for its dominance, a relationship Google is beginning to undermine. T-Mobile's (NASDAQ: TMUS  ) recent growth is proof of this potential shift.

Why would you ever buy an Android phone?
To be frank, for most consumers in U.S., it simply doesn't make much sense to buy an Android handset. Unless you're a techie or demand a larger display, Apple's iPhone will offer the better experience -- a simpler interface, and a more robust app ecosystem.

Generally, there's no price advantage to be gained by buying an Android handset. Samsung's Galaxy S4 costs the same $200 that Apple's iPhone 5s does on a two-year contract. As long as this heavy reliance on carrier subsidies persists, Apple should be able to continue to own the U.S. handset market -- it might even recapture some subscribers who've strayed if it releases an iPhone phablet next year.

Google is circumventing the carriers
But I don't think this trend will continue. If given the choice, most wireless subscribers would probably prefer not to sign a two-year agreement, and instead go month-to-month. On Verizon Wireless, for example, a month-to-month plan with 2GB of data is just $60 -- the equivalent plan on contract is $100, and getting out of it requires paying early termination fees.

But most subscribers submit to the two-year agreement anyway, because without it, they have to pay their phone's entire cost upfront. That's difficult: An unlocked iPhone 5s is $649, and an unlocked Samsung Galaxy S4 costs roughly the same.

Google has a solution: the Nexus phones. The new Nexus 5 is quite capable, works with all major carriers (except Verizon), and, most importantly, costs just $349 off contract. Most reviewers have been kind to Google's phone; Business Insider's Steve Kovach even went so far as to say it's the only Android phone you should buy.

This is the second time Google has used this strategy. Last year, it released the unlocked Nexus 4 at a similarly low price. But the Nexus 4 wasn't a big seller; according to its manufacturing partner LG, Google wasn't expecting much demand, and the phone worked only with T-Mobile or AT&T's networks. It also lacked LTE, making it a difficult sell as a high-end handset.

Google's Nexus 5 has LTE and works on more carriers, including Sprint. Google appears to be taking the Nexus 5 more seriously, with edgy advertising that has generated some buzz.

T-Mobile's rapid growth
Recent trends at T-Mobile support Google's strategy. Last quarter, the company added roughly 1 million subscribers, outpacing rivals AT&T and Verizon. This is notable, because T-Mobile no longer offers phone subsidies. Instead, T-Mobile encourages subscribers to buy their phones upfront, bring their own phone to the service, or pay for it in monthly installments.

This is not good for the iPhone. On T-Mobile's recent earnings call, CEO John Legere admitted as much, remarking that last quarter, Apple's iPhone accounted for just 21% of the phones T-Mobile sold. In contrast, of Verizon's phone activations, a full 51% of them were iPhones. There could be other reasons to explain the discrepancy -- perhaps Apple fans are just more likely to sign up with Verizon -- but I believe that the different approach to phone subsidies is a major factor.

Unlocked Android handsets would erode Apple's pricing power
No doubt, Apple's iPhone has benefited from carrier subsidies -- they work as a great equalizer, making consumers far less sensitive to price differences. And as long as consumers rely on carrier subsidies to buy their handsets, Apple should be at a great advantage -- its competitors can't undermine it with lower pricing.

But Google could. The trend toward cheap yet powerful unlocked Nexus phones could result in the signing of fewer two-year contracts, particularly if Google continues to emphasize the handset in the coming quarters and can get future Nexus phones to work with more networks (notably Verizon's). T-Mobile's recent growth suggests that consumers are eager to ditch the standard two-year contract.

If Google is effective in undermining consumers' dependence on carrier subsidies, Apple shareholders should be very concerned.

Want to get in on the smartphone phenomenon?
Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access The Motley Fool's latest free report: "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Read/Post Comments (9) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 16, 2013, at 9:02 AM, DanManners wrote:

    This has to be the stupidest article just to bash Apple which this author continually does. I only read him to laugh at his misguided comments.

    First T-Mobile sold alot of iPhones. But they are expensive. But they will finance the phones and with T-Mobile being much cheaper than Verizon, they are still affordable.

    I have 5 phones with Verizon. I pay over $ 300 with 2 Gig of data. I checked into T-Mobile, MetroPCS and they both had great deals. Metro had a deal for 4 phones with unilmited 3G and 500 minutes of 4G for $ 100 no taxes. In many cities the service works well. Outside is questionable. Customer service is almost non-existant.

    Those that need to make due with less will go to these carriers. Those that need to have a good signal more often then not will chose carriers like Verizon. It is a trade off. Now if T-Mobile service improves, they will have more people who will afford an iPhone.

    But the real reason given by T-Mobile is that supply was short for the iPhone 5S. T-Mobile touted the diverse mix of smartphones sold in the period. The iPhone sales figure would include both new and older models.

    Let's get it right.

  • Report this Comment On November 16, 2013, at 2:36 PM, vernr75 wrote:

    Obviously, an article of this nature will always get the Apple fans all hot and bothered. It's the natural human reaction to revert to using psychological defense mechanisms when suddenly confronted with a dose of reality. But the author has a point. I can see this is going to be a very long post.

    The iPhone ecosystem's very existence depends on the continuation of the subsidy system in that allows consumers to see $200 iPhones instead of $650 iPhones and to have the rest of the high cost of the phones hidden in their monthly payments. In fact, Apple's phone platform is the only remaining platform that cannot exist as a significant entity in the absence of massive subsidization. Android and now Windows Phone are growing around the world precisely because they are now independent of the need for massive subsidies and the billions of folks who haven't yet bought a smartphone don't live in markets that subsidize expensive phones but in markets that may or may not subsidize lower cost devices. Ironic, isn't it?

    Ever heard the story about the straw that broke the camel's back? In this case, the straws are the huge number of US customers buying expensive but subsidized devices and the camel is the profitability of the carriers. This is the situation as it stands right now. Carriers are paying Apple and Samsung full price for the high end devices as they are bought by consumers. The consumers see $0-$200 price tags instead of the $450-$650 prices, they buy the expensive devices instead of the cheaper ones and get the remaining balance they owe on the expensive device added to what they pay for data monthly.

    Because the subsidies for expensive smartphones are so extremely high, virtually all consumers on these big carrier networks are being forced to pay a similar high rate for data no matter if they're using a high end phone or a lower end unlocked smartphone. Therefore the rate that every one of those customers is paying effectively includes coverage of the cost of subsidization of other people's expensive devices. In any other market, increasing adoption of unsubsidized smartphones eventually lowers the data rates paid by everyone. But in the US, mobile users of feature phones who now adopt expensive subsidized smartphones from the main carriers increase the pressure to keep the data price high for everyone. This is a house cards and the carriers know it. The big carriers can't compete with each other to any great degree on data price because they've all gotten themselves into the same Apple and Samsung high priced circus. Consumers are growing increasingly unhappy but they don't realize that they're collectively causing their own data cost problem by buying high priced smartphones in droves. The only companies that are able to offer significantly lower prices on data are the ones that are not weighed down by the purchase of large numbers of expensive handsets - these are the small carriers like T-Mobile. Once these small carriers get their high speed data coverage issues addressed, this subsidy market is going to be reshaped by the financial necessities of the big carriers as they try to respond to pressure from the smaller carriers. On top of all that, Motorola is now showing signs that it's willing to compete in the lower cost segment by producing some really good hardware that doesn't need subsidies. If they're successful, it could change the quality of the low cost handset market in the US.

    The bottom line is that the current massive subsidization of high priced smartphones is going to come to an end eventually because there are simply too many people making use of it. It's already starting to happen in China, where carriers could never have afforded to keep it going for long in the first place because they can't sell data at the same high rates as US carriers. In the US, a number of factors could come together to either force the end of all subsidies (unlikely scenario) or force the level of subsidies significantly downward across all carriers (far more likely scenario). In all cases, Apple loses big time with any adjustment to subsidy rates. Apple's iPhone got much of its US market share because of old iPhones offered at $0 down on contract and new iPhones wouldn't have any real presence on the market if they had a $650 upfront price. Those old iPhones were in fact costing carriers $450 each, which is almost the unlocked cost of most new higher end Android phones. If the carriers collectively cut subsidies in half, two year old iPhones suddenly become the $200 devices and the latest iPhones would start at over $400. Apple's US market share would plummet within 2 years of such changes because Apple would lose many of the millions who only got iPhones because of the $0 down and $99 price of entry. Those people would have to resort to keeping the iPhones they own in excellent condition so that they can get enough on resale to compensate for the higher price. Because the US carries a substantial percentage of the global iPhone installed base, the iPhone global market share would eventually drop like a meteor.

    The US already has 56% smartphone adoption while overall mobile phone adoption is at 91%. That only leaves 35% left to switch and these remaining folks will be much more cost sensitive. If you look at the data, most of the rest are in the 65+ age range where just 18% are smartphone users and where interest in mobile phones of any kind is the lowest in the US. This means that growth in the high end is on the verge of coming to an end in the US. That was the only reason big carriers had for giving Apple so much influence over their financial situations. The next battle is going to be over price of data and it's going to be between the big carriers and the smaller ones. I think the big carriers are going to have to find a way to separate the folks who buy their less subsidized handsets from those who bought the expensive phones so that clear low cost data options becomes available on their networks.

  • Report this Comment On November 16, 2013, at 3:14 PM, JaredPorter wrote:

    Umpteen millions of current loyal iPhone owners will continue to upgrade their iPhones as soon as their old contracts expire every two years. With the generous trade-in programs (, the cost to upgrade is minimal. Also iPhone will continue to grow around the world in the upper tier potions of mass markets (e.g., Japan). Carriers around the world want the iPhone available on their networks to build their data-using customer base to grow to pay for their expensive conversions to 4G. You might want to read this before you accept the proposition that Android really owns 80% of the data-using handset business:

  • Report this Comment On November 16, 2013, at 8:54 PM, Jim85035 wrote:

    Verizon Wireless, for example, a month-to-month plan with 2GB of data is just $60 -- the equivalent plan on contract is $100, and getting out of it requires paying early termination fees. This not the same service as the one you receive on contract. I had it for 1 month and it was horrible. They admitted to me it was a reduced service, and you could be restricted during high use times.

  • Report this Comment On November 17, 2013, at 4:42 AM, symbolset wrote:

    "To be frank, for most consumers in U.S., it simply doesn't make much sense to buy an Android handset. Unless you're a techie or demand a larger display, Apple's iPhone will offer the better experience -- a simpler interface, and a more robust app ecosystem."

    Some of us don't want to live in Apple's system. We like choices. Abundant choices. The iPhone is an extremely nice phone - but it's not the phone I want.

    Spot on with the unlocked phone idea. I love that my Nexus 5 can tether, and isn't locked, and doesn't have non-uninstallable carrier or OEM shovelware, gets updated quickly, and I can swap out the SIM if my carrier gets greedy. $50/mo unlimited talk/text/data and 500MB LTE data for me through T-Mo.

  • Report this Comment On November 17, 2013, at 8:53 AM, puppybone69 wrote:

    As if Android hasn't already crushed Apple! Do you live in a cave? Even Apple fanboys have stopped buying new iphones, and are buying Android now! The only holdouts are journalists, bloggers, and comment trolls who still haven't got the memo yet!

  • Report this Comment On November 17, 2013, at 2:45 PM, everinm wrote:

    If Android own the smartphone market is Apple's fault. Apple should stop recycling the same phone.

    Is funny how there are still dumb people that buy a non-HD smartphone at the price of a FULL HD smartphone. Come on, the iPhone 5S screen is the same exact tiny one from the iPhone 5 (1136 x 640 pixel resolution). ALL new premium smartphones are FULL HD (1920 x 1080) and this is something you can REALLY notice.

    Using a tiny non-HD smartphone feels like watching a movie on a non-HD TV.

  • Report this Comment On November 17, 2013, at 3:16 PM, canerom wrote:

    I see sam the clown is add it again with another stupid article

  • Report this Comment On November 18, 2013, at 8:09 AM, drax7 wrote:

    The misinformation contained in this article is so large it's hard to figure out where to start.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2731121, ~/Articles/ArticleHandler.aspx, 10/1/2016 1:27:57 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 4:00 PM
AAPL $113.05 Up +0.87 +0.78%
Apple CAPS Rating: ****
GOOGL $804.06 Up +1.42 +0.18%
Alphabet (A shares… CAPS Rating: *****
TMUS $46.72 Up +0.26 +0.56%
T-Mobile US CAPS Rating: ***