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Apple Still Dominates Android Where It Matters Most

Analytics firm Distimo recently compared the Apple (NASDAQ: AAPL  ) App Store to the Google (NASDAQ: GOOGL  ) Play Store in terms of revenue, and found that the App Store still maintains its revenue dominance over Android, despite the fact that the latter now controls 81% of the smartphone market. Evidently, a leading market share doesn't necessarily correspond to a leading revenue share.

The October update found the App Store controlling 64% of the revenue and Google Play Store controlling 36% in 34 countries. Since May, Apple has lost 7 percentage points of its revenue share, likely because Android increased its market share by 6% during that time. Additionally, the total revenue pie for apps continues to grow, suggesting that the total demand for apps remains strong across the board.

Two billion-dollar questions
Why is it that Android's market share is more than six times greater than Apple's, but it earns around half of what Apple does? What makes Apple's ecosystem so much more compelling for developers?

To get at the heart of it, Android's OS fragmentation is still a huge problem in the Android user experience and raises the barrier of entry for developers. Not all apps on the Google Play Store are compatible with every version of Android, and this creates a number of problems for the ecosystem's earning potential.

Lower-cost devices, which have been largely credited for Android's market share growth, tend to not have the most up-to-date hardware and software -- and, therefore, capabilities -- making it more challenging for developers to support multiple versions of their apps. The end result is that developers may be forced to make trade-offs, which can lower their addressable market and earnings potential considerably.

Between the three Jelly Bean versions currently available, 52.1% of devices run Jelly Bean but only 2.3% run the most advanced version, which incorporates an additional API protocol for developers to tap into. Apple, on the other hand, reportedly had more than 50% of its user base convert to iOS 7 after its first week of existence.

According to industry expert Steve Cheney, the cost of app development for Android is on average two to three times greater than iOS. He attributes this to a combination of "enormous" QA issues posed by fragmentation, a lack of sophisticated tools, generally more cumbersome APIs, and fewer exposed advanced features than iOS. Clearly, Android's platform wasn't primarily built to maximize Google Play revenue and make it easier for developers. By and large, Android was built for Google to expand the use of its lucrative services like Google Search.

Worth repeating
Although Google Android enjoys its massive market share, fragmentation remains the greatest reason why Google Play's overall revenue share has lagged behind the App Store's. Going forward, I expect Android's unit growth to continue driving the Play Store's revenue share higher, but I don't necessarily think that alone will be enough for loyal iOS developers to develop for Android first. It's much more complicated than that.

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Read/Post Comments (5) | Recommend This Article (4)

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  • Report this Comment On November 20, 2013, at 10:02 AM, zippero wrote:

    Great article! In addition, 64-bit allows higher-cost, more capable apps in Apple's App Store, which will drive revenues even further.

  • Report this Comment On November 20, 2013, at 10:15 AM, twolf2919 wrote:

    Your article mentions many of the technical reasons why it is harder to write apps for Android than it is for iOS - but clearly just as many (or more now) are written for Android as for iOS. That apps aren't as polished on Android as on iOS (partially due to the Android hardware fragmentation issue you mention) probably isn't the cause for the revenue difference either (I imagine people would still buy a less polished app vs. no app at all - if they needed the app).

    No, the reason for the revenue difference is clearly demographic - many/most Android devices sell into the "emerging market" where people simply can't (limited salaries) or won't (software piracy is culturally acceptable in some large emerging markets) buy apps.

    Yet you didn't mention this reason at all.

  • Report this Comment On November 20, 2013, at 10:28 AM, andersonalex wrote:

    A few observations:

    1. 36% + 64% adds up to 100%. That doesn't make sense because we know that Google Play isn't the only Android app store. There has been data that shows apps sold on Amazon's app store enjoy more success.

    2. The tooling scenario is changing. Most Android developers would agree that the old Eclipse based tools were slow and painful to work with. But the new IDE based on Intellij IDEA is best in class.

    3. Fragmentation isn't summed up by OS version. Different screen resolutions and device capabilities make up at least as great of a challenge. While the iOS ecosystem has enjoyed more consistency here, that has been changing as well as Apple releases devices with different resolutions and aspect ratios and continues to sell popular devices with much slower processors than their current generation.

    4. Many developers find Java to hold advantages over iOS development with Objective C. Java code can be considerably more concise, and with its wide popularity has a much larger set of libraries available, especially in the open source space, that can speed up development by not making programmers reinvent the wheel. When it comes to a transition to 64 bit architecture, applications written to run on the Dalvik VM (the majority of Android apps) shouldn't need to be recompiled, either.

  • Report this Comment On November 20, 2013, at 4:14 PM, JoeLemon wrote:

    Is this article only counting sells from an iphone or any itunes?

    It would be like comparing ad revenue and including money made when people were using a pc.

  • Report this Comment On November 21, 2013, at 3:03 PM, CPA01 wrote:

    A few things problematic with this article.

    First, leaves out app stores like Amazon's App store as well as the various Chinese App stores that fall outside of Google Play. Thus, immediately the author has a data collection problem in his analysis.

    It would be like comparing the sales of apps just on the iPhone 4s/5 and leaving out the sales to 5S and 4. He's missing data and yet trying to make a broad generalization of who's making what.

    Second, this article is only good for a short term investor. Apple is getting dominated in markets that haven't hit smartphone saturation. Apple has something like 5% in China and 1% in India, which represent a huge portion of the global population. The notions expressed in the article only are pertinent if you don't expect to go long in Apple. As the BRIC nations become wealthier, they're likely going to stick with what they know if that OS has been entrenched for years. Thus, Apple is potentially going to lose out on sales in both hardware and software to the majority of global smartphone buyers in the coming years.

    Obviously, that's a big problem to anyone going long on Apple.

    The article pushes an obviously large bias towards Apple, but the author almost completely fails to understand the future downsides of how Apple's going about its business.

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