Is Android a Threat to Apple?

As many iPhone users will reluctantly admit, trying to send or receive data over AT&T’s (NYSE: T  ) network during peak usage hours can be a real headache. Partly, this is a problem of Apple’s (Nasdaq: AAPL  ) own making.  After all, it was the company’s decision to launch the iPhone exclusively with AT&T Wireless. Given the popularity the iPhone has enjoyed, it’s no wonder the AT&T network is struggling to keep up.

Now that the latest generation of smartphones powered by Google’s (Nasdaq: GOOG  ) Android operating system is set to hit the market, that problem may become a bigger headache for Apple. Google has taken a horizontal strategy, and smartphones of all shapes and sizes will be making use of the Android OS. Most importantly, these phones will be available across all four major U.S. carriers.

That’s good news for beleaguered Verizon (NYSE: VZ  ) , which has been making a big marketing push with the “iDon’t”-themed advertisements. That company’s Android offering, the Motorola (NYSE: MOT  ) Droid, appears set to launch on Nov. 6. Some analysts have also reported that Google will be releasing a self-branded phone by year’s end -- proof that the search giant will not leave its fate entirely to third-party manufacturers.

These new entrants will be competing in a smartphone market that is flush with growth. Smartphone sales grew by 27% in the second quarter of 2009, despite mobile phone sales worldwide dropping by 6.1% compared to the same quarter a year ago. Nokia (NYSE: NOK  ) owns the largest portion of smartphone market share, mainly because of its numerous product offerings and international strength. Apple has been slowly but surely chopping into that market share by increasing movement of the iPhone overseas. Its European market share increased to 13.6%, up from only 1.3% a year ago.

Nokia still maintains a healthy lead in global market share, but research from Deutsche Bank shows that Apple now claims 20% of the operating profit in mobile devices as of 2008, even though iPhone sales only amounted to a little over 1% of the market. BlackBerry maker Research In Motion (Nasdaq: RIMM  ) also enjoyed 15% of the profit.

Clearly, high-end smartphones can generate a great deal of profit. With Android 2.0 devices coming to market, Google will soon be partaking in that windfall. By limiting its killer product to AT&T, Apple allowed an opening for the competition -- an opening that Google seems well-prepared to exploit. I’d say that’s a threat.

Have big ideas on who will emerge victorious in the mobile race? Sign up for Motley Fool CAPS today and let your voice be heard. It’s fast, it’s fun, and it’s free. What’s there to lose?

Fool contributor Hunter Pavela owns none of the stocks mentioned above. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. Nokia is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (15)

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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 October 30, 2009, at 2:46 PM, daveshouston wrote:

    Google's direct competitor is Microsoft. Phone manufacturers like Motorola and HTC can choose between Android and Windows Mobile. Google should win that one because has Linux underpinnings and is open source. Android is the better platform for developers and for users. It's also comes with a much more attractive price tag. It's free whereas Windows Mobile is not.

    Microsoft knows they're playing catchup and they've announced Windows 7 Mobile. They're going to have to make it a whole lot better than the current version 6.5 to have much of a shot. And time is working against them.

    Apple will compete indirectly with Google. Overall smart phone market growth is expected to be so strong that both companies have plenty of room to succeed. Apple has several advantages that seem somewhat overwhelming to me: 1/ The App Store ecosystem already offers 100,000 apps for download and there have been 2 billian downloads to date. Talk about momentum. That's huge. 2/ The iPhone offers developers an attractive proposition. Apple takes care of sales and marketing and takes a 30% cut leaving developers the lion's share at 70%. So far there is only one version of the iPhone so developers only have to develop one version. The Android and Windows Mobile markets are going to fragment with many different phone models and manufacturers and cell phone service providers all trying to differentiate their offerings. This will mean many different versions of most software apps. That's not nearly so attractive to most developers.

    The iPhone is the standard now. Customer satisfaction is way higher than any other smart phone. The ecosystem is well established and they are years ahead of the competition. It's the iphone against a confusing and fast changing list of also-rans. Even Sprint's CEO was quoted to say, "The iPhone is the Michael Jordan of smart phones." That's a high complement from a competitor.

  • Report this Comment On October 30, 2009, at 2:49 PM, tgauchat wrote:

    @InfoThatHelp -- terrific comment! You really highlighted the differences in the platform.

    But keep in mind that such differences can change pretty quickly. Remember how quickly Mac's changed from PowerPC to Intel !

  • Report this Comment On October 30, 2009, at 3:23 PM, DefunctAcct wrote:

    How does an OS become a threat to a product?

    Android is an OS that allows manufacturers to customize and adapt to their devices. Android by itself is not useful.

    The questions should be whether these new devices created by Motorola, Nokia, Sony and any and all Android users will begin to truly address consumer needs. These are the devices that will compete with iPhone.

    The competition then will depend on what these companies bring. Motorola started with RAZR but failed in having an overall strategy. It shipped a phone and left it at that. Does Motorola have a solid tract record in delivering consumer grade software solutions based on a coherent encompassing long term strategy? Nokia? Sony? HTC? LG?

    All but Nokia are incapable of building their own mobile OS. None, including Nokia, are known for their software prowess. How do their products suddenly become threats to iPhone?

    Competitors, yes; threats, no.

  • Report this Comment On October 30, 2009, at 4:34 PM, sgmsg wrote:

    Funny Article

    A guy ask a question , and bring his analysis.

    But commenters, gave them "Is Android a Threat to Apple?"

    After that commenters make the jobs for the "journalist". Pretty vicious ways to analyse a stock.

  • Report this Comment On October 30, 2009, at 7:57 PM, DefunctAcct wrote:

    We need to be careful with the OS focus. There has been too much misunderstanding already like BLOG claiming how cloud computing is "replacing OS" and how WebOS is the "best". Both are wrong.

    Too many BLOG and "analysts" and media type are posing questions or voicing opinions without first understanding the basics of what they wish to discuss. They are misusing terms and mixing concepts.

    From strictly engineering point of view, operating systems, be it UNIX, OS/X, WIndows, AIX, Hp-UX, Linux or whatever "X" there may be, are all useless unless they are on a machine that can do real work to solve real problems.

    The software and the hardware must work hand in hand, one is useless without the other.

    Over the past 30+ years, we have seen how hardware limited software development (12 Mhz CPU, 64K memory) and then software hampering hardware capabilities (multiple CPU, multi-core architecture). One pushes the other and both must advance hand in hand.

    The same is happening now in mobile devices. We have Android, iPhone OS and WebOS competing against each other.

    The best OS under the hood is useless if the UI is bad. Imagine OS/X Snow Leopard with Grand Central running on a multiple CORE 3+ Mhz box with the UI of a plain vanilla old-style UNIX console. What is the use of having a thoroughbred OS under a UI that supports only command-line operations and shell scripts?

    People used to tout how fast INTEL PC's were when Apple was shopping its old OS on PowerPC's. A host of us continued to buy Mac's. Why? Because the UI on the Mac was efficient and simple and let us focus on our tasks. As end-users, with a powerful UI, we could afford to ignore the OS underneath. This is a complement to any engineer who builds OS and UI.

    Windows at the time had a UI philosophy of ceaseless dialog boxes for everything. Doing a simple task could result in having to answer 10+ dialog boxes on the screen. I had to build our product for it but I hated that sort of stupid UI.

    This article's title asks if "Android is a threat to Apple", it is a meaningless question because it is too broad. What was the intent of the author of the article? Was it to cover the very broad issue of a new operating system threatening Apple as a whole? Or are we comparing individual products?

    Discussing Android against Apple would mean discussing the technical details of Android and how that could impact Apple's OS and products. Is that the intention? I doubt it.

    So we need to clarify the terms and definitions and understand the scope of our discussions. Otherwise, it is a lot of hot air and readers not familiar with these technical terms will become more confused.

  • Report this Comment On October 31, 2009, at 11:27 PM, UralBas wrote:

    Admob results prove that Android G1 is better for surfing the net compared to Iphone 3g or 3gs.

    Even though T-Mobile is the only significant player in September 2009, they had 5.5% of the requests with the Magic in the US/UK and internationally, yet they represented 17% of the Traffic (3.0 Traffic per Request). On the other hand Apple controlled over 28% and handled only 48% of the Traffic (1.7 Traffic per Request).

    Which clearly shows that the G1 handled more traffic per request.

    The Month of September also showed that Apple's Gains did not increase, yet Android (more so G1) traffic and requests increased.

    So, what this shows, is that once the public realizes that Android is a better system to surf the net on, they will start using it more. Large corporations and four major telcos in the US have recognized this and have offered their support. 2010 will show this trend, where Android will cut into Apples share along with RIM and once that momentum starts, Apple will find it hard to stop.

    On to of that you add usefull applications like Google Navigation, Google Map, Google Voice, Google Wave for google phones, and Apples Itunes (which will appeal for those who collect movies and songs) will become insignificant. Specially when you can have any song you request over the internet on services like Imeem, YouTube, etc.

    Luk Luk offers movies on demand, you can watch TV with a rusian app. You can natively tether and android phone, pdf reader is there and Flash is here now.

    And when you consider that most apps for the Android are really useful and today has 14608 applications and a lot of others that are not on the Market like onetouch root and PDANet. This only with the G1/Magic/Hero ~ 2 millon handsets Worldwide.

    Once this number goes up to 20+ millon in a few months. The lead that Apple has will vanish and the momentum will be with Google with services that no other company can provide now. Apple and Microsoft maybe able to accomplish this medium term, but not now.

    You finally add the possibility to use your phone as a credit card, and then the explosion will begin and whom ever gets there first, will have gained global dominance that will be hard to overcome.

    Apple is about to loose a battle it had won, hard to believe, but it will happen.

  • Report this Comment On November 01, 2009, at 10:39 AM, UralBas wrote:

    LOL... InfoThat doesnt help... I do that and more... with a G1 thats why the 3gs was scrapped and is used as a paperweight.

    Now if you want to play games... yeah.. have fun with your Iphone. As a serious phone for business, it just doesn't cut it.

    As a game machine or a machine that plays videos... Kudos to it.

  • Report this Comment On November 01, 2009, at 2:38 PM, Timerline wrote:

    It would appear that google is getting reaqdy to do the same thing to apple in the smart phone market that microsoft did to apple in the pc market back in the nineties.

  • Report this Comment On November 02, 2009, at 9:08 AM, srpfool wrote:

    Silivalley misses the point entirely.

    Yes, everything you say is technically correct, but you are being far too literal.

    When people say 'is android a threat to iphone' they mean the new series of devices running android. Android is a useful tag for this conversation because it groups devices into an identifiable set that is recognisable by consumers.

    The question is, are all these android powered devices a threat or not. I think they are, and it's not because of the steering wheel or the clutch or the leather or the radio. It's because of the car.

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