The adoption of Apple's (NASDAQ:AAPL) iOS 8 recently hit 81%, compared to 17% of devices that are still on iOS 7 and just 2% on iOS 6 or earlier. This makes iOS much less fragmented than Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android.
Google reports that just 5.4% of all Android devices run on Android 5.0 or 5.1. Another 41.4% still run on 4.4 KitKat, which launched in late 2013. The remaining devices feature even older versions of Android. Let's see why Apple is so good at keeping its users' devices updated, and why fragmentation is becoming a major weakness for Google.
Why iOS is less fragmented than Android
Apple excels at minimizing OS fragmentation for several reasons. First, it completely controls its hardware and software ecosystems, while Google licenses Android to as many hardware partners as possible.
Second, Apple uses over-the-air updates to quickly update all iOS devices. Google's hardware partners don't update their versions of Android simultaneously, since they often tweak and modify the OS into various flavors.
Most importantly, iOS is closed source and Android is open source. This means it's impossible for users to legally modify iOS, but anyone can alter Android. As a result, Google can't stop companies from stripping Google services from Android and crippling its ability to monetize Android via search and digital sales.
Versions of Android modified with that method, known as "forking," accounted for 29% of all Android devices worldwide in the fourth quarter of 2014, according to ABI Research.
Why fragmentation matters
Minimizing OS fragmentation is crucial for Apple and Google, since older versions of their operating systems aren't compatible with their newest features. Apple Watch, for example, must be paired with a device running on iOS 8.2. And the iOS 8.1 update lets iPhone 6, iPhone 6 Plus, iPad Air 2, and iPad mini 3 owners use Apple Pay.
By comparison, Google's slimmed-down OS for smartwatches, Android Wear, only works on devices running on Android 4.3 or better, which locks out nearly half of all Android devices. Its "Android for Work" feature, which offers split profiles for BYOD enterprise users, was originally only available on 5.0 and 5.1 devices. Google subsequently launched the service as a stand-alone app for 4.0+ devices, but it's unclear if it can win over enterprise users.
This fragmentation also impacts developer attitudes. IDC found that iOS devices only accounted for 19.7% of the smartphone market at the end of 2014, compared to 76.6% for Android. However, Apple's share of the market runs on homogenous hardware for each generation, so apps are generally easier to develop and test for iPhones and iPads.
Since it's always clear which Apple devices have the latest features, it makes sense for developers to create "next-gen" apps, such as fitness tracking or mobile payment applications, for iOS before Android.
Why is Google losing control of Android?
Google's dependence on its hardware partners to do the heavy lifting is a double-edged sword. These partners were initially eager to use Android since it was a free OS that let them them quickly sell cheap smartphones.
But the market became commoditized over time, partially due to the rise of cheap turnkey solutions that let small companies launch new smartphones with limited development costs. As a result, the market became overcrowded and margins fell.
Leading OEMs such as Samsung realized that the only way to survive was to establish their own ecosystem of revenue-generating apps. That's why Samsung launched its own app store, mobile payments platform, music streaming service, and a health-tracking app to simultaneously compete against Apple and Google.
Samsung and several other companies have also struck deals with Microsoft to use its cloud-based apps instead of Google's. This partnership is also useful in countries such as China, where most of Google's services are banned.
How these weaknesses define Google's mobile strategy
In response, Google bundled more apps into its "official" versions of Android. Unfortunately, the European Union recently launched a probe into these bundling practices, and an adverse ruling could considerably weaken this strategy.
Google once tried to sell its own hardware by acquiring Motorola Mobility, but sold its handset business to Lenovo two unprofitable years later.
In 2014, Google launched the "Android One" initiative with hardware partners. This initiative supports the development of cheap Android handsets that meet Google's minimum hardware specifications. Google keeps these devices updated with the latest version of Android to reduce fragmentation in low-end emerging markets.
The key takeaway
Google's mobile fragmentation is a big blind spot that investors should be aware of. It prevents Google's newest services from reaching the maximum number of Android users. As a result, the actual number of Android devices that can go toe-to-toe against Apple's latest iOS devices is much smaller than market share figures suggest. Unless Google can rein in its hardware partners and encourage everyone to upgrade their devices to 5.0 Lollipop, this problem could worsen over time.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.