When it comes to mobile operating systems, there is Google’s Android (GOOG, Financial) and Apple’s iOS (AAPL, Financial), and then there is a blur of smaller operators including Microsoft (MSFT, Financial) and BlackBerry (BBRY, Financial). But for most of the smaller players, their days are numbered, and the possibility of someone new entering the market and gaining significant market share is very slim.
The duopolistic control of these two giants does put both these companies’ futures in an extremely secure position. Despite being competitors, the vice-like grip they have on the mobile OS market will make sure nobody else gets a chance, and that means the market is Google’s and Apple’s to rule for a long time.
What does the market actually look like and why is Google in the best position possible?
The Current Market Scenario
IDC and Gartner are the two well-known research and analysis firms that track smartphone sales around the world. According to IDC, Android had 82.8% of the smartphone market share in the second quarter 2015, with iOS holding 13.9%, the dominant duo holding 96.7% of the market between them. Gartner estimates the market share numbers for Android at 80.7% and iOS at 17.7% during the fourth quarter 2015, a total market share of 98.4%.
Whether or not these numbers are accurate is not the point. The point, really, is that the window of opportunity for other players is getting smaller by the quarter. BlackBerry has already accepted Android as its future, but is it too late to save what little market share they have left?
In the case of Microsoft, is their upcoming Surface Phone going to get them enough traction to possibly eke out a couple of percentage points of market share? Windows Phone may not have a chance to do that, but can the Windows 10 Mobile devices from the Surface brand carve out a niche for itself. It is definitely a possibility, since Microsoft’s Continuum approach to multi-device utility is going to attract Windows 10 users to mobile devices that can run the same OS.
The growth of Android's control of the market is huge, with the company moving from under 70% market share in 2012 to above 80% today. And that control is validated when you have the European Union accusing you of misusing your dominant position. In April, the EU accused Google of “monopoly abuse.”
EU Validates Google’s Dominance
“Google has been formally charged with monopoly abuse over an alleged effort to crush rivals to its mobile search service and Android smartphone operating system, in a major escalation of its battle with Brussels.
Margrethe Vestager, the European Commissioner for competition, accused Google of pursuing “an overall strategy on mobile devices to protect and expand its dominant position in internet search”” - Telegraph
The core issue the EU has with Google is the company’s requirement for device manufacturers to preload its Google Play Store app, Google Search and Chrome browser. I think the EU’s standpoint is a valid one because, with more than 80% of the world market already in the palm of its hand, Google can easily push everybody else out of the game when it comes to mobile search, and this is exactly what the EU is accusing Google of doing.
Google is going to have to learn to live with such accusations if it continues to push its search, apps and browser agenda this way.
What Does This Mean for Google?
Regulatory issues are going to keep cropping up against Google, but I don't think Google is going to be worried about that any more than, let’s say, losing 5% market share due to Apple’s push to sell the more affordable iPhone SE.
By leaving little to no room for other players in the mobile OS game, both Apple and Google are helping each other in the process. While iOS users will always remain within that environment, Apple’s work around the services segment, which I have written about several times, will ensure that they have enough to keep them in.
In Google’s case, simply having Android devices preloaded with Chrome, Play and Search is going to keep them at that dominant level for the foreseeable future. As they extend Android’s capability to more and more mobile devices, it will only strengthen their position even further.
On the one hand, I support the EU’s views about Google pushing its weight around with device makers. On the other, the entire purpose of Alphabet Inc. is to turn a profit at any cost. If they have to use their Android OS to achieve that, then that is what they will do. After all, Android itself is not making them any money, but it is a gateway to tens of billions more into their coffers every year.
From a moralistic, or even a competitive, standpoint that might be unfair, but from a purely business perspective, it is a grand coup on a global scale, the likes of which none of us have witnessed before.
Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.
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