What it is: Android is the major competitor to iOS as Google’s smartphone operating system.
Way back in 2007, Android was supposed to be a Blackberry clone because Blackberry smartphones dominated the market. When Apple introduced the iPhone, Google engineer Chris DeSalvo said, “As a consumer I was blown away. I wanted one immediately. But as a Google engineer, I thought ‘We’re going to have to start over.’”
That’s when Google redesigned Android to mimic iOS instead of Blackberry. While the iPhone was initially limited to a handful of carriers such as AT&T in America, Google’s Android quickly took over competing carriers. When people on Verizon, T-Mobile, and Sprint wanted an iPhone but couldn’t get one, they quickly flocked to Android instead, snapping up Motorola’s Droid and later Samsung’s Galaxy smartphones.
Android quickly snared close to 80% of the smartphone market, yet over 90% of all profits go to Apple. That’s because with so many companies selling Android phones, there’s no reason to buy an Android phone from Sony, Google, Samsung, or LG. That means Android manufacturers have to compete on price, which means cutting back on product quality and profits to make a quick sale. Each Android manufacturer has to make up profits by volume while Apple makes a hefty profit off each iPhone they sell.
Having a much smaller market share than Android might seem like a drawback, but it’s actually a blessing in disguise. That’s because with roughly 14% of the American smartphone market, the iPhone can never be called a monopoly like Microsoft’s Windows. In the PC world, over 90% of PCs ran Windows. In the smartphone world, only 14% of smartphones run iOS.
That means Apple can cheerfully make a hefty profit on each iPhone, create Apple Music, iTunes, iBooks, and other features linked to iOS and OS X without anyone complaining they’re a monopoly reducing consumer’s freedom of choice. When more consumers choose Android, Apple can pretty much do whatever they want with their much smaller market share.
That means Android is actually helping Apple in a perverse way. While Android manufacturers struggle to make a profit, Apple continues raking in billions every quarter. Yet all these Android manufacturers insure that Apple can never be accused of being a monopoly. That means as long as the iPhone has far less market share than Android, people will always have a choice not to use an iPhone.
Since Android targets the low-cost market, there will always be more Android smartphones than iPhones. That insures Apple will never have a monopoly over the smartphone market. Even if Apple continues increasing their market share at the expense of Android, Android has such a huge head start that its losses will only be gradual.
Android is keeping Apple safe from the Justice Department. In the meantime, Android continues selling inexpensive smartphones for people who use want a phone but don’t necessarily care about buying music, e-books, or apps. On the other hand, Apple targets people with more disposable income who spend far more buying music, e-books, and apps. Android manufacturers don’t make money once they sell you an Android device. Apple makes money selling you an iPhone and then makes additional money each time you buy music, e-books, or apps.
So despite having such a small market share, Apple keeps earning the lion’s share of the profits without being a monopoly. That’s good for Apple but bad for Android. Android is Apple’s best defense from legal hassles.
Apple can mask their hefty profits and control over the smartphone market thanks to the distraction of Android. When you have 90% of the profit share with only 14% of the market share, you pretty much have a monopoly over the profits but not over the market, and that’s all that the Justice Department cares about.