The iPhone and Consumer Philosophy

Right now, the smartphone market is dominated by two platforms: Android and iOS. Despite assertions by some advocates, the devices are remarkably similar under the covers. Both are based on thread-scheduling preemptive multitasking kernels. Both of those operating systems have their roots in UNIX, even if they don’t share the code. They are 64-bit systems that can run on multicore processors, have fairly modern hierarchical filesystems, and are generally conventional in how things work.

Consumers, however, don’t care about these sorts of details. What they know is that the two platforms are similar because they both run apps, both can present other content like music and video, and have similar hardware features like cameras and GPS. But the platforms are also different in consumer’s minds, at least when you look at what they do with these devices, and how they treat them. One is something more of an “investment”, the other appears to be more disposable.

Downloads and Paid Apps

Smartphone users seem to treat the iPhone as more of an investment. They are more likely to buy another iPhone, and recommend them to others. It appears that people are willing pay for the device to have one. But there is another key metric: how many apps iPhone users download, and how many they actually pay for. When you look at those numbers, the differences become more pronounced.

Both Android and iPhone have app stores. Both have a large selection of apps, north of 600,000 in each. But that is where the similarities end. Android users don’t buy nearly as many apps. Only about 20% of Android users pay for apps. The rest are free. On the iPhone, the numbers are reversed: about 80% of iPhone users will pay for apps, and paid apps represent the majority of app sales. A willingness to pay for apps is telling, but it also means that an iPhone user has more invested in their phone beyond the hardware. Walking away from an iPhone for some other device is harder, because many people have invested hundreds of dollars in software.

There is a second metric with purchases that is also interesting: the number of apps downloaded so far. To date, there have been about 20 billion apps downloaded by Android users. On the iPhone, there have been 30 billion apps downloaded. Given that the iPhone only had a few months head start on the app store game, there has to be some reason for the discrepancy. But before discussing that consider this: those 30 billion apps are from a community that is only about 3/5ths the size of the Android community. Not only to iPhone users download more apps overall, this is being done by a smaller community of users.

So what is the difference? I believe it is a mindset on the part of iPhone users. They see their device as more of an “investment”. It is a platform they expect to use over the long haul.

The Perils of The Free Device

This same mindset doesn’t seem to apply to Android, but there is one key driver that might come into play. Android phones are far cheaper, and there are more free Androids (including expensive models) than iPhones. Yes, there is a free iPhone, subsidized by the carrier: the holdover iPhone 3GS. If you want an iPhone 4 or iPhone 4S, you have to pay something to get one. So, while free has helped Android gain the top spot in smartphones, that comes at a price: the device appears to be viewed as more disposable. Why pay for apps if you think you’re going to ditch the device for something else?

Other surveys seem to indicate that “something else” is likely an iPhone. When you look at the “what will your next device be” question posed to Android users, a common answer is “an iPhone”. It is almost as if Android is the phone you try, but iPhone is the one you buy. It is as if people are getting their feet wet in the smartphone market with Android, because you can get them for free, but when the contract is up, some number of first-time Android customers move over to the iPhone.

A Rising Tide Lifts All Boats

So why isn’t this manifesting itself in decreased marketshare for Android? Simple: the market isn’t saturated yet. While smartphones just crossed the 50% barrier of all mobile handsets sold in the United States, smartphones are still only about 30-40% of handsets sold globally, and the number is climbing. Right now, Android and iPhone are benefitting from an expanding market, and that market will continue to expand for a few years yet.

When the market does reach saturation, and assuming something hasn’t come along to disrupt it, then what we might see is a stabilization, and a drift from Android to iPhone. Where the line settles is unclear. It could start to swing over to iPhone, and they could become the top platform globally for the first time. Or it could settle out at a 50/50 number.

A Murky Future

The problem is that this event is still years away, and a lot can happen in the interim. The two aren’t likely to be unseated by “yet another smartphone” like the upcoming Windows Phone 8 or Blackberry 10 (assuming that one even sees the light of day). Neither of those are disruptors, because neither are so different that it changes the game. Sure, both are good, and both have some interesting features, but in the end, they do what all other smartphones do: make calls, handle e-mail, provide calendars and contacts, run apps, and present content. The wrapper may be different, but the actual functions are not.

Whatever displaces iOS and Android will be different. I have no idea what it is, or what it will look like, but all I know is what it won’t be: the same as the smartphones we see today. In the mean time, we get to see the current market unfold. There isn’t a crisis for Android now, but at some point, someone has to be worried about numbers that seem to indicate less loyalty to Android: lower apps-per-device, substantially less money spent on paid apps, and a greater willingness to abandon the platform for iPhone. It isn’t a problem now. But it could be a problem in the future.