The iPhone Actually Has No Competition Where It Matters Most


No point in burying the lede.

For the past two years, it seems as if every other story in the mobile space has been about the war between the iPhone and Android. Hell, though it wasn’t technically the theme of our Mobile First CrunchUp last week, that’s all anyone wanted to talk about there as well.

It’s a sexy story because it features two companies, Apple and Google, that could not be any more different. And now they’re the two companies dominating the mobile landscape. And the cherry on top is that they used to be close allies. They’re Erik Lehnsherr and Charles Xavier.

Four years ago, Apple came out of quite literally nowhere (in the mobile phone space) and completely up-ended the industry. But in the past couple of years, they’ve watched their former ally take command in terms of market share. This has been the story that everyone keeps talking about — including Apple, which routinely takes thinly-veiled swipes at Google for what they often imply are misleading numbers, like activations-per-day.

But part of me wonders if that’s not just Apple applying some very clever reverse-psychology and manipulation. The media is naturally distracted by big numbers, and Apple might be just fine ceding that story (while pretending they care, mind you, to keep us interested) while they take the real prize.

Again, the profits.

While you can find dozens of stories each week about how Android is now dominating mobile, and poised for further domination as the rest of the world continues the move to smartphones, most overlook what is perhaps the more important story. To find that, all you have to do is follow Horace Dediu’s excellent Asymco blog.

There, you’ll find stories and data like this one from earlier today: Apple share of phone revenues increased to 28%. As Dediu’s data shows, Apple now makes more revenue in the mobile space than all of their competitors. This list includes HTC, RIM, LG, Sony-Ericsson, Samsung Motorola, and Nokia.

Apple’s share in this regard has doubled since the end of 2009, right about when Android began to take hold. And while plenty of the aforementioned competitors now make Android devices, only HTC has seen any sort of significant increase in revenue share over the same span — and their share is nothing like Apple’s.

But again, that’s not even the real story either. The real story is the number briefly highlighted in Dediu’s chart above, but more fully explored a few days ago here: Apple captured two thirds of available mobile phone profits in Q2.

Take a moment to let that sink in. Apple now controls over 66 percent of all the profits amongst the major players in the mobile space. HTC, RIM, LG, Sony-Ericsson, Samsung Motorola, and Nokia combined for the other 33 or so percent of profits in the space (with a few of them: Nokia, Motorola, LG, and Sony actually losing money).

Apple, the company “losing” the great mobile race to Android, is destroying all the Android manufacturers combined when it comes to profits. You know, the money you get to keep at the end of the day. In business terms, really the only thing that matters.

While everyone is distracted by the raw numbers battle, Apple is quietly winning the real war.

Obviously, Google is nowhere to be seen in these numbers because they don’t actually make the Android phones, just the OS that powers them. If you were to include them on the profit chart, they’d be a tiny sliver. As big as Android has gotten, Google still doesn’t make much money off of the OS — at least nothing near what Apple is seeing quarter to quarter from the iPhone. And as Benchmark Capital partner Bill Gurley pointed out a few months ago, maybe the point of Android isn’t really the profits for Google.

Sure, you could argue that if Android continues to eat up market share, eventually, they should win over developers which could lead to Android phones ultimately making more money than the iPhone. But two years after Android started “winning”, there are absolutely no signs of that actually happening. Instead, the opposite is happening. Apple’s profit dominance continues to grow with each quarter.

Further, I’m not so sure that Android’s market share is going to continue to grow once the iPhone 5 launches on both Verizon and AT&T in the U.S. and dozens of other carriers around the world. There are already plenty of signs that Android’s march is slowing and/or stopped. And if the rumors of a lower-cost iPhone are accurate, Apple’s massive growth in places like China may be just the beginning.

But I think Apple is just fine having everyone believe that Android is dominating the mobile space. They’re wiping their tears of defeat with cold hard cash.