The Smartphone Population

The Smartphone Population

The article I studied is a podcast by the investment firm Andreessen Horowitz that describes the smartphone industry. This article was particularly interesting to me because of my interest in working for a mobile development company.

The smart phone industry only has a few big players making it an oligopoly. When key players make changes the industry is dramatically affected. An example is Apple’s recent addition of the Apple Pay feature. This feature makes it simpler to make purchases in apps on an iPhone. Ease of use is a large driver for mobile users and the addition of Apple Pay may push the demand curve for in app purchases to the right.

The population of smartphone users also has an interesting dynamic. Google currently has approximately 75% of the market share for smartphones. Apple has approximately 15%, and the rest is split among a few other players. The interesting thing is that Apple has the majority of high end users, and therefore a majority of the revenue for apps. For an app developer, this creates an interesting situation. You can focus on the larger population of Android users, or pursue the smaller but more profitable population of iPhone users.

Another interesting point that the investment analysts made is that the smartphone market is sometimes treated like the personal computer market. The personal computer market has been similar to a commodity market. Like the computer industry the smartphone industry only has a few major inputs. Those major inputs, ram, storage, processors, screens, developer hours, are all the same for the computer and smartphone industries.

The difference one of the analysts pointed out is that phones go everywhere with you. This makes style and ease of use more important features. The phone industry is much less of a commodity industry than the computer industry.  The size, replacement cycle, and higher end aspects of the phone industry make it much more appealing as an industry because there is room for long-term sustainable competitive advantages.

The article Mobile is Eating the World – and Apple is Gobbling the Fastest can be found online here: http://a16z.com/2015/01/30/a16z-podcast-mobile-is-eating-the-world-and-apple-is-gobbling-fastest/

1 comment:

Dave Tufte said...

Ty: 100/100.

I'd like to see your link cleaned up Ty.

I wouldn't jump too quickly to assume this market is an oligopoly. There's a tendency on the part of students to take the textbook definitions ... a little too seriously. If you think about the "requirements" for each of the 4 types of market structures listed in texts, it's hard to see how most businesses fit into any of them. For my part, I like to think of perfect competition having very loose boundaries, and the other three as having very strict boundaries.

I don't know that it's correct to say that Apple has "the majority of high end users". They certainly have the majority of something. I'm not really sure that this is anything other than Apple users having more inelastic demand, that Apple takes advantage of with high markups.

The phrase "commodity market" is thrown around casually. I think what they mean (in ManEc) is that there are many substitutes, so demand is elastic, and markups are small. I don't really see the smartphone market as being special in this regard. I just think it's a lot earlier in the industry cycle: I'd bet in 5-10 years we'll be talking about how smartphones have been commoditized.

Any time we bring up Apple in these contexts, we need to be aware that we're talking about a company that's done things differently from what people view as its competitors for a very long time. What Apple does is develop hardware and software that need each other to work. This is not really what Microsoft, or Google, or Samsung, or LG really do. Instead, the firms with business models like Apple are more like Nintendo, or Sony's Playstation unit, or Microsoft's XBox division. I'm not making any deep statement with this observation, just remarking that maybe we group producers improperly.