Android being cheap doesn't mean that Apple has to lose

By Nathaniel Mott , written on January 22, 2013

From The News Desk

It seems that the only thing anyone can talk about in the mobile industry is the race to develop ever-cheaper devices. Call it the WalMart-ization of smartphones, as my colleague Hamish McKenzie did, or call it "tailoring products to developing markets," as a politically correct blogger would, but cheaper devices have fascinated bloggers almost as much as the rise of the "phablet."

Now Gizmodo's Sam Biddle argues that Android is gaining marketshare because it's cheap for manufacturers, not because it's the best operating system. He writes:

And while Android has finally come into its own as a sophisticated, refined mobile OS that deserves to be purchased in large numbers, Android isn't winning just on merit. Phones like the Nexus 4 and Galaxy SIII are tremendous as both pieces of hardware and containers for smart, thoughtful software. Each is a pleasure to use, but that's not Android's sharpest knife.

Android's success isn't really about these phones. It's about the ZTE Warp, LG Motion, and Samsung Captivate—which retail for $100, $50, and a penny, respectively. It's about these marginal, middling phones that can be sold like bags of Doritos or bargain-bin sweaters—they're priced to move, not priced to be ogled at or aspired towards. And it's working. Fair points. Many companies are trying to figure out how best to handle the global economy, whether it's Google and Facebook's sponsoring of data connections in developing markets, "cheap" devices built specifically for foreign markets, like China's Xiaomi, or Apple's introduction of installment pricing in China. The fight for smartphone dominance is a fight for the entire world, and not all of the world can afford an iPhone.

But another part of Biddle's argument, that "As long as Android can keep feeding itself to companies and drive budget electronics, it'll have its foot on the iPhone's throat as a populist standby—and the Zooey Deschanels among us will start to feel like the real minority they are," rings false.

One would expect, given Biddle's argument, that iPhone sales would slow as US citizens' income falls. Less money means more Android phones sold, right?

And hey, incomes are falling. Check out this graph, from Pew:

Screen Shot 2013-01-22 at 4.26.48 PM

That's the median household income in the US. It's going down, down, down, and has been since the iPhone's introduction. Android has skyrocketed despite this fall, so the first part of Biddle's argument is sound. But here's iPhone activations across all carriers, as compiled by analyst Horace Dediu:


Like Android, iOS has continued to sell more devices despite the falling median household income.

Now, a decline in US incomes isn't the same level of income disparity that we see between the US and the emerging all. So this may not be the case around the world, but given the fact that tightening budgets have even impacted the love affair the US has with soda (or pop, if you're from somewhere other than the East Coast), one would expect to see some impact if Biddle's argument is right.

But the graphs tell a different story. It may be possible that the market is growing so quickly the two aren't in lockstep. Put another way: Android is popular around the world because of its low price, but that doesn't prove it's exactly holding a heel to anyone's throat. The plain truth is both Google and Apple dwarf their competitors, and Google's slice of the market is much larger than Apple's. But Android isn't really hurting iPhone sales. Not yet, anyway.

Apple is playing a familiar game. It has always sold its prices for a premium and eschewed Microsoft's -- and now Google's -- "be everywhere" approach. That seems unlikely to change any time soon, particularly given the robust growth Apple is seeing in the largest market in the emerging world, China. This despite, Android's strong and growing presence in the country as well.

Bloggers who sit comfortably in the US frequently make the mistake of assuming the emerging world acts as some monolith. The reality is that dozens of countries are climbing into middle class income brackets and modernity, and that their populations in aggregate make up half of the world's population. To assume any one phone would appeal to all of them is as silly as assuming they're all surging into middle class incomes at the same rate. There will be parts of the emerging world's income bracket where Android cannibalizes more from Nokia than Apple. Apple can still grow handily as that happens without batting an eyelash.

Android being cheap helps Google. It has had a notable impact on the smartphone market, with many operating systems touching on Google's strategy (or raiding its app store). But I have yet to see figures that prove Apple should play that game. Zooey Deschanel and mass-market Doritos can coexist.