Android was meant to buy Google an escape from Apple’s platform lock-in. With as much as 90% of the global smartphone market, at least, as measured by sales, Google’s mission seemed complete. That is, until Apple reportedly collected $3 billion from Google to remain the default search engine on iOS devices, up from $1 billion just three years ago.
Running the numbers, iOS contributes as much as 50% of Google’s mobile search revenues. While Alphabet/Google would undoubtedly love to stop paying Apple the licensing dollars, it simply can’t afford to step away from the gravitational force of Apple’s platform. In short, Google’s Eric Schmidt was right: Search competition is just a click away, but Apple’s platform is dramatically stickier.
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The gift that keeps on giving
Don’t get me wrong: Google’s search-based advertising business mints lots (and lots) of cash, netting the company a roughly $650 billion market cap. Apple, however, which has largely eschewed online advertising (despite buying a company in the space), is worth $815 billion. While that valuation comes down to selling high-margin smartphones, the real value of Apple’s business is in iOS and the ecosystem it enables.
Not to mention the ecosystem that pays to gravitate around the iOS sun. As Ampool founder and CEO Milind Bhandarkar told me, “The best search service pays the best platform. Not the other way around.” Though it’s true that Google’s search dominates the top-two platforms, iOS and Android, it’s telling that the platform pull is to iOS, not Google’s search.
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A big part of the value in Apple’s ecosystem derives from money; that is, the amount of money Apple customers pay to advertisers and others orbiting around iOS. By some estimates, Apple’s iOS users spend 5X more than Android users. That’s for apps, but if we look at consumers using their iOS or Android phones to shop, Apple customers spend significantly more than their Android peers, $9.91 vs. $5.20 for mobile proximity payments and $32.12 per transaction vs. $29.66 per transaction for online payments.
Keeping up with the iOS Joneses
Nor does it help that Android users tend to lag behind when it comes to the latest and greatest operating system features. This isn’t because Android doesn’t have such features, but rather because Android customers are generally a release or two behind. As analyst Jan Dawson has highlighted, “[F]or the last few versions of Android, each version has achieved lower penetration in the first year than the version before it.”
Here’s how it looks:
Indeed, as Dawson points out, the most popular release of Android is Marshmallow… first released in October 2015.
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By contrast, Apple reports that 87% of its users are now on iOS 10, its latest operating system, taking advantage of new features like Apple Pay (for the mobile web), integration of Siri with third-party services, and more. Even things like the ability to take (and now edit) Live Photos makes iOS a more engaging platform for many, encouraging them to use their phone more often and for more things. Small wonder that services like Apple Pay are taking off in a big way.
Which isn’t to suggest that iOS is better in any objective sense. When I had my Google Pixel, running the then most current version of Android, I absolutely loved it. Even so, as much as I use Google for search and other services, the company I’m going to keep dumping money into is Apple, because the gravitational force of its platform simply won’t let me stray too far. Apparently, I’m not alone.
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