Why Google Needs to ‘Do an Apple With Motorola’ to Make Play a Success

2012 has been a fantastic year for smartphones, with penetration pushing past the 50% mark in key markets such as the UK and US (some estimates even put US penetration as high as 70%).  Apple’s iPhone is the leading smartphone in most key markets but Google’s Android Operating System (OS) has much larger market share: c. 70% compared to c. 20% for iOS (Gartner estimated global market shares to be 64% and 19% respectively back in Q2 2012).  But these market share statistics can be misleading, particularly when it comes to understanding the digital content and services marketplaces.

Android Fragmentation Complicates Content Strategy

The fragmented nature of the Android landscape is well documented but close analysis of key metrics reveals some startling trends with significant implications for content providers (see figure):

Of course there are many mitigating factors, but that simply does not matter from a consumer perspective nor indeed from a content owner’s perspective.  Both iOS and Android have got vast App catalogues (750k and 650k respectively) and both have vast numbers of apps downloaded (35 billion and 25 billion respectively).  Both also have huge installed bases of devices: 450 million iOS devices and 600 million Android devices.  But there is only one clear leader in paid content: Apple.

Looking just at music sales, Apple’s music annual music sales (based on the last reported 12 months) equate to approximately $4.00 per iOS device, compared to just 50 cents per Android device.  Apple wins in part because of its longer presence in market, but more importantly because it exercises complete control of the user journey in a closed ecosystem.

 

The Importance of Closed Ecosystems

The success stories of paid content to date are closed ecosystems: iTunes / iOS, Playstation, xBox, Kindle.  Though the controlled nature of these ecosystems may limit user freedom, they guarantee a quality of user experience.  In these post-scarcity days of content, the quality of experience becomes a scarce experience which people are willing to pay for.  Google simply cannot exercise that degree of control because of its pursuit of a less-closed (but not wholly open) ecosystem strategy.  It depends upon device manufacturers to determine the user experience and also gives other value chain members much more control, such as allowing operators (Vodafone) and retailers (Amazon) to open their own Android stores, as well as, of course handset manufacturers (Sony).

Smartphones with Dumb Users

In a pure mobile handset analysis this doesn’t matter too much.  But from a content strategy perspective it matters massively so.    The problem is compounded by the fact that that as smartphones go mainstream the user base sophistication dilutes.   With so many consumers increasingly buying smartphones because they are cheap and on a good tariff, rather than for their smartphone functionality we are ending up with a scenario of smartphones with dumb users.  (I am indebted to my former Jupiter colleague Ian Foggfor this phrase). This factor arguably affects Android devices more than it does Apple devices because a) they are more mainstream b) they are often cheaper.  This matters for content owners because the more engaged, more tech savvy smartphone owners are also the ones most likely to pay for content.

Google Needs to ‘Do An Apple’ and Not ‘A Microsoft’

With growth slowing in the digital music space, it is clear that new momentum is needed.  Google is potentially the strongest opportunity to bring mass market traction to the digital music space, but currently its music strategy, and paid content strategy in general, is falling short due to all of the reasons outlined above.

Google does however have an incredibly strong set of assets at its disposal, in terms of installed based and growing adoption.  If Google is serious about making its Play strategy a success then it needs to start putting itself first.  Back in the early 2000’s Microsoft expected to be the dominant force in digital music because Windows Media Player was the #1 music player and Windows DRM was the industry standard rights protection.  But instead of pushing ahead with a bold Microsoft music offering it relied upon its hardware and services partners to do it for them.  Just as Google now is sensitive to the concerns of its commercial partners, so Microsoft was then.  Of course Microsoft lost the battle and their softly-softly approach was powerless to fight off the rapid onslaught of iTunes.   Microsoft eventually realized that it needed to go it alone, launching Zune, but it was too little, too late.  Interestingly there wasn’t much a backlash from commercial partners when it did so. Launching a standalone music strategy was actually compatible with being a platform partner.

Now Google has an opportunity to learn from both Microsoft’s mistakes and Apple’s success by turning its recently acquired asset Motorola into a closed Play ecosystem to rival iTunes.  This doesn’t preclude Android partners from continuing to build their own devices and app stores, but it does create a paid content beachhead for Google, from which it can build a base of highly engaged digital consumers who will quickly learn to value the benefits of a high quality, unified content and device experience.  In a Motorola ecosystem Google can truly allow Google+ and Play to become the glue that binds together its diverse set of valuable assets.  Without it though, Play will continue to struggle for relevance in a fragmented and confusing Android user journey.

 

Why Apple’s Impact on Media Companies Has Only Just Got Started

There was a sense of disappointment in some quarters yesterday as Apple announced the third generation iPod, largely because it looks pretty much like a better version of the iPad2 rather than a dramatic step change.  But it was the right move for Apple.  The history of Apple’s device business in the last decade and bit has been a highly effective blend of step change, and evolution.

An Evolutionary Update for iPad3 Was The Right Move

There was no need for Apple to revolutionize the iPad now.  It is the market leading device that is still the most eagerly sought after and is continuing to leave the competition in its wake (latest figures from Forrester suggest that no single competitor has more than 5% market share).  Just as the iPhone 4S was an incremental update that left some industry observers disappointed but actually went on to perform fantastically in terms of sales, so the iPad3 delivers enhancements without breaking the winning formula.  It also enables Apple to push down prices on the iPad2, effectively turning it into the entry level device for iPad customers – a smart strategy which Apple has used to great effect with the iPhone range.

What iPad Lacks in iPod’s Scale It Makes Up for In Momentum

To date Apple has sold 55.2 million iPads (see figure), no mean feat in less than 2 full years of sales.  But to put those figures in context, Apple has sold 334.5 million iPods.  Add that to the 183 million iPhones sold and it is clear that the majority of Apple’s iDevice customers do not have iPads.  iPods and iPhones remain Apple’s most pervasive impact on media consumption and yet the iPad appears to be the one having most dramatic impact on media business models.  There are three key reasons for this:

  • iPad owners are highly valuable, leading indicator customers. iPad owners are the cream of Apple’s already tech skewed audience.  They spend the most and value content the most.  The ROI on developing for this current installed base alone is enough to justify the pivoting of many major media companies’ content strategies.  But iPad owners also give us an indication of what future consumers will want.
  • Tablets are a tailor made for media experiences. As much as media companies wanted to embrace mobile, mobile phones always had the frustrating restriction of tiny screens, forcing media companies to crush down their carefully crafted content into artificially small chunks.  Tablets on the other hand present most of the benefits of mobile with the visual capabilities of PC but with the added benefit of touch.  Thus while mobile was always a case of cutting down to optimize, tablets actually enable media companies to deliver richer user experiences than ever before.
  • iPad growth is dramatic, and some.  It took Apple 7 quarters to reach 55 million iPad sales.  It took them nearly 5 years to reach the same milestone for iPods.  Of course there are numerous mitigating factors (the increased presence of Apple is just one) but the momentum is clearly with the iPad. 

The TV is Apple’s Way of Really Getting Into the Living Room

So the case for media companies’ obsession with the iPad has no small amount of justification (though of course it should be part of a blended device and platform and device strategy that matches the behaviors and needs of the target audience, not the personal device preference of senior management).  But at risk of sowing fear, uncertainty and doubt (FUD) into the minds of content strategists, beware, Apple has got its sights on a new market: the TV.  It seems increasingly likely that Apple will launch a fully-fledged TV product later this year.  Whether they do or not, this is Apple’s next new market.  Of course Apple has patiently plodded away with Apple TV for years, a product that still – uncharacteristically for Apple – lacks identity and if TV wasn’t so important for Apple would have gone the way of the Newton long ago.

TV matters for Apple because it needs a foothold in the living room:

  • Living room technology spend is all about the TV.  Consumers used to change their Hi-Fi just because the manufacturer changed the colour, now living room tech spend is firmly focused on the TV.  Having an iPod temporarily plugged into another company’s docking station is simply not enough for Apple.  Air Port Express and Apple TV aren’t enough either.  And though Apple shows little appetite for trying to reignite the Hi-Fi space – they can leave that battle to Sonos and Google – they do know that getting into the TV corner of the room opens up a whole new market for them in the way the iPhone did.
  • New markets accelerate growth.  Opening up new markets is important for Apple.  Unlike a company like Samsung,  Apple do not play for the whole market, they play for the upper part of it – not the top, as their entry level device strategy attests – but certainly from the upper mid upwards.  This means that each of their range of devices has a theoretical ceiling and Apple’s way of sustaining market momentum is to find a new market to address before growth in the former slows. (Note that hardly an eyebrow is raised at the fact that iPod growth has been in decline since 2010).  And though some might say TV feels like an unnatural fit for Apple, I remember first joining Apple analyst briefings soon after the iPod launched.  Everyone was asking questions about server and education strategy and gave me very bemused looks when I started asking questions about music strategy!  TV  is in actual fact a much better fit for Apple 2012 than iPod was for Apple 2001.
  • TV helps establish the iPad in the living room. The iPad has many great use cases, and the living room is certainly one of them. But Apple doesn’t want it to go the way of the laptop in the living room and just become a tertiary device for multitasking when you are bored with what’s on the TV.  Instead Apple wants the iPad to become our universal remote control – in the way that the iPhone once looked like it might.  And to do that, it really needs to have a great big piece of Apple – or Apple integrated – kit where the TV currently sits.

Apple’s TV Strategy Could Kill Off Connected TVs

When Apple does finally play its TV card – and there are many, many things it could do – expect it to transform the sector in the way it did the smartphone sector with the iPhone.  Yes, a whole market of TV manufacturers are rightly concerned. Not just because of the competitive threat but because Apple’s TV strategy could well leave their Connected TV strategies stillborn.  I’ve been a technology analyst for long enough to see a few false dawns for interactive TV.  While connected TVs are much better than what has come before, they deliver much inferior browsing and interactive experiences to PCs and tablets.  And therein lies the problem: TV companies are trying to squeeze the Internet into TV, which is a doomed to failure.  Because we know that TV (i.e. video) experiences already work great on the web. The TV is already in the Internet.  The missing piece is simply taking the TV that is in the Internet and placing it in the TV set in a seamless, elegant, convenient and highly interactive way.  And we all know which company builds those principles into its product DNA.  When Apple flicks the switch on its TV strategy it will instantly remove the distinction between TV and web.

Apple has spent the last decade transforming media businesses and content experiences.  But the media companies pay heed: the journey has only just begun.