Network Effects in Smartphone Market Share: Rise of the Androids
http://www.bizjournals.com/sanjose/news/2016/11/03/android-wins-the-war-for-smartphone-operating.html
http://www.forbes.com/sites/chuckjones/2016/04/09/apples-iphone-market-share-showing-typical-seasonality/#66230c979815
In 2008, when Android was introduced, the now obsolete Nokia Symbian OS had about half the smartphone market share (with Blackberry, Apple, and Windows controlling the rest), and at its peak in 2012, Apple’s iOS held the majority of the smartphone market. Now, in terms of sales, only 14% of devices sold in Q3 2016 were powered by iOS, with Android dominating the rest of the market share.
The main question behind these trends is: how did Android come to dominate the smartphone market even though Apple gained the majority well after the former’s launch? Did Android improve that greatly, or iOS decline so far? Exactly which factors contributed to Android’s victory, and how much each one contributed to the result are uncertain. However, network effects are definitely an important contribution.
While the rise of Samsung and its OLED displays and the great improvements in Android from Alpha to Nougat are important factors to consider, network effects are pervasive in smartphone usage and value. Development for Google Play vs. the Apple App Store is particularly important: when Android (and other iPhone-like smartphones) came out, Apple had a massive lead in functional games and apps for iOS. This gap has since closed or reversed, with the more accessible Google Play becoming much more attractive for developers. Other smaller factors, such as simply having more chargers and devices available (USB vs. Apple’s 30-pin or Lightning connectors) also increase the value of having an Android-powered smartphone.
These network effects are positive externalities: as more individuals switch to Android, the OS becomes even more attractive. It works the same way (and in reverse) for Apple: iPhone users benefit from developer focus on iOS, the proliferation of Lightning charging ports, and the increase in proportion of iMessage users. As Android steadily increased in market share since 2008, it has also increased in value. In this way, a consumer in 2012 may choose an iPhone over a Samsung because of the App Store of iMessage but decide to switch teams in two years when those network effects are no longer as strong and market share has shifted toward Android.
In class, we discussed the power of network effects. It’s clear that such effects can have a significant influence on the smartphone market, as well as other markets (to stay in the theme of devices, perhaps Xbox vs. Playstation). It will be interesting to see if Android keeps increasing in sales and market share, or if it has perhaps reached its equilibrium and the rest of consumers value other products more highly.