What businesses does Android disrupt? The phrase floated out of a comment on the Technology blog earlier today, and it seemed an apposite one to examine, because the answers might not be what you would expect.

Many people would react to the question by saying "Obvious, innit? Apple and Microsoft in the smartphone market." The logical extension of that thinking is that Android is aiming to disrupt every rival offering in the smartphone market - not just Apple and Microsoft, but also RIM and Symbian (and Meego and Bada and Linux).

And if you took the argument even further, you could suggest that Android aims to disrupt the entire smartphone market, the whole model. Android gives you the first truly ad-supported phone. The cost sunk into writing the software for the licence is amortised through Google's mobile ads (and to a much lesser extent through apps sold through its app store; but Google probably does better monetising the web than apps).

The handset maker then makes the standard profit on selling the phone to the carrier, and the carrier makes the usual profit on selling to the customer - who defrays the cost of Android's development advert by advert.

Microsoft, by contrast, gets the licence fee upfront from the handset maker (though in Nokia's case, money passes back and forth - Microsoft pays Nokia a very large marketing budget).

Apple and RIM don't license at all; they make their profits on the handsets alone, and tie people into the devices through the services they offer.

However I don't think that's right. I don't think Android is really disrupting the smartphone market. And the explanation for what it is disrupting goes some of the way, I think, to explaining how little headway it has made so far in the tablet market.

Defining disruption

Of course it helps to define what "disruption" means. To quote Wikipedia:

A disruptive innovation is an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology. The term is used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically first by designing for a different set of consumers in the new market and later by lowering prices in the existing market.

So if we use that as our guide, what is Android disrupting? I'd say that it's none of the smartphone companies per se.

Is that defensible? Sure. RIM wasn't disrupted by Android; the iPhone did (and still is doing) that. You see very few stories about Android phones replacing BlackBerrys in enterprises; plenty, if you look, about iPhones replacing them. Part of that is because the iPhone has the hardware-level encryption that is demanded of an enterprise-grade smartphone. But it's also because the iPhone's touchscreen displaced the keyboard. See above: "displacing an earlier technology". Android is certainly helping deliver the coup de grace to RIM in the US consumer market, by offering an affordable alternative (some even with keyboards). But Android isn't the proximate cause of RIM's problems.

In the same way, Symbian looked solid - and for a long time it was. But again, the iPhone showed the rest of the market that there was a viable alternative to the clunky menu-driven interface of Symbian. Android, again, provided the coup de grace.

Microsoft's Windows Mobile? That was actually dying by the time the iPhone and certainly once Android came out. It was staggering under the weight of the different elements that corporate customers wanted. (More details in my book. I'll let you find it.) The iPhone provided the nudge that made Windows Mobile begin to waver; Android made it topple completely, and drove Microsoft to create Windows Phone.

But Microsoft is still pretty determined to get back into the smartphone market - as is Nokia. RIM too isn't taking its fate lying down, and has many promises around BB10. The key thing to notice in all this is that Android hasn't taken away the potential for these other companies to compete: they can still build a model and the carriers are eager to see them offer their wares. The reason why Palm died wasn't because Android (or the iPhone) was fantastically better as a handset or an OS; Palm's WebOS was well-liked by its users and well-received by reviewers. But it didn't get enough carrier support and didn't have the volume of manufacturing that it needed to compete; the smartphone landscape had moved on in scale and requirements from the time when Palm had had a significant share (it peaked in the second quarter of 2008 at about 2% according to Gartner, which only started giving smartphone figures in the first quarter of 2007).

Carrier-ing on

So is Android disrupting the carrier element of the mobile phone business? No. If anything, Android has strengthened that side. Google wants as many carriers as possible to sell Android phones - that's how you get market share, and because the phones are ad-supported the more the better; it defrays the cost of software development faster. The business model for the carriers is exactly as it was before Android: sell a variety of phones from a variety of handset makers at a variety of prices. No disruption there.

So what is Android disrupting? Two businesses:

• featurephone handset makers; and

• Google's desktop model.

Both are intentional; Google's leaders take the (wise) view that if anyone should be disrupting their business, it's them.

But for featurephone makers, the arrival of Android is bad news. It is, without a doubt, "an innovation that helps create a new market and value network, and eventually goes on to disrupt an existing market and value network (over a few years or decades), displacing an earlier technology". That's because Android drives the cost of an internet-enabled phone down towards zero - meaning that something which was previously a premium element in a featurephone (and so could be charged for) is now a commodity. That creates a dual problem for featurephone makers who want to compete with Android phones: potential buyers may come to expect it, but if they don't use Android then they have to develop their own software to provide that capability. And it probably won't be as good as Google's (because of the huge resources and time Google has put into it).

So now, featurephone makers who want to compete with Android handsets have three problems: buyers expect internet connectivity, they aren't prepared to pay extra for it (because it's a commodity - all those Android handsets offer it) and they have big costs associated with developing their own interface.

Faced with that, the sensible course is to go with Android. That's disruption. Here's what it's looking like:



It's a good bet that without Android, smartphone growth would look nothing like that - especially because huge numbers of them are being sold in China at rock-bottom prices (compared to western prices). Android has enabled that.

Horace Dediu has graphed the smartphone shares of various companies in this space.



Clearly, having a smartphone-only business isn't a guarantee of good fortune (hello HTC and RIM). But of the others, only Samsung has been profitable during the course of that graph.

You can see the disruption happening with companies that focus too heavily on featurephones: LG and Motorola have had a torrid time in the past few quarters because they have lagged in the smartphone space. Nokia is noticeable because such a large proportion of its sales (now) are in the featurephone space, though you could argue that the Asha range is semi-smart (using S40, which is internet-enabled, and apparently used for that in countries such as India).

Even so, there's plenty of headroom left in the mobile phone space: even though Chinese buyers are snapping up cheap Android smartphones, there are still millions of phones being shipped every quarter that aren't smart, and so represent a target for Android's disruption.

What's more, if Android drives featurephone makers out (or up, to make smartphones) then it isn't disrupting the smartphone space; it's creating it. It's making the market for smartphones bigger, which creates spaces for players at all levels. Some might even have their own software stack, or use stacks built by other companies. So Android is not wiping out the smartphone space - even though it is taking a huge chunk of the existing one (about 75% of shipments, according to IDC and Gartner).

And the arrival of smartphones is an indisputably good thing, as I've said before: getting the power of the internet, and apps, into everyone's hands means academic, financial and medical knowledge isn't limited by whether a book, bank or doctor can physically reach you. It can all come over the air.

The other disruption

The other disruption: Google's desktop business. Even though this is really solid, Google knows that mobile is where it's all going. The decision to buy Android, led by Andy Rubin, in 2005 was taken without reference to Eric Schmidt, then the chairman, because it was so clear to Larry Page that this was the way forward. Better to disrupt your business with something that will in the end be bigger (because the potential ownership of mobiles is every person on the planet; desktop or laptop computers, somewhat smaller). Again, Android - with its data-gathering system feeding into the ads that you get offered on searches and in some apps - is ideally suited to the task: it's bringing new technology to the space.

Meanwhile, in the tablet market

And finally, one thing that Android isn't disrupting - and with the above in mind, it's clear why: the tablet space.

Looking at the figures, Apple has had more than 50% of the market since the iPad went on sale in April 2010. Efforts by all sorts of companies to crack that haven't amounted to much so far; perhaps the arrival of the Nexus 10 and Nexus 7 will change that, although Amazon seems a bigger threat - except that the iPad mini's early sales seem to point to continuing dominance.

So why isn't Android disrupting tablets? Because there wasn't anything there to disrupt. Unlike the mobile phone market, where there was an existing low-technology product for Android to come along and be better than - remember "displacing an earlier technology" in the definition above - there just hasn't been any such thing in the tablet market, because it's so young. Instead it has come down to a retail competition over prices, apps, distribution. There's no disruption going on within that market, because there's no pre-existing market to disrupt. What is being disrupted by tablets is the PC market, which is seeing the money and the life being sucked away. That's a key part of why Microsoft has pushed Windows 8 out to ARM and onto tablets: it's the tablet as a form factor that is the disruptor - not what OS it's running.