Post-I/O Thoughts

Post-Google I/O, there’s not much room left to see iPhone-vs.-Android as anything other than an all-out war. What we’ve got here is a good old-fashioned epic rivalry.

It’s exciting, vicious, fun to watch, and ultimately should prove to be excellent news for consumers. Competition drives innovation and innovation raises the bar for everyone. And the bar, for smartphones, is rising quickly.

Like any great rivalry, there are striking differences between the two competitors. Apple and Google are jostling to shift the comparison between the two platforms to their very different strengths. Apple’s strengths: user experience, design, consistency. Google’s strengths: the cloud, variety, permissiveness.

The most interesting upcoming Android feature that Google demoed at I/O is a “cloud-to-device” messaging API. Examples of how they’re going to use it:

Buy an app (or song, or anything) from the Android Marketplace using a PC web browser, select one of your Android devices, and the item you just purchased will be pushed directly to that device over the air.

Take the current URL from your PC web browser and push it to your device, over the air. If it’s a web page, it’ll open in the Android web browser; if it’s a Google Maps URL, it’ll open in the Android Maps app.

One area where the iPhone has been far ahead of Android is in terms of backing up and restoring data. Buy a new iPhone, or install a major OS update, and when you re-sync with iTunes on your desktop, all your apps and data are re-installed. (After upgrading my 3GS to the iPhone OS 4 developer betas recently, I noticed that even the web pages I’d left open in MobileSafari were restored.)

Android doesn’t have that. Upgrade to a new Android device, and there is no way to transfer your data from the old device to the new one. Google is upping the ante on the iPhone here, though, by adding cloud-based data backup for Android applications. The way it should work: get a new Android device, log in with your Google account, and your apps and data are restored to the device, over the air.

Android has nothing today that competes with the iPad. But we all know Android-based iPad-like tablets are surely coming.1 As I noted in my iPad review, the oddest part of the iPad experience is what happens when you first take it out of the box:

One thing that is very iPhone-like about iPad is that when you first take it out of the box, it wants to be plugged into your Mac or PC via USB and sync with iTunes. In some ways, that’s understandable. USB syncing is how you load your iPad with music and videos and transfer over stuff like your email accounts, and, if you’re not using MobileMe, your contacts and calendars. But, on the whole, it feels retrograde. It creates an impression that the iPad does not stand on its own. It’s a child that still needs a parent. But it’s not a young child. It’s more like a teenager. It’s close. So close that it feels like it ought to be able to stand on its own.

It’s obvious that iPhone OS and Android devices are paving the way to a post-PC future, where by “PC” I mean both Mac and Windows machines. The simplicity of these mobile devices is their core strength, but it also means that they can’t do everything a PC can. iPhone OS devices rely upon a PC, iTunes, and USB syncing to manage this gap. Android devices rely upon servers in the cloud.

Relying upon a PC is ipso facto not “post-PC”, and the challenge for Apple is that they’ve never demonstrated the sort of expertise needed to do this via the cloud. Over-the-air syncing, backup, and system updates need to be something that “just happens”.

‘No Chance’

The big loser this week, though, was Microsoft. They’re simply not even part of the game. RIM looms large, as BlackBerrys continue to reign as the best-selling smartphones in the U.S. But Microsoft? They’ve got nothing. No interesting devices, weak sales, and a shrinking user base. Microsoft’s irrelevance is taken for granted.

Google’s competitive focus on the iPhone at I/O was intense and scathing. But it’s Microsoft’s lunch they’re eating. Apple’s and RIM’s game is selling the integrated whole — their own devices, running their own software. Google is playing Microsoft’s game — licensing a platform to many device makers.

The big problem for Microsoft is not that there isn’t, in theory, room for more than one licensed mobile platform, but rather that Microsoft’s model hinges upon monopoly-sized market share. Apple could positively thrive with a long-term mobile market share of, say, 20-25 percent. In the PC industry, Apple generates an outsized share of the profits despite selling only 5 percent of the total units worldwide, because all of Apple’s PCs are in the middle and high price range of the market. In the phone industry today — all mobile phones, not just smartphones — Nokia sells more than 10 times as many units as Apple, but Apple generates more profit.

Microsoft can’t afford for its mobile platform to account for just a sliver of the industry’s unit sales. Their licensing model is all about volume — low per-unit profits multiplied by an enormous number of units. They’re not selling $400-600 phones, they’re selling $8-15 licenses for an OS.

But Google lets carriers and handset makers license Android for free. And not only has Google cut the bottom out of the market price-wise, by the time Windows Phone 7 phones actually come to market, Android will have two complete years of momentum and market share behind it.

Three years ago, just before the original iPhone shipped, here’s what Steve Ballmer said in an interview with USA Today’s David Lieberman:

“There’s no chance that the iPhone is going to get any significant market share. No chance. It’s a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I’d prefer to have our software in 60 percent or 70 percent or 80 percent of them, than I would to have 2 percent or 3 percent, which is what Apple might get.”

Not only was he wrong about the iPhone, but he was even more wrong about Windows Mobile. Three years ago Ballmer was talking about 60, 70, 80 percent market share. This week, Gartner reported that Windows Mobile has dropped to 6.8 percent market share in worldwide smartphone sales, down dramatically from 10.2 percent a year ago. (The same report puts iPhone OS at 15.2 percent, and Android at 9.6.)

Microsoft can’t undercut Android on price, and it seems increasingly unlikely that they can beat Android in terms of features or experience. They didn’t warrant even a passing reference from Google at I/O. No chance, indeed.