Who Will Win The App War?

Anindya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Google (NASDAQ: GOOG) Chairman Eric Schmidt believes that Android's war with Apple’s (NASDAQ: AAPL) iOS is just about over -- and that his team won. Speaking to Bloomberg in an interview, Schmidt said that Android's ongoing market-share battle with Apple's iOS is of the scale of 20 years ago -- Microsoft (NASDAQ: MSFT) versus Apple. He went on to say that in his opinion, "We're winning that war pretty clearly now."

The next frontier for profits on mobile phones, after hardware and operating systems, will be in offering different services via robust apps that will generate new revenue streams. Apps are the building blocks to monetize a mobile operating system.

Google’s Android and Apple’s iOS operating systems are undoubtedly the most popular mobile platforms, and Google may have won the OS war as Schmidt claims. But as an investor I’ve tried to find out if Google is in the best position to grab the maximum market share from mobile apps. In this article I will share my view about Google’s potential in the future of mobility.

Is it true that winning the OS war naturally leads to winning the apps war? Yes, to some extent it is true, because many necessary apps come preloaded with the OS. But with the advent of the Internet of Things or M2M opportunities, customers will have to buy costly apps from app stores, where cross-platform compatible apps are also available.

Google is Getting Their Services on iOS Devices

Devices based on iOS are Apple's main cash cow, while to Google Android is only 1 of 7 of their core businesses, and it barely makes any money, but they don't care at all. For them it's about getting their services in front of as many users as possible.

Google has quietly worked to offer a host of mobile and web services that now makes the Mountain View giant a force on Apple’s mobile platform. Google’s dexterity here is quite impressive, as it can provide services for VOIP, chat, local, news, and so much more.

Mobile apps are core utilities, and Google is tactfully providing their services to iOS users by developing loads of useful apps for the iOS platform. Since Apple will not be able to undertake a similar strategy for Android, Google’s position to lock Android users into its integrated services and utilities will only get stronger. Moreover, if they can continue to build superior iOS apps, it will bolster their position for services -- the next frontier for profits on mobile.

Play Store vs. App Store

A new report has compared both app stores to see which one raked in more revenue in 2012. Google Play Store’s combined daily revenue has grown by 43%, according to the report. Apple’s App Store, in contrast, only grew by 21%. In terms of growth over the entire year, Apple’s App Store has seen an increase of 51% in the 20 nations analyzed in the report. This includes Australia, Canada, China, Denmark, Finland, France, Germany, Israel, Italy, Japan, Korea, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland, Taiwan, the UK, and the US.

The App Store earned $15 million in average daily revenue in November, just after the launch of iPhone 5 and iPad Mini, while the Google Play Store only reached $3.5 million at that time. This surge in app purchases has caused app prices to slump down by 8% compared to last January for Apple’s iPad. However, on a month-over-month basis, app prices were up by 16% for the iPhone.

Despite the iPhone’s popularity, Android dominates an overwhelming portion of the smartphone market share. This is why it comes as no surprise that Apple’s iPad accounted for most of the iOS platform’s revenue growth. Daily revenues for the iPhone increased by 40%, while apps for the iPad saw a 71% jump. The surge in app purchases signals the growing demand for a host of services that are offered via mobile.

Enough Developer Interest for Writing Apps for Microsoft and BlackBerry

The total number of smartphones worldwide will reach 1.4 billion by the end of 2013, and of this number, 45 million will reportedly be active Windows Phones, and 20 million will be BlackBerry’s (NASDAQ: BBRY) active BlackBerry 10s, according to ABI Research. In addition, Microsoft will likely have around 5.5 million Windows-powered tablets at the same time.

These numbers may seem unimpressive, but ABI is reporting that it is still enough to keep developers interested in writing apps for Windows Phones and BlackBerry 10, despite the steep competition they will face from Android and iOS.

Microsoft has had a lot of interest in writing for the operating system and has had to add staff and computers to process and approve the submissions, Antoine Leblond, the vice president in charge of the Windows app store, said in an interview. Because apps written for the program can be sold not just to tablets and smartphones users but to hundreds of millions of customers who will get Windows 8 on personal computers, Microsoft has a chance to win over more developers, Leblond said.

“Microsoft feels pretty strongly that the platform they have built is compelling to both users and developers,” said Wes Miller, an analyst at Directions on Microsoft in Kirkland, Washington. Miller’s own examination of the Windows app store indicates there were 7,873 apps worldwide, with hundreds being added daily. 

BlackBerry has announced a name change for its app store from App World to BlackBerry World. Along with the Bring Your Own Device (BYOD) trend incorporated into the BlackBerry, the company is focusing on integrating its new smartphones into different platforms. There are an endless amount of apps available for old App World, yet a large portion of them prove to be low quality and inefficient. For the new BlackBerry World, CEO Thorsten Heins said that it will aim for quality apps, not quantity, with about 70,000 applications available in the new BlackBerry World.

The Bottom Line

ABI forecasts that 57% of all the global smartphones will run on Android by the end of 2013, and 21% will run on iOS. Tablets are also set to hit 268 million active units by the same time, with 62% running on iOS and 28% on Android. If that happens, Schmidt’s claim will be confirmed once again. But more importantly, it will set Google to win the app war by a significant margin.

Anindya7 has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus