Apple, Google, and the value of iOS

Google continues to enjoy a unique position in the mobile space -- they make money off of pretty much every platform. If you use their own, freely licensed Android platform, they earn revenue off of advertising. If you use anyone else's platform, including Apple's iOS on the iPhone or iPad, Google still earns revenue off of advertising.

Recent Nielson numbers claimed Android owned nearly 50% of the US smartphone market. Google, however, owns the vast majority of advertising revenue on nearly 100%.

According to The Guardian, since 2008 Google has earned $550 million from Android, or roughly $10 per device per year. (Since Google gives away Android licenses for free, that money likely comes from advertising related to search and other services). By contrast, Google is estimated to earn $30 per PC per year. What's more, Google CEO Larry Page recently claimed revenue from mobile was now running at $2.5 billion. So $2.5 billion minus $0.55 billion leaves roughly $2 billion in revenue from other platforms. And given market share, much of that would likely be iOS.

Marketingland calls foul on The Guardian's numbers, however, saying there's no way to tie settlement valuations to earnings figures from Android, and hence no way to determine what percentage of Google's mobile revenue comes from iOS vs. Android.

Update: Asymco weighs in and thinks the numbers might not be far off.

Many of these figures begin to "hang together" as we balance assumptions about costs, revenues and statements made in public. There is a consistency within a comfortable margin of error. If that is the case, then the economics of Android begins to take shape.So in terms of returns, Android is sustainable. However, in relative terms the value created leaves much to be desired. Whereas Android generates $1.70/device/year and thus an Android device with a two year life generates about $3.5 to Google over its life, Apple obtained $576.3 for each iOS device it sold in 2011[4]. The economics of Android are nothing like the economics of iOS.

For the sake of argument, even if they're not 20/80 but closer to 50/50 or even 80/20, that's still a huge amount of money to make from a competitor's platform, and a huge competitive advantage.

Apple, of course, makes no money from Android users. They offer other platforms precisely nothing in terms of services or software. While you can get iTunes on Windows, you can't get mobile iTunes on Android or any other platform. You can't get the mobile iWork or iLife suites. You can't get iBooks. You can't get anything.

While the iOS App Store plays host to several apps from Google (and Microsoft), Google play (and Microsoft Marketplace) have exactly nothing from Apple.

That means iOS users have absolutely the best choice when it comes to mobile software (what else is new?), but it also means Google (and to a lesser degree, Microsoft) have revenue opportunities beyond their own platform.

That's part of the reason Android exists. Google originally fielded Android in part so that it could never be frozen out of mobile, where they and everyone else saw the future was headed at an accelerating pace. Back then, Android was meant to compete with Windows Mobile, and the potentially dominant Microsoft cutting out Google and using their own services was a legitimate concern.

Then the iPhone happened, and with it the mobile web happened in a way never possible before. Microsoft's mobile future suddenly dimmed sharply, and Google responded, smartly, by doing an about face and making taking Android decidedly in an iPhone direction. Whether or not Apple would ever field a Google competitor remains in question, but Google fielded an Apple competitor. It caused a schism to the degree that the late Steve Jobs vowed "thermonuclear war" to stop what he considered to be "stolen property". It also gave the carriers a powerful OS to do with as they would (and if we can agree on anything, it's that the carriers are more "evil" than Apple and Google squared).

Now, four years later, despite attacking Apple as being the enemy of openness, despite giving control of the user experience back to carriers, despite creating an uncertain update and compatibility environment for a growing segment of the smartphone market, Google remain the default search and map engine on iOS, and iOS remains a valuable revenue source for Google.

Sure, Apple could one day flip a switch and make a different provider the default search engine, and even with the market dominance Google enjoys, that would hurt. (For some percentage of users, settings don't exist and whatever is the default remains the default.) Yet, ironically, it's Android itself that's made that more likely than it may otherwise ever have been.

Still, for now, the more users Android gets, the better for Google. The more users iOS gets, the better for Google. The more users anyone gets -- with the exception of forked variants of Android itself, like Amazon's -- the better for Google.

Reference: The Guardian, Marketingland, Asymco

Rene Ritchie

Rene Ritchie is one of the most respected Apple analysts in the business, reaching a combined audience of over 40 million readers a month. His YouTube channel, Vector, has over 90 thousand subscribers and 14 million views and his podcasts, including Debug, have been downloaded over 20 million times. He also regularly co-hosts MacBreak Weekly for the TWiT network and co-hosted CES Live! and Talk Mobile. Based in Montreal, Rene is a former director of product marketing, web developer, and graphic designer. He's authored several books and appeared on numerous television and radio segments to discuss Apple and the technology industry. When not working, he likes to cook, grapple, and spend time with his friends and family.

  • What happened to not giving credence to dumb rumors? This was dissected and debunked already.
  • Lies
  • Considering that these values were not based on any solid Android revenue numbers, but rather on speculation based on pre-trial documents concerning what Google as offerred Oracle settlement talks, I would have to agree that this is the sort of amplification of unfounded rumor around the blogosphere you had indicated tipb would not be doing. Had this been a story that put Apple in bad light, I daresay you would have decried this as dumb and refused to write about it, not placed its premise in a headline as a fact.
  • Yeah, totally my bad. I hit publish instead of update while still working on the post (not the first time, probably not the last). One of our writers first wrote this up when The Guardian's article went live and we sat on it for a while to check into the numbers, and both of us updated it several times, and sat on it some more. We ended up scrapping it to go with a more editorial approach.
    The idea that Google earns significant revenue from competing platforms, even when Android has become the dominant platform by market share, is interesting regardless if the numbers are 20/80 or 80/20. It's a huge hedge and a huge competitive advantage.
    It's also not a "dumb Google story" by any stretch of the imagination -- I'd write it up in a second for AC if they wanted it, and point out the huge advantage it gives Google just the same.
    Apologies again for the mix up, feel free to flame on the proper post if it's equally deserving.
  • Re: "Sure, Apple could one day flip a switch and make a different provider the default search engine, and even with the market dominance Google enjoys, that would hurt. "
    First step: new Apple mapping system. Not just the toy OpenMap in iPhoto. An advanced system based partly on C3 Technologies, which Apple acquired last year. That might hurt a little.
    Next step: beef up Siri and its use of Wolfram Alpha and other non-Google technologies. Siri gives you an answer, not a spammed-up and questionably prioritized list of web page links. That will hurt more.
    Beyond that: expand Siri to iPad and Mac (and maybe the Apple television set.) Apple users won't need to use web browsers to get quick answers. The browser is the "truck" of the internet. The big, clunky workhorse that can do almost anything, but which is terrible overkill for simple information retrieval tasks.
    Using a browser for "What time is Hunger Games showing near me?" is like driving an 18-wheeler to the 7-11 to get a six-pack of beer.
  • There is something wrong with the idea that a company making billions on topic billions, and has so much cash it doesn't know what to do with it, needs to hurt another company. Steve Jobs is dead and that grudge should have died with him.
  • Lloyd, the steps I outlined are more or less inevitable. iOS' Maps app is barely acceptable now. Apple needs to seriously improve it. Apple can and will leverage Siri, and doing so will affect many existing businesses, including Google's browser-based search engine advertising business.
    The automobile hurt the horseshoe business. Oops. Sorry.
  • ^ totally agree!!!
  • Sniff... Why can't we all just get along? ... sniff ...
  • I think the bigg difference between Google (as a former Andriod user), is when you by Apple you can use all Apple products. But a lot of the "Google" apps don't work well on iOS. However Apple works smoother and is not a the Mercy of the Carriers. I wish Apple would by out a carrier and then offer their own network.
  • Very insightful and thought-provoking analysis. Keep up the good work.
  • Updated with Horace Dediu's take from Asymco: