Why Android gaining doesn’t mean RIM losing

The growth of Android in the last 12 months has been nothing short of amazing. It’s a phenomenal success story that so many people are purchasing Android phones and it’s opening up a new world of mobile software opportunity, just like the iPhone did a few short years ago. But if Android is winning, who’s losing? The media would have you believe that RIM is taking knockout punches and is about to be KO’d, but dig a little deeper and you’ll find that may not be the whole story.2009 was a banner year for RIM. Verizon, one of RIM’s top carrier partners in 2009, was selling a TON of BlackBerries. The Storm was a hot selling device, the Tour was still relatively new on the market and the Curve 8530 was flying off the shelves in the budget smartphone category. 93% of smartphone activations in Oct 2009 were BlackBerries so, effectively, the entire smartphone market on Verizon was owned by RIM.

In Nov 2009, that percentage tanked. It dropped to < 60% and has been on a steady decline since to a low of just under 20% in Nov 2009. The trigger for that precipitous fall was the release of the Motorola Droid, followed by a slew of other Android devices from other manufacturers. Hard to claim that is good news for RIM, but rather than just write short articles regurgitating the numbers, it’s important to look behind those figures and decide if this is the beginning of the end for RIM, or just a natural maturation of the market.

According to ITG, Verizon’s sales of RIM handsets have slowly dipped over the course of the year, from 394,000 handsets in January to 371,000 in April, 253,000 in September and 208,000 in October. Meanwhile, sales of Samsung phones rose from nearly 800,000 in January to 1,144,000 in March and, after a small dip, 1,363,000 in October. Sales of LG Electronics handsets—Verizon offers the Android-running LG Ally and LG Vortex—jumped from 917,000 in January to 1,067,000 in May and 1,045,000 in October. [Source]

So even at RIM’s peak, they were selling less than half the number of devices on Verizon that Samsung or LG were selling — but Samsung and LG were selling mostly feature phones, not smartphones, and that’s critically important. But let’s look at the smartphone market overall first…

Here are the comScore market share numbers for the top-5 “Smartphone Platforms” in the US based on number of subscribers:

Apr-10 Jul-10 Oct-10
RIM 41.1% 39.3% 35.8%
Apple 25.1% 23.8% 24.6%
Google 12.0% 17.0% 23.5%
Microsoft 14.0% 11.8% 9.7%
Palm 4.9% 4.9% 3.9%

Taken at face value, which is what most in the media do, those numbers seem to obviously indicate that RIM is in trouble. They appear to have lost 5.3% market share while Google (Android) has gained 11.5%. Technically, this is true, but is it that bad?

Despite losing share to Android (or in Apple’s case only gaining slightly), most smartphone platforms continue to gain subscribers as the overall smartphone market continues to grow.  According to the report, 25% of phones now being purchased classify as smartphones.

60.7 million people in the U.S. owned smartphones during the three months ending in October, up 14 percent from the preceding three month period, representing 1 out of every 4 mobile subscribers. [Source]

The smartphone market grew 14% in ONLY 3 MONTHS. That’s pretty massive growth and I think can easily be attributed to the more wide spread availability of Android devices — and high quality, affordable Android devices at that — and the popularity of the iPhone 4 (though I suspect a massive portion of those sales were upgrades from earlier iPhone models). But 14% growth is still pretty big growth.

Let’s have some fun with those market share numbers. Let’s assume that all the smartphone platforms shared in the growth of the category as a whole at about the same rate as their overall market share. That means, out of 14% growth, each platform gained…

RIM 5.0%
Apple 3.4%
Google 3.3%
Microsoft 1.4%
Palm 0.5%

So RIM lost 5.3% overall market share but added 5% of the growth giving a net loss of 0.3%. Doesn’t sound so bad anymore does it? But that’s really just playing with numbers and making some assumptions (which are probably skewed as I think it’s reasonable to assume Android gained a disproportionate share of the 14% based on its overall faster growth).

But also remember that the smartphone market is still only 25% of the phones sold in the US. That means there’s 300% growth of the market opportunity. It’s easy to be the big fish in a small pond but still lucrative to be a medium sized fish in a large pond. When more, competent competitors enter your market, especially in a market that moves as fast as the mobile phone industry, it’s virtually impossible to maintain your market share. If RIM is going to be the sole-source for BlackBerries and there are going to be 10, maybe 20+ manufacturers of Android devices, it will GUARANTEE that Android will, sooner than later, be the number 1 smartphone platform simply through a massive influx in the number of Android devices that can be designed, built and sold by 10-20 companies compared to the number of BlackBerries a single company can design and built.

The premise I started with was that Android gaining doesn’t mean RIM’s losing. While obviously that’s not true when looking only at the market share numbers, it’s important to look beyond those simple numbers and see, overall, how RIM is faring. If right now, RIM came out and said they would DOUBLE the number of devices they sell in 24 months, is that good or bad? The market may grow faster than that (which it will) but most people would think doubling your product shipments is pretty good progress, even if you don’t look beyond that number =).

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