(Originally published here.)
One of the funny things about tech (and finance) is the extent to which competitors often cooperate with each other. Microsoft Corp. sells versions of its Office software that work on Apple Inc.’s Mac computers, even though this undermines the exclusive value of its Windows operating system. Amazon.com Inc. sells Netflix Inc. the infrastructure to stream videos to consumers even as it tries to compete with a video service of its own. Maximizing the profitability of these frenemy relationships is tricky. Recent commentary about the surprising success of Apple’s mobile mapping software illustrates how easy it is to look at individual pieces and miss the bigger picture.
In an effort to encourage iPhone users to switch to devices powered by Google Inc.’s Android software, Google deliberately released inferior versions of its mobile apps to Apple customers. That version of Google Maps, which was until recently the most popular mobile app in the U.S., didn’t have turn-by-turn navigation. Apple responded by developing its own mapping software and including it with every new device. (Before then, Google Maps had come with every iPhone by default.) But the initial release, which came out last year, was riddled with flaws. Google quickly developed a fully functional version of its software for the iPhone. For a few crucial months, though, iPhone users were forced to choose between Apple’s defective mapping software, downloading a third-party alternative, switching to Android or not upgrading their operating system.
Many had assumed that Google won this scuffle. Google’s preferential treatment of Android devices helped its platform gain market share during its first several years even as it profited by collecting data and selling ads to iPhone users. A new report from Comscore shows that the real answer is more complicated. Since Apple released its mapping software last September, about 23 million iPhone users have ditched Google Maps and many of those have switched to Apple’s app. That translates into a 28 percent drop in the total number of people who use the mobile version of Google Maps.
Charles Arthur argues in the Guardian that this means Apple won when everyone else thought it had lost, and Chris Taylor writes in Mashable that “Apple is having the last laugh.” Matt Asay wonders if Apple’s success could attract the attention of the antitrust authorities. (He thinks it shouldn’t.)
These seem like hasty conclusions. Google may have lost tens of millions of valuable maps customers, but more Android devices are being shipped than ever. Moreover, market share for Android phones is increasing at the expense of Apple. In the most recent quarter for which we have data, manufacturers shipped 212 million Android-powered phones, compared with 140 million in the year-earlier period. Apple, by contrast, shipped 34 million iPhones in the third quarter of this year, up from 27 million in the third quarter of 2012. Google managed to increase the total number of Android users by about 50 percent despite the success of Apple Maps. Android now has about 81 percent of the world’s mobile-phone market, up from 75 percent a year earlier. Apple’s share has fallen slightly.
So was Google smart to deny iPhone users the full power of its mapping software, or did it arrogantly try to take more than it could get away with? We can’t know the exact answer without a lot more information about the profitability of Google’s individual products. Apple still gets the lion’s share of the profits from smartphone sales, but even the low-end Android devices provide Google with customers and user data that can be readily monetized. Here’s one clue to where the two companies stand: Since Apple Maps debuted in September 2012, Google’s share price has soared by about 50 percent, while Apple’s has fallen by about 22 percent.
Perhaps the commentators suggesting that Apple “won” should hold off.
(Matthew C. Klein is a writer for Bloomberg View. Follow him on Twitter.)