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Android's 'Profitless Prosperity' Criticized

By - Source: Bloomberg | B 64 comments

Venture capitalist "flabbergasted" about profit share despite dominance of market

Roger McNamee, an investor who's been analyzing the output of Silicon Valley for 30 years, has criticized Android's "profitless prosperity", and that Google's mobile platform is the "equivalent of having a motor scooter at the Indianapolis 500."

"I watch what they have done with Android, and I'm flabbergasted because their market share in units is so high, but look at the profit share," McNamee told Bloomberg TV. "Apple's profit share is like 75 or 80 percent because Android has been managed essentially to make it a profitless prosperity. Right now, if Google is not careful, Android will be Samsung or Samsung will be Android."

He added that consumers purchase Android devices as they're cheaper, not due to brand loyalty. That said, for the first time since the smartphone's inception, the iPhone's owner loyalty declined in recent months.

McNamee also criticized Samsung, who leads the Android handset market and outsells the iPhone by 6-to-1 during recent months.

"Samsung could be what Apple is, but for whatever reason they don't do the value-added to the platform to make the product as useful as Apple," he said. "I am no Apple fanboy, but the notion that Samsung is equivalent to Apple is silly -- Apple's app ecosystem and way everything works together makes it a radically better product...and I think that is an objectively true statement."

The investor stated that Apple's strategy is "close to perfect," and expressed his admiration in regards to recent moves made by Apple CEO Tim Cook. He continued on to stress that Apple can "innovate and transform and rebuild whole markets." Some may disagree with that notion, though.

Prior to the launch of the iPhone 5, McNamee actually criticized Apple's innovation on September 19. "What's really sad is how many companies have given up trying to innovate," he said, referring to the company's latest slate of iPods, iPhones and iPads.

"Apple is increasingly dependent just on software for the retention...because the hardware is not that cool, not blow-away cool the way that the iPhone 4 was. I look at Apple as a shareholder, it's an amazing thing -- there is nothing competitive with them at all today, but they are already, so quick after Steve died, doing the things you expect a dumb monopolist to do."

He also commented on what he believes to be Apple's weak point: "The threat to Apple is that they forget that their power and success comes from selling hardware. If Android gets too much unit volume, it's a mistake." His advice to Apple, which he stressed created a next-generation web with the iOS platform and app ecosystem, is to have "everybody do everything on their hardware."

Earlier in the year, Google said it was generating $8 billion in revenue in 2012 with its mobile ads and sales of Google Play mobile content, as well as spending on Play apps. Apple, meanwhile, has the iPhone to thank for the majority of its revenue. Its smartphone lineup made $74.3 billion in revenue from June 2011 to June, 2012. For perspective, all of Microsoft's divisions generated $73 billion during the same period.

 

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Top Comments
  • 38 Hide
    killerclick , December 14, 2012 6:15 AM
    So, he's criticizing Android because Android devices aren't marked up so high as iOS devices and because Android has so many useful free apps, you hardly ever have to pay for any?

    Hmm... seems to me that the customer wins in this case
  • 35 Hide
    vaughn2k , December 14, 2012 6:27 AM
    "I am no Apple fanboy, but the notion that Samsung is equivalent to Apple is silly -- Apple's app ecosystem and way everything works together makes it a radically better product...and I think that is an objectively true statement." - McNamee

    McNamee is just protecting his investment share in Apple, which is now in decline, and he could'nt sell those share at the moment, the reason he have this story (to delay the downtred further...
  • 28 Hide
    Anonymous , December 14, 2012 6:48 AM
    Shorter version: "Those meanies are dragging my Apple shares down, waaahhhh!!!"
Other Comments
    Display all 64 comments.
  • 38 Hide
    killerclick , December 14, 2012 6:15 AM
    So, he's criticizing Android because Android devices aren't marked up so high as iOS devices and because Android has so many useful free apps, you hardly ever have to pay for any?

    Hmm... seems to me that the customer wins in this case
  • 35 Hide
    vaughn2k , December 14, 2012 6:27 AM
    "I am no Apple fanboy, but the notion that Samsung is equivalent to Apple is silly -- Apple's app ecosystem and way everything works together makes it a radically better product...and I think that is an objectively true statement." - McNamee

    McNamee is just protecting his investment share in Apple, which is now in decline, and he could'nt sell those share at the moment, the reason he have this story (to delay the downtred further...
  • 27 Hide
    drenyx , December 14, 2012 6:28 AM
    ...Because they are cheaper?

    How about if I don't care for Apple products?
  • 20 Hide
    Anonymous , December 14, 2012 6:43 AM
    Yes because Android isn't being sold by Google per unit, so there can't be any profit there even if Android devices sell in truckloads.

    This dude obviously haven't tried an Android device and its host of useful free apps...
  • 28 Hide
    cats_Paw , December 14, 2012 6:45 AM
    Is this a troll? Because it sure looks like one. If i am getting this right, he is saying that if you are not greedy like apple you are stupid?
    *FacePalm*
  • 28 Hide
    Anonymous , December 14, 2012 6:48 AM
    Shorter version: "Those meanies are dragging my Apple shares down, waaahhhh!!!"
  • 24 Hide
    adrhellb , December 14, 2012 6:53 AM
    "...Apple's app ecosystem and way everything works together makes it a radically better product...and I think that is an objectively true statement."

    Objectively? Thanks for the laugh. :) 
  • 12 Hide
    Someone Somewhere , December 14, 2012 6:56 AM
    And he never notes that google makes it's money from ads/purchases. The more android devices sell, the more people buy stuff or use apps with ads, the more money they make. And there's the nexuses (nexii?), which are sold at cost (roughly), again because they make money from people using them.
  • 0 Hide
    wildkitten , December 14, 2012 7:19 AM
    Someone SomewhereAnd he never notes that google makes it's money from ads/purchases. The more android devices sell, the more people buy stuff or use apps with ads, the more money they make. And there's the nexuses (nexii?), which are sold at cost (roughly), again because they make money from people using them.

    Quote:
    Earlier in the year, Google said it was generating $8 billion in revenue in 2012 with its mobile ads and sales of Google Play mobile content


    Certainly looks like he noted that.
  • 24 Hide
    IQ11110002 , December 14, 2012 7:26 AM
    I didn't choose Android device because it's cheaper, What's he on about.
    I chose it because it was the best device at the time of purchase for me and my needs, I am referring to the Note II, Nothing else came close, big screen, big battery(removable),micro sd slot, NFC, removable covers,S pen,micro usb which I can use with my other devices. Do I need to go on?

    Seriously, Because it's cheaper? heh That was just a bonus!
  • 18 Hide
    dishayu , December 14, 2012 7:54 AM
    Because Google is an advertising company, Einstein. Can they make money from selling android apps or nexus hardware? Yes. But their business model is not that. They make their money from advertising. I believe they are wise enough to understand what is more profitable in the long term. If they can have android on 80% of the devices, they have a much larger base to show adverts to. They can charge advertisers higher and make money that way. Also Google's crowsourcing services keep getting sharper with every new consumer, hence luring more people to their "free" services. In other words, Android is free TV, Apple is Pay-per-view (with the same content). Google makes money from advertisers, Apple makes money from it's consumers.

    It comes a huge suprise to me that a venture capitalist can be so short sighted.
  • 4 Hide
    Anonymous , December 14, 2012 8:33 AM
    Apple stock is inflated by market manipulation and has nothing to do with actual market share.

    They are playing a game whereby artificially inflating the value of their patents allows them to dramatically increase the total stock value. In fact all the big tech companies are playing this game. They are all selling patents to each other and claiming that they actually have real value. Instead it is just one hand helping the other.

    The value of Apple stock is now falling because the market has realised that the products do not provide the value that the stock has been manipulated to represent.

    Samsung and Google will be wise not to copy Apple in this vain pursuit to inflate the market value with no foundation.

    The Android ecosystem shows the true value of mobile software to the consumer market.


  • 20 Hide
    Anaximander , December 14, 2012 8:36 AM
    "I am no Apple fanboy, but"

    Then goes on to gush about Apple and their 'superior' way of doing things.

    Either he thinks the fellows he's talking to are stupid, or he's stupid in this regard.
    Hanlon's Razor ftw.
  • 16 Hide
    CrArC , December 14, 2012 8:57 AM
    That was hilarious to read. Especially the paragraph involving his lack of fanboyism.

    Apple's products are great, but they're not for everyone. I prefer Android devices to their i-things but conversely I find their laptops are stellar and much nicer to use than 'normal' machines. There's nothing 'objective' about it, it's based on what I need and what I want. For any person to call such an opinion anything else is just a ruination of truth and logic.
  • 13 Hide
    psykhe , December 14, 2012 9:51 AM
    wildkittenThey may have more of the market, but 8 billion in revenue is a fraction of Apple's 73 billion. That gives Apple much more capital to innovate with.


    In theory. In reality both Google and Microsoft spend more money on R&D than Apple.
  • -6 Hide
    erickmendes , December 14, 2012 10:07 AM
    @Anaximander
    "Either he thinks the fellows he's talking to are stupid, or he's stupid and retard." There fixed it.
  • 7 Hide
    Anonymous , December 14, 2012 10:22 AM
    Apple loyalty is one thing. But selling it at such a high profit is another. Business wise, Apple is doing pretty much everything right.(Or was)

    But I would assume that most Apple fanboy would pay whatever price Apple charges them for. That's just wrong. And the fanboys are stupid enough and willing to pay for the overpriced hardware!

    Google I'm sure is sitting pretty comfortable and not greedy unlike Apple! And I'm sure they don't feel the need to patent everything they think they've invented first and sue every company out there! Now that just wrecks the innovation part.
  • 1 Hide
    99lawrence , December 14, 2012 10:22 AM
    [quote="wildkitten"]I think he is also right about people not as loyal to Android as Apple fans are to Apple devices. I know a lot of people that use Android phones, and I use one myself, and none of us feel a need to have our next device be an Android. In fact, the fragmentation is making me seriously consider a Windows Phone next year. But the people I know who use an iPhone are dedicated Apple fans. That may be made fun of here, but brand loyalty is a huge thing for a company.[/quote]

    Yes fragmentation is an issue... but it is certainly getting better as the time goes on.

    The fact is though, people didn't look at the OS in the first place... my GF doesn't go in thinking "I want iOS or Android or Windows". She goes in thinking "I want the best phone for me at this given point." That so happened to be a white iPhone 4s last time... but don't for a second think that she wouldn't choose a Samsung, HTC, Motorola, Nokia or LG device if it is sleek and attractive. She couldn't care less about whether it is Apple, MS or Google behind it.

    I think that is how a lot of consumers think with vague affiliations to brands: Apple, Samsung, "Nexus", HTC and so on... they see that and think that is what they need. A recognised product. Whether it has Android, Windows or iOS is a small factor to consider and probably down to the particular salesman in question that helps them pick out a device.
  • 2 Hide
    Anonymous , December 14, 2012 10:35 AM
    - Apple's app ecosystem and way everything works together makes it a radically better product..


    Twat! putting it nicely!
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