iOS vs. Android – Catch-up

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Android is snapping at Apple’s heels.

• Android is showing signs of catching up with iOS in terms of user spending at the high-end, but further down the pricing tiers and in mobile advertising, I think that iOS remains miles ahead.
• A recent study of the habits of 1.4m USA based users during the month of June 2017 was carried out by DeltaDNA, an analytics firm.
• The study only measured gaming but this is already well known to be by far the biggest revenue generator from any Digital Life segment.
• Almost all games these days are free to play and have in-app purchases for monetisation.
• It is these that the survey measured and I have expressed these as ARPU $ / month.
  • Samsung Galaxy s8 / s8+: $6.30 / $16.20
  • Google Pixel / XL: $6.30 / $9.60
  • iPhone 7 / 7+: $8.40 / $10.80
  • Other US Android devices: $6.00
• From this I conclude:
  • First: Screen size and quality is a big determinate in game monetisation.
  • The Samsung Galaxy s8+ which has by far the best screen (and the best audio in my opinion) available on the market today, is clearly making a difference to game play with the observed results.
  • Second: On normal screens, iPhone is still comfortably ahead of both the s8 and the Pixel but the gap is closing.
  • Third: Both the s8 and the Pixel are not meaningfully better than other Android devices implying the that user experience on the s8+ and Pixel XL has nothing to do with their better monetisation.
• Although these models are clearly closing the gap on the iPhone, when it comes to total revenue generated there still remains a vast chasm in terms of total revenues generated.
• In Q1 17A, Apple generated $7.04bn in revenues from services while Google other revenues were $3.10bn ($3.09bn in Q2 17A).
• These figures are not direct comparisons as there are other businesses also included in these figures, but I think it is pretty safe to say that Apple App Store is easily generating double the revenue of Google Play.
• A large part of this will be because in the high-end segment Apple has much higher share but also because Apple does still clearly offer a higher quality apps and services experience as the data for the regular sized phones indicates.
• Furthermore, I have not seen a shift in the mobile advertising metrics and so I still believe that an iOS device generates double the advertising revenues of an Android device.
• This data should send a warning shot across Apple’s bows as the better Android devices are certainly snapping at its heels.
• Should they finally catch up, Apple may find it starts to feel the dreaded pricing pressure that will hurt profitability.
• This is why I continue to believe that Apple needs to make its ecosystem sticky in areas other than its App Store which is what I think its strategy around HomeKit, HealthKit and Apple Pay are centred around.
• However, to date, not a huge amount of sustainable traction has been generated by any of these services and so Apple has to radically improve them or think of something else.
• This is one reason why the iPhone 8 is so important as once again it has slipped too far behind the hardware curve and needs to catch up.
• With the rally that we have seen in 2017, the valuation argument for holding Apple has long since evaporated which is why I would prefer to hold Tencent, Baidu or Microsoft for this year.