Leading up to Apple’s recent earnings release and now infamous introduction of the iPad, I wrote a couple of blog posts (“Why Apple’s Going to the Dark Side” and “Jobs & Co. Scrambling to Hold Off Android”) suggesting the company is starting to recognize just how dangerous the Android threat is to its business. I got a fair amount offlack from Apple fans at the time.
However, after Steve Jobs finished the iPad presentation he gave reporters a piece of his mind on the subject of Google and Android. Wired reports:

On Google: We did not enter the search business, Jobs said. They entered the phone business. Make no mistake they want to kill the iPhone. We won’t let them, he says. Someone else asks something on a different topic, but there’s no getting Jobs off this rant. I want to go back to that other question first and say one more thing, he says. This don’t be evil mantra: “It’s bullshit.” Audience roars.


Methinks, “the lady doth protest too much!” Is it just me or does Jobs seem more than a bit perturbed with Google moving in on his territory? Not to toot my own horn but it looks like my earlier blog posts couldn’t have been more prescient.

It’s easy to understand why Jobs is pissed; the iPhone is responsible for a huge chunk of Apple’s profits. The WSJ reports:


In Apple’s fiscal 2010 first quarter, ended Dec. 26, iPhone and related product revenues were $5.578 billion, 36% of Apple’s total, compared with $4.45 billion for computers and $3.39 billion for iPods. The iPhone is largely responsible for doubling Apple’s sales over three years. While computer sales are up, iPod sales are roughly flat over the period. What’s more, Apple’s gross margin has risen to 40.8% from 31% in that period, courtesy of the iPhone. The device’s gross margin was about 60% in the quarter, estimates Sanford C. Bernstein, helping lift the overall number. So it should be no surprise that Apple’s cash from operations has skyrocketed to $5.8 billion in the latest quarter from $1.8 billion three years earlier.

I would also argue that the popularity of the iPhone has helped Apple’s entire product line acting as a trojan horse for the company that has converted people from “pc’s” to “macs.” As a result, the company has become very heavily dependent on the one product as a flagship for its brand and for a very large chunk of its profits and Google, via Android, is taking square aim at it.


In this battle, Google has a few key advantages: in stark contrast to the iPhone, Android phones (and Chrome OS devices) are based on a open platform. Developers are not subject to the will, the devices and software of the parent corporation; they are free to create what they want using the hardware and software they prefer and let the marketplace decide whether they are successful. Google does not control the distribution of media, either, the way that Apple does with iTunes. Finally, Android devices make use of standard ports and such whereas the iPhone does not; Apple forces you to buy proprietary accessories.


I believe that the “open” philosophy is key to winning mind share and is already helping Android to rapidly gain market share at the expense of the iPhone. In its last earnings release iPhone sales missed expectations by 5%. It’s no coincidence that during the same quarter Android devices grew their market share by 200%. Steve Jobs has very good reason to be worried, it seems.

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