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Did Manufacturers Lose $2 BILLION on Android Tablets Last Quarter?

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Strategy Analytics announced today: “Android Captures Record 39 Percent Share of Global Tablet Shipments in Q4 2011”.  Bloggers go nuts with it, headlines such as “Android Grabs 10% Tablet Market Share from Apple in Q4 2011” and “Android tablets gain ground with 10.5 million sales in Q4 2011“.  Here’s a quick fact check: the report was about tablets shipped, not sold.  Sounds like a minor little nit, but it isn’t, and if you’ve never been inside the actual business of hardware before, it’s a fairly common mistake.

Shipping a product implies it’s been manufactured, packaged, and transported into a distribution facility, and in some way allocated by a retailer.  It hasn’t necessarily been purchased by the retailer yet, nor has it been sold to a consumer.  Which means a massive cost was incurred by the manufacturer, with no revenue so far.  Further, even if the retailer has made some form of purchasing agreement/commitment, they typically have many many ways to back out if units aren’t moving.  All, of course, at the expense of the manufacturer.  This is how Logitech lost $100 million on the Revues, as they made a bunch, but couldn’t sell them.  As Seinfeld might’ve put it: “See, you know how to ship the product, you just don’t know how to sell the product and that’s really the most important part of the product, the selling. Anybody can just ship them.”

So let’s go back to that report.  10.5 million Android tablets shipped in Q4.  Not too shabby.  Now Apple did just announce they sold 15.4 million iPads in the same quarter.  So we know we aren’t talking oranges-to-oranges comparisons already.

I’m going to add in a personal observation/anecdote here, take it with a grain of salt.  In the past year, at over 20 conferences, 30 flights, and possibly hundreds of meetings, I’ve seen about 15 android tablets in use “in the wild”.  I’ll go as high as 20.  That’s it.  Not only isn’t it close to 40%, it’s not even close to 1% of the tablets I’ve seen in use, in every major metropolitan area in North America.  But that’s not a fair way to look at it, so I’ll assume I’m off by a few percent, especially including the international market plus the recent hotness of the  Kindle Fire.

But let’s pretend they somehow sell-through 5% of the total tablet market, as defined by iPad sales.  That’s 750,000 units sold.  Maybe a little low, but as I scan the numbers from a bunch of different reports, doesn’t seem too far off the mark (NPD reported a grand total of 1.2 million non-Apple tablets sold between Jan-Oct last year).  Let’s bump it to a cool million, just to seem “fair”.  That leaves manufacturers with 9 million unsold tablets.

According to a variety of reports (best from iSuppli), tablets cost manufacturers between $200-$300 to manufacture, on average.  So again, averaging it all out (which isn’t exactly right, but that’s kind of the theme of my blog anyway, right?) at $250 times 9 million units equals holy crap.

$2,250,000,000

Oh, and this doesn’t include marketing, packaging, shipping, warehousing, taxes, and all the other costs involved.  Please, somebody, show me how I’m wrong!  No, seriously, I don’t actually want to be right here!

Speculating On Motorola + Google TV

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Googorola!

Googorola!

Google is planning to acquire Motorola Mobility, which is a deal about patents and Android, but also one to raise questions on quite a few existing product lines.  What will happen with Moto Droids and the Google Nexus line?  Where do Android tablets go from here?  Is MOTOBlur dead?   (my answers: bye bye Nexus, tbd, and yes).  The other interesting area is Google TV, particularly interesting because the Motorola Mobility dept is the one that makes the set-top boxes (which are, next to refrigerators, one of the least likely products to be mobile in my house, but maybe that’s just me).

I’ve seen tons of speculation this week about what the deal means, as it pertains to Google TV, and have batched together some of the perspectives that are floating around.  Most common theme: now that Google owns the STB business, they can just sprinkle Android into all the next-gen cable boxes…

That gives Google an attractive footprint to leverage on a number of different fronts within the digital home, perhaps with a Trojan Horse strategy of pushing Android-based middleware out to shore up its lacklustre connected TV strategy.

Source: With Motorola, Google gains a big TV strategy | News | Rapid TV News http://www.rapidtvnews.com/index.php/2011081514335/with-motorola-google-gains-a-big-tv-strategy.html#ixzz1VEtbiUZe

Also surmised by Apple Insider, Robert Scoble, CNET, Business Insider, NewTeeVee, and Lost Remote (and others).  Here’s the thing, this isn’t even a topic/issue/option in play, at all.  It’s not exactly like Motorola’s been unable to acquire operating systems to power their set tops, and could easily have chosen Google TV prior to now.  Further, there’s simply no such thing as “sneaking” technology into the cable infrastructure, not even a tiny bit.  We’ve seen (and I’ve worked for) many companies try to accomplish some set of these tasks, and not one shred of success.  Why?  Because the cable industry commissions the hardware and features they want, and not the other way around.

Burger King creepy guy

You Can Have it Your Way. aka 7' tall and creepy.

Another widely spread philosophy is that the only reason Google TV hasn’t caught on yet is due to not having had the right chance/opportunity:

“Google TV has not caught on yet,” wrote AOL journalist Saul Hansell on his personal blog. “This could be the wedge to get it in millions of living rooms.”

Source: http://news.cnet.com/8301-31001_3-20092451-261/motorola-could-help-cure-ailing-google-tv/#ixzz1VExC7Dqg

Shared feelings from Zatz Not Funny, Lost Remote, NewTeeVee, and more, but not by myself (nor my friend Dan Frommer, though he’s much nicer about it than I would’ve been).  Google TV hasn’t caught on with consumers because it’s the wrong value proposition for consumers, period.  In my ten-plus years of building “connected TV” products, the thing I’ve learned is that the more interaction you throw on the screen, the less you engage and benefit your users.  While there are moments for “lean-forward” activities, they are fleeting.  Google TV is built on the opposite premise.

Maxell dude + Venom

This isn't exactly the lean-back experience I was expecting.

One last comment that I’ve seen making the rounds was that Google just gained a bunch of knowhow regarding building boxes.  This doesn’t much pass the sniff test either, as other than Apple, everybody builds boxes the same, and there’s very little secret sauce here.  If anything, they should consider offloading all hardware production that still gets done internally or dive in deep in fully integrated software/hardware solutions.  More on that in a bit.

So that’s enough about everybody else’s theories, time for a few of my own.

  1. The acquisition was entirely about the patent portfolio, the synergy (or not) between Google TV (G-TV) and Motorola’s STB division (M-STB) is positive, but was coincidental.
  2. Google must demonstrate to current M-STB customers that they will not disband nor change the status quo there in the short term (let’s call it 2-5 years).  If this doesn’t happen quickly, we could see an exodus to the numerous viable competitors.
  3. Google would be better off moving G-TV inside M-STB than vice versa.  M-STB has the requisite business practices savvy for dealing with the cable industry, which is significantly more vital to longevity than any software platform.  In fact, gaining this type of business experience is quite a boon for Google, as its an industry they have historically (dating back pre-YouTube days) not well-understood.
  4. The other massive obstacle that seems underreported is the complete lack of fit between M-STB hardware platforms and G-TV software architecture needs.  One of them will need a rewrite, and that’s costly.
  5. Without a major improvement to the platform itself, this acquisition does not change G-TV’s fate.  No cable company on the planet is simply going to allow technology into their boxes (yes, they buy em, they rent em to customers) without a) control and b) a clear path to revenue/profits.  Granted, there are indications those profits could come, but not with the current platform.

Ultimately, I think this is a fascinating topic.  The nuance of industries involved, the hugeness of capital in play, and the clearly disruptive horizon for the TV business is more exciting than virtually anything I can think of.

Chile Volcano Lightning

Well, almost anything.

The Handy Android Fanboy Detector

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If you are unfamiliar with the term, read my friend Harry’s article for a great piece on “the fanboy“.  Now, onto the piece – which I anticipate bringing me tons of annoyed Android folks (much like my tablet rant did last year).

I started using Android last December with the HTC Droid Eris.  My decision came after watching a friend really enjoy the use, a small amount of personal hands-on time, and the excitement about the platform itself.  Eight months later, and other than the vision of an open platform for smartphones, I have nothing but disdain for the current Android phone landscape.  I find the devices crude and clunky, the product experience weak, and the overall state of the platform in “advanced beta” at best (if enough people clamor in the comments, I’ll write another post on just that topic).  Granted, I am a product purist and I have one of the weaker Android devices on the market, but I’ve had a chance to use every one of the current “state of the art” phones other than the Droid 2, and my opinions remain the same.

Yet they are selling them by the bucketful.  So I can’t possibly be right on this, as 20+ million other people are defying my belief that the phones themselves are lousy and barely usable.  Or can I?  After lots of discussions with Android users, I’ve divided up the Android world into the following buckets:

  • Android Newbies: This group is new to the Android experience, and are probably very happy with their experience, despite lots of frustrating glitches at times.  Why?  Most of them are upgrading from feature phones (the industry term for a non-smartphone), and this is likely their very first experience to having the magic of Interwebbing on their phones.  What’s not to love?  That part comes soon.
  • Android Haters: Having used their Android device for weeks-to-months, they have come to notice all its shortcomings, ranging from inconsistent back button use to awkward keyboards to erratic input sensitivity, all things they failed to really notice during the 30 day window to return the phone with no commitment.  Furthermore, they are likely annoyed that their phone became outdated in less than 90 days since purchase – a phenomenon not well appreciated by tens of millions of people, despite what the tech community thinks. They/we are trapped, waiting, hoping, watching…
  • Android Fanboys: The folks who think Android just freakin’ rocks, man.

What’s wrong with a Fanboy? Nothing at all.  I have nothing but good feelings for anyone who loves any product, platform, service, etc – it’s fun to love stuff.  However, I’m more than a little concerned about (1) more newbies buying products they shouldn’t, (2) building up the “Awesomeness” of the platform to the tech industry, when it’s not really at the same caliber as it could be (and indirectly letting device makers off the hook to build better products), and most importantly – (3) my phone sucks and I’m pissed, so this is my chance to vent.

Here’s some tips how to tell the Fanboys from the rest. Take it all with a grain of salt.

  • They preach about openness.  The Android fanboy will tell you multiple times about how the platform is open and how that’s a great benefit to everyone. Let’s be totally blunt for a second: the average technology user cares about “open” products roughly zero.  If they did, then companies like Microsoft, Apple, etc would never have become the behemoths they are.  Openness is great in theory, and in very specific instances can be a huge factor, but it is not, in and of itself, a “benefit”.  My “open” phone has a lousy app marketplace, requires third-party software to be regularly usable, has no inherent easy way to play media files, and actually shipped with not one, but two different native email applications (one of which actually disappeared on its own during the last software update).
  • They show you widgets. “Look ma, its the weather! On my Phone!” Android devices are capable of displaying widgets, which are unquestionably one of the coolest things about Android.  But there’s only a few really useful widgets, and they do not, in any way, make up for the rest of the Android experience.  I have a widget called “Agenda”.  When I view it, it takes up to 5 seconds to show me my agenda (during which it doesn’t say “loading agenda”, it says “NO agenda”.).  Ditto for my Stocks widget, Mail widget, etc.  Don’t get me wrong, I love the widgets, but they alone do not a good phone make.
  • They ignore the little details. My “send text message to my wife” shortcut on my home screen is very cool (shortcuts, after widgets, are a very cool element of Android).  But when I click on it, it brings me to a “send message” screen, with my cursor highlighting the “To” field, resulting in me starting to write my text in the wrong place (it should be the “message” field).  Not a big deal, right?  There’s tons of them. Now compound that little experience to all experiences and you’ll get a better picture.  It’s as if every edge possible could be the rough version.  But Fanboys don’t care, they’ll trivialize these nuances or tell you they’ll be fixed in an upcoming version (more on that in a moment).  Here’s the thing: it’s the little things that matter when it comes to product experience!  If every single time I send a text message I have to go through an inconvenience, how on earth can this be “awesome”?
  • They know the difference between Android versions and implementations. For those unaware, Android is a rapidly evolving platform, which at the surface sounds really great.  But it isn’t great to most consumers who are buying phones for their use now, and who don’t want to have to think about things getting fixed in the future.   I’d make the analogy to early days of Windows, except when you buy a Dell or an HP (or, shudder, a Vaio – wow, been a while since I went there!), you get a product that works consistently, with some extremely subtle nuance in specific applications.  In Android, a Froyo with Sense is different than an Eclair with Blur.  Yup, that was a technically accurate statement. The problem here is the very core, the baseline experience simply isn’t good enough, and Google is trying to fight the very upstream battle in mobile of getting manufacturers to not differentiate against each other.  Lastly, since there’s upgrades coming all the time, it’s impossible to know if the phone you buy today will do the things Android is promised to one day do.
  • They justify carrying huge phones. Have you seen the Evo or Droid X?  Massive.  Practically as big as my iPad (no, not really, calm down).  Maybe if the platform included a great video delivery experience (translated: or any video experience) this would make sense.  Instead, you get a huge brick and are left to figure out what to do with it on your own. Worst of all, the bigger phones are the “good” ones, leaving consumers with the awkward decision between buying something convenient versus a house phone. The moment a device isn’t pocket-sized, it’s competing against non-phones, but yet the Fanboys overlook this every time.  And if carnies can’t hold it, I don’t want it either.  And while I’m at it, can someone explain how 2-3 hours of use with a fully charged battery is considered acceptable??
  • They make a big deal out of commonplace stuff. Here’s a recent review of the HTC Hero, which used no fewer than three sentences to praise the headphone jack.  Yes, the headphone jack.  And so you don’t have to read it, just know – it’s just a headphone jack!  In the words of a fanboy: Woot!1!!
  • They get excited about hot-sounding but generally impractical features. Translating voice into text messages?  Sounds awesome.  Now use it.  This piece sums it all up nicely.  In all truth, you really can build some amazing things with Android, I don’t deny that at all.  But if you don’t have the basics working amazingly well, it doesn’t matter.  It’s like having sprinkles on your hot fudge sauce on your ice cream on your 7 layer cake only to find out the cake is liver-flavored.

And now for the clincher

They compare against the iPhone, all the time.  Greatness is defined by what you are, not by what something else is or isn’t.  I wrote this entire post without referencing the iPhone (until now), as I have no interest in comparing the two (I personally have never owned an iPhone, for the record).  I have no idea what Android does “better” than an iPhone, I don’t care, as it doesn’t improve my experience one bit.  But Fanboys do.  Fanboys can’t not bash the iPhone to make a point (here’s an article with 18 references to the iPhone alone). The iPhone being a closed system doesn’t help me decipher bizarre icons littering my experience.  The iPhone dropping calls doesn’t help me accidentally hang up on callers because the logic to process touch events handles them after rendering new activities (translation: I am clicking a button on the screen, a call comes in, and the place I had just clicked was “ignore call”, and the phone decides that my click was to ignore the call, not whatever I was doing before.  This is poor design).  The iPhone having a death grip doesn’t make my onscreen keyboard more usable.  So I’ll say it again: Greatness is defined by what you are, not by what something else is or isn’t.