iOS vs. Android - Catch-up
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, 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 we 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 we conclude that firstly, 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 our opinion, available on the market today, is clearly making a difference to game play with the observed results. Secondly, on normal screens, iPhone is still comfortably ahead of both the s8 and the Pixel but the gap is closing. Thirdly, 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 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, we have not seen a shift in the mobile advertising metrics and so we still believe 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 we continue to believe that Apple needs to make its ecosystem sticky in areas other than its App Store which is what 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 we prefer to hold Tencent, Baidu or Microsoft for this year.
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