Does the Market Want Another Open OS to Compete with Android?

I would argue that Android owes its success directly to the iPhone. Putting aside the claims that Android "stole" the iPhone's look and feel, carriers and hardware OEMs had no response to the iPhone in 2007 other than Android. Hence the carrier and OEM embrace of the Google OS. It was something of a marriage of convenience.

Despite the incredible success of Android, handset makers' relationships with the platform might be described as "ambivalent." They want to avoid becoming merely "commodity producers" of Android devices and reduced to the fate of their desktop brethren, which essentially became vendors of nearly indistinguishable "gray boxes" running PC Windows. Accordingly HTC, Samsung and Motorola have tried to develop, unsuccessfully I would argue, proprietary software on top of Android to differentiate from one another. 

While the new Windows Phone OS represents an alternative to Android, none of the hardware makers other than Nokia has enthusiastically embraced it. If it sells well for Nokia we might see that change. But there are those who also argue that Microsoft risks alienating other hardware OEMs with its Nokia favoritism. 

All this makes me wonder if the market wants yet another open-source OS as an alternative to Android. Reportedly Mozilla, maker of the Firefox browser, is working on a mobile operating system "based on the Web, as opposed to what the project’s wiki calls 'proprietary, single-vendor stacks.'” But this doesn't appear to be viable in the near term as an Android alternative.

What about WebOS? HP was going to kill it. But since the abrupt replacement of CEO Leo Apotheker with Meg Whitman many of his decisions are being reversed. The fate of WebOS is unclear right now and may be decided this year or early next. But what about making WebOS an open-source Android competitor? 

I'm not a developer or engineer but WebOS was and is positively regarded by the developer community; it has just been mismanaged and poorly marketed. But my view is that if HP were to turn it into an open-source mobile operating system there would be takers and it could gain new life. My suspicion is that makers would be interested in a high-quality alternative to Android to further diversify their handset lineups and give themselves some additional leverage vis-a-vis Google. 

WebOS's app ecosystem is paltry by comparison to iOS and Androids but that could be rectified over time. 

I think an open-source WebOS is intriguing; however HP doesn't have a direct way to benefit from it as Google benefits from Android with advertising. Whatever it decides about the fate of WebOS I hope HP doesn't kill it outright.

iPhone Anticipation Builds to Fever Pitch

At 1pm Eastern time we'll know how many of the iPhone 5 rumors are true. We'll learn whether Sprint has "bet the company" on the new iPhone and whether it's getting some form of exclusivity. (Extended exclusivity would be foolish for Apple.)

We'll know whether there are two devices or one and whether one of those is a different (larger) form factor than the iPhone 4. A larger screen is very much in demand, especially with Android devices now routinely exceeding 4 inches. 

We'll also hear more about the anticipated "Assistant," built on the earlier Siri acquisition. Some people have called it a "game changer" but that very much remains to be seen. Siri itself was novel and sometimes useful but not a "game changer."

We'll also discover whether the new iPhone (or iPhones plural) run on both CDMA and GSM networks. The new device(s) won't be 4G enabled, however, according to the WSJ. This is certainly a disappointment to many. 

Surveys have shown "unprecedented pent-up demand" for the next iPhone, leading some financial analysts to anticipate or predict that sales records to be "shattered." It will all be contingent on what Apple actually delivers. 

Although many others don't agree, I believe that the iPhone(s) being introduced today is/are critical for Apple, which now has a less-than-annual refresh cycle. If there's only a "4S" device or one that doesn't reflect obvious improvements it will fail to generate sales that live up to the outrageous expectations that have grown up around the launch. 

Android is now dominant in terms of sales and market share, though Net Applications data reflect that iOS dominates all other mobile operating systems combined in terms of Internet access. 

Regardless Apple's early multi-year commitment to AT&T exclusivity in the US was a strategic mistake, allowing Android OEMs to establish momentum with "good enough" copies of the iPhone. However now, larger Android screens, 4G capabilities and other features make Android handsets preferable for many people. And for this reason and others, a Sprint-exclusive iPhone 5 won't cause many (or any) to change carriers. 

Android phones are now strong enough that Apple's brand strength is not enough if the next iPhone doesn't "wow." The pressure is on the company and new CEO Tim Cook. There are only a couple more hours to wait. 

Microsoft Could Make $1B per Year off Android

Earlier this morning Microsoft announced it had negotiated a far-reaching patent licensing deal with Samsung. Here's what the company's General Counsel Brad Smith said in a related blog post about the deal: 

The Samsung license agreement marks the seventh agreement Microsoft has signed in the past three months with hardware manufacturers that use Android as an operating system for their smartphones and tablets. The previous six were with Acer, General Dynamics Itronix, Onkyo, Velocity Micro, ViewSonic and Wistron.

Together with the license agreement signed last year with HTC, today’s agreement with Samsung means that the top two Android handset manufacturers in the United States have now acquired licenses to Microsoft’s patent portfolio. These two companies together accounted for more than half of all Android phones sold in the U.S. over the past year. That leaves Motorola Mobility, with which Microsoft is currently in litigation, as the only major Android smartphone manufacturer in the U.S. without a license.

So that makes Samsung, HTC, Acer, General Dynamics Itronix, Onkyo, Velocity Micro, ViewSonic and Wistron. Next up Motorola Mobility?

Ironically Motorola is in part being acquired by Google ($12.5 billion) for its patents. However, if Microsoft succeeds in its litigation against the company it will have extracted fees from all the major Android OEMs. And it would be getting fees directly from Google (as the owner of Motorola). The rumor is that Redmond is trying to charge between $5 and $12.50 per Android handset.

Let's do some simple math. If there are 550K handsets activated daily and Microsoft secures fees from effectively all the major OEMs, the company could earn $1 billion or more annually from Android licenses. The more Android's market share increases, the more money Microsoft gains from Android OEMs.

This emerges as a major "insurance policy" if Microsoft's Windows Phones fail to take off with the Nokia partnership. The company is rolling out the long-awaited "Mango" update now, which offers a broad range of feature upgrades. However it's not clear that Mango will substantially boost demand in the near term for Windows Phones. 

A combination of more hardware OEM participation and better software will almost certainly boost market share but the question is by how much? For the foreseeable future however Microsoft will probably make a great deal more money off its IP licenses around Android devices than it will its own mobile operating system. 

Paradox: Android Sales Surging but iPhone Buyers Most Loyal

All the data indicate that Android is increasingly taking over in the US market and globally. Recent Nielsen survey data argue that 43% of US mobile phone owners have smartphones now. As an aside figure is quite a bit higher than comScore's 35% number. Nielsen also (confusingly) says that 43% of smartphone owners are Android users (43% of 43%).

Significantly, however, a dominant majority of recent smartphone purchasers are choosing Android devices. The iPhone represents 28% of smartphones -- and an equal number of recent purchases.  

Data released last week by ad network Millennial Media showed that Android dominated the sources of ad impressions on the company's network: 54% were from Android handsets, while iOS impressions had a 28% share -- exactly in line with the Nielsen survey data above.

Smartphones and "connected devices" (everything else) accounted for 86% of ad impressions on the network; feature phones delivered 14% of ad impressions vs. 33% in August of last year. 

Despite the Android surge, the iPhone remained the top device on the Millennial chart. Herein lies something of a paradox: the iPhone bar far and away the favorite individual device. Yet, in the aggregate, Android is overwhelming it. 

A recent survey conducted on behalf of UBS (confirming earlier ChangeWave surveys) shows that the iPhone has the highest loyalty and retention rates of any smartphone. While current customers of other smartphone OEMs are far less loyal, with especially bad news for RIM and Nokia (charts via GigaOm).

The iPhone's "implied retention rate" from this relatively small survey of just over 500 smartphone users is 89%, down somewhat from a year ago but much greater than competing handsets.

On the cusp of iPhone 5's release, there's considerable speculation about the device's impact on the market. It appears that Sprint will finally get the iPhone in the US, although it's less certain to come to beleaguered T-Mobile. This will give the device a boost but probably won't do much to stop Android from continuing its climb to mobile OS dominance. 

PayPal Brand Weakness Standing in Way of Otherwise Compelling Shopping Vision

PayPal, Google, Visa, Amex, Square, mobile carriers and others are competing in the rapidly developing world of mobile payments. NFC is one vision (though mass adoption is several years off if at all), while there are others such as Square and PayPal that are pushing NFC-free shopping concepts or tools.

Earlier this week PayPal laid out a very comprehensive and ambitious vision for the "future of shopping" and payments. It's a holistic concept that involves merchants, consumers and advertising; and it's built in part on recent acquisitions: Zong, Milo and Where. 

PayPal wants to bring together payments on any device (call it "cloud payments") with offers (demand generation), "local search" and store inventory data. It's a strong vision and being smartly knit together through acquisitions and PayPal's existing assets. Look for them to make more acquisitions.

PayPal has the resources and most of the assets to make a pretty successful run at this vision. One of its great strengths is that it doesn't require infrastructure upgrades to work: consumers don't need new NFC-enabled devices nor do merchants need new POS terminals. So adoption could be more immediate. But there's a problem in PayPal's brand clout. 

Visa, Mastercard, Amex, Google (even potentially Amazon) all have stronger brands than PayPal or eBay. And I think this is a major challenge for the company in getting merchants and consumers on board en masse. PayPal will also need to revamp and reduce its fee and commission structure to gain broader usage and adoption for all the scenarios envisioned in the video below. 

In my mind, however, the brand issue (strength, trust) is a profound obstacle standing in the way of the realization of this otherwise powerful vision. 

Android Now Number Two in Europe After Symbian

Comscore has released data this morning on smartphone usage across the "EU5," which encompasses France, Germany, Italy, Spain and the UK. Symbian-based smartphones remain the most prevalent. However they're in decline, while Android devices have now passed the iPhone to become the second most common smartphone type in these five countries. 

Comscore says there are roughly 88.4 million smartphone users in the EU5 (Spain and the UK have the greatest smartphone penetration). That compares to comScore's estimate of 81.9 million smartphone owners in the US. By contrast, Nielsen says US smartphone owners comprise 40% of the market or more than 93 million people. 

Microsoft mobile operating system handsets (including Windows Phones) are off almost 5%, which is an ominous sign for the coming Nokisoft partnership. However great hardware-software integration could give Europeans a reason to switch or upgrade from existing Symbian handsets. 

Below are lists of "mobile content" activities and penetration rates across the EU5, contrasted with the same data from the US market. With the exception of the UK market mobile app usage in Europe is considerably lower than in the US, while text messaging is lower in the US than Europe according to these data. 

Google Maps Most Popular App on Android Handsets

Nielsen is now measuring the penetration and reach of apps on Android and iOS handsets in the US. The idea is the measure "actual consumer behavior" (rather than survey responses) based on usage patterns of 5,000 US smartphone owners who've agreed to participate. 

Other data captured will be: frequency, duration, and size of total audience. Below are some of the data released by Nielsen to promote the new service, showing reach of various apps on Android smartphones: 

Between men and women there are some differences. For example, among female Android users, Facebook is the most heavily penetrated Android app after the Android Market itself.  

Price Will Be Driver of Amazon Tablet Sales

Forrester Research has released a report ("delayed a week out of respect for Steve Jobs") that argues Amazon's forthcoming Android tablet(s) will potentially sell 3-5 million units in Q4. This report, in "the works for months," can be boiled down the following:

Amazon’s willingness to sell hardware at a loss combined with the strength of its brand, content, cloud infrastructure, and commerce assets makes it the only credible iPad competitor in the market. If Amazon launches a tablet at a sub-$300 price point—assuming it has enough supply to meet demand—we see Amazon selling 3-5 million tablets in Q4 alone.

The analysis can be further distilled into two points that argue Amazon's got a shot at success:

• Amazon's brand strength and marketing muscle
• A sub-$300 price point 

I agree that Amazon's brand and marketing capabilities will give its tablet(s) a head start. But it's really price that will be the driving factor here. That's the lesson of the TouchPad buying frenzy: people are willing to buy an iPad imitator at the right price. In that case it was $99 and HP took a major loss on the inventory.

I own the Samsung Galaxy Tab 10.1 and the user experience is woefully inadequate compared to the iPad. I won't enumerate the ways but the device doesn't hold a candle to the iPad (Apple shouldn't be so afraid of it). 

Any tablet Amazon sells under its own brand, based on the Android OS, will also be inadequate by comparison. There are no tablet apps on Android, for example. Accordingly it will have to be very aggressively priced to succeed. 

The most expensive "regular" Kindle is sub-$200. The larger "Kindle DX" is $379. Pricing a color Android tablet that doubles as an eReader (which they will have to) at less than the cost of a DX kills the DX. 

If Amazon were to price a 10-inch Android tablet at $499 it would suffer nearly the same fate as all of Apple's tablet rivals to date: failure. If it goes down to $300 or $299 it will sell (especially with 3G built in). However, given the poor quality of the Android tablet experience in general at this point, it's far from certain that it will sell as many units as Forrester predicts. 

We'll have to wait for the device and see how "good" it is. Regardless, price is going to be nearly the lone determinant of success or failure for Amazon. 

Related: Changing demographics of tablet owners. 

Lessons of the TouchPad Frenzy and the Future of Tablet Pricing

Looking to move unsold inventory over the weekend, HP chopped TouchPad pricing down to $99.99 and $149.99 from $499 and $599. It ignited a well-documented buying frenzy that melted the HP servers. BestBuy and other stores are now sold out.

The way that people snapped up these devices reveals that for other than iPads consumers are highly price sensitive. As we argued early on and often, the way to compete with Apple's device was on price.  (I also earlier argued that smaller tablets could succeed as well, though have reconsidered that position.)

Amazon is about to enter the tablet fray and it may be able to succeed where others have not. However to date all of Apple's main competitors (RIM, Samsung, HP, MOTO, HTC) have failed to generate more than token sales of their tablets. Part of the reason for that is that these non-Apple devices perceived as imitators. So far they also generally offer a poorer quality user experience -- this includes the Samsung devices -- and have priced their tablets at or above (e.g., Xoom) the cost of Apple's iPad.

E-readers Kindle and Nook have succeed in part because they are single-purpose devices, though the Nook has broadened its scope, and they're relatively cheap (sub-$250). It remains to be seen what Google can do for Android tablets after it acquires Motorola. Right now, however, it appears that nobody selling a $499 tablet is going to make inroads against Apple.

While the HP TouchPad $99 frenzy may not immediately impact the market, over the long term it will probably mean that Android and other tablets (regardless of size) will have to come in under $400 without carrier subsidies and much less with them (sub-$250). That also means that non-iPad tablets are likely to become very low margin commodity products -- like PCs today.

And that's not a very attractive market. 

Could WebOS Become the 'New Android'?

Last Monday, when I was out on vacation, Google dropped a bomb on the mobile ecosystem: it entered into an agreement to buy Motorola Mobility for $12.5 billion. Everyone is more than familiar with the story and there's been a ton of analysis in the intervening seven days.

Here's the crux of that analysis:

1. Google was compelled to buy MOTO because of its IP (17,000 patents) after competitors attacked Android with bigger patent portfolios 
2. Microsoft was after MOTO as well 
3. Google wanted more control over the final product and Apple-like hardware-software integration 

The response to all of this is yes and yes. While I don't know the actual truth of the Microsoft acquisition rumor (I believe it) all of these motivations likely played a role. Now regulators must approve the deal, which I suspect they will do.

Google said that the acquisition shouldn't change anything among its other hardware partners or the Android ecosystem generally (Samsung, HTC, LG, etc). Here's the quote from the press release:

Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices.

But it clearly does change things. Hardware OEMs will be taking a harder look at Windows now to "hedge" and "diversify." But what about WebOS? 

The other bombshell last week was HP's announcement that it's getting out of the PC business and potentially going to unload WebOS. In April last year HP (under a different CEO) bought Palm for $1.2 billion, chiefly to get WebOS. Now it may sell the software assets and it's possible to imagine several parties being interested.

It has been suggested by some that Facebook should buy WebOS. But one could imagine HTC, Samsung (even with Bada), LG and others -- including Nokia -- being interested the platform if the price were right. But what if HP were to hold onto WebOS and open-source it or license it on very friendly terms? Indeed, HP is now saying or clarifying that it will hold on to WebOS and continue to support and even license the software.  

The platform, which was early on regarded as platform most competitive with iOS, could gain new life as an alternative to Android for nervous handset OEMs. With a post-MOTO Google competing with its partners in a new, more direct way the market could well be ready for a new "open-source" Mobile platform. It's a long-shot and HP could still sell Palm/WebOS to a single buyer. If that were to happen WebOS would likely continue to languish and ultimately disappear.

However open-sourcing the platform or offering friendly, low-cost licenses to various hardware makers could give WebOS new vitality and a future. 

Disruption Diary: Google to Buy Motorola Mobility for $12.5 billion

Google's purchase of manufacturing partner Motorola Mobility is about to establish itself as the most favored hardware platform for the Android operating system. Even though Google CEO asserts (in a press release) that the join endeavor "will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers," it is a tacit acknowledgement that today's status quo for Android provides a user experience that is uneven at best. Some of the work by its developer network is brilliant, but thanks to its free-wheeling approach to application development and delivery (when compared to Apple's terms and conditions for its App Store) the overall experience falls short of "amazing."

Google is paying a 63% premium over the current stock price for Motorola Mobility. It is a statement that the company expects direct ownership of the manufacturer to accelerate scales and promote proliferation of the Android OS. But Google's management is underestimating the impact of its action on other manufacturers who have endorsed and support Android as they must now regard Google/Moto as a direct competitor and not just a benign endorser of an "open" OS. 

This post by long-time industry follower Mike Cane captures the probable outcome in the simple statement: "Google pulls a Zune." He refers to Microsoft's decision to begin making its own MP3 player after spending a few years endorsing and supporting the PlaysForSure digital rights management platform. Musicians and publishers who believed that Microsoft would stay "hardware agnostic" dealt with the news by understandably abandoning the product. HTC, Samsung and the other manufacturers in the Android camp must be looking more closely at alternatives. 

I agree with Mike Cane that this will lead other manufactuers to evaluate their OS strategy. It is a disruptive move that could benefit HP, for example. I very much like the idea of it creating a new market for WebOS as a licensed product for manufacturers who are now concentrating on boosting their Android sales. Market share projections under the old regime are almost meaningless.

Will Amazon's Cloud Reader Open the HTML5 Floodgates?

Much has quickly been written about the just launched Amazon HTML5 "Cloud Reader." It's a "web app" that could be used to replace the native Kindle iPad and iPhone apps. It's being widely read as a response to Apple's more restrictive App Store terms about in-app purchases/subscriptions. (Amazon has removed the button linking to the Kindle store from the most recent version of its iOS apps.)

I agree with John Gruber and others who believe this has been in the works for longer than Apple's more restrictive terms around in-app purchases. Cloud Reader does, however, completely side-step Apple and its App Store terms. The Financial Times and Walmart's Vudu also recently did something similar. More publishers and developers will follow, who don't want to give money to Apple or simply don't want to worry about Apple's rules. 

An added benefit is compatibility with all mobile platforms. However developing native apps is relatively easy these days because, unless/until Windows Phones break out or BlackBerry stops its slide, only two operating systems matter: iOS and Android. 

In contrast to some of the rapturous reviews I've seen Cloud Reader is not as strong as the Kindle native app. It works well and allows users to read books offline (e.g., on the iPad). But it's not as responsive or fast the native app.

Yet for certain types of sites or publications HTML5 will be fine and quite usable. However for higher functionality a native app is better, even necessary (e.g., games).

But now that several companies have "validated" the HTML5 strategy will we see the migration from apps to HTML5 that the industry has always anticipated? Not exactly. I think what we'll see is continued development of native iOS, Android (later maybe Windows Phone) apps and HTML5 from everyone else. However Apple doesn't help its cause with all its rules and restrictions.

Will Survey Data Translate into iPhone Sales?

There are two competing mobile handset stories running simultaneously in the tech press right now. The first is how Android is increasing its dominance over other operating systems including iOS. The second, which largely contradicts the first, argues that Android will potentially lose meaningful market share when the next iPhone comes out. 

Below is the data that the "pro-Android" stories are built on; first Nielsen: 

Google’s Android operating system (OS) now claims the largest share of the U.S. consumer smartphone market with 39 percent. Apple’s iOS is in second place with 28 percent, while RIM Blackberry is down to 20 percent.

 Then Canalys:

Android, the number one platform by shipments since Q4 2010, was also the strongest growth driver this quarter, with Android-based smart phone shipments up 379% over a year ago to 51.9 million units . . .

Now the survey data on which the "pro-iPhone" stories are based:

Roughly two weeks ago ChangeWave came out with survey data that argued those planning to buy a smartphone in the next 90 days expressed a preference for the iPhone over Android 46% to 32%.

Then, earlier this week, Piper Jaffray released some survey data (which got way too much play for its tiny and unscientific sample) suggesting that most mobile phone owners would be buying an iPhone next. Indeed, the data argue that Android will see less than 50% retention: 

No doubt many people are interested in the next iPhone but attitudes and survey responses don't always translate into concrete behavior. For the overheated claims to come true ("iPhone 5 could double iOS market share") Apple will need to unveil a true blockbuster.

Likely Smartphone Buyers Prefer iPhone, RIM Takes Nosedive

A new US-centric ChangeWave consumer smartphone survey (n= 4,163) looks at mobile operating system preference and specifically iOS vs. Android. Accordingly those planning to buy a smartphone in the next 90 days expressed a preference the Apple product to Android 46% to 32%. 

The perhaps most striking finding -- and grim news for RIM -- is that only 4% of respondents say they intend to buy a new BlackBerry device.  

In terms of customer satisfaction the following graphic reflects the percentage of current smartphone owners who say they're "very satisifed" with their current handsets. Again Apple and Android lead. 

However ChangeWave noted the following about improvement for Windows Phone 7 vs. Windows Mobile:

We continue to see a big difference between the high Very Satisfied rating for Windows Phone 7 (57%) vs. the much lower rating for Windows Mobile OS (14%). Even so, the higher Windows Phone 7 rating has yet to produce a sustained momentum boost for Microsoft in term of buyer preferences.

ChangeWave also said that demand for Motorola Android devices was down (8%; down 4-pts) after the iPhone had come to Verizon:

After benefitting tremendously in the years Verizon subscribers were barred from the iPhone market, Motorola is now seeing a loss of market share at least partially attributable to the Verizon iPhone release that occurred earlier this year.

Android the Gateway to Smartphones -- Report

There are a number of articles reporting recent European findings about smartphone ownership based on quarterly survey data from Kantar Worldpanel ComTech. They reveal some interesting insights into what's driving Android sales and the danger to Apple if it doesn't create a lower-cost iPhone.

The high-level data include the following:

• Android is now the leading smartphone platform in most of Europe, being driven by non-smartphone owners upgrading in many cases
• There is little switching between Android and iPhone: Just over 1% of new Android owners are former iPhone owners
• The iPhone is the top selling smartphone in the UK but also the most expensive (Android has 45% of the market in total)
• Even as RIM is foundering in the US it's having great success in the UK among mobile subscribers upgrading: 85% of new RIM customers are former feature phone owners
• Smartphones in the pre-paid market in the UK have grown dramatically; in 2010 they were 18%, now they're 32% of all smartphones
• 63% of UK mobile subscribers are still on feature phones
• Nokia still has loyal customers in Europe but increasingly its owners are trading in Symbian for Android handsets
  

It appears from the data that as users upgrade they're generally migrating to Android and RIM handsets (in the UK at least). Price is a significant consideration for many of these buyers.

This makes the iPhone a less attractive option than Android. The strong platform loyalty (at least for iPhone and Android) argues that Apple faces major challenges if it cannot grab some of these upgrading price-sensitive users.

Tablet Sales Sputter As Amazon Readies Assault on Fortress iPad

Tablets aren't taking off as fast as some analysts expected and the iPad is still the only tablet that matters. However Amazon is reportedly preparing a full-frontal assault on the iPad's market dominance. Unconfirmed reports suggest that Amazon has placed orders for up to 1.2 million Android-based tablets for sale in Q3 this year. 

Meanwhile Net Applications reported earlier this week that the iPad now represents 1% of all Internet browsing globally; 2% in the US market. The same report shows that iPad-based traffic is orders of magnitude ahead of tablet competitors, which have so far foundered. Net Applications also says the iPad delivers 25% of all mobile Internet browsing and is the third largest source of mobile Internet traffic, after the iPhone with 35.2% and Android with 31.6%.

In June the Pew Internet Project reported that "8% of adults report owning a tablet computer such as an iPad," while 12% said they owned an eReader (e.g., Nook). Between November 2010 and May 2011 eReader ownership doubled and tablets saw growth of only 3% according to the Pew survey.

The difference in sales is most likely due to price, given the relatively lower cost of eReaders vs. Tablets. The ad-supported Kindle is just $114, while the iPad retails for $500. But for the first time Nook has dethroned Amazon's Kindle as the best-selling eReader, according to IDC. The firm also said that tablet shipments were coming in well below its previous lofty forecasts:

For 1Q11, the seasonal trends typically found in more mature consumer electronics and computing categories had a notable impact on the burgeoning media tablet market . . . The eReader market (which IDC counts separately) experienced similar seasonality, undergoing a sequential decline in shipments to 3.3 million units as the post-holiday season proved to be challenging for that category. However, eReaders enjoyed 105% year-over-year growth . . .

Apple's iPad and the recently introduced iPad 2 continue to dominate the media tablet market, as other vendors have had a more difficult time finding market acceptance for their products. But even Apple's shipments for the quarter were well below expectations . . .

The firm pegs Android-based devices at 34% of the overall tablet market. That figure is probably way off, however, and may suggest its other numbers are wrong too. The weight of other evidence points to Android tablets being a much smaller part of the overall pie. 

For example, the chart immediately below shows Google's own data reflecting the different Android operating systems in the market and their relative shares. Android 3.0 (and 3.1), which are on the new Android tablets, represents less than 1% of all Android devices in the market. 

The original 7" Galaxy Tab runs Android 2.2, which is the most common version of the OS and on almost 60% of all Android devices today. The 7" Galaxy Tab is also the best selling non-iPad tablet.

Apple said in May that it had sold 25 million iPads. If the iPad is 66% of the market (vs. Android's 34% per IDC) that means approximately 13 million Android tablets would have been sold globally. And the overwhelming majority of these would have to be the 7" Galaxy Tab given the chart above (and other data).

In January 2011 Samsung itself announced it had "sold" 2 million 7" Galaxy Tab devices. However these were not actual consumer sales but shipments to retailers. It's very unlikely at this point that the 7" Galaxy Tab has sold even 5 million units to consumers (as opposed to retailers). If anything sales of the 7" Samsung tablet have slowed because of a broader range of Android-based competitors. 

Beyond this comScore data argue that Android tablet devices are not a significant source of Internet traffic compared to the iPad. According to comScore, in June, the iPad represented “89 percent of tablet traffic across all markets.” In the US the figure is 97 percent. Those figures suggest that Android tablets are much closer to 10% of the market, if that. 

The "totality of evidence" thus argues that the IDC Android sales estimates are way off. In terms of the larger market, however, it's not hard for me to believe that tablet sales are down or, perhaps more accurately, not keeping pace with analysts' previously aggressive estimates. This may have less to do with the actual popularity of tablets than it has to do with analyst firms being too starry eyed about their sales projections.

We'll see what happens when Amazon, with its brand strength and marketing capabilities, introduces its iPad competitor. As I've argued before pricing with be a key driver of success or failure.

Right now Android tablet software and the overall UX remain inferior to the iPad; so until the OS catches up (which may or may not happen) and there are some Android tablet apps, which are still MIA, price will be the key success variable in Amazon's tablet effort. 

As a final note, I have previously been an advocate of the 7" tablet as a segment where Android could shine, especially given that Apple doesn't have an entry. And while it's certainly more "mobile" than 10" tablets, I'm now of the view that 7" is not sufficiently larger than a smartphone to warrant buying one.

I spent some time with the HTC Flyer recently. And while I like the device a lot -- much more than the Galaxy Tab -- most smartphone owners are probably not going to buy it. Indeed, if you're going to carry around or own two devices the second one needs to be considerably different than your smartphone. Alternatively if you could use a 7" Android tablet as a phone it might make the devices more attractive. Right now you could use Skype with a carrier data plan but that's not going to be desirable for most people.

My guess is that over time we'll see smartphone screens get somewhat larger (4.5", 5") and all tablets smaller than about 9" will go away, unless they're purchased as mobile gaming devices. 

App Downloads Show Complexity of Mobile Usage: It's Not All about Local

Many people (including some analysts) make simplistic assumptions about the mobile market: for example that mobile and local are all but synonymous. I'm obviously a big advocate of local but I see mobile usage as quite complex and defying easy conclusions about usage or the future direction of the market.

There are lots of functions and activities that people perform and do on mobile handsets that have nothing to do with their immediate surroundings or local. For example: games, news, entertainment, music, sports, social networking and so on.

A new set of Nielsen data about app downloads/usage in the past 30 days reflect that mobile is a platform that is complex and diverse in its usage. While local content and apps are well represented in the hierarcy a large number popular app categories have nothing to do with location.

Instead they probably reflect that people are using mobile as a "generic" Internet access tool. Games, the most popular category, is a phenomenon unto itself. 

Most purchases occur in the physical world. So most mobile ads will either direct people to actual stores or, in the case of most future display campaigns, offer a dealer or store locator -- at a minimum. Mobile will be a huge branding medium, irrespective of any localization component. And there will be many awareness ads that have a location component as secondary or perfunctory matter. 

Moreover we get into an "accounting" problem in defining what is a "local" ad in mobile.

Is a Klondike Bar ad that contains a store locator buried two clicks down a "local ad"? What about mobile click-to-call ads for a florist network, which sends users to call center to place an order fulfilled locally? Is a mobile-video brand campaign for Hilton Hotels that can direct you to the nearest property if you initiate a search or lookup?

There's a lot of gray in determining what is a local ad. We might want to "require" localization in the ad creative before we consider mobile ads as "local." Just a thought.

But just as people often fail to recognize how local or offline purchase intent permeates a great many things that happen on the PC it's equally the case that non-local activity/interest is very much tied up in mobile activity. The chart above nicely illustrates that. 

Report: Mobile Ads Show Better Performance than PC for Display -- Across the Board

MediaMind, formerly Eyeblaster, released the results of an extensive study examining roughly 230 million mobile ad impressions in Q4 2010 and Q1 2011. The company affirms or confirms that mobile outperforms PC for display advertising. There's no search data in this report but it's also true for search CTRs. However there are others who have data that contradicts these claims (e.g., iCrossing). 

Below are some of the top-level findings in the report: 

• Apple’s iOS beat Android by 2X in terms of ad performance, RIM by 5X (this is consistent with other data in the market; e.g., Smaato and Jumptap)
• Mobile ads saw a CTR of 0.61%, while PC banners see/saw a CTR of .07%.
• PC activity peaks during between 9 am and 5 pm, mobile browsing soars during the evenings (there's lots of data on mobile dayparting in the market, some of it inconsistent).
• Mobile CTR reaches its peak during the evening, but is higher than PC CTR at any time of the day.  
• Mobile CTR is also above average between 7pm and midnight, peaking at 8pm. 
• Top performing mobile verticals: entertainment, retail, financial, B2B (surprise), travel. Restaurants, the top local-mobile search category, was lower on the list

There's a big practical mobile advertising takeaway from the report: "Serving ads in the evening can prove much more effective as compared to earlier in the day, and can reduce the cost per click of mobile."