Further Reflections on the Mobile Marketplace and Android Antitrust Complaints

Back in March, I blogged about a slate of competition accusations that had been leveled at the Android mobile operating system.  Although I am not going to rehash my initial arguments here, I wanted to point readers to a recent paper by Dr. Torsten Körber, which analyzes the same claims and comes to similar conclusions (including noting that both the US FTC and Korean antitrust regulators examined the Android ecosystem as part of their antitrust reviews of Google’s practices and found no cause for concern).

Given that this is a blog, and not an academic journal, I’m not going to analyze Körber’s entire paper (although I recommend it to anyone interested in a deep dive on these issues), but instead point out a few interesting takeaways from it on the nature of competition in the mobile ecosystem.  Specifically, I will focus on how the mobile market is different than the PC market, as much of the current high-tech antitrust thinking and analysis is influenced by prior landmark antitrust cases, not least of which being the Microsoft cases.

1) The mobile market turns over much faster than the PC market

In the mobile world, turnover of devices is much faster.  Although it varies by country and manufacturer, it is very common for consumers to replace their smartphones every year, or every other year.  Compare this to the PC world, where — as Körber points out — Windows XP still has nearly a 30 percent share, and it was released in 2001!

So, what does this mean for antitrust/competition analysis?  It means that market power is more difficult to come by and market share is more ethereal than in the PC market, as consumers are continually faced with inflection points where they reevaluate their choice of handset and mobile OS.  Whereas if the average consumer replaces his or her computer once or twice a decade, then market power is more permanent and market share changes are much slower.  This partially explains the ephemeral nature of the leading smartphone and mobile OS makers over the decade, which is illustrated by this quote from comScore market research highlighted in the paper:

“In 2005, the market was dominated by Palm, Symbian and BlackBerry. However, by the following year all three had ceded control to Microsoft as the new market share leader. 2008‐2010 saw BlackBerry stage a comeback to assume the #1 position before eventually giving way to the upstart Android platform in 2011”.

2) The “applications barrier to entry” is much lower in the mobile marketplace

A key component of the Microsoft cases, and market power in the PC world in general, was the “applications barrier to entry.”  In short, this meant that consumers primarily care not about the operating system itself, but what applications it can run.  If consumers can’t use their already acquired programs or applications with a different OS, they are much less likely to switch, lest they have to pay to replace all their programs and applications.  Also, if little competition exists for operating systems, or if it is not easy for one application to be interoperable with other OSes, then few software developers (or app developers) will be interested in writing applications for anything but the dominant OS.  This dynamic creates a self-reinforcing feedback loop where software developers are incentivized to create applications for the dominant ecosystem, thus increasing the dominance of that ecosystem.  However, this is another area where mobile and PC ecosystems differ for at least two reasons: cost and cross platform availability.

• Cost – Most mobile applications are either very cheap, or free.  In 2013, according to Flurry Analytics, 90 percent of mobile apps were free and 96 percent were under $1.  Therefore, simply put, switching from iOS to Android, or vice versa, is much cheaper than replacing your suite of software for your desktop when switching from Windows to Mac OS.

• Cross platform availability of applications – Even if one ecosystem has a majority of the market share, software developers will release versions for different operating systems if it is cheap/easy enough to do so.  This often means that either it is easy to adapt the code for an application to work in another OS, or third party tools (sometimes called “middleware”) exist to allow one application to work with multiple operating systems.  (For antitrust historians out there, this was the heart of the Java charges in the Microsoft cases.)  As Körber documents, building mobile applications is much easier and cheaper that building PC software.  Therefore, it is more common for programmers to write programs for multiple OSes.  To support his point, Körber cites a survey of mobile app developers showing that 73 percent of apps developers design apps for at least two different mobiles OSes, while 62 percent support 3 or more.  Furthermore, HTML5, which is a markup language supported by all major web browsers and has built-in app capability, is becoming more ubiquitous.  Since HTML5 apps can be run by all major web browsers, software developers will no longer need to even build separate versions of apps for different mobile OSes. [For a more detailed economic analysis of the competitive effects of this phenomenon, see this paper by Stanford Economics Professor Timothy Bresnahan and 2 PHD candidates, that illustrates that in markets where developers write applications for multiple platforms “tipping” is unlikely and, therefore, inter-platform competition is more robust.]

3) Users are less dependent on preinstalled mobile apps

Downloading new mobile apps is a much easier (and as pointed out earlier, cheaper) process in the mobile world than buying software was in the PC world.  Körber points out that in 2013 consumers downloaded nearly 56 billion mobile apps (he also noted the differences between operating systems, with iOS users spending more money per capita on downloading apps than users of the other major mobile OSes).  With the ease of downloading apps, it is no surprise that in many key categories, such as social networking, messaging and cloud media services, Google’s product offering is trailing the offerings of competitors (see page 41), many of which don’t always come preinstalled.

Another unique characteristic of the mobile marketplace is that it is not just OEMs that sit in between the OS supplier and the customer, but also a wireless carrier.  Both OEMs and wireless carriers often preload their own applications on mobile phones as well.  Not only that, but they frequently include redundant applications that provide the same functionality, thus giving customers visible choice out of the box (e.g. 2 different mapping apps or Dropbox, Samsung Hub and Google Drive in the cloud media services space).  I noted this in my original blog post (using my Sprint Samsung Galaxy S4 as an example), but Körber documents this more extensively.

There are many other great takeaways in Körber’s piece and many other characteristics that differentiate the mobile OS and PC OS markets.  Given the frequent, and often flippant, comparisons in the media between the complaints against Android and the Microsoft antitrust cases of the past, it is important to note the key differences in these markets.  Indeed, the differences between the two markets occur at critical points of analysis that make or break antitrust claims.  In this case, many of the defining characteristics of the PC OS market on which the prior Microsoft cases turned are not present in the mobile marketplace.