Android: Great For Phones Not For Tablets

Moneybox
A blog about business and economics.
Sept. 5 2012 4:04 PM

Here's The Reason Android Works Better On Phones Than On Tablets

Nillay Patel and Dieter Bohn have an interesting piece on the closing window for Android tablets—by which they mean the Android brand and exclude Amazon's Kindle Fire which uses some Android technology under the hood but deliberately places the product firmly in an Amazon ecosystem.

But they don't really get at what I think is the key difference between the phone market, where Android sells like hotcakes, and the tablet market where it doesn't. It's all about the mobile phone network operators. AT&T, Verizon, and their competitors and foreign equivalents.

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The way the smartphone market works is that the retail channel is dominated by the operators. And the operators love Android—with good reason. Because multiple manufacturers can make good Android phones, the operators can drive a hard bargain with the manufacturers in terms of the subsidies they pay out. Consequently, an Android phone with similar hardware to an iPhone retails for about the same price to consumers but it's a much higher margin product for the operator and a lower margin product for the manufacturer than an iPhone. This gives the operators a huge incentive to steer indifferent customers toward Android phones (while making the iPhone available to Apple fans) and drives enormous adoption of the platform. This hasn't been a particularly lucrative business for Google, but it's certainly achieved the strategic goal of preventing Apple from dominating smartphone marketshare.

The tablet market lacks that crucial feature. Apple and Amazon both have well-established retail channels, Android OEMs don't. And Best Buy has no particularly reason to want you to buy an Android tablet rather than an iPad.

Which is just to say that while from a technological perspective phones and tablets seem pretty similar, from a business model perspective they're totally different. But that's a contingency not a necessary feature of the landscape. The phone market might evolve to a point where consumers prefer unsubsidized phones and less-onerous contracts or mobile network operators might start offering subsidized tablets as a loss-leader for data contracts. For now, though, the phone retail channel is totally different from the tablet retail chain. To people who love gadgets this may not seem to matter, but you can see the difference it makes in the numbers.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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