Its an expected, necessary response to slow consumer uptake on this launch. The price cut also exposes the challenge in front of Nokia and Microsoft–namely that to become a credible “third ecosystem,” they’re going to have to carve out a niche that is distinctly different and protected from Apple/iOS on the high-end, and Google/Android on the low-end.
Though Android is now clearly winning on unit volumes in the smartphone market, Apple is still earning the bulk of profits. Consumers yearn for Apple products, and Apple appears to still have a lot of marketing magic in terms of whipping us into a frenzy for its new product releases. And more importantly, the developer ecosystem around Apple remains strong. Developers know how to make money on iOS and it remains a ‘must target’ platform from a developer standpoint. So long as these factors remain true, expect Apple to retain the high end.
Google Android has arrived big time. Now the leader in terms of unit share run-rate, Android is now the market leader in smartphone shipments. Being #1 has benefits, in particular, any hardware manufacturer not named Apple basically has to be in the Android ecosystem. Google’s strategy of giving away the OS and its better than free value proposition to hardware OEMs, which Peter Fenton discusses in this great post, is great competitive defense. If there’s any weakness in the Android ecosystem, its that the profitability of the developer ecosystem seems lower than iOS’s. Developers I speak to generally find Android users less likely to pay for an app, less likely to complete in-app purchases etc. Android runs too many units for developers to not target the platform, but the developer revenue seems less clear.
With these two leaders in place, then the question is how does Nokia / Windows fit? It will be difficult to compete with Android’s less than free. To the extent it is successful in gaining (buying?) share at the low end, this strategy has to problems. First, Nokia/Windows have a business model that will have to likely compete against the better than free model of Android. While charging nothing to handset manufacturers, Google makes revenue on default searches and reportedly shares this revenue with carriers/handset makers. This is better than free, and MSFT/Nokia will have a challenge responding.
The second issue here, also important, is the signaling to mobile app developers. Most mobile app developers I speak to tell me that Android is a broadly distributed platform, but it is nowhere near as profitable (in general) as iOS. Developers will run you through a litany of complaints: the Android Market is a mess, the in app purchasing platform is weak, users don’t upgrade to the latest versions of the Android OS (or their apps), etc. The other issue is a function of price point: Android users are generally cheaper and more price sesnitive than iOS users. Developers know this. With Windows / Nokia chasing this segment, they are heading into a problem area for their developer efforts–namely, developers will want to understand what the profit profile is for building apps on the platform.
So Windows Phone / Nokia will have challenges fighting against Apple. And opening a front against Android will I expect prove both costly and difficult to attract developers. This is the risk of becoming a third ecosystem. This is what happens when the vice tightens.