Apple's Biggest Advantage in Smartphones

Google has built quite a popular platform with its Android OS for mobile devices. The operating system is on nearly 80% of smartphones sold worldwide. Microsoft's Windows Phone is moving in the right direction, but still has just 3.7% market share.

Meanwhile, through the first half of this year, Apple commanded just 13.2% of the global market, down from 16.6% at the same time in 2012. Many believe this trend will cause developers to start focusing on Android first.

Source: Nerds on Call.

They're wrong.

Look at the U.S.
The iPhone does especially well in the United States, where most innovative mobile start-ups originate. Kantar's latest report showed Apple has a 43.4% market share in the U.S., and the latest iterations of the iPhone doubled the company's sales share in the U.S. month over month in September.

Indeed, the iPhone is still extremely popular in the most important country for app developers. Not only do most apps originate in the States, many are focused on the U.S. because we spend money. Not only are we willing to pay for apps, advertisers are willing to pay app developers more for American eyeballs.

Still, the majority of Americans with a smartphone have an Android in their pocket. That still doesn't mean developers will make Android a priority.

Return on investment
The Android market is segmented. The Windows Phone market is too to some degree. But there's only one iOS phone.

The cost of development is significantly lower for an iOS app than it is for an Android app. Android development costs stem from a multitude of sources, but perhaps most important, is quality assurance issues, brought on by the plethora of phone models running Android. iOS developers don't need to worry about that.

More importantly, developers will be looking at their potential return on investment. Even if the costs were the same to develop an app for iOS, Android, or Windows Phone, iOS would still be the primary focus of most app developers.

American iPhone owners are the creme-de-la-creme of smartphone users. Despite Android owners outnumbering them, their combined worth for app developers is significantly more than the Android majority. The amount of money flowing into iOS apps significantly outpaces that of Android apps.

A recent study by Nanigans found that Facebook ads on iOS brought in 6.1 times the amount of revenue and were 17.9 times more profitable compared to Android ads. So, Android CPC rates are about half that of iOS rates. The gulf is bound to grow wider too, as most Android ads have a negative ROI.

In other words, an iOS download is worth twice as much to a developer and worth 17.9 times as much for its advertisers. This is evident in the fact that despite 10% more app downloads in the Google Play store compared to iTunes in the second quarter, the iTunes app store brought in 2.3 times as much revenue.

Developers will flock toward the money. That's what they're in this for after all.

What about Windows Phone?
It takes about a year to 18 months to develop and release an app for a new platform. That pattern is quite evident in the case of Instagram, which took almost 18 months to release an Android app and another 18 months to release a Windows Phone version. That's despite the fact that Nokia's Lumia phones are generally regarded as the best camera phones.

Unless Microsoft gives developers an incentive to develop for its mobile platform, its app ecosystem is likely to stay two to three years behind that of Apple's. Without the latest apps, it will be extremely difficult for the company to grow its market share, creating a vicious cycle.

Can't be beat
As much as Apple bears like to bad talk Apple's diminishing market share, it's important to remember hardware is only half the battle. Apple's priority in the app ecosystem will ensure it maintains a strong market share in its most profitable markets.

Additionally, the propensity for iPhone owners to spend more on apps means Apple is bringing in more revenue through its iTunes app store per phone sold. This is Apple's biggest advantage in smartphones, and it's not going away anytime soon.

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The article Apple's Biggest Advantage in Smartphones originally appeared on Fool.com.

Adam Levy owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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