Mobile USA

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In Mary Meeker's just released 2014 "Internet Trends" report, there is a very interesting trend which I do not recall seeing in her previous reports.

From 2005-2014, over a period of 10 years - a decade of significant growth of manufacturing offshore outsourcing, although there is a small shift back towards domestic with the improvements in robotics - one major element's manufacture, perhaps the most important one, is now almost completely domestic: mobile operating system.

In 2005, 5% of mobile operating systems were "Made in the USA." Android and iOS simply did not exist, Blackberry, although made in Canada, was still fairly small, and Nokia's Symbian ruled. Fast forward to 2013, Symbian is basically gone, Blackberry is tiny, and Android and iOS, along with minor player Windows Phone, have 97% market share. Additionally, from an absolute numbers perspective, that market has grown dramatically. According to the ITU, in 2005, there were ~2BN cellular phone subscriptions; by 2013 there were 6.8BN.

This should not be surprising. The advent of a two solid mobile operating systems that consumers want to use not only has taken market share from Symbian, it has grown the market by a factor of 3.4!

Despite the offshore manufacturing of the hardware, the hearts of these devices are the OS. Apple's phone specifications may be better than most Android options, although the gap is closing quickly, but consumers are really paying for the Apple software and the ecosystem around it: App Store apps, iTunes music and movies, iMessage + FaceTime, iCloud. I do not know if these will be sufficient to maintain Apple's hold on the market, and its premium prices, but this is what people pay for today.

The software is the heart of the mobile experience, and the software is American-dominated.

How did it happen? And will it last?

Countries with smaller populations, manufacturing infrastructure, and technology history have always loved software. It is cheap to build, requires smaller teams of more ingenious people, and has a marginal cost of zero. The Finnish with Nokia, Israelis with Waze and ICQ and many other software inventions, the list goes on. In the end, however, it is the combination of competitive pressures with a large, diverse and demanding customer base that lead to great software.

The software team at Apple and the Rubin/Miner team at Android both dealt with large domestic and diverse markets, great vision, and competitive pressures; the Nokia team, by contrast, felt comfortable in its bubble.

Will it last? Certainly for some period of time. The open nature of Android makes it easier and cheaper to adopt for other variants than building your own; see Amazon Kindle. The innovative US tech sector owned desktop OS for a long time, ceded ground on mobile, and then took it back with a vengeance in less than 10 years.