Apple vs. Android: The marketshare mentality, and why it's a mistake

Apple vs. Android marketshare, and

Last week Techpinions.com posted a really good editorial by John Kirk discussing how much of a joke it is to consider Android the winner in the smartphone space simply because they have the most market share. The very next day, Business Insider tech editor Jay Yarow pubished a post with a headline that read, “Apple Should Be Furious That It Has Such A Tiny Sliver Of The Smartphone Market.” Here's John Gruber’s response at Daring Fireball. And here's my take...

John Kirk opens with a well known joke about two farmers buying watermelons. They pay $5 per watermelon and sell them for $4 each, obviously losing money. At the end of the day they realize they’ve lost money so their conclusion is they need to buy a bigger truck; they need to conduct more watermelon-selling business.

Kirk doesn’t agree with the common, deeply flawed, logic that Android is winning because it has more market share than Apple, or that market share alone is the key to success. I agree with him 100% on this. In theory anyone can dominate any industry simply by giving away product for free. But what really maters is a company’s success in turning market share into profit.

Most tech writers don’t seem to be able to learn from the past.

Most tech writers don’t seem to be able to learn from the past. People will make dumb comments about how Apple must be pissed off with its market share without noticing that the PC vs. Mac game has played out in the same manner already. History repeats itself and people don’t notice. Fortunately Horace Dediu over at Asymco noticed.

The graphic below is the result of Dediu’s own analysis of Q4 2012 profit share in the PC market. Apple commands an estimated 45% of the PC market’s profits. What is not shown? Apple has only 8% market share.

Why aren’t people writing about how mad Apple must be with its Mac market share? Why are we not seeing headlines about the failure of the Mac product line? Because this is old news. The PC market is an old game and the mobile industry is a new game. It’s analogous to watching live sports versus watching a recording of last year’s game.

I only wish John Kirk had spent more time talking about actual vendors rather than Android versus Apple. He points out that Android has 70% global market share and 29% profit share, whereas Apple has 18% market share and 57% profit share. Sure, this is correct. But I don’t see it as relevant. Android is an OS and Apple is a vendor. Android feeds Google’s advertising machine (and other developing business models). Apple is a fully integrated platform vendor.

In my opinion, Google has done an amazing job of succeeding with Android. The joke about selling watermelons at a loss does not apply here. Android is software that has no cost to distribute. It has a development cost and it brings in revenue through all the users who connect to Google services.

Google makes a ton of cash from iOS users, who overwhelmingly enjoy Google’s services on their iPads and iPhones.

Is Google winning? It depends on how you define the fight. Google is not competing head on with Apple. Google makes a ton of cash from iOS users, who overwhelmingly enjoy Google’s services on their iPads and iPhones.

Apple competes head on with other device manufacturers including Samsung. And there is no debate that Samsung, having leveraged Android, is raking in the cash. Samsung has 33% market share and 43% profit share according to Cannacord Genuity. It doesn’t take a rocket scientist to realize that pretty much all the other Android vendors aren’t making money.

This takes us to back to Business Insider. They suggest that bloggers writing about Apple’s dominance in profit share are simply defensive. They agree with the math but seems to think Apple should have the most market share and the most profit. Why? Because Tim Cook said Apple’s mission is to make the best products in the world and BI tacks on the idea that Apple should also “get them in as many hands as possible”.

BI’s entire argument centers on the idea that Apple should want it’s great products to land in “as many hands as possible”, and the only way to do this is by going after market share (not profit share).

Most people probably all agree Apple should get its products into as many people’s hands as possible, but we may not all agree on what that actually means.

I don’t think getting your product in as many hands as possible means you drop your prices through the floor in order to sell more stuff. Apple is still a business that is owned by shareholders, of which I’m one. Getting your products into as many hands as possible while maintaining the Apple premium should be the goal. Otherwise Apple should be spending its billions to give away iPhones, which would be stupid.

Bottom line: I think John Kirk and John Gruber have it right. Taken to the extreme, the idea that Apple should use its cash to give away phones to the planet in order to achieve 100% market share and win the game is ludicrous. Market share does not define winning. All we need to do is look back at the history of Apple’s domination of PC profitability to see how this really works.

Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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There are 21 comments. Add yours.

iririr says:

great article....never thought about the other side of the coin....

Dev from tipb says:

Gruber (and others) consistently make the same mistake you seem willing to pin on BI. In the very post you cite:

"iOS is what you get when you try to make the best products and maximize the number of people who use them; Android devices are what you get when you try to maximize the number of people who use them."

So when even the most prominent Apple fans use the same language to describe Apple and Google's motivations, you can hardly blame mainstream outlets for following along.

richard451 says:

bingo. it's odd so many Apple bloggers fail to realize this.

Chris Umiastowski says:

I didn't say anything about the quality of Android vs iOS, so it seems to me you're mind reading.

Dev from tipb says:

Nor did I. I pointed out that you criticize BI and praise Gruber, when they use the same langauge.

adamwade says:

Between this and the other "commentary" today about Windows tablet ads, I have to ask myself - what horrible news are you guys sitting on? Or who peed in the cornflakes?

Concluding with "market share does not define winning" speaks to this mindset incredibly. Viewing it as a game to win or lose. Why can't everyone be happy with their device of choice? Just like with the Windows ads, if the people the things that get you all in a tizzy are so wrong or so irrelevant, why be so emotional about it? It's like they are hurting your personal feelings.

Apple needs to announce something new and real soon, so you guys can go back to gushing over products instead of spending time belittling opinions of people you say don't matter anyway.

Dev from tipb says:

What makes Kirk's analysis so superficial is he ignores motivations completely. He argues (correctly) that a firm can "cheat" and buy market share but he never takes the logical next step and asks *why* a company would act that way. Simply put, it is a sacrifice of current profit margin for future position. And, since we all love profits, the reasons for that sacrifice are the only interesting question.

First, it is important to note that profit share is no more the be-all and end-all than market share is. Profit share measures how well a company is doing *now* While Apple certainly is kicking ass there, that is no guarantee of future success. Ask RIM circa 2006, or Apple itself in 1993. Future success comes not just from current position, but future planning.

In that sense, marketshare matters more in platforms than in most products, because a virtuous cycle can form. Developers target the biggest market first, resulting in the best/coolest things on that platform, which makes more people want that platform, and so on and so on. I know I held onto Windows years longer than I should have simply for the games. Of course, just because such a cycle *can* happen does not mean it *will* happen. The PC-developer cycle may not even apply to phones at all. Even if it does, while I personally dislike xcode, I must admit that Apple still has the best developer toolchain and the largest single target story for developers. Apple stands as good or better a chance of fostering and benefiting such cycles themselves as being victimized by one for Android.

For now. But that is why various Android makers are buying marketshare -- sacrificing their current profits -- to try and change that. So that explains the motivations of a Samsung, or an HTC, or even pre-Google Motorola.

Google itself, however, is playing an entirely different game. Android's entire raison d'etre is a hedge to prevent any other company (like Apple) from controlling mobile and potentially choking off Google's service-based air supply. *That* - not profits, not marketshare, is their motivation. Android needs only to be a large enough presence in the market to guarantee people continue to use their services, either on Android itself or on other platforms. As a defensive play, Android itself is and always be a cost center to Google; any profits it happens to stumble into on its own is gravy.

These articles about profit share and market are viewed as defensive because they seem to resurface every few months. Next time, it would be good to recognize that not only are they not the only rules, but that not everybody is even playing the same game.

Rene Ritchie says:

Dumping VHS on the markets didn't really help any of those companies, did it? How many are even still around?

Dumping net books seems to have hurt PC manufacturers more than helped as well.

Short term sacrifice just as often seems to lead to long term failure.

Sent from the iMore App

Dev from tipb says:

Dumping VHS is *exactly* what pushed VHS over the technically superior Beta at the time, and led to over two decades of large profits for JVC and Phillips. That they screwed up entering the optical disk market 25 years later has nothing to do with that initial, wildly successful decision.

As for net books, dumping is not a panacea - it can't help crap products. It can and does help products that are competitive but slightly behind.

tooicecool says:

apple basically just sell updated junk to loser,wannabe, richfag etc and get crown innovaters

sleblanc1976 says:

How sad and empty your life must be to have that feeling for a company and go to a blog that follows said company and take the time to post comments.

CORYK333 says:

With comments & a thought process like that, I'm sure you're doing extremely well in life........smh

squirble says:

Doesn't that profit graph just show how greedy Apple is? Apple hardware is ridiculously over priced. The price difference between a 16GB iOS device and a 64GB iOS device is $200. That's $200 for an extra 48GB. No extra features, just memory. The OSx products have the same intel processors, same RAM, same hard drives as a windows pc yet the cost is, in some cases, double. The cheapest Mac Pro is $2499. Are you kidding me? For $2499 I can build one hell of a computer. Don't get me wrong, I love my macbook air but I got it for a great price (Craigslist). I would never pay full retail for any Apple product. So yea...Apple owns the profit share but only because their production is cheap and they sell at a high price. Nothing wrong with that but imagine what their market share would be if they sold a cheaper device. How many more people would buy Macs if they didn't cost so much?

Market share always seems to be a bad measuring tool when Apple is losing it. It was great when RIM was losing it and Apple was gaining though. I remember reading articles on this site about it.

mungera says:

It's not greed if millions of people are willing to pay those prices. It's common sense business. If you build a computer, and I tell you I'll buy it for $1000, would you honestly come back and say, "Nah man, I'm making too much profit at that price. I'll sell it for $700."?

squirble says:

That depends. It if costs me $500 to build a computer and I only sell it to one person at $1000. I make a $500 profit. If I can sell 2 computers at say $900. I've now made a $800 profit AND increased my "market share". 5 at $800....and so on. If I am able to lower the cost to consumers, increase market share and still make a nice profit, yes I would sell it at a cheaper price. The more people that are using your product the more "Free" advertising you have. How many blackberry commercials were there 6 years ago? They didn't need them because any enterprise that wanted email on a mobile device went with blackberry.

Just because people are willing to pay the money doesn't mean Apple isn't still being greedy. As I said in my first post, there is nothing wrong with producing cheap and selling high. I just believe that if you sell a little lower, you can sell a lot more and in turn increase your profits and market share.

mungera says:

I agree that there is a fine line you can walk between profit share and market share. I was just clarifying that charging a higher price and making a higher profit doesn't necessarily make a company greedy. You see so many of the "99%" crowd that think any company making a profit is "greedy". But being profitable is GOOD.
Apple also wants to maintain that their products are premium. If everybody has one, it can water down the brand and cause people to no longer be willing to pay a premium price.
Again, it's a fine line between a lot of different factors, and there's not necessarily one "right" way to do it.

jerseykirby says:

I agree 100% here. Not so much on the Apple being greedy part, in that sense I feel that Apple just targets a different market, but i do feel that if you can produce something of quality at a cheaper cost and sell at a lower cost than the competition and still make profit than by all means. I have found that I ca get a PC of the same specs of a MacBook or Mac for almost half the cost. Do I sacrifice a few things with this purchase? Of course, but I feel most of those things I am sacrificing are aesthetically pleasing. There is a reason why companies fail, they feel they can get their product in as many homes as possible but neglect to put out a quality product. That is what Apple does and they make it known that their product is quality by charging the prices they do. They have every right to do so, and people will buy it because they trust that product. I personally am a PC and Android user, wife is an iOS and MacBook user. We both have the best of both worlds because that's what we trust. She paid well over what I paid for my devices but they are essentially the same thing, just a different name on the front. It's all about the consumer and what they trust in my opinion. The "smart" consumer so to say. There will always be the so called "fanboys" out there that go on the defense about the product they support and bad mouth the other whether it be in form of a blog, article, word of mouth, etc. It is as simple as this, there are more important things in the world for us to worry about than to come to the defense of multi-billion dollar companies when it really won't make a difference anyhow. If it's your job to do so, great work!!! You're keeping the masses that are bored at work and surfing the web happy... ;-)

Caballera says:

I would definitely get an iMac for home, however I need a gaming desktop so I just build my own Windows PC instead. I use my MacBook Pro for everything else and just connect it to two external monitors.

Ipheuria says:

The way I see it the people who report on iPhone vs Android look at it as a game, someone has to win. This is kind of silly because no one on either side can ever see a time when either Apple, Samsung or Google pull out altogether. So how is "winning" defined, because to me that is what I would consider winning. It's great Samsung has their phones in more people's hands that pushes Apple to make sure they don't lose iOS users or begin to see smaller numbers of new users. It's great there are tons of Android phones out there it makes Google money through their services and keeps them developing both the Android platform and said services. So really although it's not something we see too often everyone is winning. I know it's a hard pill to swallow for many people because our mentality is to be proud of our success and if the competitor is successful it means we aren't and vice versa.

Lorn Taylor says:

“He points out that Android has 70% global market share and 29% profit share, whereas Apple has 18% market share and 57% profit share. Sure, this is correct. But I don’t see it as relevant.” Then you need your head checked.

Dheeraj Jhola says:

so from abusiness point of view...apple is still happy....WHO CARES...???
as a consumer,I am worried about getting the best product out their....and here its not about choices....android is better....PERIOD!!!

I dont care whether apple makes money or not....
with android: consumer+manufacturers win.
with apple: only manufacturer win.