Reminder: Apple's All About Profit Share NOT Market Share

iPhone Business Model

Quarterly results time, when the internet's fancy turns to chicken-little predictions of how many percentage points this or that company slipped on which or what index of... who cares.

It's not the first time we've mentioned this, and we're certainly not the first people to have mentioned it. Yet, just like clockwork every 3 months analysts spout estimates and every blog and their commenters race to re-publish what in essence are meaningless numbers.

Cases in point: Apple and the iPhone.

Certainly, without much room for doubt or question, Apple's market share and likely iPhone market share will be down this quarter. Newsflash: the market will likely be down this quarter. So if Apple is selling 1% or 2% less in terms of units, hellseven 10% less in terms of units, is that reason to panic?

If you're an analyst or shockmedia type, likely "yes", or if you're manipulating stock for short term turnover rather than stable long term growth, "aye, ye scurvy dogs!". But if you're Apple?

No.

Historically, Apple doesn't care about market share, they care about profit share. (They already own mind share, so we'll remove that from the equation for now).

Apple is a public company that reports its margins, which typically run around 30%. Let that sink in for a moment. When Palm is selling millions of Centros and losing money hand over fist, when Nokia owns the international market and revenues plummet, when PC makers are racing each other to the bottom of the netbook price list to eek out razor-thin margins and gaining footprint only to hemorrhage cash, rumors of iPhone nanos and cheapo iNetbooks make as little sense for Apple as iSupply- and analyst-fueled headlines.

Sure, it's nice for consumers to get low prices, but not at the expense of the companies going out of business and no longer giving us products or competition. Short term gain at long term loss isn't sustainable. It's the $0.99 fart app of the electronics space.

Apple reports earnings on April 22nd.

Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, Review, The TV Show, Vector, ZEN & TECH, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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There are 18 comments. Add yours.

frog says:

I'm fairly sure the $0.99 fart apps would have been quite profitable! But yes your right, Apple makes amazing margins on all their lines - and right now are ridiculously profitable!

cyberbob says:

Great article. Should give a reality check to those who think Apple should litter the market with cheap products so they'll gain more market-share. Aren't their enough of those already?

Snowman81 says:

Apple’s all about profit share NOT market share huh? And yet when Apple's market share was going up, just about every Apple site out there couldn't stop harping on about it...is a little consistency too much to ask for from blogs?

Michael Reynaga says:

@Neil, read the posting man, thats exactly what it says, Apple does not own or run all the blogs about its products. The COMPANY only cares about profit shares, he is not saying all apple sites and blogs only care about profit share.

Snowman81 says:

@Michael Reynaga
I read the article dude, my point is even this site was going on about Apple's market share going up and passing [insert name here] and now when its on the down, its oh "we should remember market share isn't important". Just seems like wanting have your cake and eat it too...that's all I'm saying.
Anyways, it really to me one way or the other.

dim3000 says:

Yes I agree. I think we all know what kind of results we will see on April 22nd as opposed to any other competitors in the same area of interest.

Rene Ritchie says:

@Neil: Per the article above, in Apple's case (not the others), market share increases result in profit share increases (the more at 30%, the better). Steve Jobs often says take care of the top line and the bottom line takes care of itself.
For the others, with little to no margin, that is extremely not the case. (The more 1%, the worse).
Make sense?

cyberbob says:

@Neal: I think you are missing the point. Whether or not this or any other blog gets excited about market-share, it has nothing to do with Apple's focus. You are correct in the fact that some of us Apple fans do get excited at increases in market-share for our favorite technology company and be assured we are going to post about it.
Additionally, if you'll check out other Apple based blog sites, such as tuaw.com, you'll see that the decrease in market-share has been covered. I see no "inconsistency" in an article that puts Apple's point of view on the drop.

Albert says:

Pretty straight forward if you're a margin company, then total units sold means much less. Obviously if you sell very few units then it starts impacting the bottom line. Apple has probably found their sweet spot, and will likely continue to live with the 20-30% profit margins

Adam says:

I think that Apple is interested in profit, but also in growth and market share. Far from being meaningless, this is a perfectly valid indicator of how a company is doing. The subject is mentioned during earnings calls, for instance, and at every Apple keynote, with figures showing the iPod/iTunes's or the Mac's share of their respective markets.
A few examples. In January 2007, Jobs made fun of the Zune and Microsoft. From Engadget's transcript: "They garnered 2% market share in November 2006… We don't have data for December. No matter how you try and spin this, what can you say?" Last October, during Apple's "Spotlight turns to notebooks" event, Tim Cook explained how the Mac has outgrown the market for almost 4 years. He stated: "Since we're growing faster than the market, in US retail market share we've gone from single digits to 17.6%."
When Apple opened its first retail store, Steve Jobs talked at length about, huh, was it profitability? Nope, he talked about regaining some market share. Apple's main reason for opening the stores was growth, according to Jobs. The company started a newspaper ad campaign called "5 down, 95 to go" referring to its market share. "If only 5 of those remaining 95 people switch, we'll double our market share," Jobs said. Oh Steve, you should know that Apple doesn’t care about that! And the fact that half of the computers sold at your retail stores are to people that have never own a Mac before is also unimportant. :-)
Of course I'm not confusing Apple with Dell or Motorola. Its business model is different, the company doesn't usually cater to the low-end market because it wants to release the best products, and it always tries to maintain gross margins. Apple won't chase market share at any cost, at the expense of margins and profitability, people have to keep that in mind when commenting about the company. Yet, that didn't deter the iPod or iTunes from garnering and maintaining a staggering market share (above 70%). For historical reasons —the deal between IBM and Microsoft, the PC clones saga, etc— and because Apple has made a series of business model choices —not licensing the OS to other companies—, its share of the PC market will never reach that level, but it doesn't mean that market share is meaningless.
Concerning the March quarter, I don't see evidence that the Mac U.S. market share is slipping. The growth is slightly negative, but the whole market is down. Apple's U.S. share for 1Q2009 is down 0.1% compared to last year's quarter according to Gartner and it's up by 0.2% according to IDC. Some people are freaking out (or pretending to freak out to generate controversy) because Apple's share is down from Q3, but it happens every year no matter what. Market share gains or losses are not linear, they varie due to seasonality. The Mac is usually doing better in the 3rd calendar quarter (July-September), since it benefits from the back-to-school season. There is always a spike in Q3, as you can see on the following graph (Gartner figures, posted on macrumors.com). Usually, Apple's share is at a low-point in Q4 and Q1, and Q3 is traditionally the year's high-point. Then the cycle starts anew, rince and repeat.
http://www.macrumors.com/2009/04/16/apples-us-market-share-slips-in-1q-2...
Concerning the Mac sites, I think that Neil has a point. When Apple is perceived to do well, fans will gloat about market share gains. When figures are less stellar, people will pretend that market share doesn't matter anyway. Of course some stupid pundits will always try to generate headlines, sometimes they will use monthly figures from NPD without even waiting for the quarter to end ("Apple US Mac Sales Down 16%, Windows PC Sales up 22%, Please Panic!!!") or thinking about product cycles (new Macs introduced late in the quarter). But it's easy to see through this bullshit and it's no reason to reject market share entirely.

Snowman81 says:

@Evilhomer
The inconsistency is simply this, when things were on the up it wasn't important even once to point out that market share wasn't important, but instead it was reported as something great, the second it starts to slip it is unimportant. Its either always important to you (as a reporter/fan) or not...you can't have it both ways.
As I said before, I don't really care one way or the other...I'm a gadget fan, I buy Apple products, but I buy PC stuff as well.
Anyways, when in Apple country don't question stories about Apple is safe way to live....so I won't say anymore on the matter, less I be burned at the stake. lol

Rene Ritchie says:

@neil:
Maybe I'm failing to make this point:
Mac and iPhone market share matter because they're also profit share. At 30% margins, they make lots of money, and more money the greater the market share obviously.
For Apple to go into razor-thin margin products like how netbooks or cheap laptops are currently being made and sold, they would lose profit share even if they gained market share -- hence my citing the Palm Centro example. Millions of sales, nothing to show for it on the books.
Anyone or any site that says Apple should go the netbook route to increase market share, not understanding what that would do to Apple's profit share, isn't looking at it from Apple's perspective.
Does that help?

Snowman81 says:

@Rene Ritchie
I'm not talking about Apple standpoint, their business practices, anything they have said or anything of that nature.
Just how Apple blogs treat the idea of Apple's market share situation, when things were climbing you guys (apple blogs) kept harping on the subject, saying how great things are going, how the iPod, the iPhone and OSX are bring customers over to Mac and how Apple's share keeps going up while PC/Windows shares are going down, how great this is.
But now when its going down just about all the Apple blogs are now like "hey remember market share is unimportant to Apple".
But yeah clearly my point of view is in the minority here, with only Adam being able to grasp what I've now said like 3 or 4 times now. Best just to say lets agree to disagree.

Mike M says:

@Neil
If apple has the same low marketshare as a company selling cheaper products then they are still making more profit than the other company. The fact that the blogs say it's not a big deal when apple's marketshare goes down is just stating the facts. IT DOESN'T MATTER. It's not the blogs being fanboys (note: I'm not saying they aren't). With apple's high profit margin, a low marketshare doesn't mean the same thing to them as it would someone selling cheaper products.
Google Jon Stewart interviews Jim Cramer. Cramer got called out on talking down the iPhone to lower the stock price before it was released. Essentially this is the same thing. Their marketshare goes down so people hype that up thinking it means the same thing as it does to other companies. It doesn't.

Mike M says:

Add:
To satisfy your argument: Sure, someone should have put out a seperate article before this one simply stating that the marketshare went down. Just to be fair. Instead it was rolled into one article to save the stock "panic" that news like that would cause.

Rene Ritchie says:

@Mike M:
We don't cover Mac news, so if analysts predict Mac market share is down, fine, but it's not news for us (we generally don't cover when Mac market share goes up either ;)
Con call is next week. If iPhone market share goes down, we'll report it as such.
We may also point to Apple's traditional heavy holiday quarter, light new year quarter, and slow pre-new hardware quarter from last year as the beginning of an iPod-esque sales pattern... /:

David Graham says:

All
Typical !! Market Share and Profit Share are completely different. Sarbanes-Oxley Act of 2002 did away with this pea/shell game. Apple does not post profits willingly, SOX's forces that issue. Apple delays big time posting profits, up to 2 years, so its a lot of smoke and mirrors, in other words take your profit now and you competitor knows you margins, wait two years and it takes a Cray Computer to figure the margins.
dmg
dmg

kündigung versicherung says:

Do you think I should buy apple shares now, or is it too late?