The Church of Profit Share vs the Church of Market Share


Apple’s Market Share

Recently, the controversial topic of Apple’s market share in the smartphone sector raised its ugly head again. The theory here is that due to its large market share – Google is winning the mobile battle and Apple will lose or has already lost.

However, long time Apple aficionado  – John Gruber, felt the need to set the record straight, as he has done through the years.

You could say the recent spat started when Gruber linked to this article  – Android’s Market Share Is Literally A Joke by John Kirk. According to Gruber, Kirk’s piece was “outstanding” and a “must-read.”

Here is the gist of what Kirk had to say:

Not only do the high priests of market share have it wrong, they have it exactly backwards. The company with the lower market share and the higher profits has all the leverage. The goal is to INCREASE, not decrease, the ratio of profits to market share. Increasing market share at the cost of profits is a recipe for disaster, not a formula for success.

Apple may or may not do well in the future but right now, and contrary to popular belief, they are winning the smartphone wars and winning them handily.

If you are a fan of Gruber’s blog, as I am, you would not be surprise by this enthusiastic endorsement of Kirk’s piece. After all, Gruber has preached this very sermon for nearly a decade on DaringFireball. These sermons may have resulted in many denouncing the  teaching of the Church of Market Share and joined Gruber’s Church of Profit Share. And judging from his article, John Kirk appears to a member.


Gruber is a member of the Church of Profit Share or is he...

Here is thing, you will find very few writers with the level of understanding of how Apple works than John Gruber.

In fact, this piece in 2004 – The Art of the Parlay, Or: How I Learned to Stop Worrying About Platform Licensing and Market Share by Gruber perfectly describes how Apple inadvertently ceded the advantage in the personal PC market to Microsoft.

According to Gruber:

The key difference is that Microsoft focused — intensely and purposefully — on parlaying each of their successes into bigger successes. They got lucky once, when they got IBM to agree to license MS-DOS as the operating system for the IBM PC. (I say they were “lucky” not to discount the shrewdness on the part of Bill Gates and his then-colleagues, but simply because IBM so vastly underestimated the importance of the OS.) […]

Apple, on the other hand, seldom even attempted (let alone succeeded) to parlay any of their successes into further successes. The Apple II was a phenomenally successful platform. When you hear people state that Apple used to possess 15 to 20 percent market share in personal computers, they’re not talking about the Mac. (Or if they are, they’re misinformed, which is likely.) It was the Apple II that held such high market share, not the Mac.

Here is another piece by Gruber in 2003 – defending Apple’s market share:

.The idea of overall PC market share, as currently conceived by IDC, is not so much like overall automobile market share as it is like overall motor vehicle market share. It’s like counting everything from golf carts to tractor trailers as a single category, thus making the “overall market share” look worse than it is for a company that only makes actual passenger cars.

In the markets where Apple actually wants to compete, the Mac’s market share is certainly higher than 2 percent. While I reiterate that it’s important for Apple to grow, there’s no need for hand-wringing.

However, when it comes to the iPod and iPad, Gruber is not shy in gusting about Apple’s dominate market share.

In this piece – The iPad’s Dominance of the Tablet Market , Gruber had this to say:

I’m not trying to cherry-pick data. I’m simply observing, based on Apple’s sales data and Google’s activation data, that the tablet market doesn’t today look anything like the smartphone market ever did. The iPad didn’t enter the tablet market. It created the tablet market. The iPad’s role in the tablet market much more closely resembles the iPod’s role in the digital music player market a decade ago than it does the iPhone’s role in the 2008 phone market.

Or as Marco Arment wrote almost seven months ago, there still really is no “tablet” market — just an iPad market.

IDC latest figures show that Apple now commands 58.1 % of the tablet market with a growth of 65 % year-over-year. On the other hand, Samsung gained 11.3 % tablet market with a 238.6% year-over-year growth. Compare this with the iPod, Apple was able to maintain a dominating 70 % market share in the MP 3 player industry for many years. It’s clear Gruber’s prediction that the iPad will dominate the tablet market  in the same way the iPod did, was wrong.

Gruber’s position on Apple market share, reminds me of Tim Cook’s comment about Steve Jobs being the best ‘flipper‘ he has ever known. It appears Gruber has no problem with changing his views on Apple’s huge market share (or lack of) as and when it suits him.



Yarrow is a member of the Church of Market Share 

This article  – Apple Should Be Furious That It Has Such A Tiny Sliver Of The Smartphone Market  by Jay Yarow is “outstanding” and a “must-read.”

According to Yarow:

…..The goal for Apple shouldn’t be to be the company with the most money in the bank. It should be to make the best products in the world, and get them in as many hands as possible.

A victory, so to speak, would be if iOS were the most popular operating system in the world, and Apple was comfortably profitable.

I couldn’t have said this any better. With its amazing design and millions of loyal consumers, Apple’s products readily capture the mind share of the public. A current example is the iPad. Many people refer to Tablet computers as an iPad, even though the tablet market consists of products from many other manufacturers. In my view, Apple should be capitalizing on this mind share to dominate the Tablet PC market share. And as Yarrow eloquently puts it, they should be furious with themselves if this does not happen.

I would like to quote one more article  from Gruber on market share. In this piece – Android and iOS Are Both WinningGruber appears to grudgingly admit that both Google’s Android and Apple’s iOS are winning. However, I beg to differ. I believe that if Apple does not release a new low-cost iPhone later this year, there will be only one winner – Google’s Android.

Here are some of the reasons why Apple is worried or should be worrying about Android:

  • Investors are selling Apple and loading up with Google’s stock.
  • Steve Jobs’s “thermonuclear” war against Android is not going as well as Apple would have hoped.
  • Samsung (no need to elaborate here)
  • Tim Cook recently bemoaning the US legal system over patent trials in the US. According to Cook, “the U.S. court system is currently structured in such a way, that it’s currently difficult to get the protections a technology company needs, because the cycle is very long.”
  • Google and other tech companies are innovating just as fast as Apple. In addition, companies such as Samsung are fast-followers, hence, first mover advantage means very little.

Again, I’m well aware that Apple is doing great in the profit share department and this is likely to continue for a while. However, it’s also fair to say that in the long run, Apple could relinquish this position if it cedes market share in some product categories.

Apple is thinking about becoming a member of the Church of Market Share

Finally, I just want to say this is not an Apple is Doom article, there are too many of those. My point here is that Apple should start visiting the Church of Market Share and listen to a few sermons. And based on shrinking gross margins and rumors of an upcoming low-cost iPhone, it seems that Apple is doing this. The iPad mini is a perfect case in point.

Here is Peter Oppenheimer on Apple 1Q2013 Results Earning Call:

So while we don’t want to make a forecast beyond June, let me tell you how we think about gross margin and hopefully this will help. We are managing the business for the long-term and are willing to trade off short-term profit where we see long-term potential. The iPod is a great example of this. When we launched it in 2001, its margins were significantly below the margins of Apple at that time.

Four years later, the iPod and the iTunes Music Store comprised half of Apple’s revenues and inspired us to build the iPhone. The iPad mini is another great example. We have priced it aggressively and its margins are significantly below the corporate average. However, we believe deeply in the long-term potential of the tablet market and think that we’ve made a great strategic decision..

We believe deeply that there are people in every part of the world that want great products. Looking back over the last several years, we’ve made very good business decisions balancing units, revenues, and the bottom line. We think about all three and as I said, we’re willing to make short-term trade-offs on profits, where we see long-term potential.

Posted by | Posted at May 25, 2013 16:33 | Tags: , , ,
Storm is a technology enthusiast, who resides in the UK. He enjoys reading and writing about technology.

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