John Kirk writes for TechPinions:
The Joke
Have you heard this one?
Two farmers bought a truckload of watermelons, paying five dollars apiece for them. Then they drove to the market and sold all their watermelons for four dollars each. After counting their money at the end of the day, they realized that they’d ended up with less money than they’d started with.
“See!” said the one farmer to the other. “I told you we shoulda got a bigger truck.”
Or how about this one?
Android is winning because they got a bigger truck.
“Both ‘jokes’ are based upon the old saw that one can lose money on every sale but make it up in volume,” Kirk writes. “Unfortunately, the joke is on us because this is exactly the kind of nonsensical analysis that is being doled out by tech pundits and lapped up by the press and investors.”
“What matters is not only market share and not only profit share but the ratio between them,” Kirk writes. “This is called Fair share profit analysis. Fair Share Profit Analysis contends that 1 point of market share should deliver 1 or more points of profit share… 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.”
Ratio Of Profits To Market Share
3.12% Apple
1.30% Samsung
0.41% All Android
Tons more in the full article – very highly recommended – here.
MacDailyNews Take: Ask Michael Dell where this road leads.
[Thanks to MacDailyNews Reader “Tayster” for the heads up.]
Related articles:
The Church of Market Share revisited – April 26, 2013
iOS dominates Android: 75 cents of every dollar spent on mobile advertising is spent on Apple iOS devices – April 19, 2013
Android owners aren’t real smartphone owners – March 12, 2013
iPhone users watch twice as much online video as those with Android phones – March 12, 2013
Where are the Android users? – March 11, 2013
With 78% share, Apple’s iOS tightening its grip on the enterprise and taking share from Android – March 8, 2013
Apple rules the skies with 84% in-flight share vs. Android’s 16% – March 7, 2013
Apple iPad continues domination with over 80% usage share in U.S. and Canada – March 7, 2013
comScore: Google’s Android, Samsung continue to lose U.S. share to Apple’s iOS, iPhone – March 6, 2013
Apple iOS dominates mobile video viewing with 60% share vs. Android’s 32% – February 13, 2013
Android’s Web share down 13% since November; Apple’s iOS now over 60% – February 1, 2013
Android’s unit share growth has not hurt Apple’s profit share – February 26, 2013
Apple iOS dominates mobile video viewing with 60% share vs. Android’s 32% – February 13, 2013
Android’s Web share down 13% since November; Apple’s iOS now over 60% – February 1, 2013
IDC: Apple dominates worldwide tablet market with 43.6% unit share – January 31, 2013
The Android engagement paradox – November 26, 2012
People buy more Android phone units and do less with them vs. Apple’s revolutionary iPhone – November 14, 2012
Study: iPhone users vastly outspent Android users on apps, respond much better to ads – August 20, 2012
But all those phones given away to all those penniless college dropouts will someday turn into huge profits. At least that’s the model under which Wall Street has been operating since well before the 2001 tech bubble. How many profitless tech companies have to go broke and how many bubbles have to burst before WS learns differently?
How about this.
Two farmers brought a truckload of turd and shovelled it on the sidewalk. One of the farmers, going by the name of Larry, said to the other farmer, “Eric, we’ve unloaded a load of turd. Do you think anyone will buy it?”
Along comes a third farmer, by the name of JK Shin. This third farmer said to the first farmer, “I can turn these lumps of turd into watermelons. Will you give them away to me for free.”
“Sounds like a good deal,” said Larry the first farmer.
The third farmer sells his watermelons to the rubes and charged them a dollar a watermelon. “Listen,” farmer JK told the rubes, “my watermelons tastes like shit and looks like plastic, but I’ve got a huge advertising budget to brainwash you to think they’re green apples.”
And the rubes walked away thinking that the dollar watermelons were worth the same as the two dollar apples.
Ok you had me laughing after the first sentence! Nice post, funny!
Thank you. Glad you enjoyed it.
Best thing you’ve ever written.
“The problem is, you can “cheat” and buy market share, but you can’t do the reverse and “cheat” to buy profits. You have to EARN profits. Buying market share is a downhill race to the bottom but gaining profits is an tortuous uphill climb and it can only be made if the manufacturer is able to produce highly valued and differentiated products. The company that buys market share must inevitably go out of business or reverse its course and fight its way back up to profitability. The company with the value and the profits, on the other hand, has the advantage of holding the high ground and can choose to take market share at will.”
Yes!
Dell was the perfect example of this. And even with this technique, just like Samsung, Dell was profitable (overall) for many years. And it was the darling of Wall Street for some time with a lot of the big boys making lots of money off Dell stock.
The problem is, as Dell has clearly found out, that this model is not sustainable. You can buy market share for *some* of your products, but eventually you run out of money.
Since Samsung has many, many products that are not in the high tech sector (unless you call washing machines and fridges high tech) they may be able to sustain this model much longer than Dell did. Yet — even for Samsung — this model must eventually collapse.
Microsoft has tried to do this for virtually every product outside of Windows and Office. Those two cash cows pay for all of the other stuff Microsoft releases, only Microsoft can never get traction in anything to where it even gains market share (Xbox may be the only exception, but only because Microsoft dumped billions into the program before it started to make a little money).
What everyone seems to miss is that Samsung too has a ratio greater than one. As long as this is the case they win market share and still make a profit. And that means they are not going away easily. Maybe Apple can turn this ratio with litigation, but if not Samsung will keep increasing its market share.
But while Samsung may continue to make a small profit, any setback could decimate its profits (poorly received phone, plant explosion, significant patent liability, etc.).
Apple however is sitting pretty, with plenty of money to ride out a poorly received product (like that would even happen), but also plenty of money to drive R&D and thus newer and additional products.
Let’s also not forget that mere market share numbers do not reflect how many units are actually in use. It’s fairly safe to say that nearly all units Apple ships are in fact sold. The same cannot be said of devices shipped with Android installed.
Let’s also not leave out all the money made “after sales” – that is money spent by users on apps, media, services, accessories, peripherals, etc… iOS is far and away ahead of Android in being a viable, sustainable platform. Content producers, service providers, accessory makers, and developers know this.
I’d also like to know what Samsung’s smartphone profits would really be if they took out all the marketing dollars spent pushing their phones in user’s faces?
Apple got to invents another remarkable products such as iSpankSamSung.
Perhaps, Tim Cook will prevail one of them in WWDC on June 10-14 by then AAPL’s shares reaches to the ceiling.
Android’s main purpose is to spread like manure, so Google can spy on you. That’s why it’s free, half finished and ugly like everything Google does.
At least the real manure is useful.
Exactly. Android is a loss leader to protect Google’s search biz. They’ve left it to Samdung etc to try to make money from it.
Here’s the relevant quote:
“The truth is, anyone can get market share if they want it badly enough. All they need to do is sell their product at cost, give it away for free or, better yet, subsidize (pay their customers) to take the product off their hands. This is called “buying” market share, but it always comes at the cost of profits.”
This is relevant because this references the bigger battle going on here- the ‘own’ vs. ‘rent’ (or ‘ad-based’) models of business.
So the questions that remain are:
1. Will Samsung be able to break the mold and achieve a profit threshold above their market share? They’re doing disproportionately better then their Android-based rivals (and why is that?)
2. Which business model will win out? We’ve already seen the ‘own’ model win over the ‘rent’ model with music. Will this trend continue in the mobile market? (ie, will Steve Jobs be right once again?)
During the new millennium, my take, as an Apple aficionado since ’92, and remembering when it was dead in the water in ’97 – has been WHO CARES if it’s the biggest company in the world, WHO CARES if it doesn’t have 99% market share? Apple has consistently produced wonderful products that make my life and work and play so much better. It wasn’t going out of business before Steve came back because of market share, it was because it wasn’t profitable. I’m confident the QUALITY standards of Apple will continue, that their service will still be stellar, that their amazing ecosystem will remain and expand. Even without a new Jobsian breakthrough, that’s quite enough for me. This isn’t the NFL playoffs. It’s really talented people providing tremendous value to me and you. What’s not to like.
Dell’s business model:
Sell cheaper and cheaper crap for less and less…
Until you’re giving away shit for free.
And screw you’re vendors in the process.
mac daily news is a joke.
Prior to android, only a few people used smartphones because the one and only smartphone that was available was a high end one with a heavy price tag. What Android has done is that they have bridged the gap between low end (call only) phones and the high end multimedia iPhone. So now many people can afford a smartphone. But this does not change the audience for the high end iPhone. Although Android has introduced flagships to rival the iPhone, statistics say that still most high end users are sticking to their already familiar iDevice. Most of them are yet to take a leap of faith from iOS to Android. So even though the pie chart of market share has shrank to accommodate the new middle tier and lower tier smart devices, it does not affect the sales of the iPhone. Websites that display market share percentages as pie charts doesn’t advertise the net amount, whose percentage they are calling as market shares.
And that makes for 4,83 percent.
Somewhere are te other 95,17?