Why market share doesn’t matter to Apple

“It was reported towards the end of last week that the iPhone 5C may not have been selling at the rate that investors and Apple longs had hoped for,” Quoth the Raven writes for Seeking Alpha. “Before we could start to worry about these metrics, it was released this weekend that even though the 5C orders were cut up to 35%, the iPhone 5S has apparently increased production by 75%.”

“Depending on the margins that Apple is yielding from each of these phones, this may not even be any type of bad news for the company,” The Raven writes. “The general analyst sentiment was that because the 5C was an inherently cheaper product to make, the margins would be significantly better on the top-tier 5S. In that case, Apple continues to hum right along in mobile.”

The Raven writes, “This does well to prove a couple of arguments that Apple can use to tailor their business plan: 1. It shows that the average Apple consumer has the means to purchase the higher end equipment from Apple; 2. It shows that consumers want the best/higher end product, as the iPhone 5S is better made with the new top of the line A7 processor and fingerprint ID scanner; 3. Gaudy (everyone flipped out about the ‘gold’ when it was released) might be right up the Apple consumer’s alley – the same way Lexus sells cars with gold trim.”

MacDailyNews Take: The writer doesn’t own the iPhone 5s in gold and has likely never seen one in person. Unlike us. The iPhone 5s units in our pockets are champagne gold. In some lighting conditions they even look like light copper. It’s not the least bit gaudy. It’s nothing like this. (He’s right about one thing, though: those Lexus cars with gold trim are gaudy.)

The Raven writes, “As long as Apple continues to find sects of success within iPhone, the company’s ‘ecosystem’ of products will continue to prove a good investment vehicle; as Apple still has considerable market share to gain in Mac, and as Apple will likely continue to dominate music sales/streaming radio. With 10 coming catalysts and a continued push in mobile, Apple continues to be a threat to competitors like Samsung and Pandora – and Apple remains, to this investor, a continued rock solid investment going forward.”

Read more in the full article here.

MacDailyNews Take: The writer is in the ballpark with his first two points, but it’s more accurate to say that the well-heeled customer chooses Apple and those users gravitate to Apple’s higher-end products.

These are the desirable customers. These are the customers that pay for substantive R&D. These are the customers that matter. This is why they get the world’s first and only 64-bit smartphone. This is, in fact, why they get the world’s modern smartphone in 2007, years before anyone else gets a serviceable knockoff.

These are the customers that pay for not only the best devices, but also for the best apps and services. This is why market share doesn’t matter for Apple and why Apple doesn’t really care about general market (unit) share. This is why the Mac lived while all the others’ PC businesses slowly died during Microsoft’s dreadful Dark Age of Personal Computing. This is why the Mac continues to thrive today. All of the smart and rich people have Macs. Intelligent developers understand this.

In each market in which it competes, Apple owns the only part of market that matters: Consumers with taste, the ability to discern value, and who possess disposable income and the will to spend it. Google, Samsung et al. can have all of the leftovers. They’re more trouble than they’re worth, which isn’t much, not even en masse.

If you have a billion users who settled for your product because it was part of a Buy One Get One freebie, how content (music, movies, apps, books, etc.) are they going to buy and to how many paid services are they going to subscribe and how much are they worth to advertisers? Pretty much bupkis on all three counts.

We’d rather have the 400+ million (and rapidly growing) customers with the taste, the intelligence to recognize incredible value, and the money and the will to spend it. Wouldn’t you?

As long as you corner the market on the best customers, and there are enough of them to support a healthy business (very healthy in Apple’s case), market share doesn’t matter.

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29 Comments

  1. Here I’ll throw him a bone. Nice doggy. Sit, Casper, sit.

    Market share doesn’t matter, until it does. You don’t want to be the last bits of toothpaste squeezed out of a tube because developers, third party accessory makers, music moguls, etc will start to abandon your platform. And that’s bad.

    Now go fetch, Casper, there’s a nice dog.

    1. stats show that android users don’t buy apps (download numbers are mostly free apps), the fragmented platform is a high expense to developers, so it’s android that should be worried about keeping developers. Large marketshare is useless for keeping developers when you don’t make money off it.

      Millions of ‘Android’ phones like o Phones in China (android’s largest growth area ) don’t even run stock Android apps, phones are locked to their own apps.

      Plus piracy is rampant in the Android eco system with dozens of private pirate bay app stores. So again developers don’t make money.

      apple cuts thousands of copycat apps off their app store, Google puts everything there to boost app numbers (only recently have then even tried to put out guidelines on copycat apps and fake reviews, weakly following apple). BTW there have also been many malware outbreaks even from official Google App store (multiplied by the private and pirate stores).

    2. All I hear from my son’s friends who argue about how great their Android devices are is that they can get apps that let them download free songs and videos. IOW, apps to pirate music and movies.

      Thus, content creators and distributors will be less likely to support Android because they don’t want their product stolen. They will support iOS because they like getting paid when someone downloads their products.

      In the next couple of years, the S model will likely further differentiate from the C model, probably mostly in hardware features. And people will keep buying both, because people have different wants/needs.

    3. “You don’t want to be the last bits of toothpaste squeezed out of a tube because developers, third party accessory makers, music moguls, etc will start to abandon your platform.”

      WTF? You had to dig deeeeep to pull that one out of your ass!

  2. Market share matters. Of course it does. They are a publicly held company. No matter what you want to say or believe. If your a traded company you have care. The stockholders expect you to care and know that they drive the company to perform from a different perespective than a fanatical consumer wants to accept.
    You want your consumers and fan boys to think you don’t care.

    1. It’s really not that simple for Apple, Reech. Apple is a premium brand, like BMW, Louis Vuitton, etc. These companies can produce cheaper products but if they do, then the market saturates, and they lose the added value of the premium brand. On the other hand, the more iOS devices there are walking around, the more apps and songs and books and TV shows Apple can sell. Very difficult line to straddle for Apple, I think.

    2. Market share only matters when it’s small or rapidly shrinking to the point where no one wants to support it.

      The iPhone’s market share is neither small nor shrinking, and is in fact growing in the very area where it counts: the areas that require support from an ecosystem. That means that accessory makers and developers not only continue to support it, but support it as their primary business with Android products a distant second. This is because, as has already been noted, people who buy iOS products spend many times more on apps, accessories, digital content, etc than do Android buyers.

      Now, if iOS share were to shrink to a small number and to show a continual slide, then we would need to be worried as the overall spend on Android products might then come into play. But that is far from the case.

      It happened with Blackberry and they did nothing to effectively increase their relevance and attractiveness. It is clearly happening with Windows Phone as the only support they are getting are from makers themselves and mostly free apps which are usually poor quality ports from popular iOS apps.

    3. Market share only matters when it affects PROFIT, and there is absolutely a point of diminishing returns. Apple needs to compete for the high-end smartphone buyers, i.e those who will pay for the newest Galaxy phones. There is little point in going for the low end, as Apple won’t make much recurring revenue from them, so there is little point diluting the brand by and giving up hardware profits selling a cheap phone at low margins.

      This is even more true as Apple gives away more software, such as iWork and Garage Band, which they previously charged for. I also think that Apple should/will stop charging for iCloud.

      In any case, the platform is in NO danger of disappearing with the number of already activated devices. For developers, it is not just the app sales that are important, but advertising effectiveness as well in many cases because of in-app advertising. As the report this week showed, Android users don’t just not pay for apps, they are also lousy advertising targets with a negative return on advertising expenditures on android platforms.

      Apple does need to fix cloud services though, particularly siri. It is too slow and goes down way to often. It is really not excusable and is their main weak link right now. You would think they have the money to get whatever people and hardware they need to fix it.

  3. I view the iPhone 5c as a no-lose proposition. Because its internals are basically an iPhone 5, its R&D and much of the manufacturing costs have already been amortized. That it is possible early adopter consumers are opting for the higher priced iPhone 5s, which may offer Apple higher margins, the cannibalization is likely minimal. What matters is keeping consumers from defecting to another brand, and trading up to an iPhone 5s could still be very profitable for Apple. In addition, the more consumers making the jump to this 64-bit iPhone helps Apple leave behind the 32-bit past more quickly.

    And that in turn gives developers more incentive to advance the code of their apps as well. If Apple increases its margins with every iPhone sale, that in turn can increase its cash flow growth. For investors, that is a key metric. I’ll take cash flow growth over market share any day. It’s one metric that can’t be fudged.

  4. Apparently nobody in the press has ever heard of pricing psychology. Offer an entry level product, with only a $100 difference, at time of purchase the person who gave themselves the cheaper phone say “It’s only $100 more.” and the upsell happens automatically.

  5. Enough already. It matters to Apple and always has. If it wasn’t for the iPod and iPhone Apple would have be gone a long time ago. Market share mattered to the Mac’s success, mattered to iPod’s success, and matters to iPhone and iPad’s success. Anyone who say’s different is dreaming. Daring Fireball, i’m looking at you.

    1. Market share is a byproduct of success. Apple focuses on making the best products for people, products that they would want to use themselves. If such products create a higher stock price or market share, then it’s a bonus. Apple focuses on what it can control, not what it can’t control.

        1. Right, but it’s not relevant right now. For the smartphone market, Apple has over 50% share in the best markets. If they keep those two customers happy, they will continue to dominate the high end in Asia. Europe will be fine for Apple, as it always has been.

    2. From a platform standpoint, PROFITSHARE matters. If the hardware company can’t make money selling lots of phones, they go out of business, see Nokia and Motorola.

      If developers can’t get people to pay for the software, the size of the platform doesn’t matter, no matter how large. This is why a lot of the Android numbers are meaningless. All of the cheap android phones sold in China and India will not provide any additional software sales to android developers. Either they don’t buy any software at all, or they get pirated software through the multiple android markets. The funny thing is that the Chinese sales don’t even help Google, as most of the google services, including search and Google+, are blocked on the mainland (you are forced to Google’s HK site for search, and I don’t think google gets any of the user data)

  6. Apple’s market share?

    100% of people who are both intelligent and don’t have a real need for software which hasn’t been written for an Apple platform. And about 30% of everyone else.

  7. Tell Microsoft share doesn’t matter. Tell it to Google (notice their shares price today?). Call ’em both copycats, you want to, but they’re laughed all the way to dominance. Yes quality matters and nothing wrong if you want to be BMW to Ford? But it’s a shame Apple won’t cut margins and eviscerate the competition. Volume volume volume more than makes up for margins if done right. Jobs/Apple has always balked at obtaining the manufacturing prowess to produce the volume necessary to achieve this. One reason is of course is the risk involved due to recession cycles. But I think the major reason is Jobs’ desire to appeal to a rich man’s desires and needs. A BMW, a Cartier, etc etc. sure, you don’t have to be filthy rich to own an iPad or iPhone – although the expenses for such are far out of reach for 30-40% of the population. Still not a bad market, but the uses of these products were born from personal computing. And as Apple has shown he way with mobile PCs, MS paved the way for someone like Google to come along and dominate share. Now, Apple may again come up with something like what the iPod birthed, but it’s long odds making such a bet. Apple should cut profit margins NOW to ever dominate long term.

    1. What you don’t get is Apple sells their gadgets to anyone with a decent job and an IQ in the three figures. They buy music, TV shows and movies. They are also responsible for the big boom in third party Apps and accessories.

      Other companies sell inferior gadgets to low income morons who steal Apps, music, TV shows and movies.

      Which side would you be on if you made Apps, music, Movies, TV shows or accessories?

      1. Wow, snob, much?

        I’d rather appeal to all markets with 95% share. A lot sucks about MS, but it’s still dominating and they have the clout to be persistent. Like I said, you want to be a Beamer with only rich friends, more power to ya’. I’d rather be a Ford that provides more choices and value. My ’95 Windstar had 230,000 miles and still running when I moved onto a Mustang. I might not have the best kind of cat calls – but it provided the same purpose for a fraction of your Beamer…and that’s okay with me. Look down your nose all you want. We all end up in the same place…dirt. I’ll say hello when get shoveled in.

        1. Handsom…. What you are not acknowledging is the market share of revenue and profits.

          Fact: Apple leads in both with content developers making much more with apple than anyone else. This has been proven many times.

          Sell 1,000 items at a $1 profit or sell 300 at a $30 profit plus residuals …. As a for profit biz model the choice is very clear

          Apple has dominance in its chosen focused market demographic….

          Just like google does in their more scattershot approach …..

          Who made more at the end if the day and put it in the bank ? Who made more for all their developers …. Do your research , on the whole and above average it is Apple…..by a long shot

          1. Used Macs since ’88, often sacrificing to be able to do so. So I’m not trashing Apple, even though its snob mentality is obviously not confined to the management. Lack of market share almost destroyed Apple once, and they even had to go begging to MS for help. Apple’s on a roll now, but market share and it’s continued failure to compete on prices has had a huge impact on its shares value. You guys need to quit the Kool Aid and wake up. And I’d rather try to bring in all those poor schmoes to give them the opportunity to have the best technology available to improve themselves..linstead of look down on them.

          2. What you don’t acknowledging is a new pattern in Europe, especially with free service apps of organisations.
            Number one support reply if you ask for a missing iOS version:
            “We have limited resources and with Android we can reach 80 percent of the market. We don’t plan to support iOS anytime soon.”

  8. Market share does matter, because the success of a platform depends on available software – and never forget – developers are usually lazy.
    As long as the mobil market was split into more system providers, Apple could benefit from its pole position. But now the situation is different – at least in Europe. in the meantime Android owns here the market with around 80% share and its only a question of time, when more and more developers focus their resources on the biggest market and drop support for niche providers.
    It looks like history will repeat himself – because not the best platform will win, but the biggest. Android is good enough as Windows was in the 90 ies. Most people don’t care about quality but they care about price and they majority of them don’t know the difference between mobile systems – they even say iPhone to every smartphone und iPad to every tablet. Apple invented these device categories, but if Cupertino only concentrate on high end, they will lose market share and with minor market share they will lose developers and without all covering software titles Apple will lose their premium platform claim.
    To stay relevant as a platform and as a insurance not to be ignored by developers Apple should do everything to keep his marketshare above 20%. In the USA Apple is still in a good position but in Europe they are on the edge to drop below 10% and once in the single digits iOS is on the way to nowhere.

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