Market share versus profitability

In the case of Apple, dwindling market share doesn't equate to business failure.

Tags: Apple IncorporatedGartner IncorporationSamsung Electronics Company
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Market share versus profitability According to Gartner, Apple sold more tablets than anyone else in 2013 - over 70 million
By  Tom Paye Published  March 6, 2014

The big research houses' annual reports on tablet and smartphone sales are in, and, as expected, they showed the Android operating system to be the dominant force in mobile computing.

Gartner's report on worldwide tablet growth in 2013 showed that Android grew by 127%, reaching the number-one position in the tablet market with 61.9% share. Meanwhile, the research firm's report on 2013 smartphone sales found that Android had garnered 78.4% of the smartphone market.

Numbers like these often lead to over-the-top claims that, because Android is eating up all of the market share, Apple, with its iPhones and iPads, is in serious trouble. And this month has been no different., for example, reported that Android is "crushing" iOS tablet sales on a global scale, while proclaimed that Android is "lord of the tablets".

And what does this mean for Apple? For all too many tech writers, it means almost certain doom, unless the company can revolutionise another segment, as it did with the iPod or the original iPhone.

The problem with that sort of analysis is that market share numbers only provide part of the story. Yes, the trend does seem to be that there are more Android-powered tablets and smartphones out there than iOS-powered devices. However, I'd opine that Apple is still making more money than anyone else out of its devices.

In its report, Gartner noted that the strong Android growth was down to the lower end of the market - a segment not traditionally synonymous with high earnings. Indeed, the report noted that, in 2014, it will be critical for vendors to focus on device experience and meaningful technology and ecosystem value to ensure brand loyalty and improved margins.

Apple doesn't seem to have a problem with either brand loyalty or margins. According to Gartner, Apple sold far more tablets than anyone else in 2013 - over 70 million. The runner up was Samsung, which barely managed half of that with just over 37 million. Yes, Apple's market share went from 52.8% in 2012 to 36% in 2013, but it still sold more devices, and thanks to the fantastic margins that it gets from the iPad, Apple increased its earnings and profits in 2013.

It's almost the same story when we talk about the iPhone versus the multitude of Android-powered smartphones out there. Here, Samsung was the market leader, selling over 83 million devices in Q4 2013, but Apple still managed to shift more than 50 million in the same period. Let's not forget, however, that Samsung makes an enormous range of smartphones - Apple makes just three. If we focused on the three Samsung smartphones most comparable to the iPhone 5S, 5C and 4S, I suspect Apple would be in the lead. What's more, if industry experts are to be believed, Apple's margins are much higher.

This isn't to say that there is no money to be made at the lower end - the vast array of players looking to capture this high-growth segment pays testament to the overwhelming sense that opportunities are there for the taking. But Apple doesn't involve itself in that end of the market. Saying that, because there are more Android-powered devices out there, Apple is in serious trouble, is like saying that Mercedes is in trouble because there are more Toyota Corollas on the road. The notion completely ignores where Apple is getting its money from. Apple isn't chasing market share because it is instead chasing profit.

All that said, Apple's critics can be forgiven for demanding a new, game-changing product. The last one was the iPad, released more than four years ago. Based on smart device market projections, Apple could survive quite comfortably simply by incrementally upgrading its current crop of devices, but its investors will lose faith if it doesn't whet the public's appetite for new product categories. The firm's CEO, Tim Cook, has promised new products in "exciting" new categories, but so far, we've only seen CarPlay, Apple's attempt to break into the in-car software market. While an interesting move, it's hardly awe-inspiring - Apple could really use a stand-out product to reassure its customers that innovation is still alive and well at the company.

Whatever Apple does, though, it's a safe bet that its iPhone and iPad businesses will continue to thrive for the foreseeable future. Android will continue to eat up market share, but this won't affect Apple sales. All the market share stats tell us is that there are more smartphones and tablets being bought, and that includes iPhones and iPads. Whichever way you look at it, increased sales just aren't going to lead to a company's demise.  

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