The Church of Market Share

Monday, 9 January 2012

Brian Deagon’s (previously-linked) pessimistic Apple predictions for 2012:

The Samsung Galaxy smartphone seems cooler. With Google’s Android platform now the fastest-growing mobile OS, Apple’s software advantage will diminish.

The Macalope responds:

The Macalope has no real idea what market share has to do with software but that’s probably some kind of Apple zealot thing he’s got going on.

It was clumsily worded, but I think I understand what Deagon was getting at. He’s not talking about iOS itself, he’s talking about the App Store, and iOS’s overall third-party developer advantage over Android. It’s an article of faith in the Church of Market Share that Android is nearing a tipping point where its market share lead will inevitably turn into a developer share lead, too. It’s the same sort of thinking that prompted Eric Schmidt to predict that developers will write for Android first six months from now. (I guess that’s down to five months from now, at this point.)

There’s no question in my mind that the most appealing thing about Android as a platform is its overall market share. The more Android devices that are out there, in use, the more appealing the platform is for developers. But to think that market share alone is a primary motivation for all or even most of the developers who’ve turned the iOS App Store into a phenomenon is to miss the forest for the trees. It’s looking at the market from the viewpoint of a spreadsheet, reducing everybody and everything to numbers.

The truth is, the average Android user is not the same as the average iPhone user. iPhone users surf the web more, they’re more willing to buy software, they’re more willing to install and use apps. Some of these stats aren’t even close. What I see as the fundamental flaw in the Church of Market Share doctrine is the assumption that users are users. That one platform with, say, 40 percent market share, must be in a stronger position than another platform with, say, 20 percent market share, simply because a larger number of users is better, period. What Apple has shown with the Mac, and now with the iPhone and iPad, is that all users are not equivalent. Counting only the Mac, Apple is not the biggest PC maker by unit share. But it is by far the most profitable, quarter after quarter, year after year. What’s more important than a company’s share of the overall market is the company’s share of the profitable side of the overall market.

You can say that it’s elitist or arrogant to argue that iOS users are better customers than Android users. But you can also say that it’s the truth.

Now, whenever I argue that profit share is more important than unit sales share, I get accusations that I’m simply cherry-picking the metric that paints Apple in the best light. But Apple has never had a market share lead in phones or even smartphones. It is true that because the iPhone hit the market first, Android as a whole was once behind iOS in market share. But iOS was never in the lead overall — it was behind BlackBerry and it was way behind Symbian.¹ It definitely matters that the overall iPhone installed base is a large number of users, but it has never mattered that it is not the largest number.

Oftentimes market share and profit share go hand-in-hand. Consider the PC market. Microsoft has a massive market share lead in operating systems and Intel has a massive market share lead in CPUs. There is a strong correlation between their market shares and profit shares.

Apple has a very different strategy, and there’s no better example than the iPhone. With about only 5 percent of the total handsets sold, Apple is earning two-thirds of the handset industry’s total profits. Their profits are way out of proportion with their market share. No one would be confused if Apple had 50 percent market share and 50 percent of the profits. But apparently it’s very confusing to some that Apple has only 5 percent of the market share and well over 50 percent of the profits.

Those who favor market share as a primary metric look at Apple and see its position as fragile — subject to the whims of a sliver of the overall market. I see it the other way around. Market share in and of itself has little value. A company with deep pockets and a willingness to spend can buy market share by selling products at or even below cost. You can cheat your way to market share. I say “cheat” because that’s not sustainable as a long-term strategy. A fire can’t keep burning without fuel, and profits are the fuel for business.

A year ago I asked “Where Are the Android Killer Apps?”:

Which are the apps, from developers other than Google, that I should feel like I’m missing out on because I don’t have an Android device? Where are the killer apps for Android?

Turn the table and we could be here all day running down the list of high-quality, interesting apps which are exclusive to iOS.

Since then, Android’s market share lead over iOS, at least with regard to phones, has grown. But almost nothing has changed with regard to iOS’s wider and deeper support from developers. Market share is definitely something, but it’s not everything.