John Kirk recently took issue with the spate of stories about Android’s increasing share of the smartphone market. In his polemic, “Android’s Market Share Is Literally A Joke“, he argues that Apple is actually winning the smartphone battle because it has a majority of the profits:
“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 of 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.”
While this view may be tactically correct, at least in terms of short-term financial performance, it is hopelessly naive strategically.
If smartphone profits were the primary source of investment cash for players in the market, yes, Apple would have an overwhelming advantage. Its ability to invest more money into product refinement would allow it to outdistance its competition handily. This is the dynamic that applies in consumer packaged goods.
But the fact is, the players in the Android ecosystem (Google, Samsung, et al) do not rely on smartphone sales for the majority of their profits. For them, the smartphone is a strategic investment, and is judged internally on strategic, rather than financial grounds.
At the end of the day, market share is the best measure of market control. Smartphones are valuable inasmuch as they help capture the other spending of their owners; if Android were able to control 90% of the market, it wouldn’t matter if Apple made more profits than any other handset maker. Google would have what it wants, which is its web browser and search engine and cloud services in the vast majority of hands.
Back in the mid-1980s, Apple under Sculley pursued profits rather than market share. That shortsightedness nearly killed the company, which was only saved by Steve Jobs’ return. If Apple lets the same thing happen again, Steve won’t be able to ride to the rescue.
(Cross-posted @ Adventures in Capitalism)