Profits matter more than market share. Market share erodes product and service quality – next time someone points that Apple has 20% share of the US installed base or 5% of the global market, you can say, “so what”?
Apple also disdains the mass marketers’ credo that there should be a product tailored to every taste. HP’s U.S. online store offers 35 different laptop models, from a $300 netbook to $1,300-plus monster with an 18.4-in. display, each of which is available in multiple configurations. Apple offers just five laptops, and the options for configuring them are limited to disk size, amount of memory, and sometimes processor speed. Every computer Apple makes, from the $599 Mac mini to the 8-Core Mac Pro desktop, which approaches $12,000 when it’s fully loaded, comes with the same version of the OS X operating system and the same set of preloaded applications.
Apple’s approach causes it to neglect huge swaths of the market. For example, the company serenely ignored analysts’ advice that it “had to” break into the hot netbook market. It has avoided the fast-growing segment of low-cost, lightweight consumer notebooks. Entering those markets could boost Apple’s share even further. But the move would take a toll on profit margins and fight the company’s commitment to choose what types of products it believes best serve its customers’ needs. CEO Steve Jobs has dismissed the low end of the market, saying: “We don’t know how to build a sub-$500 computer that is not a piece of junk.”
Apple has clung to its retrograde philosophy, fighting a tide in which manufacturers target products at minutely sliced-and-diced subsectors of the market. But the philosophy still works, and, happily, Apple is unlikely to outgrow it.
I am sure it won’t stop Ballmer from claiming that Apple only has 5% of the market and thus can be ignored. He has to say that because he is riding on the backs of low margin providers who’s existence is tied to increasing market share at all costs while Microsoft collects 25% from every sale.
Glad to see that the media are getting clued in. MG Siegler gets clued in as well:
Market share is probably the easiest and most often used point of comparison between competing products. It makes sense: If something has a large share of the market, it’s probably doing well. But that doesn’t always mean that it’s doing better than something with less market share, especially from a business perspective.
I bring this up because today brought some very interesting numbers from the research firm, Strategy Analytics. According to them, Apple has surpassed Nokia as the most profitable phone maker in the world. I’ll throw some numbers at you in a second to show why this is really incredible, but the key takeaway is that this is why, at the end of the day, Apple wins.
While the press and rivals obsess over market share, Apple quietly comes in and makes an insane amount of money. It’s the same in the computer industry. Small market share, huge amount of money. The most important thing for all of these are companies is the bottom line. Apple wins that battle.
According to the report, Apple made $1.6 billion in operating profit off of the iPhone in Q3. Nokia, meanwhile, made $1.1 billion. Let’s put this in perspective. Recent numbers suggest Nokia controls roughly 35% of the worldwide handset market. Apple? About 2.5%.
Not 25%. Two point five percent.
What does it all mean? Moolah – tons of it. From 2.5% mobile hardware share and 5% global market share:
Apple brought Steve Jobs back to the company in December 1996. Since then, he’s been building a massive pile of cash, rolling out new product after new product.
On December 27th, 1996, Apple had $1.8 billion in cash and securities. Today it has $34 billion.
Still think market share is the be all and end all? You would, if your name is Rob Enderle, Philip Emer DeWitt, Paul Thurott, or Scott Moritz.
Margins, bitches.
