Market share distorts thinking: Smartphones

Market share figures can look impressive. There are times when market share matters in technology. Other times market share is a red herring. It stops observers from thinking properly.

Take Android’s better than 80 percent share of the smartphone market. It sounds good. Yet collectively the brands selling Android phones lose money.

While Samsung, the largest Android phone maker, earns a slim profit from smartphone sales, taken as a whole, the 180 odd companies making Android phones are in the red

Small but perfectly formed

IDC reports Android had a 84.4 percent share of the smartphone market in the third quarter of 2014. Apple’s iOS accounted for just 11.7 percent of sales.

Apple’s tiny 11.7 percent market share is more valuable than Android’s 84.4 percent. In the same 2014 third quarter Apple took an 86 percent share of phone handset profits.

Which business would you rather invest in? The one with the larger market share or the one that makes a profit?

It’s not a straightforward question because you might assume that today’s larger market share will lead to tomorrow’s higher profits. That’s been how things have worked in the past… sometimes, in some markets.

Buying market share

Android phone makers have bought market share. In effect they bribe customers to give their brands a larger slice of sales.

There’s a plausible case for this. It says that as the phone operating system gathers momentum, more app developers will get behind Android. A greater choice of apps and better quality apps will make Android more attractive to buyers. Eventually phone makers will profit from selling hardware thanks to the perceived added value from better apps.

Android phone buyers spend less money on phones than Apple’s customers. That doesn’t just mean they spend less on hardware, they also spend less on apps.

Apps are different

Android phone makers might sell eight handsets to every Apple handset, but there are roughly the same number of apps in the Google Play store as there are in Apple’s iTunes app store.

When it comes to the number of app downloads the two operating systems are even.

However, the more interesting number is app sales. Apple’s iTunes store makes four dollars for every dollar made by the Google Play store.

That’s right, Apple with just 11.7 percent share of phone sales accounts for around 80 percent of app sales.

Exceptional Apple

Cynics will look at Apple’s 86 percent share of smartphone profits as proof the company overcharges and is therefore gouging iPhone customers. That is conclusion is wrong. The reverse is true.

What the numbers tell you is that Apple delivers exceptional value to customers. Value customers are happy to pay for. Sure some of that might just be brand. Sure there might be an element of the Apple logo on a phone being a status symbol.

In an open and competitive phone market there is no monopoly on branding and status symbols. Plenty of people think Samsung is a prestige brand. Yet Samsung can’t convince customers to pay an Apple-like premium.

Meaningless market share

It makes sense to talk about Samsung’s share of the Android smartphone market. Market share discussions comparing Apple and Samsung have less value.

Talk of Android’s 80+ percent share of the smartphone market is largely meaningless. It is a red herring sending people’s thoughts off in the wrong direction and making faulty ‘common sense’ conclusions that have little link to reality.