web analytics

Bill Bennett

Menu

Phone market share distorts thinking

Samsung Galaxy S5

Market share figures often 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 phone market. It sounds good.

Yet collectively the brands selling Android phones lose money.

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

Small but perfectly formed market

IDC reports Android had an 84.4 percent share of the phone 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 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.

In turn 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 phone profits as proof the company overcharges and is, therefore, gouging iPhone customers.

That conclusion is wrong. The reverse is true.

What the numbers tell you is that Apple delivers value to customers. Customers are happy to pay for that value.

Sure, some of that value might just be the upmarket brand. Sure, there might be an element of the Apple logo on a phone being a status symbol.

Yet 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 still can’t convince customers to pay an Apple-like premium.

Meaningless market share

It makes sense to talk about Samsung’s share of Android phone sales. Market share discussions comparing Apple and Samsung have less value. The two operate in distinct markets. There’s little customer traffic between Android and iOS.

Talk of Android’s 80 plus 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.

 

«

»


%d bloggers like this: