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Smartphone Market Share Vs Profitability

It’s interesting to see today’s news reports of Samsung ‘overtaking’ Apple in the smartphone wars. According to Strategy Analytics, Samsung’s 2011 Q3 market share was 23.8% against Apple’s 14.6%.

Samsung’s growth is impressive, and not unexpected. However, these figures can be rather misleading. Apple’s executives often used to say that their goal was not to make the most computers, but to make the best. They have applied this principle to the iPhone too and positioned it firmly as a differentiated and premium-priced offering. If market share is not the goal, profit certainly is. According to Asymco, in 2011 Q2, Apple’s market share of the handset market was 5.6%, but its profit share was around 66%.

Furthermore, these figures ignore Apple’s related sources of additional profit – in particular the App Store (which in 2010 accounted for over 80% of revenue in the mobile applications industry) and of course iTunes, the money machine much supported by the iPhone’s extension of Apple’s ecosystem.

It’s difficult to tease apart all the trends in the industry. Nokia is obviously falling behind (though its partnership with Microsoft may help). RIM’s problems have been compounded by the embarrassment of its recent BlackBerry email outage. Samsung’s surge is being restrained in places through Apple’s relative success in the ‘patent wars’. And some of Apple’s recent share loss may have been due to customers awaiting the latest iPhone launch (whereas Samsung sold 10 million Galaxy S II phones in five months, Apple sold four million iPhone 4S units within three days of the launch).

In summary, Apple’s continued business success looks likely to continue for the foreseeable future. According to Asymco, iPad sales grew at 166% last quarter (with profit growth at 146%) and the Mac operating system share grew by 27.7% against 2.5% for Windows. Apple’s strategy execution success relies upon heavy integration of its hardware, software and services. Complacency would be foolhardy, but the ecosystem seems intact for the time being…

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