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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…

Strategic Foresight

Unlike most bloggers, I haven’t yet mentioned Steve Jobs’s untimely death earlier this month, despite being a big fan of Apple’s products and having enormous respect for his passion, leadership and achievements.

As those who have read Strategy Execution will know, I explored Apple’s approach to executing strategy in great depth in the book via a strategy execution map, because it’s a super example of strategy execution mastery.

So, time to pay tribute to Steve Jobs, by quoting various technology-related predictions made over the years…

“Everything that can be invented has already been invented.”

– Charles H. Duell, Director of the U.S. Patent Office, 1899

“I think there is a world market for maybe five computers.”

– Thomas Watson, Chairman of IBM, 1943

“I have traveled the length and breadth of this country and talked with the best people, and I can assure you that data processing is a fad that won’t last out the year.

– Editor of Prentice Hall business books, 1957

“There is no reason for any individual to have a computer in his home.”

– Ken Olsen, founder of Digital Equipment Corporation, 1977

“I’d shut [Apple] down and give the money back to the shareholders.”

– Michael Dell, founder & CEO of Dell, 1997

“Next Christmas the iPod will be dead, finished, gone, kaput.”

– Sir Alan Sugar, 2005

“There’s no chance that the iPhone is going to get any significant market share. No chance.”

– Steve Ballmer, CEO of Microsoft, 2007

“The most compelling reason for most people to buy a computer for the home will be to link it to a nationwide communications network. We’re just in the beginning stages of what will be a truly remarkable breakthrough for most people – as remarkable as the telephone.”

– Steve Jobs, 1985

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