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  • Apple Doesn’t Have to Be Number One

    April 8th, 2011

    There’s a meme that’s been played out in the media for years. Unless Apple is number one in every market they serve, they cannot possibly succeed. If a competitor has a bigger market share, Apple has to be chastened, retreat into obscurity, and stop building “insanely great” products.

    A lot of this started years ago, when Windows first grew into the dominant PC OS by a huge margin. Nobody could come close. Apple’s Mac OS was strictly a niche player, and they might as well give it all up and close shop. In an infamous quote that came back to bite him, Dell Founder and CEO Michael Dell once suggested that Apple shut down, and return the remaining funds to stockholders. When Dell ran into their own difficulties a few years back, both in support and sales, you had to wonder whether they should have heeded the advice originally served to Apple.

    When the iPod became number one with a huge bullet, conquering the nascent digital music player market, I suppose financial and media analysts expected that trend to apply to every market Apple decided to enter; well, instead of traditional PCs of course, where the OS wars ended long ago. Then again, don’t you remember all those supposed iPad killers that ended up committing suicide instead?

    So when Apple decided to build a smartphone, they were pretty much told it was the wrong thing to do. Steve Jobs raised modest expectations, suggesting that Apple would do well to have one percent of the mobile handset market by the end of 2008. Apple did far better, despite entering a well-established industry with several highly profitable players.

    The iPhone became an iconic product almost overnight, while other smartphones were mostly disposable or dispensable, with little to often distinguish one model from the next in a given price category. Yes, the Android OS, comprising loads of handsets from different makers, is exceeding the iPhone’s market share, and, by dint of the larger number of products for sale, is likely to continue to grow faster than Apple.

    That, however, means nothing. So long as the iPhone sales continue to grow at a fast clip, and Apple makes huge profits from those sales, it isn’t important if other products or operating systems have bigger numbers to boast. There’s plenty of room in the smartphone market for several large players to succeed, without forcing any of them out of business. Anytime someone tries to waste your time telling you how bad the iPhone is doing because Apple’s single model lineup can’t compete with dozens and dozens of Android OS handsets, the best thing is to ignore them. Fewer hits means they will look for another subject to write lurid headlines about.

    This doesn’t mean Apple can’t or won’t fail. Certainly if iPhone sales were flagging, that’s a fact that needs to be reported. If Apple builds buggy, defective gear, that should also be reported without prejudice. My pitch is for balanced coverage, not lame attempts to find out negatives about Apple that may not actually exist.

    And don’t forget that, whatever the iPhone’s true market share is, Apple continues to have problems meeting demand. I suppose you’ll hear an update on the inventory situation at the next quarterly conference with financial analysts set for later this month, not to mention how the earthquake in Japan has impacted component supplies.

    As to the iPad, I realize that Apple has overwhelmed every contender. In some respects, the tablet market is similar to digital music players. There were a number of existing contenders, but sales weren’t terribly high, despite years and years of boasts that the “year of the tablet” had arrived.

    Indeed, as you recall, the iPad was originally dismissed as little more a bloated iPod touch. Sales took off like wildfire, but its potential wasn’t fully realized until users began to download and use loads of apps specifically designed for the platform. Contrast this to all the other consumer tablet contenders, where there are very few apps, and sales don’t seem to be going anywhere. Despite recent statements about satisfactory sales of the Motorola Xoom, surveys of potential sales don’t bear this out. They talk of 100,000 units sold in the U.S. during the Xoom’s first few weeks on sale, compared to millions of iPads being moved in the same timeframe. Consider also how much money is being spent advertising the Xoom.

    The problem, of course, is that the people who built the Xoom devised a meaningless campaign, and set price points that were ridiculously high. You don’t compete with a market leader with an inferior product at a higher price point. I realize that there is now a Xoom priced closer to an iPad, but it’s too little and too late. Of course, Consumer Reports somehow mistakenly believes the Xoom to be comparable to iPad 1, but that’s their problem to confront.

    Besides, shouldn’t a successful Apple inspire other companies to build on their success with better products, at a cheaper price? Seems sensible to me, even if far too many consumer electronics makers can’t grasp that simple fact.



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    12 Responses to “Apple Doesn’t Have to Be Number One”

    1. DaveD says:

      What the haters never can understand about Apple and its insanely great products is the whole widget concept. It is not about selling products very cheap. It is not about selling a product and doing a disappearing act. It is about selling the best experience for the user with an Apple product. From the unboxing to the interacting with the product, the user can see and feel the experience that is so satisfying. The build quality, the hardware design, the fluid software along with support and services is the whole widget, the Apple experience.

    2. tom b says:

      With the iPhone now on Verizon and T-Mobile possibly being bought by ATT, I’d say Android’s prospects for 2012 look pretty grim.

    3. MichaelT says:

      Thanks for writing this article, Gene. When I saw the headline, I was happy. Someone had to say it! As long as Apple grows sales and profit, they are succeeding! Apple has never been about market share. While they don’t MIND being number one, they have never focused on that. Make good products, make good money. That seems to be their MO. And it seems to be working.

    4. Brett says:

      As long as Apple has sufficient sales to warrant their continued R&D and profitability, they will never again be labeled as “beleaguered” and “going out of business any day now”. That FUD won’t stick. Application and peripheral developers will continue to support the platform. Apple market share will find and maintain an equilibrium.

      iOS devices have a commanding lead in apps and a loyal customer base. Ever since the success of the iPod, the Mac has also been benefitting from a halo effect. The Apple retail stores have been very effective in providing people with quality hands-on pre-sales experience, and post sales training and support. Apple is being taken seriously now by people who formerly were derisive towards the company.

      Apple’s prioritization of quality and profitability over unit sales volume has been a key to their present success. There is no reason why they should change that strategy.

    5. Kaleberg says:

      It’s the software. All the others are hardware companies. That’s why people used to buy DEC.

    6. Shock Me says:

      The only demonstrated reason for high market share is your platform’s support by third-party software developers. One must maintain a critical mass in order to first remain in the business of selling the hardware, and second a larger percentage so that software is developed first and sometimes exclusively for your platform.

      Microsoft accomplished this by purchasing Bungie and then declaring Halo an XBox exclusive. The software was so compelling that the hardware was purchased to run it.

      I don’t know what that app is for the iPad. but perhaps it is one of the many specialized apps that appear only in the App Store. The apps that sold me were the App Store and my first free download from the App Store: iBooks. I was kept in place by apps like DropBox and Pulse, and then the selection of games. I let my eyes wander to Android Honeycomb and then Homesharing appeared in tandem with AirPlay.

      Wouldn’t have anything else now though I do visit the Xoom on display at the Best Buy so it doesn’t get lonely. When it goes on clearance I’ll grab the WiFi version and putter around to see what Android is all about.

    7. Peter says:

      “Apple’s #1! Apple’s #1! Apple’s #1!
      Oh wait, it isn’t? Well, it doesn’t matter…”

      Don’t get me wrong, I agree with you. Apple makes good stuff–I’m a Mac user since 1985 (my first “Mac” was a Macintosh) and as long as Apple keeps doing so, I’ll probably buy.

      But after crowing about Apple marketshare, it really sounds like sour grapes now that it’s no longer true.

      Karma’s a bitch, huh?

    8. lrd says:

      The bottom line:

      Apple’s going to make more $ this past quarter from selling smart covers than Google does from Android.

    9. Upset Applecart says:

      Wall Street is already considering the death of Apple because Android smartphones have a growing lead in market share over the iPhone. When Wall Street starts beating up on a company, they’re going to lose investors. Wall Street has hammered RIM to death despite the company not exactly losing massive sales. Take a look at Apple’s share price. It’s as shaky as an 80-year old with arthritis and badly in need of double hip replacements. Investors aren’t touching Apple stock despite high target prices and good-selling products. Wall Street continues to talk up Android annihilating every mobile OS despite it having a horrible financial model (if that even makes any sense). So, Wall Street is already saying that the iPhone platform is doomed. Again, Apple has a very large tablet share and still Wall Street insists that Apple’s iPad is dead by next year due to coming Android Honeycomb tablets.

      I don’t understand why market share is so important to analysts because large market share doesn’t guarantee financial success. The business model still needs to be profitable. Wall Street is always killing off companies that have even slightly shrinking market share. So, even though Apple still reaps the biggest profit share by far in the smartphone market, Wall Street is declaring the death of iPhone, just like that because it won’t be number one in market share. I think they’re full of crap, but what the hell do I know.

      • @Upset Applecart, Apple doesn’t exist by Wall Street alone. They can’t argue with record sales.

        Peace,
        Gene

        • Joseph Futral says:

          @Gene Steinberg, “They can’t argue with record sales.”

          Although they’ll try. I remember when Jobs returned to Apple and how the stock would get pummeled after a MW keynote by SJ about the next Mac or after an earnings call. Just as now, it was always good news.

          But Wall Street is a lousy indicator for the strength of any business. No matter how “rationally” and thoroughly they formulate an expectation for success or failure, buying stock is always a gamble, a prognostication. Apple is high profile now. So their stock price is affected by news of any kind, even if it is undervalued based on earnings. There are a lot of people investing in popular stocks like Apple, who probably really shouldn’t be investing or trading at all.

          But as for the topic, the question is really #1 at what? As long as Apple is the one defining the current markets and writing the rules, they will continue to be the real #1. iPhone sales are still strong. No single maker except RIM and Nokia lead Apple in smartphone handset sales (even that depends on region).

          Apple is not _losing_ to Android. Android is doing well _because_ of Apple. I would hazard to say that all iPhone owners _wanted_ to buy their iPhone. But most (but not all) people “settled” for an Android. But that’s just my anecdotal guess. I think that says more about who is #1 than handset market share. Especially since handset market share can really only be properly viewed as a subset of carrier market share. Which carriers have Android handsets outpacing iPhone? Even in overseas markets, you can’t throw out carrier effect.

          Joe

    10. Hairy Goomer says:

      It’s important to remember that Mac sales continue to grow year after year, and Apple has tremendous “headroom” under which to continue increasing Mac sales.

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