That, at least, is the opinion of John Kirk, a “recovering attorney,” financial adviser, business coach, and investor who wrote an interesting column recently stating that market share in general, and Android’s market share in particular, is not an appropriate measure of success.
And that contrary to all popular opinion, Apple is “winning the smartphone wars — and winning them handily.”
That’s not what you hear from most pundits, industry analysts, or Wall Street investors these days. Rather, the news is all about how Android has won, how its market share is massively outpacing Apple’s, and how Apple has failed by slowing innovation and refusing to release cheaper and more diversified iPhones.
I wanted to understand Kirk’s position, so yesterday we chatted about Apple, Google, Android, and Wall Street.
VentureBeat: You stated that Android’s market share is a joke. Why?
John Kirk: It’s a reference to the old joke that you can lose money on every sale but make it up in volume.
Many companies in the Android ecosystem are losing money or, at best, breaking even. HTC, Motorola, and many of the other phone manufacturers are in that boat.
VentureBeat: But isn’t profit a trailing indicator?
Kirk: Yes, it is.
But market share isn’t necessarily a leading indicator. Profit comes from a combination of market share times margins, and people are completely ignoring margins.
VentureBeat: That’s typically explained via platforms and ecosystems, and the network effects that a bigger platform has, and that the profits are coming — at some point.
Kirk: Different business models should be scored differently.
I’m talking almost exclusively about hardware manufacturers, which I think are poorly measured by market share and should be measured by profit share. If you’re looking at Apple and companies like Motorola, HTC, and Samsung from the manufacturer perspective, Apple is winning, Samsung is in second, and everyone is in a very distant third.
Regarding platform, there’s an assumption that market share is the only thing that matters. And yet, all the evidence indicates that Apple’s iOS has a very strong platform, even with much, much smaller market share than Android.
The way the Android advocates explain this is to say that their theory is sound and that profit share must follow market share and that it’s going to happen any day now … but there’s no evidence that it actually is happening.
Saying that market share is the only thing that matters in platforms is like saying that acreage is the only thing that matters in real estate. Sure, the size of a property matters, but the location matters more. And sure, the size of market share matters, but the quality of the market share matters more.
In other words, Apple owns the high end of the market.
VentureBeat: One example that platform effects might be starting to impact iOS and Android is Google Music. Apple can’t seem to get a streaming music deal done, but Google was able to.
Kirk: Just because Apple hasn’t done it yet doesn’t mean they won’t do it. I think the music industry would much, much rather have Apple’s ecosystem than Android’s because that’s where the money is.
I’m not saying that Google Music won’t be OK, but it doesn’t impress me. It’s not necessarily another Google TV, but I don’t think it’ll be that big a deal.
Market share is like advertising … a huge audience is fine, but it’s much better to have a very focused, targeted audience.
VentureBeat: Are Google and Amazon wrong? They’re betting on the value of an ecosystem being a function of the value that flows through it — media, apps, books, ads, commerce — not just the value of the device it’s on.
But Apple is winning in manufacturing … and that doesn’t mean that Google is losing in the advertising war. In fact they are winning, too — they’ve got exactly what they want.
It’s a mistake to think that Android is the only platform that matters to Google … in fact they’re spending a ton of resources on iOS apps as well.
VentureBeat: Leveraging a high profit share on a low market share is certainly efficient. But is it safe?
Kirk: There are two possible answers to that.
You can look at the PC wars versus the Mac, which everyone says that Apple lost … but what Apple “lost” by losing that war was winning 45 percent of the current market’s profits! So despite the fact that currently they’re at 8 percent market share, they’re doing very well.
Apple has historically demonstrated that they’ve been able to not just survive but thrive on limited market share.
I don’t think that history is repeating … it seems much more likely that we’re ending up with a duopoly rather than a monopoly, and that Apple’s ecosystem is large enough to be self-sustaining right now.
So what Apple needs to do is continue to add value to its ecosystem.
VentureBeat: If you’re right, why does Wall Street disagree with you?
Kirk: Wall Street had Apple valued at $700 last fall, and they have Apple valued at under $400 six months later.
So Wall Street was either wrong about Apple then, or they’re wrong about Apple now, or they were wrong both times. You shouldn’t judge the business value of a company by Wall Street’s variable estimates — you need to judge the fundamentals.
Frankly, if you’re investing in Wall Street, you need to be lucky as hell.
Image credit: Jesus Belzunce Gomez/Flickr
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