Why Apple Doesn’t Care About Marketshare
If you’ve been an Apple fan for the past fifteen to twenty years, then you probably
know that the company has never tried to sell the most of a product.
They didn’t try to sell the most computers with the Mac, the didn’t try to sell the
most music players with the iPod, and they didn’t try to sell the most phones with
the iPhone.
In fact, Steve Jobs set out to capture just 1% of the mobile phone market with the original
iPhone, since that would still generate tens of millions of dollars in revenue for the
company.
And that business approach has always drawn criticism from tech analysts, financial experts,
and at times people from within the Apple community itself.
After all, why wouldn’t a company do everything they can to dominate the market they’re
competing in?
Well, that’s exactly what we’re going to find out.
This is Greg with Apple Explained, and I want to thank NordVPN for sponsoring this video.
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Now the first thing I want to do is explain the title of this video.
Because it does sound a bit counter intuitive.
After all, if Tim Cook was offered the choice between a 90% or 10% share of the smartphone
market, obviously he’d prefer Apple to have a 90% share.
But that’s not the question.
The question is, where does marketshare fall on Apple’s list of priorities?
And the answer is, it’s near the bottom.
And if you’re thinking, well Greg, I remember Steve Jobs talking about marketshare all the
time at the beginning of his keynote presentations.
And while that is true, that’s doesn’t necessarily disprove my point.
Because although Apple may celebrate a climb in marketshare if it happens, they aren’t
forming their business strategy around that objective.
And this approach becomes clear when considering how Apple positions their products in each
market.
When the original Macintosh was introduced in 1984, the average personal computer sold
for about $1,500, or roughly $3,700 today.
But the Macintosh’s retail price was $2,500, or about $6,100 today.
That’s a 66% premium in a product category that was expensive to begin with.
In 2001, the original iPod cost $400, when existing MP3 players retailed at around two
to three hundred dollars.
And the first iPhone?
It was perhaps one of the most outrageously expensive Apple products at launch, starting
at $500 in 2007, which would be a little over $600 today.
Now you may be thinking, well $600 for an iPhone is actually pretty inexpensive compared
to the thousand-dollar models we’ve become accustom to.
But comparing existing smartphone prices to those from over a decade ago is not a fair
comparison.
And it’s because of something called carrier subsidies.
You see, in those days, a carrier like AT&T would subsidize an iPhone purchase by paying
a percentage of the phone’s cost to Apple.
Which saved the customer quite a bit of money upfront.
But AT&T would recoup that cost by adding a monthly fee to the customers phone bill
in addition to locking them into a two-year contract.
That’s part of the reason why phone bills 10 years ago were more expensive on average
than they are today.
That also means the $500 starting price of the original iPhone wasn’t the whole story,
because it wasn’t the full cost of the phone, but rather the carrier subsidized price.
That’s why Steve Ballmer said this about the original iPhone: “$500 fully subsidized
with a plan?
I said that is the most expensive phone in the world.”
And that may have been the case, considering the true unsubsidized cost of the original
iPhone was $831.
And although that number may not be shocking today, it absolutely was in 2007, when the
average premium smartphone was selling for two or three hundred dollars.
And that’s part of the reason why iPhone sales didn’t really explode until the two
hundred dollar, 3G model was introduced a year later.
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But even though the iPhone has become incredibly popular, it doesn’t dominate the smartphone
market like you might expect.
Globally, the iPhone has achieved just 12% marketshare, trailing Huawei’s 18% and Samsung’s
21%.
And we see similar trends with other Apple products.
The Mac is hovering around 7% worldwide marketshare, far behind Dell’s 17%, HP’s 23%, and Lenovo’s
25%.
But it’s not all bad news for Apple, since they do have products that are dominating
the global market.
The iPad is leading the industry with almost 27% marketshare, which is double Amazon, who’s
in second place.
But no Apple product can compare to the Apple Watch, which has been absolutely dominating
smartwatch market with almost 48% marketshare.
That means almost half of all smart watch users in the world have an Apple Watch.
Leaving second place Samsung in the dust with their 13% share.
So it’s fair to say that Apple is all over the place when it comes to their products
marketshare, with some dominating their respective industries much more than others.
And this is perfect evidence that Apple isn’t aiming for market dominance.
If by chance it happens as a side effect of their primary business strategy, Apple isn’t
going to complain, and they may even brag about it.
But they would never make product decisions based on this metric.
So that begs the question, what are their product decisions based on?
And the answer, is profit.
Apple is one of the most valuable companies on earth, with a market valuation of almost
1.4 trillion dollars.
And they didn’t achieve their monetary success by racing to the bottom of every industry
trying to achieve high marketshare.
Because remember, Apple doesn’t sell the most computers or smartphones, but they do
make the most money from these categories.
And it’s because the company focuses on creating premium products that command a higher
price, and supply Apple with a higher profit margin than competitors.
This is also why Tim Cook decided to stop reporting unit sales of Apple’s products
back in 2018 and instead share how much revenue was made from each product category.
That way analysts would measure the company’s success based on revenue, and prevent negative
media coverage as hardware sales began slowing.
And so far, this business approach has been extremely successful for Apple.
In fact, this is the exact strategy that helped save Apple from bankruptcy in the late 90’s.
When Jobs left the company in 1985, John Sculley began expanding Apple’s product lines and
creating iterative, cheap computer models to try and boost sales and garner more marketshare.
After a decade of this strategy, the company had dozens upon dozens of computer models.
Resulting in a product lineup so fragmented and confusing, that salespeople were sent
flowcharts from Apple detailing which computer model was best for which customer.
As you can imagine, this race to the bottom approach was disastrous for Apple.
Not only financially as they approached bankruptcy, but also when it came to employee moral.
Just listen to Apple’s former chief hardware designer Jonathan Ive who said, “All they
wanted from us designers was a model of what something was supposed to look like from the
outside, and then the engineers would make it as cheap as possible.
I was about to quit.”
But this would all change when Steve Jobs returned to Apple in 1996.
He initially joined the company as a board member, but took a very hands-on approach
when developing the company’s new business strategy.
Apple would no longer waste resources tending to their overgrown computer lineup.
Instead, every product would be discontinued and replaced by just four computer models,
each representing a major category.
There’d be one consumer desktop, one professional desktop, one consumer notebook, and one professional
notebook.
The new strategy was shocking to some, but it allowed Apple to put their best designers
and engineers on each product.
Resulting in the strongest, most straightforward lineup the company ever had.
The iMac was released first at a price of $1,300, quite a bit higher than the average
desktop.
But despite the price, it went on to became Apple’s best-selling computer up to that
point, and helped the company achieve profitability the first time in almost a decade.
Since then, Apple has stuck to the business strategy of only making a handful of high-quality
products that command a higher price.
Without being too concerned about unit sales or marketshare.
In fact, here’s a video of Steve Jobs in 2007 verifying this idea.
And this approach is still in effect today.
Just consider the fact that Apple has essentially exited the MP3 market, router market, and
external display market since Steve Jobs departure in 2011, in order to focus on new categories
that are more profitable and more relevant to their users.
The company is always reevaluating their product lineup to ensure a focus on quality and profitability,
rather than marketshare.
And as long as they continue to practice this business strategy, I think Apple will only
become more successful in the future.
Alright guys thanks for watching and I’ll see you next time.