By A few years ago, Apple was happily dominating the mobile phone market, growing at a rate that outpaced all competitors including Android. Now that Android is the one outpacing the rest of the industry, Apple is hanging their hat on something else besides market share. Profit share.
Analyst T. Michael Walkley from Canaccord Genuity claims Apple only had 18.6 percent market share in the 2nd quarter but was able to capture 50% of smartphone profits. That’s an astounding figure and while I’m not sure whether or not it can be proven, I wouldn’t be surprised. Also not surprisingly, Walkley expects continued growth of both market and profit share due to declining value from RIM and Nokia.
Remember what Google initially claimed as one of Android’s most redeeming qualities way back when the platform was first announced? Cost savings. Because manufacturers and carriers wouldn’t need to pour money into software R&D and continued support they would be saving huge margins on an area that clearly isn’t a competitive advantage. If I recall correctly, Schmidt and Rubin claimed Android could help save 20% to 30% on the cost of producing and offering a phone, passing some of that saving onto consumers.
Has that happened? I’d argue yes simply by quickly browsing Amazon Wireless and seeing how many handsets can be procured for a penny. But has Android had an impact on manufacturers ability to drive profit? With so many Android-invested carriers and manufacturers and each putting money into development, marketing, and a host of other areas aimed at building a better product and increasing the sale, Android’s affect on “Profit Share” is somewhat elusive.
Do you think Android is positively affecting the ability for companies to drive profit? And why hasn’t Android’s profit share kept pace with its market share?
Look at HTC, Motorola and you see green, HTC’s profits are better thanApples in terms of growth on a yearly basis (200 % HTC to 118 % Apple).
This year, LG and Asus will join the profitable bunch.
Samsung had a chance with its Galaxy S, though its software update policy has hurt it considerably, and they probably will continue losing market share.
Apple has reached its peak, its all down hilll from here, unless they come out with something revolutionary, and there is no indication this its the case.
@ Two cents
You are delusional sir.
Apple rakes in 50% of the profits of the entire mobile industry (that’s right, not just smart phones – the ENTIRE mobile industry) while selling just 5% of the handsets (18.5% of the smart phones)
Apple make more profit than HTC and Microsoft combined make in mobile revenues.
Of course the profits of each single manufacturer might be smaller per device than Apple, but that doesn’t mean they have a good alternative to this. It was either Android or “death” – like Nokia being stuck on Symbian for years. And if they’d use their own proprietary OS that wouldn’t guarantee larger profits. In fact total profits would be smaller because the OS wouldn’t be so popular (think fast: which sold more, Galaxy S or Wave?).
Apple has a lot more advantages than just having their own OS. Many manufacturers keep making this mistake (RIM, HP, etc). Your own OS doesn’t imply you’ll have the same success as Apple. Apple continues to have the kind of success it has on its own because they jump started this touchscreen phone market and they created a huge ecosystem around it, even before Android appeared. Any other company using a new OS now would be dead in the water, because the only way they can get access to an ecosystem similar to Apple’s is by joining Android, and that is a much bigger benefit than having their own OS.
They just need to come out with innovative solutions on top of Android if they want to keep a nice profit margin. At least they have that option with Android. PC manufacturers never did.
Well I liked the comment but disagree in one place. Innovating on top of Android is not going to increase their profit share IMO. Apple has worked to drive down the their costs but charge a premium price that they’ve built up with marketing. They’ve locked themselves into a nice pocket of selling to the same people over and over that are willing to buy a product that Apple will gladly tell them is nothing but profit.
Yeah, my point was really that copying Apple’s strategy may not be as easy as some of them think it is. Apple has a lot going for them. They started the touchscreen phone trend, they have a very loyal following, good design that is usually hard to match by most competitors or they simply don’t care as much about it as Apple does, they are media darlings, their users think their products are “cool” and this creates some kind of cool culture around their products that not many companies can say they have, they have great deals with carriers around the world, they can sell just one phone per year which reduces complexity, cuts costs and allows them to buy components for a cheap price,…and so on.
If companies think they can just make an OS, even if it’s great, and get the same kind of profits that Apple is getting, they are delusional. At least Android is cheap and offers them entrance into a big ecosystem. It’s almost like you can’t go wrong with Android. If you release an Android phone you will have at least some kind of success at the low end, or be very successful at the high-end. With any other OS, companies would fail badly, so I say they should be damn grateful Android existed to save their asses from Apple and their crumbling Symbian and Windows Mobile phone businesses. If Android wouldn’t have existed Apple would’ve had not just 20% market share like they do now but 50% (Android’s current share too) – and keep growing. That would’ve been a huge problem for the other phone manufacturers, not the fact that they can’t make as much profit as Apple now…
They should just be happy they managed to “stop” (or rather slow down) Apple at all, and making some good money in the process, and also ensuring they will still be in the phone business 5 years from now.
@blaque_prince
Apple commands a premium price for one reason only: they deliver a premium product that people want to buy.
Phandroids always play the marketing card when it comes to explaining Apple’s success. News flash, no amount of marketing can overcome having an inferior product. Apple’s marketing is the best in the industry, but that just helps get the word out. The real power of Apple is their superior user experience.
Here is where you’re wrong Androids market share means people want to buy, Apple’s stagnant growth means people are stuck, maybe for paying 50 dollars on navigation apps. Apple has wealthy customers but fewer customers none the less and it will only continue that way.
LOL. 115% YoY growth means stagnation? Only in android land you will hear such BS.
Oh so now you understand YoY growth? You’re pathetic, Apple’s market share remains stagnant, meanwhile their overall profits did increase 115% in comparison to last year, meanwhile HTC raked in 200% profit over last years profit, oh don’t you feel crunchy! iDiot.
Sent from ?
Apple is milking the cash cow, but unless they can figure out a way to prevent people from exercising choice and following the very human trait of wanting the latest and greatest, their mind-, market-, and eventually profit-share will erode until they are just one of many competitors. I don’t doubt that they will always have their corner of the market, with quality products and solid margins, but we know from history that that corner of the market is around 10 or 11 percent. I don’t put much stock in market analogies, but to the extent that Apple plays the iPhone the same way they played the Mac, they will relegate their penetration to the same subset of the market. That’s the thing about share… you can’t rest once you have it.
LOL. The human trait is not just in comparing the best specs, but also in getting the best overall experience. Case in point: only now(several months after nexus S) is Google unveiling a large scale use of the front facing camera, unlike Facetime, which launched with iPhone4. And about NFC, no sign yet. So having the latest and greatest specs is worth nothing. Games such as Infinity Blade are not yet on Android market, despite all the dual core android phones, what is the use?
@Two cents….if u take a look again, the galaxy S sold more than any other phone and their profit margins were higher than htc and motorola. Yes they upgrade their phones os. Blame your carrier!!!
This is one reason why Apple isnt really tripping about marketshare. As long as a good chunk of ppl buy iDevices, they are gonna make a killing.
Its funny how the article mentions a switch from hanging their hat on market share to now hanging it on profit share. Is that a moving the goal post move? I dont know.
But like I sad a few weeks ago, I dont think Jobs will be talking about market share anytime soon like he did back when the iPhone was 1-2 years old. He thought it was important enough to mention the iPhone creeping up on RIM in marketshare a few years ago.
I’ll start by saying, I’m definitely a phandroid but… Samsung, LG, Motorola, etc. all seem like absolute morons to me, and I believe as a mobile manufacturer Apple is about a million years ahead of them, Nokia (R.I.P) is the only company that even comes close to Apple. These OEM’s all upset me, they do ridiculous things like hardware integrate stupid apps that we can’t get rid of (Bing integrated into an Android phone, Arrrghhhhh!), they make god awful skins that bloat the software and almost always make the phone look hideous, they wait forever to bring updates to phones, they build phones with shit materials (some exceptions sure), they lock their bootloaders, it almost seems like they do everything they can to make you not want to buy phones from them. I am a designer so I look at things from a design standpoint and most phones look ridiculous, seriously who designs these things?
Put android on a nokia N8 or E7 and load it with stock Android, done. Is it really that hard? Instead OEM’s think, “ok we’ll make the phone out of 50% plastic to cut cost and 50% aluminum to make it appear high quality, then we’ll make a bunch of deals with a bunch of companies to get them to have their app installed on our phone and make it so people can’t delete the app and we can make some extra money, next we’ll add our ridiculous skin and apps that we made that are the exact same as Android’s stock apps but worse, we won’t update the phone forever because it costs to much and we’ll lock the bootloader so they can’t install a custom build. Ok done, now we’ll just spend a shitload marketing and that should be that, what is the next piece of shit we’ll be making?”
Android succeeds because it’s Android, it is open and great, it does not exceed because of its OEM’s.
Oh and obviously Apple makes higher profit margins because they are completely vertically integrated and they make 1 phone, they also make massive profits from their app store, combine that with the above and there’s your answer.
you do know that the carriers command Samsung, LG, HTC etc. to put their app crap on their phones, lock them etc.?? You are barking up the wrong tree.
Last I check HTC is raking in the profits.. .and they’re doing it right.. another manufacturer benefiting from Android is Samsung .. with the galaxy S ..
Motorola is surviving only because of Verizon.. but HTC is by far the best OEM and they’re raking in the profits… Samsung is a distant 2nd
1. Free apps can only go so far. Doesn’t help that Android is marketed as a hackers toy and searching for an app on google yields 5 of 10 searches being illegal apk uploads to filehosting sites.
2. The Honeycomb fiasco has more than proven Apple’s dominance in the supply chain. Android tablet makers aren’t even making money, they are just trying to outdo each other on hardware specs and ballooning the prices to way above the magic $499 iPad mark. Google isn’t doing enough with Honeycomb. This also translates to the smartphone space. Apple owns the supply chain so will reap the most reward. Technically the MSRP on the iPhone ain’t that much different than other flagship Android devices, which is a bummer for Android, because their profit margins go down the toilet trying to compete with Apple spec-wise with higher component prices. Multiple phones with multiple R&D budgets and multiple ad campaigns versus just one iPhone a year that is already propelled heavily by pop-culture and entertainment anyway stretches the gap even more.
3. If Android is suppose to be pro-consumer, highly competitive, and the everyman’s phone, the PC of the smartphone space, it can only follow in its predecessors footsteps. Low margin, low-priced, Wal-mart bound products that anyone can buy. It becomes a commodity. May not be good for their bottom line, but good for consumers all around and to usher the future forward.
I actually do like the HTC Sense and Motorola later motoblur UIs. I am not a big fan of the slowness and battery draining that comes with sometimes, but if your careful and don’t use a ton, some of them are awesome! :)
IMHO,
1. OEM’s who choose Android are coming into a competitive market, so they will price competitively. that means lower profit margins. As pointed out previously, those who choose the iPhone often do so because it is “The iPhone.”
2. Apple owns the hardware, the OS, and the ecosystem, so they’re getting all of the profit. The revenue stream is more dispersed on Android. What happens when licensing and app revenues from Google, Amazon, and carriers are added into the same equation?