May 3rd, 2011

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?

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