220-Apple’s Future in Smart Phones – Part II
Apple is the clear leader in today’s consumer smart phone market. Research in Motion leads the commercial market. I am going to make the case that a few years from now, they will have a single digit market share. They will turn into a Performance Leader, a small high-priced competitor in the market. (See “Video #24: Price Point Specialists in Hostility” on StrategyStreet.com.) This position will be similar to the one Apple holds today in the personal computer market. In Part I of this blog, we described the evolution of Apple in the personal computer market. Apple today produces a marvelous personal computer. It appears that Apple is following the same map in the smart phone market as it followed in personal computers.
Apple owns both the hardware and the software in its smart phones. And it keeps both exclusive to Apple. It had early mover advantage, so it garnered virtually all of the apps that people cared to develop for its smart phone platform. But a new competitor has emerged in the Android operating system. Android fills the same role as Microsoft did in the personal computer industry. Microsoft was cheap and available for many hardware platforms. The PC attracted the most app developers. Android is cheap and attractive to app developers. On the other hand, Apple has made life difficult for app developers by forcing them to jump through hoops in order to gain approval to offer apps on the Apple iPhone platform. Today, Apple has something north of 200,000 apps. Android has 70,000 apps. But, as one analyst noted, every app that a number of people are likely to want to use today is already available for both the Android and the iTouch. Apple may have more apps, but most of the apps exclusive to Apple appeal to narrow niches.
Now let’s play forward the next few years. (See “Audio Tip #32: Introduction to Step 7 of the Basic Strategy Guide” on StrategyStreet.com.) Motorola, HTC, LG and Samsung are among the many companies producing Android-based phones. The Android market is growing quickly. It will grow even more quickly as the prices of the Android handsets fall under the pressure of competition in the smart phone hardware market among some big, capable companies. Within a year, the app developers will write new apps first for the Android platform and second for the Apple iPhone or other smart phone platform. Several years from now, the intense competition in the hardware market will reduce the cost of an Android smart phone low enough to remove a good deal of the profit that Apple now enjoys with the iPhone. (See “Audio Tip #102: When is Price Likely to Go Down?” on StrategyStreet.com.) As the Android smart phone producers continually add the features and capability to make their phones unique for consumers, the Android phones will be nearly as capable as, if not the equal of, the Apple iPhone. And, the Android phones will be much cheaper. Apple will be pushed into a Performance Leader position, where it offers high-priced feature-rich phones and garners a share of the market likely to be in single digits. This will not happen overnight. The smart phone market is still in its infancy. But check back in three to four years.
It will be interesting to see whether this competitive pattern holds in the tablet computer market as well.
Apple’s global operating system market share is below 17%. The overwhelming leaders in the market are the android phone producers, especially Samsung. The picture is different in the US market where Apple leads with nearly 50% of the market. This US leadership is the result of superior apps and, surprisingly, similar or lower prices compared to Samsung phones. Android’s global leadership is the result of a far greater number of total apps and phones at many more price points than those offered by Apple. It is likely that Apple’s high US market share results in part from Samsung’s high pricing policy.
Apple retained its position as the second-largest smartphone vendor globally in 2021. However, despite its massive sales figures, the company faces countless Android manufacturers combined. According to Gartner, Apple shipped 235.70 million iPhones in 2021, while Android manufacturers shipped over 1 billion units.
In 2022, Apple dominated the US market with about a 50% market share. While it has fewer apps available than does the Android family, Apple has far more downloads and app revenue in the US than does the Android system. The Google app store has more than 3.5 million apps available for Android users. The Apple Store lists 2.2 million apps. However, in the third quarter of 2021, Apple’s app store generated $21.5 billion in global sales compared to Google Play’s $12.1 billion.
There is a common myth that Android phones are cheaper than are Apple phones. That certainly is a myth. In fact, Android’s top-of-the-line Samsung Galaxy lines of phones are priced slightly higher than Apple’s equivalent phone. The myth may be due to the fact that there are far more phones at lower price points in the Android world.
While Samsung is a distant follower to Apple in the US market, it’s pricing policy of pricing the same as, or at a slight premium to, Apple has certainly helped Apple maintain its high US market share. Samsung has chosen not to exploit its potential superior economies of scale. See HERE for further perspective.
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