Curiously, tech critics and pundits have long proclaimed that Apple needs to adjust its smartphone strategy to focus more on metrics like market share. Naturally, these same critics and pundits tend to put more weight on market share than they do on metrics that are actually more important, namely profits.
Early on Monday, The Wall Street Journal published a report articulating that Apple's share of profits in the smartphone industry checks in at a whopping 92%. All the more impressive is that Apple is able to achieve such a high profit share with less than a 20% market share.
Roughly 1,000 companies make smartphones. Just one reaps nearly all the profits.
Apple Inc. recorded 92% of the total operating income from the world’s eight top smartphone makers in the first quarter, up from 65% a year earlier, estimates Canaccord Genuity managing director Mike Walkley. Samsung Electronics Co. took 15%, Canaccord says.
Now, the reason for this is apparent. Most handset makers, save for Apple of course, are so blinded by market share that they often sell phones at nearly break-even prices. There is also something of a race to the bottom as companies with very similar products can't differentiate on features, so they opt to differentiate on price. Historically, though, chasing market share, no matter the underlying reason, has never proven to be the wisest of strategies.
If we go back a ways, recall that RIM once tried such a strategy with its ill-fated BlackBerry Storm. The devices were put into "buy one get one free!" deals, and while initial sales seemed high, the return rate was also high. When the dust settled, RIM's artificially inflated market share figures came crashing down.
Apple, to its credit, has never chased market share solely for the sake of market share. Even in the face of tech observers who loudly proclaimed that Apple needed to make a more affordable smartphone, Apple remained committed to its bread and butter -- releasing a premium smartphone and selling it at a premium price.
The Journal adds:
Apple's share of profits is remarkable given that it sells less than 20% of smartphones, in terms of unit sales. The disparity reflects its ability to command much higher prices for its phones. Its rivals mostly use Google Inc.'s Android operating system, making it harder for them to distinguish their offerings, and prompting many to compete by cutting prices.
Indeed, because Apple forges its own path, it's also easier for the company to differentiate itself from a sea of competing smartphones. Whether it be the introduction of Touch ID or newfangled iOS features, Apple marches to the beat of its own drum. Android handset makers, in contrast, are often held hostage not only to Google, but sometimes to carriers as well.
Looking ahead, it stands to reason that Apple's share of smartphone profits may even increase in the year ahead. As we've documented previously, iPhone sales are poised to explode with the impending release of the iPhone 6s and 6s Plus.