On market share

For the last couple of years, the standard way to look at the progress of the 'platform war' between Apple, Google and the now near-vanquished Nokia and RIM was 'smartphone market share': each platform's share of the share of the phone units sold each quarter that could be defined as 'smart'. The chart looks something like this. 

There's a fairly simple narrative here: Apple more or less flat for years at or around 20%, Nokia and RIM collapsing, Android (both activated and 'unactivated' - i.e. China) taking all the rest. You can also show it like this: 

Same data set, different chart.  

However, there's a rather important problem with looking at the data like this: there is no such thing as a 'smartphone market'. Or rather, talking about the 'smartphone market' is like talking about the '3G' market or the 'colour screen phone' market: you're picking out a sub-segment that is going to grow to take over the whole market. And ignoring the growth. 

All of a sudden, you can see the growth.  

This difference is particularly clear if you focus just on Apple.  To take an analogy from another industry, Tesla's share of the 'electric car' market is probably going to fall over time, as more companies start making electric cars - but that's not the point, because its share of the 'car' market is probably going to grow. 

The whole mobile phone market is converting to smart. Apple is taking the high end and Android is taking the rest. Both are growing very fast, and Android is growing faster. But what matters is phone  share, not smartphone share. Just to make the point absolutely obvious, this is another way again to look at the market. 

The fact that Apple is taking the high end means that it has a disproportionate share of revenue and hence profit. Meanwhile, the fact that Samsung has squeezed most of the other branded OEMs down to a size at which it's very hard for them to make a profit means that Samsung and Apple between them make almost all the profit in the mobile handset industry. 

(This slide is taken from my presentation 'Mobile is eating the world')

At this point Apple advocates can risk getting a little carried away. 'Aha!', they say, 'Apple may only sell 10% of phones but it gets well over the half the profit, so it's winning the platform wars, or at least not losing.' 

Well, up to a point. The objective of any hardware maker is indeed to make a profit, and Apple's doing pretty well there. But it can't really take credit for the poor economic health of so many other OEMs - if anything that's down to Samsung. If there was some consolidation then those companies would be more profitable and Apple and Samsung's profit share would fall - that wouldn't mean their performance was deteriorating.

More importantly, the point of a platform war is the health of the platform itself, not necessarily the OEMs. Apple's Mac was soundly beaten by Microsoft, not by Gateway 2000 or any of the hundreds of forgotten failed PC clone makers.

That is, it doesn't matter to Google or to Android that Android OEMs are mostly much less profitable than Apple, so long as good Android phones keep getting brought to market (and they do). And the unprofitability of most Android OEMs tells us little or nothing about how much it matters to Apple that there are now a lot more Androids than iPhones out there. 

And then again, all the data we have about the systemically lower engagement of Android users means that 'platform market share' is also an unhelpful metric. 

To put this another way, looking at 'smartphone share' or 'profit share' or 'platform share' all tell you something about the industry, but all three metrics mislead you if you try to treat them as a way to see who's 'winning', because 'winning' means different things for Apple, Samsung or Google. After all, Google may well still make more money from searches on iOS than it does from searches on Android. There's no easy way to fit that into any of these charts.