Coffee Time: Market Share vs Profit
Wednesday, November 16, 2011 at 8:33PM Followers of my blog probably know that this blog is photo heavy. I get many compliments for posting them but I wanted to expand into posting my thoughts and observations on design and the industry. Of course, they will be complimented with graphics and photos.
I'll be calling these Coffee Time.
I'll post on a frequent basis. Most of them will be short (hence the name). This week, I wanted to share my thoughts on market share of iOS.
These numbers have been creating quite a buzz recently. Most people that readers have probably seen this already. The issue is that Android is dominating in terms of Android and people are having questions about how successful iOS really is.
What many people have failed to associate is that Apple dominates in terms of revenue. Look at these graphs by Oppenheimer. I've always categorized Android users into two key segments; nerds and budget buyers. The sad thing is that nerds are the minority. Most people are looking for the cheapest smartphone to purchase - and Android offers many of these choices. This is most likely the reason Android ships so many devices yet makes little margin. Also keep in mind that these graphs include Windows Phones too. There are many ways you can interpret these statistics. The key facts:
- Yes, in terms of a pure number of shipped products, Android rules all.
- If you look at the amount of money being made, Apple dominates.
- Android has many manufacturers using their OS, iOS devices are only made by Apple.
This is how I like to illustrate this whole scenario. Above is Apple's product line. Lean and simple.
These are the phones Samsung currently sells in the US. You be the judge. Samsung is only one of the many manufacturers selling Android phones and has this complex of a product lineup. And yes, there are non-Android phones in the mix but it shows how many phones other companies make only to make a fraction of what Apple does.
I truly feel that a simple, focused and powerful product line is what's not only better for the company but also consumers. Seriously, if you had to buy a Samsung phone, which would you buy?
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Reader Comments (90)
Nice post.
I met a senior designer at Samsung few years ago and asked him the same question. Why does Samsung make 20 different phones when they can invest the same amount of time and resources to making one great phone. The answer that I got was that they believe that everyone want different things in a phone and they try to make a phone for each one of them. Samsung is a market driven company while Apple is driven by a singular vision. Also, you have to be really confident to bet your entire company in one phone.
I agree with Renee, but I feel this could accomplished much better with fewer phones. Over 20 phones is over kill. HTC is even worse with 48 different phones, and so many HTC phones are so similar. Also, why can't the same phone be used over different networks rather than three different variations of the same phone, like the Galaxy S2 which has a completely different body style on T mobile, AT&T, and Sprint. I feel this is another big problem.
Also, sure Android may have more than 50% of the market, but how many of the phones actually compete head to head with Apple in terms of quality, power, and design? Very few I would say, Galaxy S2, Driod RAZR, etc. are what come to mind.
OK I'm just going to focus on this sentence: 'I've always categorized Android users into two key segments; nerds and budget buyers.'.
Pardon me, but this is really pretentious. Although you clearly categorize the users into two 'key' segments (ie. there are more different types of users) I can't help but feel you think everybody who is not a nerd or doesn't want a budget phone is an iPhone owner. Or in other words: if your phone is not Apple-made you are either a nerd or greedy/poor.
I get your point you want to make with this post, but I want to know if you ever thought hard enough why people do not want to buy an iPhone, because I get this strong impression you haven't.
To put it in perspective: I own a Samsung Galaxy S2. Yes I study at an university of technology. No I'm not a nerd, I'm just intelligent enough to go to this particular university. Yes I am poor (I don't have a job). Now why did I get myself this phone? I want a phone that's still very good until the expiry date of my contract; I don't want to get stuck in Apple products (iOS, iTunes) since I do not like using them (yes I actually use iMacs daily); at the time my phone was still €100 (yes, Europe) cheaper than the iPhone (4).
I hope after reading this you understand my reaction.
It just comes down to this, do you want to make a great product or just sell as much as ou can? Only apple found the perfect formula with making super expensive products but the greatest in quality so its just very saddening once you realize this sad truth about all these companies including my least favorite; Microsoft.
Google just wants to get Android in as many hands as possible to increase mobile search usage. Until very recently, they seemed wholly uninterested in the quality or profit margin of Android hardware. They've had to start paying a tiny little bit of attention to design and ecosystem coherence in order to keep developers on board, but I'm sure they're ecstatic with those market share numbers. Ad revenue still seems to be their bread and butter.
Samsung, on the other hand, should know better. You're right - they obviously don't need such an absurd amount of devices on the market. You could cover most everyone's needs with a few high-end phones (large screen, medium screen, and options with and without physical keyboards) and a couple low-end devices for the pre-paid crowd. It can't be cost effective to have that many form factors in production.
Great observations andrew. I cannot agree more that a focused and small product offering will always beat out an approach that tries to produce a product for every user profile. I am currently dealing with this problem / opportunity on a daily basis at my current employer. I will agree with Rene that this is tough, but I disagree that sumsung is a "market driven company", and the implication that apple is not "market driven". The difference is that Apple just has a much more long term "market focus", while samsung is short term focus on what every single customer is asking for, at this exact moment. Would love to hear your thoughts on this difference.
I get the point of your comparison, but it's a bit misleading because not all the Samsung devices have Android OS. Additionally, your argument about Android buyers is weak as well, because it doesn't justify the iPhone's success if "most people are looking for the cheapest smartphone to purchase." So while you may not take these market share numbers seriously, I'm sure that Apple takes them very seriously and is trying to figure out ways to gain more market share -- especially since it equates to more revenue and profit for them, which is really the whole point of being in business. As one example, Sprint now carries the iPhone and perhaps TMobile will be next if their infrastructure can accommodate the demand and the AT&T marriage proposal doesn't get past the DOJ.
By the way, I enjoy your site, your work and the photos, but perhaps you should leave the tech stuff to the experts -- that is, if you're unwilling to tell the story fairly -- and stick to what you do best. Keep in mind, that isolating the Android OS in Samsung's product line, still proves your point regarding Samsung's shotgun strategy/lack of focus.
@Hoi - It sounds like you are both a nerd and poor - the exact android demographic which was described.
@Hoi, let me see if I got this right -- you object to being lumped in with nerds and budget buyers, but you are, by your own admission, both!
I say this as a proud nerd myself.
"Seriously, if you had to buy a Samsung phone, which would you buy?" First I would research my purchase, just like every single technology purchase I make, EVER.
Second, I already have, I bought my Sidekick 4G. If I could live without a keyboard, it would be a Galaxy S2 which probably the best phone in existence currently, other than it lacks a keyboard.
I heard a rumour that samsung's toilets run android and every time an employee flushes Google counts it as an activation. Is that true? Wouldn't surprise me at all.
@Hoi, I didn't get "if you are not a nerd or a budget consumer, you are an iPhone owner" at all. There are many other industry players, and each of them caters to different segments - some of which will overlap there.
If you read all of the gadget blog discourse about mobile phone operating systems, those who are most vociferous about Android talk about things nerds care about: open source software, detailed hardware specifications and so forth. It's all about rooting devices and other things that would give normal people a heart attack. If only those people were buying them, the nerds, Android would not have its market share.
No, Android needs - and clearly has - a second, larger source of market share. For every Galaxy S II there are ten or more super low-end Android phones that aim to compete with feature phones. These are the free phones, or the phones on those tinier carriers like Cricket. The feature set is limited and the price matches.
Those two groups are very clearly the people Android appeals to most: the techy, specification-conscious at the high end, and budget-limited normal folks on the other. There will be all kinds of people in the middle, but I agree with this post, they are in more limited numbers.
Nice article, but the time has come to sober the reality behind Android vs iOS. The thing that almost everyone is talking about is money/revenue. The thing that is of the utmost importace to Google is to be everywhere users are. Why? It's simple, really. They want them to keep searching.
Rene said, "... you have to be really confident to bet your entire company in one phone." Another way of putting that is, the more models you sell, the less you have t believe in any one model. When I see a phone lineup like Samsung's, or a PC lineup like Acer's, that's what I notice. These people don't really believe in what they are selling.
Hoi,
Funnily enough your post just seems to confirm the observation 'I've always categorized Android users into two key segments; nerds and budget buyers.'
You may not like the label "nerd", but someone studying at a technology university is certainly what other people think of as the nerd category. And your post confirms you're buying on a budget. You hit both of segments of typical Android buyers.
I hit a typical category of iPhone buyer too. People who love good UI design. In fact it's more than that - bad UI design makes me angry. It was the reason I can no longer bear to use Windows. It's the reason I hate my Panasonic TV. And it's the reason I won't ever buy an Android.
You do realize that compliment and complement are two different words?
I get many compliments for posting them but I wanted to expand into posting my thoughts and observations on design and the industry. Of course, they will be
complimentedcomplemented with graphics and photos.Yikes, not much chance of economy of scale at Samsung..... Everyone craves Apple's margins but their devices are not more expensive than their competition. They have extraordinary buying power, simplicity of assembly lines, distribution, ordering, packaging, support, advertising, etc. Hardware and software fragmentation undermine profits.
Steve Jobs was quoted as saying that he only knew what he liked when he saw it (and drove people insane) but had absolute authority over what was green lighted for production. Samsung looks like its green lights are permanently on.
I'd bet that Samsung CEO couldn't name all the phones they sell. Not to mention the features and advantages of each.
The answer that I got was that they believe that everyone want different things in a phone and they try to make a phone for each one of them.
But then the paradox of choice kicks in. For most consumers in the US, buying a cellphone means a two-year contract, and even honing down the options to a specific carrier brings the anxiety that the new phone due out next month may be better than the one available for upgrade now. This aligns with Bruce M's point that the more models a company sells, the less likely the customer is to trust that the company is invested in them -- not a problem in the age of the simple/feature phone, but already an issue in terms of Android upgradeability. Right now, buying an Android phone feels like a gamble that the handset maker and network operator will support the back half of the contract, especially given the economic incentive to push users into paying the ETF for an early upgrade. The only way that will change is for vendors and operators to make a two-year commitment to support a phone model, and for them to deliver on that promise.
That marketshare from Gartner is only for mobile phones, i believe. It excludes ipod touch and ipad.
Your Samsung image ignores the way most people actually buy mobile devices. Especially now that the iPhone is available on multiple US carriers, most first decide on the carrier (do I stick with my contract or switch?), then decide on a broad product category. So, for example, I'm on AT&T and I want a smartphone. AT&T carries three models of iPhone. They carry seven Samsung models (four Android and three Windows Phone). That's really not that big of a difference. Your beef with Samsung seems to be more that they're still in the dumbphone market than that they need more smartphone focus.
The post is a wee bit misleading. Samsung now sells 42 types of Android phones, but most of those phones are really duplicates of each other. For each carrier, Samsung sells maybe 5 to 7 different types of phones.
Actually, that's another problem I have with Android. My son wanted an Android phone, but it's hard to know which is which because many of the phones are reviewed under one, but marketed under another name by each carrier. Even worse, the same name is used for several iterations of the phone, so the first model of that phone might be good, but the next model is a bargain bin special. And, sometimes the carriers use the same name for phones made by different companies.
And, Android phones seem to last for a few months with a phone you've bought only six months ago (and still have 18 months left on your contract) is now no longer even supported. My son had this experience. He's had some sort of Android phone for the last 15 months, but is now on his third phone because the previous models were no longer supported by either the carrier or the manufacturer.
There's another big reason why Android sells so well: The carriers love pushing them. They love the confusion that a million different models make because it means that people don't know which phone they even want. They love the fact they can tell the manufacturers what software must be on the phone, They love the way they can make money on the default music service and the default search engine. And, they love the fact they've pushed the manufacturer's margins to almost nonexistence.
This is a completely different relationship than what the carriers have with Apple. With Apple, it is Apple who decides what default software is on the phone, who the Internet search provider will be, who will make money off of music sales, etc.
@Hoi
I think you are incorrectly interpreting the two groups Andrew mentions. Apparently, "nerd" still has negative connatations associated with it, so let's use "tech-savvy". Obviously, you fall into this group. And "budget buyers" does not mean "greedy/poor". It represents someone who doesn't care a whole lot about what phone they have and just want something that is cheap and qualifies as a smart phone, i.e. it lets them get e-mail, surf the web, and use apps. Given the much lower revenue of Android phones despite the much higher sales, I think that is a fair way of interpreting those numbers. After all, there are certainly high end Android phones that are at the same level of quality (and price) as the iPhone, but obviously the sales of those are massively outweighed by the number of cheap Android phones being sold.
@Hermulus - easy boy. "By the way, I enjoy your site, your work and the photos, but perhaps you should leave the tech stuff to the experts." If you want to debate, let's stick to the facts. If you do respect the author and his site let's not get into personal attacks. Either they are right or wrong based on facts. Titles mean nothing except to pigeon hole our perceptions.
Now, back to facts.
"I get the point of your comparison, but it's a bit misleading because not all the Samsung devices have Android OS."
They are two comparisons that are related but separate, and the comparisons include OSes other than Android. Windows and RIM currently are below apple, the first graphic is merely incomplete. And the author acknowledges that the phones include windows phones in the last paragraph. The first comparison is the market share vs profit share and how Apple owns profit share. The second comparison is Apple's product line to one other manufacturer's product line. The point of the second comparison is to explain, in this author's opinion, how a broad range of products reduces the company's focus, making it hard for them to concentrate on anything. The implication is that lack of focus leads to fewer revenues. Few business majors will argue with that assertion, mostly they will haggle over the details.
"So while you may not take these market share numbers seriously, I'm sure that Apple takes them very seriously and is trying to figure out ways to gain more market share."
Both Apple and Samsung are concerned about Market share, but Apple is more concerned about Revenue than Samsung is, and Market share is not the only factor that's important. Articles like this are in response to people citing "android is winning" and "Apple is dying" simply because of the market share number. Showing the revenue pie shows that market share isn't the only thing out there that matters. Apple will be around for a while and be a perfectly viable choice. In fact we welcome the competition, and we welcome Android fan's choice of something else. Graphics like this are not meant to mean "This is why Apple is better than your Android" they are meant to say "Look, Apple is doing just fine, It's not going anywhere."
This is not a race to 100% market share.
@hoi --
You list as one the reasons you went with Android over iOS as "I want a phone that's still very good until the expiry date of my contract". If that's the case, you almost certainly made a mistake in buying an Android device. Either you should've bought a lower end feature phone, because it will pretty much just work as a phone for it's entire life -- or you should've bought some other smartphone. Android devices rarely get the updates they need. Meanwhile, the platform you call out, iOS, has been supporting older devices much more consistently. The 3GS is now a 2+ year old phone and it is still first tier when it comes to updates -- it just got iOS 5.0.1 last week, for example. If you had bought a 3GS on day one, it would now be out of contract and still being updated. This is the complete opposite of what every friend of mine with an Android phone has told me.