Apple 2.0

Covering the business that Steve Jobs built

Why doesn't Apple cut its prices and sell more iPhones?

May 25, 2013: 8:04 AM ET

The market share vs. profit share debate rages on.

comscore Q1 2013

Source: Horace Dediu "Measuring Platform Churn."

FORTUNE -- Android's Market Share Is Literally a Joke, John Kirk's provocative analysis of the smartphone wars, has caused quite a stir since it was posted Thursday on Tech.pinions.

"Scoring by market share alone and ignoring profit," he writes in one of several sports analogies, "is like saying that a baseball team won because it had more hits when the other team scored more runs."

Lines like that infuriated market watchers who have been scoring the smartphone game by hits rather than runs for years.

The angriest response came from Jay Yarow at Business Insider, a publication that likes to describe Apple's market share as "dead in the water."

Yarow posted a piece Friday called Apple Fanboys Are Crazy To Celebrate Apple's Tiny Smartphone Market Share (since dialed down a notch to read "Apple Should Be Furious That It Has Such A Tiny Sliver Of The Smartphone Market").

"If you work at Apple, or you love Apple's products this should be burning you up," Yarow writes. "You should be furious that Android, which you believe to be an inferior product, is on more phones than iOS, Apple's software."

The solution, Yarow believes, is obvious: Apple (AAPL) should lower the price of the iPhone. "It's great that Apple's über profitable. It would be even greater if more people could afford its phones."

That misses the point, Benedict Evans argues in On Market Share.

"There is no such thing as a 'smartphone market,'" he writes. "The whole mobile phone market is converting to smart. Apple is taking the high end and Android is taking the rest."

The result is a chart that looks like this one ...

Source: Benedict Evans

Source: Benedict Evans "On Market Share."

... which shows Apple and Samsung capturing between them nearly 100% of the operating profit in the global market for all cellphones -- smart or otherwise.

Weighing in from Daring Fireball, John Gruber singles out the one paragraph in Yarow's piece that he agrees with:

"The goal for Apple shouldn't be to be the company with the most money in the bank. It should be to make the best products in the world, and get them in as many hands as possible."

That's exactly what Apple is doing, writes Gruber.

"No one, or at least no one with a clue, is arguing that making the most money should be Apple's goal. (Nor is anyone arguing that market share is irrelevant; the argument is whether market share alone is of primary importance.) Apple's profits are the result of having achieved their goal: making the best products and getting them into the hands of the most people. The and there is very important. In simple terms, iOS is what you get when you try to make the best products and maximize the number of people who use them; Android devices are what you get when you try to maximize the number of people who use them."

I guess that's where I end up. Making the best phones is an expensive business, not just because the aluminum casings cost more or the devices are harder to assemble, but because of everything else Apple pours into its products -- the design work, the warranties, the telephone support, the over-staffed retail spaces, the Genius Bars, the online stores, the developer conferences, the long-term investment in capital equipment and the R&D on new products -- R&D whose happy beneficiaries in the past have included Samsung, Google (GOOG) and all those Android users.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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