Why smartphone marketshare is overrated... and not Apple's top priority

If you listen to the pundits, Apple really messed up by not making the iPhone 5c more affordable. The underlying assumption by those so quick to second guess Apple's iPhone 5c strategy is that Apple is losing the marketshare war with Android. Consequently, the reasoning goes, Apple needs to churn out some cheap devices (and quick!), flood the market and gain some of those elusive marketshare points back.

Apple, however, doesn't let marketshare be the overarching metric that guides its business strategy. Indeed, it's somewhat bewildering that analysts who get paid to make sense of the tech industry so often lose sight of the fact that marketshare in and of itself is not the be all and end all.

In truth, the type of users you have can sometimes be more important than how many users you have. Indeed, this dynamic can be seen across many industries.

This notion is why television shows with a core audience of 18-34 year old males, for example, can often command higher advertising rates than programs that otherwise have higher ratings. As a specific example, Friends during its heyday was able to command three times as much for ad-time than Murder She Wrote because the latter's viewership skewed much older.

So what's the parallel?

Apple doesn't view all users as created equal, a point Tim Cook touched on in his recent Bloomberg Businessweek interview, which was published in its entirety this weekend.

When asked about the rise in $100 and $150 phones from Chinese and Indian manufacturers, Cook explained that Apple isn't interested in a race to the bottom while explaining that unit marketshare doesn't keep him up at night.

So while analysts obsess themselves over metrics like marketshare, Apple isn't terribly concerned with catering to users who aren't interested in a premium smartphone experience.

And because Apple doesn't blindly go after the low end of the market, dangling cheap phones in front of customers who are just looking for something cheap that gets the job done, the iPhone is able to garner more customer loyalty than its Android counterparts.

This past August, the Consumer Intelligence Research Partners (CIRP) collected a year's worth of smartphone loyalty information and found that 81% of iPhone users stuck with the iPhone when purchasing a new device, compared to 68% of Android users who stuck with Android. More telling is that over 40% of iPhone buyers came over from Android while approximately 5% of Android users come over from the iPhone camp.

Put differently, once a user gets an iPhone they are more likely to stay within the iOS ecosystem than an Android user is to stay within the Android ecosystem.

To that end, there is an undervalued benefit in focusing on the high end of the market where folks are willing to pay a little bit more in order to get a little bit more.

What happened to both RIM and Nokia over the past few years should underscore how fickle marketshare is. RIM, for example, was able to appear healthier than it really was because it relied on "buy 1 get 1 free" programs as a means to flood the market with their devices. Their ability to keep their seemingly high marketshare afloat was nothing more than an illusion that eventually came crashing down.

The iPhone, meanwhile, isn't close to rivaling Android when it comes to marketshare, but is second to none when you look at other metrics such as profitability, customer loyalty, and customer satisfaction.

Marketshare of course isn't wholly irrelevant, but if it's the only metric analysts are focusing on, they're clearly missing the big picture.