Sacrificing logic and profits at the altar of smartphone marketshare
Evan Williams, who helped co-found both Twitter and Medium, recently wrote an excellent piece articulating the futility and shortsightedness of using one-dimensional metrics to ascribe success or failure to Internet companies.
Williams elegantly lays out why cherry-picking one particular piece of data and wholly ignoring other important factors paints an inaccurate picture of the degree to which companies are thriving.
As a quick illustration, Williams uses his own site -- Medium -- as an example.
Medium had its biggest week ever last week - or so we might claim. By number of unique visitors to medium.com, we blew it out of the park. The main driver was a highly viral post that blew up (mostly on Facebook). However, the vast majority of those visitors stayed a fraction of what our average visitor stays, and they read hardly anything.
That's why, internally, our top-line metric is "TTR," which stands for total time reading. It's an imperfect measure of time people spend on story pages. We think this is a better estimate of whether people are actually getting value out of Medium. By TTR, last week was still big, but we had 50% more TTR during a week in early October when we had 60% as many unique visitors (i.e., there was way more actual reading per visit).
The point here is simple: Medium could have easily magnified the importance of unique visitors to create a false impression of their success. All the while, more telling stats, like the amount of time visitors actually spend reading articles, would have been conveniently pushed aside and ignored.
Now how, you might be wondering, does this all relate to Apple?
Well, the tech sphere that Apple operates under is embarrassingly prone to the type of one-dimensional and misguided thinking Williams warns about. Apple is curiously examined under a microscope where important metrics are ignored while others are given far too much weight. No where is this more apparent than when analysts and pundits exalt smartphone marketshare as the supreme yardstick of Apple's health. To be blunt, exclusively relying on marketshare data to gauge the state of Apple's iPhone business, and Apple overall, is inexcusably and fundamentally lazy.
As a representative example, check out this 2013 piece from Jay Yarrow of BusinessInsider, a widely-read website bizarrely obsessed with evaluating the complex world of the smartphone market primarily via marketshare statistics.
The article's title alone doubles as a tutorial on how to craft a sensationalized and linkbaity headline. It reads:
Alarm Bells Should Be Ringing At Apple: It's Getting Absolutely Creamed By Android, Which Now Controls ~80% Of The Smartphone Market.
The article, as one would expect, starts from the position that marketshare alone reigns supreme and that Apple should adjust its business model (via the rollout of a low cost iPhone, of course) in order to make marketshare gains.
Now this isn't to say that marketshare isn't important. It is. But it's just one of many factors to consider when evaluating the health of Apple and the vibrancy of iPhone sales. And sadly, Business Insider isn't the only offender. For whatever reason, tech pundits and even mainstream news outlets lazily and primarily rely on marketshare data when assessing the strength of Apple's business.
The simple reality is that marketshare numbers alone are anything but instructive and, in Apple's case, inexplicably overshadow more telling statistics such as profitshare and overall profits.
Apple's profitshare in the smartphone market is exceedingly high, with some analysts noting that the iPhone accounts for a whopping 86% of all industry profits. That is insanely high, not to mention incredibly impressive given the iPhone's low marketshare. And yet, alarm bells should be ringing because of allegedly worrisome marketshare reports from the guesstimators at research companies like IDC? It's downright strange and unabashedly lazy. Isn't the point of a business to make money?
And so, there is never a shortage of enterprising tech pundits and headline-hungry analysts eager to predict Apple's fall from grace by conveniently ignoring data points that are equally important as marketshare.
While Apple's ability to skillfully and consistently generate tens of billions of dollars in profit every year is arguably more important than marketshare, there are also important facets of marketshare data that are rarely considered by those so eager to ring the alarm bells in Cupertino.
Brand Stickiness
For instance, there's something to be said for the degree to which consumers remain beholden to a brand. Whether you call it brand loyalty or the "stickiness" of a brand, the fact remains that iPhone users are more likely to remain under the Apple umbrella than Android users are likely to stay within the Android ecosystem.
Shouldn't this data help color an otherwise one-dimensional metric? Doesn't this suggest, strongly, that Apple's marketshare on a unit by unit basis is inherently more valuable? Indeed, Apple argued this very point during its 2012 courtroom battle with Samsung. There, Apple pointed out that because an iPhone owner is likely to purchase other iPhone devices in the future, losing a potential customer to a Samsung iPhone ripoff had long term ramifications on Apple's bottom line that extended far beyond a lone missed sale.
As for cold hard data, Consumer Intelligence Research Partners (CIRP) in August of 2013 collected a year's worth of smartphone loyalty data and discovered that 81% of iPhone users were likely to stick with the iPhone when purchasing a new phone, compared to 68% of Android users.
All Things D reported at the time:
During the period CIRP surveyed, nearly three times as many Android handset users switched to iPhone as iPhone users switched to Android. Between July 2012 and June 2013, iPhone poached 20 percent of its users from Android, while Android captured just seven percent of its users from iPhone.
Not all users are the same
Another consideration is that not all users are created equal, which is to say that some consumers are more coveted than others. This notion underscores the existence of consumer demographics exist in the first place. It's why advertisers are willing to pay much more to reach an NFL-watching 25 year old male in New York City than a 55 year old woman who watches the local news in Springfield, Illinois.
In the smartphone market, similarly, the type of consumers a company attracts can be just as important as overall marketshare.
Tim Cook himself, in articulating why marketshare figures don't perturb him, said as much in a 2013 interview:
I think it's important that we grow, but I don't measure our success in unit market share. So if there are a lot of $69 tablets sold that you're just pounding on to get something to work and get some responsiveness, and it's thick and fat and just a terrible experience, I don't really weigh that unit of share like I do a different unit of share. I don't weigh them to be equivalent.
iPhone users, on average, tend to have more disposable income and tend to spend more money on mobile apps. This is why developers, even today, often focus first on iOS and on Android later. To date, Apple has doled out over $25 billion to developers. The strength of the iPhone ecosystem vs. Android is an important variable, yet again, curiously ignored at the altar of marketshare.
As analyst Charlie Wolf of Needham & Co. explained about a year ago:
Observers, seduced by the simplicity of the metric, have elevated market share as the sole driver of financial performance to a position that far exceeds reality. Indeed, there appears to be no correlation between market share and the viability of a platform. In surveying the variables that determine the viability of a platform, we would argue that the breadth and depth of the platform's application library and ecosystem play a far more important role than does market share.
As another quick illustration pointing to the strength of Apple's ecosystem, iOS users on Black Friday in 2013 accounted for 21% of all mobile-based e-commerce sales, with an average order of $121.61. Android, meanwhile, accounted for just 4.6% of sales.
Moreover, Nanigans, a large purchaser of Facebook ads, found that the overall clickthrough rate and return on investment on ads served through iOS is much higher than on ads served through Android.
Usage Stats and the marketshare equation
Another factor to consider: usage stats. What good is marketshare if consumers aren't using your product? A number of research reports have found that iPhone users engage with their device more frequently than Android users.
A 2013 study from Experian, for example, found that iPhone users on average spend 26 more minutes per day on their device than Android users.
Over the course of a year, that's approximately 158 more hours that iPhone users remain glued to their screens compared to Android users. The benefits of this dynamic are overwhelming.
On this note, Brian Hall writes for ReadWriteWeb:
For carriers, the iPhone's advantage in engagement makes it more valuable: more usage = more bandwidth = higher revenues. That will help Apple continue to hold carriers hostage to its hefty subsidy demands.
For users, any additional costs of an iPhone over an Android device is more easily justified by in the additional value gleaned from the extra usage.
For app developers, the additional usage makes the iPhone a more appealing platform for their products. These numbers should help cement iOS' pace remain the go-to platform for smartphone app developers....
Smartphone marketshare often measures different products
Blanket marketshare statistics often lump all smartphone models together into a neat, tidy pile. While this makes analysis easier, it's not necessarily the most strategic approach. The iPhone 6, for example, is a premium device and is an altogether different class of device than a free, low-end, and off the shelf Android. Shouldn't an instructive marketshare analysis take this into consideration?
It's akin to evaluating the health of Porsche by comparing its sales to Toyota's sales. In 2013, Toyota sold 1.22 million cars. Porsche, meanwhile, sold 162,145 cars. And yet, who out there is declaring that Porsche needs to play the marketshare game? Are alarm bells ringing in Germany?
Keeping things in perspective
Marketshare is an interesting metric, and when used properly, it can certainly be informative. But relying on it exclusively is akin to judging NBA prospects solely based on their height. Proper and insightful analysis always requires an appropriate context and an intake of multiple variables. Unfortunately, such factors rarely make an appearance in ostensibly in-depth Apple analyses.
What makes the marketshare discussion even more bizarre is that Apple has never been a company to blindly go after marketshare simply for the sake of marketshare. Which is to say, it's not as if Apple is failing to accomplish one of its core objectives.
On this note, Williams writes:
If you look at the other best tech company there is - Apple - it's also clear they are not optimizing for number of people using their products. While network effects (and revenue) mean that they clearly care about that, they've built the most valuable company on the planet by focusing on building the best product possible - in fact, one of their strategies is building an integrated set of products and selling as many of them as possible to the same user (at a healthy margin).
And besides, marketshare statistics are easy to manipulate, either via evaluating shipments to stores (and ignoring actual sales) or via short-term marketing efforts such as RIM's old strategy of introducing "Buy 1 get 1 free!" BlackBerry promotions circa 2008/2009 in an effort to artificially inflate its own marketshare figures.
Consider this: Name one smartphone manufacturer that wouldn't want to immediately trade positions with Apple. In what bizzaro Seinfeld world would a manufacturer gladly hold onto meaningless marketshare at the expense of an explosion in profits?
