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VIDEOAndroid Stealing Share From iPhone, and That's Okay
By
Michael Comeau
Sep 08, 2010 9:40 am
The question we need to ask ourselves is, will Android's market share gains ultimately derail Apple's stock?
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1. IDC predicts that Apple iOS market share will fall from 14.7% in 2010 to 10.9% in 2014, while Android will soar from 16.3% to 24.6%.
2. Web-analytics company Quantcast said that according to its metrics, Android’s share of mobile Web consumption is steadily rising while iOS’ is falling.
3. A Piper Jaffray report estimates that Android will ultimately grab half the smartphone market, leaving 20% to 30% to Apple.
Before going further, let’s have a quick discussion on market-share calculations.
Every market-research firm and analytics provider has its own take on the numbers because each works with its own datasets, product classifications, and measurement methods.
What’s important is to pay attention to how the numbers are changing -- and all signs point to Android taking significant market share from all comers, including Apple.
Smartphones are booming. IDC just raised its 2010 smartphone growth forecast to 55% from 44%. Samsung now expects to sell 25 million smartphones this year, crushing its original forecast of 18 million units. And Apple’s iPhone 4 is still back-ordered for three weeks.
So the question we need to ask ourselves is, will Android’s market-share gains ultimately derail Apple’s stock? It’s easy to answer yes to this question because market-share losses have clobbered Nokia (NOK) and Research In Motion (RIMM).
However, there are several mitigating factors that work against a pure Android’s-success-will-hurt-Apple argument here:
1. Apple Has Pricing Power
In the June quarter, Apple’s revenue per iPhone (which includes related services and accessories) rose 8% to $635, and the same number is up fractionally for the fiscal year thus far. This means that Apple can grow unit sales slower than Android, but still increase revenues at an impressive clip.
In other words, Apple doesn't need to use margin-killing price cuts, because it's still growing faster than the overall market and making plenty of dough doing it.
2. The iPhone Has Limited Reach
The iPhone 4 carries a retail price of $199, and that means that Apple has essentially cut itself out of the bargain-priced smartphone market -- a place where Android is free to play. Even the iPhone 3GS at $99 has a higher upfront cost than some lower-end Android and BlackBerry models.
And needless to say, Verizon (VZ) not carrying the iPhone has contributed greatly to Android’s success.
Android is simply available to a much larger customer base and thus market-share gains are all but a mathematical certainty -- not an indication of fundamental weakness with Apple’s iPhone business.
3. The iPhone Isn't an Island
The iPhone doesn't go it alone; it’s part of a long daisy chain of integrated devices including Macs, iPods, iPads, and the glue that is iTunes. No rival has a lineup this strong -- not Android, not Microsoft (MSFT) and not Research in Motion.
Like the iPod, the iPhone’s job isn't to simply give Apple a one-time revenue injection. The iPhone’s primary function is to get people into the Apple universe so they can buy more Apple toys.
4. There’s Room for More Than One Alpha in This Pack
According to Gartner, Apple's and Android’s combined smartphone market share was 31.4% in the second quarter. Smartphone only accounted for 19% of mobile device sales, meaning that Apple and Android have less than 6% of the world’s mobile-phone market!
This means that there's more than enough opportunity for both players to get much larger over the coming decade. Apple and Android will fight aggressively, but there's clearly room for more than one success story in this market.
Position in AAPL.
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