Apple is doing very well but financial analysts are worried about decreasing market share in smartphones and tablets. Apple needs to produce an iPhone in the 'Goldilocks Zone' (5" to 5.7").
Apple reported their earnings on Monday. At first blush, the results were amazing. From their earnings report: Apple sold 51 million iPhones, an all-time quarterly record, compared to 47.8 million in the year-ago quarter. Apple also sold 26 million iPads during the quarter, also an all-time quarterly record, compared to 22.9 million in the year-ago quarter. The Company sold 4.8 million Macs, compared to 4.1 million in the year-ago quarter.
Apple certainly should be commended for outstanding performance. Only Samsung sold more smartphones. With such results, what's the problem? It's the fact that Apple, while increasing iPhone and iPad sales, is actually losing market share to the Android community. To be sure, Android is a federation of device manufacturers with many incorporating different versions of Android and building their own user interface (e.g. Amazon Kindle Fire).
Tim Cook was glowing over the report that Mac had shown increased market share for the past 31 quarters demonstrating a slow, but steady, growth against the Microsoft Windows platform and their hardware partners. Thus, the company feels that growing market share is important.
However, in both smartphones and tablets, their market share is steadily decreasing (see diagram). Why? There's no simple explanation, but a number of factors have resulted in Apple not being able to perform as well versus the Android Community in smartphones as they have been able to achieve in laptops. And, the trend seems to show that the same thing is going to happen with tablets over the next few years.
The first reason Apple isn't growing market share against the Android Community is because the current models are 'out of sync' with the rest of the market primarily due to Apple having a smaller display than just about every other smartphone vendor in the market. While larger smartphone displays appears to have a limit (example: the Samsung Galaxy Mega with a whopping 6.3" display that we call a 'Phablet' because it's between a Phone and a Tablet), users have migrated toward smartphones with at least a 5" display (example the Samsung Galaxy S4).
The iPhone 5s has a 4" display. It's a light, svelte unit but pick up any smartphone with a 5" display, and it clearly feels 'better'. This is due to what the eye sees when looking at media (web, video, photos) on a 5" display. The reason for this is the appearance of the display's virtual display. When a 4" and 5" display are set up the same distance from the user's eyes, then the 4" display will project a smaller virtual image than a 5" display. Virtual displays are the reason Google Glass and Kopin Golden-i give the user an apparent large image: it's actually a small display but it's placed close to the user's eye giving the user a virtual image that's much larger.
The market today has demonstrated with their pocketbook that they prefer smartphones that are in what I call the Goldilocks Zone - between 5" and 5.7". Yes, a 4.9" display would meet the challenge if the resolution were high enough like Apple's Retina Display.
I believe Apple should launch an iPhone with at least a 5" display very soon. They might also produce with a 5.7" display like the Galaxy Note 3 since such units are in the Goldilocks Zone. And, they might cancel all units with smaller displays (yes, cancel both the 5s and the 5c).
The second reason Apple is losing market share is due to price. Apple has never been the low price leader. Yes, the market for smartphones and tablets is beginning to saturate. The biggest final markets to address are the emerging geographies where low price really matters. It seems that Apple really needs to focus on high end (high features, high price) and low end (minimal features and very low cost) in order to show market share growth going forward. Apple hasn't traditionally addressed this segment of the market, but I believe they should address it and then offer lots of really great services like streaming media to make more money on top of the device sale (example: Amazon with the Kindle devices).
There is still a lot of market share to be captured as the rest of the almost one billion feature phones sold each year convert over to the current one billion additional smartphones being sold. After we reach two billion smartphones sold a year, the market converts from being an emerging, growth market to a maintenance market much like what we have with the laptop today.
Thus, there are some very important strategic decisions Apple must make if they are going to be able to gain market share in smartphones and tablets. They have successfully done it with the Mac. As the world increasingly turns to a 'mobile only' environment where users only have a smartphone and tablet, Apple must be able to be the preferred vendor in all parts of the world not just the 'upper crust' segment that is willing to pay a premium for a premium device.
I'm rooting for Apple to produce future iPhones that will continue to wow those in the developed world as well as new iPhones for the rest of the developing world who have limited funds but would love to hold an iPhone in their hand.
Written By:
J. Gerry Purdy, Ph.D.
Chief Mobility Strategist
Compass Intelligence
gerry.purdy@compassintelligence.com
404-855-9494