As some of my may know about me, I’m currently enrolled in the full-time MBA program at the University of St. Thomas in downtown Minneapolis. It’s an amazing program and after only one semester, needless to say, I’ve learned quite a bit. In one of our classes in the first semester, within our teams of four, we engaged in a business marketing simulation known as LINKS. My team did quite well, but it was interesting how many teams took different approaches to attaining their definition of “success”. To some it was market share, by attaining the most sales, regardless of profit, that was their goal. To other teams it may have been high levels of customer satisfaction without industry leading market share or profit. On a weekly basis they tended to rank us in order of quarterly profit, while disregarding such measures as market share, debt, and customer satisfaction.
To me, it really does beg the question, “what is success”? How do you define success and what does an industry leader look like? Smartphones right now are all the rage and if you listen to a lot of the chatter out there, either you’re an Apple fan and you believe that the iPhone will continue to be the bestselling smartphone or you believe that the Android wave is inevitable and will squash the iPhone into minuscule market share like the Mac. To me, it all goes back to different definitions of success. Apple store employees are sometimes reminded of the old 5-95 adage (or sometimes 8-92, basically saying that the Mac has 5% market share down, 95% to go), but is that really what they want? What’s so bad about dominating the most profitable segment of personal computers?
I believe the iPhone is similar in this respect. Remember way back just over four years ago when Apple unveiled the original iPhone. At the announcement press conference, Steve Jobs mentioned how the mobile phone market was so large and all they wanted was 1%. It’s been four big years for the iPhone and currently the iPhone is accounting for just over 4% of all mobile phone sales and just over 17% of all smartphone sales. Those are impressive numbers to be sure. What Steve joking when he said he only wanted 1%, was he simply trying to temper expectations, or did he actually believe that 1% was the best they could do? I have a feeling that he was simply trying to set the bar low enough so that he didn’t come off overly confident and take the buzz away from the product itself.
But does market share really matter to Apple? If it does, they’re doing ok. Go ahead and ask Google and they’ll be happy to point out how the Android is now the dominant mobile smartphone OS. Talk to RIM and they’ll tell you about how they’re dominating in emerging markets (i.e. not the US, Canada, or Europe). So if we draw a dangerous correlation line from personal computer market share to mobile phone market share, we realize that the percentages aren’t that far off (4% for phones and around 8% for computers). But the shocker comes when you look at profit. Apple’s measly 4% market share accounted for over half of all mobile phone profits. Think about that for a moment: One company that is responsible for only 4% of all mobile phones (i.e. all mobile phones, not just smartphones) sold accounted for over 50% of all mobile phone profits.
I know one thing: If my LINKS company had industry statistics like that, we would have set a record of some sort (though to be honest, I don’t think there’s any way the simulation would allow anyone to have that much control, assuming real competition). While other companies are playing the market share game, Apple is playing the profit game, and they don’t seem to slowing down. When you’re raking in the kind of cash that would make Scrooge McDuck blush, how bad do you really need market share? It all depends on your definition of success.