Is Apple prepared to be middle of the pack with the iPhone?

by Chris Seibold Sep 11, 2008

Pre iPhone Apple was a company that either dominated the market or found its products only in tiny niches. The iPod, iTunes, Final Cut Pro were all market dominators. The Mac, Quicktime and the rest of the company's products were less well received by the marketplace. The Mac was profitable and iLife was impressive but, market share wise, no one really cared.

Apple gained experience with being both a market dominator (iPod) and running a very profitable business with just a tiny share of the market. The positions require different strategies to sustain products and Apple seemed adroit at both keeping the iPod on top and keeping Mac users happy. It is worth noting that keeping a product on top and maximizing profits from a tiny base are two very different things. When the product owns the market you don't have to be obsessed with every little innovation. If a competitor comes along with a new feature you can always integrate it into your product and count on your market presence to keep the product on top. Because of economies of scales and exposure someone has to do something really spectacular (a spectacular fail is fine) to displace the main product.

Keeping the Mac viable is a completely different task. As a distant second, and we're talking four hundred laps behind the leader in a three car race, Apple isn't afforded the advantages of being reactive. In marketing the Mac the company has to kowtow to loyal users, innovate to stay ahead, carve out niches where the product will be used (Hi Final cut Pro) and differentiate the product to keep it profitable. Two wildly divergent strategies, employed masterfully by the same company.

With the iPhone it appears that Apple is going to have to master the hardest trick of all, staying competitive in a multiplayer market where there is no clear run away winner. They'll have to stay ahead of the small companies and keep pace with the larger companies all while appeasing the super loyal base.

Taking a look at where the iPhone is right now will be illuminating. When the iPhone was introduced by Steve Jobs at MacWorld 2007 the goal was one percent of the market. Not one percent of the smartphone market, one percent of the cell phone market. With the numbers Steve used that amounted to 10 million iPhones sold in 2008. Apple is believed to have sold roughly 8 million iPhones so far so the goal is attainable. Or is it? What is one percent of the cell phone market for 2008? Looking at a projected growth rate of 11% and the 1.15 billion phones sold in 2007 reveals that (insert own drumroll) 2008 should see about 1.27 billion cell phones sold in 2008. For Apple to hit 1% the company will need to move 12.5 million iPhones. Ten is easily doable but 12.5? The race is on.

Apple is poised to hit the self-announced goals. Of course, when Apple announces goals it sets the bar as low as possible. So when Steve says 10 million publicly internally Apple is thinking "how much production can we get?" Hence it is doubtful, since the goals won't be completely shattered, that Apple will hit internal projections. For the record the big player here is Nokia who owns roughly forty percent of the market, Apple has a long way to go.

But let's face it, even though Apple talks about the whole cell phone market everyone else thinks of the iPhone as a smartphone. Undoubtedly the iPhone has expanded the smartphone market, think of all the cool RAZR users who chucked that slick looking piece of crap phone into the trash to get an iPhone. How is iPhone doing in the smartphone market?

The total smartphone market is around 11% of the total cell phone market, so smartphones account for about 140 million phones sold per year. Apple will control a little less than 10% of the worldwide smartphone market. A nice number, bigger than everyone but Nokia and RIM but a pretty distant third.

So, is the iPhone a flop? Don't count on that. While Apple is selling the iPhone only through select carriers Nokia and other manufacturers sell phones through just about anyone who will sell them. Apple isn't in China yet (maybe soon) and Apple has been plagued by shortages. Where is the future headed for the iPhone? No market dominance but a big chunk of the smartphone pie. This will be an unusual position for Apple. Can the company handle it?



  • Excellent article – precisely the type of musings that are good for reporters to write about.

    I’m not sure how much the iPod is Apple’s first experience being a market leader – certainly the Apple II and the Macintosh were market leaders. Granted, this is Apple 1.0 and not the Apple 2.0 that we see now, but both were Steve Job eras.

    Point being: Jobs is used to being a market leader. That’s what he strives for (understandably), I’d predict that the long term plans are to make the iphone as successful as the iPod – even if they have to focus only on one market (18-35 year olds) or something.

    Thanks for the thought provoking article!

    Joey Baker had this to say on Sep 11, 2008 Posts: 4
  • I think Apple is happy with its current success in the market.  The mixed blessing of Apple’s disproportionate positive media (and I’m being polite in not saying that the media are ridiculously obsessed Apple kool-aid drinkers), anything less than total domination by the iPhone is considered a disappointment.

    They’re selling millions of units and making billions of dollars.  They’re probably exactly where they want to be.

    Beeblebrox had this to say on Sep 11, 2008 Posts: 2220
  • Exactly. Apple is perhaps a better “niche” player with a geemongous revenue and market power that are the envy of techdom.

    So what if Apple is a distant 2nd fiddle to MSFT in the PC world or that it is even more of a distant nobody when it comes to cellphone penetration. But I wouldn’t complain when I have the Mac, iPod, and now iPhone driving my bank account to the heliosphere.

    Robomac had this to say on Sep 11, 2008 Posts: 846
  • Yes Apple is focusing its iPhone efforts on the younger demographic, but that’s how you attack a market with an established encumbent.  Jobs fully understands that the battle for market share when you come late into the game is a generational campaign. Win over the young and keep on catering to them (and their kids) as they grow older and reach their prime earning and decision-making years.

    In fact he’s doing the same thing with the Mac.  Why target the enterprise market? CEOs and CIOs are mostly old and set in their ways.

    There’s nothing new in this.  Toyota wrote the playbook 30 years ago. (Ballmer though still hasn’t read it.)

    tundraboy had this to say on Sep 11, 2008 Posts: 132
  • And the iPhone has something else no else seems to have… enthusiastic support from companies bending over backwards to make iPhone compatible services and applications, such as the bank I mentioned a couple of weeks back.

    This is phenomenal. Sure you see advertising for generic mobile compatibility, but the attention the iPhone is getting seems disproportionate to its marketshare, and that bodes well, because that just pushes it higher.

    In fact, if you didn’t know better, you’d swear the iPhone was the market leader.

    And you know what, it is. You can have your smartphones, because they don’t hold a candle to the iPhone. They’re glorified PDAs squeezed into a phone.

    Smartphones are a subset of the iPhone. People who don’t want all the features, will keep buying smartphones.

    Currently, the iPhone has 100% of the market it created. And that’s why its getting so much attention from developers.

    Every other handheld device now gets measured against the iPhone, because I can’t think of any other handheld device that provides the functionality and usability of the iPhone.

    Chris Howard had this to say on Sep 11, 2008 Posts: 1209
  • “I can’t think of any other handheld device that provides the functionality and usability of the iPhone.”

    I think it’s more usability that functionality in the Apple-verse.  There are mp3 players that do more than the iPod and computers that do more than the Mac.  No Apple-fanatic has ever defended “features” and have even made passionate arguments about why more features is a canard (an argument I disagree with).  So a defense of the iPhone based on features seems disingenuous.

    But the iPhone has the usability hands-down.  It’s not even a contest.

    Beeblebrox had this to say on Sep 12, 2008 Posts: 2220
  • Good article.

    However, I suggest that market share is an inadequate measure of the success of a product or company.

    Apple, or any company can lower profits to gain market share… but at what cost.  Where do they go from there?

    I think a better measure is “what is their profit share” of a category or industry.  You can this this based on the category/industry as a whole, or base it on each vendor’s percentage market share.

    Put another way, who performs better: the management team at Apple, Dell, HP or Msft.a

    dicklacara had this to say on Sep 12, 2008 Posts: 7
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