Steve Jobs Would've Hated Apple's Current iPhone Strategy

To defend its margins, Apple (NASDAQ: AAPL  ) has refused to release a low-cost iPhone. Google's (NASDAQ: GOOGL  ) hardware partners, meanwhile, have had no such qualms, offering Android-powered handsets for as little as $100.

But Apple's margins have come at a cost: market share. While the iPhone remains dominant in some developed economies like the U.S. and Japan, its global market share has dwindled, down to less than 13%. Meanwhile, Google's Android has exploded in popularity, and it now accounts for more than 80% of smartphones sold worldwide.

While Apple's founder Steve Jobs is often quoted as having compared his company to BMW, he understood the nature of market share -- and why it's so important when you're running a platform business.

Jobs on profits and market share
While reading the following Jobs' quote, try to guess which product he's discussing:

They cared about making a lot of money... they had this wonderful thing... they got very greedy, and instead of following the original trajectory of the original vision which was to make this thing an appliance and get this out there to as many people as possible, they went for profits. And they made outlandish profits for about four years. One of the most profitable companies in America for four years. And what that cost them, was their future. Because what they should've been doing is making rational profits, and going for market share... would've had a 33% market share right now, maybe even higher... now it's got a single-digit market share and falling. And there's no way to ever get that moment in time back... [it] will die, in another few years.

The year was 1995, and Jobs was talking about the Macintosh. But his quote could just as easily be applied to the iPhone. Sure, the iPhone still has double-digit market share, and probably won't die anytime soon, but Jobs clearly understood the forces that come into play when a platform's market share begins to dwindle.

Companies tend to have long glide slopes, because of the installed base. But Apple's just gliding down its glide slope, and they're losing market share every year... things start to spiral once you get under a certain threshold, developers no longer write applications for your computer.

A Google fanboy? No -- once again, Steve Jobs on the Mac.

Why market share matters
While there are numerous reasons customers may choose Apple's iPhone over a competing Android handset, one of the biggest remains Apple's app advantage. While Google Play eventually gets most of the major mobile apps, developers in the U.S. continue to favor Apple's platform.

Case-in-point: Facebook Paper, the social network's new mobile app that's received rave reviews (in fact, some believe it's better than Facebook's normal app). If you want to use it, you'd better own an iPhone, otherwise you're out of luck: There's no Android version available.

Facebook obviously has the resources to release Paper for Google's platform if it wanted to, and in time, I'm sure it will. But since Paper remains exclusive to the U.S., and Apple's iPhone dominates the U.S., going iPhone-first is the obvious choice.

But it wouldn't be if Facebook Paper was aimed at the Chinese market, or just about any country in Europe or Asia, where Google's Android is the favored platform. When Facebook decides to release Paper internationally, I'm sure it will be in the form of an Android version.

Apple needs a low-cost phone to compete in emerging markets
Apple is looking to the emerging markets for growth, but if it doesn't release a cheaper iPhone, it may not get it. Low-cost Android handsets have allowed Google's mobile operating system to conquer emerging markets, with Asian developers increasingly favoring Android.

I can't say for certain Jobs would've endorsed offering a cheaper iPhone (he famously resisted the netbook trend) but the iPhone's dwindling market share wouldn't have sat well with him. Although he kept the Mac a niche item during his second stint at the company, Apple's resurgence was built on the back of market-dominating products: the iPod was, for most of its life, the top-selling mp3 player, while the iPhone, at the times of Jobs' passing, had almost one-third of the market.

Jobs understood the perils of dwindling market share; the same can't be said for Apple's current management.

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Read/Post Comments (13) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 05, 2014, at 9:40 AM, JarJarThomas wrote:

    Apple HAS a lowcost phone for emerging markets.

    It's the iphone 4.

  • Report this Comment On February 05, 2014, at 9:40 AM, OpenThreads wrote:

    So that's what all those WWJD bumper sticker and T-Shirts mean!

  • Report this Comment On February 05, 2014, at 9:42 AM, lurker67 wrote:

    And yet, the Mac did *not* die out. And developers did *not* stop developing applications for the platform. Apple today is probably making more profit from desktops and laptops than any other company. And they are making those profits with a relatively small, but premium, share of the total market.

  • Report this Comment On February 05, 2014, at 10:00 AM, jdmeck wrote:

    Wrong again. Not only is market share not more important than profit, Steve would never sell a reduced quality piece of crap like the others do, just to get market share.

  • Report this Comment On February 05, 2014, at 10:13 AM, AmosTuck wrote:

    This "network effect" argument is a critical part of the narrative that has depressed Apple's multiple.

    It's a false narrative.

    To simplify: people who extensively purchase apps are far wealthier than people who don't.

    These people will pay a premium to purchase the best "user experience"...even if it's incrementally better. They pay a premium to purchase Apple products, and that premium has been consistent.

    Developers want to get paid. Period. If the only people who purchase apps are Apple users, then developers will continue to focus on enhancing Apple's software platform. There simply is no "network effect" spurring an exodus to Android.

    Eventually this false narrative will break-down, and Apple shares will be re-rated. While the company has been criticized for it's lack of "innovation", it's hard to argue that any of it's competitors have been more innovative. Apple's moat is DEEP.

  • Report this Comment On February 05, 2014, at 10:14 AM, Weaverl wrote:

    Don't know why "analysts" insist on comparing Apple and Android. Of course there are a many phones using the Android operating system giving it a large market share. Why do these manufactures use Android? It's free! Anybody can have a cheap phone made in China, put their name on it and use the free open source Android operating system.

  • Report this Comment On February 05, 2014, at 10:36 AM, twolf2919 wrote:

    You are hijacking Steve Jobs' words to give credence to your view that Apple needs to sell cheap phones and gain "market share".

    Well, that is nonsense. You can't simply say that because Steve Jobs spoke of the importance of market share with regards to the Mac, the same must hold for the iPhone. Why? Because there's a big friggin' difference between the Mac's situation and today's iPhone. Most importantly, the Mac never had significant market share, so In order to attract application developers (which, in turn, would attract more customers), it was imperative that Apple pass that minimum "threshold" (market share wise) you quoted Jobs on. The iPhone, on the other hand, has the most vibrant app store on earth (in terms of quality, revenue, variety). Even if Apple didn't gain a single percentage point of "market share", that would not change. Why? Because market share growth doesn't mean a darn thing. What matters is simply "growth" - i.e. that the total # of iOS devices keeps going up. With iPhone sales increasing at 7% and iPad sales growing at some 20%, I don't think Apple has any worries.

  • Report this Comment On February 05, 2014, at 11:47 AM, babyleg wrote:

    It's cool how you have a secrets line as to what Steve Jobs would like and not like about his companies strategy 'bout this, maybe he didn't have another new ground breaking device in mind before he passed away? I am sure he would of had something written down or left some info on a new device before he got to the point that he did before he died. Why didn't he bring to market cheaper devices? Here's what I believe. He wanted the experience to be exciting for people that bought his devices, he wanted them to look and feel like nothing else out there. He wanted the user and consumer to love what they spent their money on, not just throw something out there for the sake of selling phones. That is what people forget, he didn't care about what Wall Street thought or the price of his stock. This is why Apple was so successful. That is what's missing in business and why many of them can't grow. All they care about is how much they make this quarter, thus the CEO bean counter, and to hell with the people that buy their products and pay their wages. Companies today will sacrifice their workers, their quality and each other to increase profits. That's not what Steve did and that's why his company is a mega power house that it is.

  • Report this Comment On February 05, 2014, at 1:18 PM, JKramarz321 wrote:

    Several differences make the comparison to PC/Mac marketshare irrelevant.

    Recall, in the mid-90s, the cost of a system was typically over $2,000 (plus expensive software and peripherals, which were NOT compatible between Mac and Windows. Selection of printers (and MODEMS! ha!) in CompUSA and places like that were very small, so to get a printer or software for your Mac meant going online, where I mean a PHONE line, to order stuff for your mac.

    So not going with "the Dominant Platform" meant choosing to be a second class consumer in many regards.

    Oh, and once you had your mac set up, good luck sharing files with the other 95% of computer users!

    The Internet is what changed all of that! At one point, Microsoft liked the idea of websites "best viewed on IE", or many times ONLY on IE, but no one else liked being stuck to Windows on the Internet, so eventually all the internet standards took over. Open standards that OS makers would better conform to or be lost. Suddenly, Mac and PC users could send email and Jpegs, and other "standard" formats that were not platform dependent, like PDF.

    This is really why the Mac was able to thrive since the late 90s, with the introduction of the iMac, and also the abandonment of proprietary connectors like ADB, and use of USB instead.

    All printer manufacturers had to do now was write a driver, not make a printer with a different port, for 5% of the market.

    So yeah, NONE of these market forces are in the smart phone market. The high end phones are $400-$800. Only. And few have "invested $1,000's of dollars" in Apps and software, like they might have with PCs and Macs.

    So there's no big financial burden to drop a phone OS for another one, like there was with computers.

    To replicate the 80s and 90s, you would need a situation where email, texts, photos, and maybe even voice phone calls would not be able to be completed or sent between iPhones, blackberries, and Android phones...but this isn't the case. Hey, you might as well imagine getting a letter from Verizon or ATT telling you support for your Palm phone is being dropped, because there are too few of them out there to support that platform. (this was the case with Betamax users who saw notices like this at the corner video rental store).

    None of this is an issue, but tech writers yearn for exciting "Platform Wars" of the good old days.

  • Report this Comment On February 05, 2014, at 1:25 PM, GaryB wrote:

    Come on Sam, you should leave Steve Jobs name out of any comments as you have absolutely no idea what he would have thought or what Apple plans are for the future for that matter unless you have some spiritual connection with him. I have owned Apple shares for over 12 years and obviously I have done well with them. I invest in what I use and believe Apple will continue to prosper even if it is slowly for now. I also trust the management of Apple unlike the management of Google and Samsung as the only innovation they know is blatantly stealing others ideas to make a buck. That is what is important to me as an investor and hope is important to others!

    Get on with the positive things in live and we all will do better.

  • Report this Comment On February 05, 2014, at 1:35 PM, JKramarz321 wrote:

    As long as we're talking about what Steve hated, remember how he didn't want to allow 3rd party apps on the iPhone? of Steve's strengths was his ability to make a mistake, learn, and move on without dwelling on failures. That's why you have to sit and think a bit to remember things like the G4 Cube (hey! they obviously LEARNED from that product and laid the groundwork for the Mac Mini), or the Apple HiFi, or the Motorola Rok'r. Every now and then, they had a failure, but they kept going full speed ahead.

  • Report this Comment On February 05, 2014, at 1:35 PM, Mathman6577 wrote:

    JarJarThomas is right on.

    And "one more thing": Apple doesn't care about market share when it comes to the iPhone. Tim Cook said that. So why do "analysts" always bring that up? It's because they are Apple bears and feel the need to constantly criticize the company because it doesn't fit into their tunnel vision economic theory that they learned in school (don't forget --- most analysts are at the bottom of the food chain at brokerage houses ... anything they do to stir the pot and get noticed so they can move up the chain they will do).

    The best thing to do is to ignore the analysis -- so your own. If you feel that Apple (or any business) is a great company and will contribute positively to society and to you as an investor, buy the stock. If not, don't.

  • Report this Comment On February 05, 2014, at 7:08 PM, Whiz wrote:

    Now we can get real, 95% of all of Apples technology has been stolen from the Asia Pacific Rim Countries where there is basically NO LAWS to protect Apple or any other company from wide open theft from these thieves. The open trading or selling of stolen technology because there is no one to stop it. This is the main reason Android has made leaps and bounds in such a short time.

    Like or Hate Apple they have been openly had there pockets picked and can do next to nothing about it. Why, because no one has the gumption to put a stop to it is way to profitable to the thieves.

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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