Apple Inc.'s Tim Cook Has Been Completely Misunderstood

Last week, in an interview with The Wall Street Journal, Apple's (NASDAQ: AAPL  ) CEO Tim Cook said something most observers seem to have ignored. While investors honed in on Apple's stock buyback, far more interesting was Cook's comments regarding Apple's share of the mobile market, and its ongoing competition with Google (NASDAQ: GOOGL  ) and Microsoft (NASDAQ: MSFT  ) .

Apple is getting dominated by Google's Android
Based on IDC's recent data, the smartphone market is a three-horse race: Google's Android dominates with nearly 80% of the market; Apple's iOS comes in at number two, with a bit more than 17%; and far back in distant third, Microsoft's Windows Phone has just 3% of the market.

Apple's critics, including myself, have argued that Apple's declining market share would eventually put its iPhone business in jeopardy, as its platform would slowly lose its appeal to developers. As the recent Flappy Bird phenomenon demonstrates, apps still matter greatly when it comes to smartphones. For now, Apple's iOS remains the platform of choice for mobile developers, but Android's steady growth could eventually give Google's platform the upper hand.

Microsoft's token share of the market has resulted in few apps for the Windows Phone app store (as an example, Flappy Bird never made it over), making Microsoft's platform an unattractive option for any consumers that care about mobile apps. The low install base, in turn, makes Windows Phone unattractive to developers, creating a vicious cycle.

According to The Verge, Microsoft is so concerned about its app problem that it's considering allowing apps written for Google's Android to run on Windows Phone. Even if Microsoft never goes down that route, the fact that it's considering such an option highlights the importance of having a healthy app ecosystem.

Cook: Apple cares about its market share
Apple's share of the mobile market has slowly dwindled in recent years, from nearly one-third of the market in 2011 to less than one-fifth today. Even more troubling, in emerging markets Apple's iPhone is largely a non-factor, with Google's Android having a near monopoly.

The general consensus seems to be that Apple simply doesn't care about its declining market share -- that the company was content to let its iPhone become a niche product, preferring to defend its margins at the expense of its market share.

Not so, according to Cook. From The Wall Street Journal:

In most geographies, in most major regions of the world, we're one or two [in terms of smartphone market share]. Would I like to be one in the places where we are two? You better believe it. If there is a way we can do that without changing where our line is on a great product, then we're going to do it. But what we're not going to do is we're not going to make junk. We're not going to put Apple's brand on something someone else designed.

I don't view that as being satisfied with being small or however you want to define it. It's not saying that market share is irrelevant or not important. I've never said that. I just always tried to say that the macro thing for us is to make a great product and we must do that.

Cook's remarks suggest that Apple would consider offering cheaper iPhones to defend its market share if need be. Cook admits that Apple won't make "junk," but doesn't rule out going down-market completely. Motorola's Moto G, a phone that retails unlocked for less than $200, has been extremely well-received, showing that it's now possible to offer quality phones at bargain prices.

A VP at Apple's partner, ARM Holdings, recently told CNet that Apple would eventually have to address the low-end of the smartphone market. That prediction seemed unlikely, but Cook's comments suggest that it's a possibility.

Keeping the possibility of a low-cost iPhone alive
Long-term Apple shareholders should be more concerned with the iPhone's market share than with Apple's buyback program. As Microsoft's current struggles indicate, market share remains vital.

In that respect, Apple's declining market share in the face of Google's rise seemed troubling; the fact that Apple's management appeared to be oblivious was even more troubling.

But Apple's marketshare philosophy seems to have been mischaracterized. I wouldn't interpret Cook's comments as confirming the forthcoming release of a low-cost iPhone, but Apple's commitment to maintaining mainstream appeal should be seen as an encouraging sign.

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Comments from our Foolish Readers

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  • Report this Comment On February 15, 2014, at 1:42 PM, WineHouse wrote:

    Tim Cook's statement was "We're not going to put Apple's brand on something someone else designed." He did NOT rule out an acquisition that would make Apple more like a holding company with subsidiaries (sort of like when HP bought Compaq -- yeah, yeah, that was a disaster for HP, I know that and Cook knows that -- just trying to describe what I mean here). I'm sure these guys are looking and thinking. They've never been afraid to step outside the box. Speaking of "box" -- hmmmnnnn. I can think of a company that's actually in a bit of trouble right now, that might be a perfect fit for acquisition.

  • Report this Comment On February 16, 2014, at 3:51 PM, inn8 wrote:

    "For now, Apple's iOS remains the platform of choice for mobile developers, but Android's steady growth could eventually give Google's platform the upper hand."

    So, Sam, just how much more than 80% share is it going to take before Android gets the "upper hand" with developers?

  • Report this Comment On February 17, 2014, at 3:40 PM, iphonerulez wrote:

    The thing that most pundits overlook is that in most nations, it's like 10% or less of the wealthy control nearly everything. Apple is like those 10% because it has most of the wealth by way of profits.

    Anyway, I'm not quite sure why it really makes a difference how many Android handsets are being sold by hundreds of different Android smartphone manufacturers. It just causes the Android platform fragmentation to grow that much worse with all the various levels of hardware and versions of Android OS being involved. As long as Apple is making plenty of money and iOS followers remain loyal what difference does it make if Android gets some "upper hand" or whatever that is supposed to mean. It's as though pundits can't get it through their heads that there will always be users that want to have some other choice.

    Does Porsche care whether Toyota or Kia has the upper hand? Apple runs its company to its own standards and hang the rest of the companies. Market share is useful but highly overrated. There have been plenty of companies that failed while having the greatest market share if their financial books don't balance properly or if suddenly something better comes along. Major market share isn't that easy to be held onto forever.

  • Report this Comment On February 18, 2014, at 7:16 AM, RattyUS wrote:

    "Based on IDC's recent data, the smartphone market is a three-horse race:"

    Most analysts put it as a two horse race, Microsoft being nowhere and not making any gains save for some countries with a relationship with Nokia and a bad economy - i.e. Nokia were dumping phones at rock bottom prices.

  • Report this Comment On February 21, 2014, at 11:18 AM, ViewRoyal wrote:

    Sam Mattera: "Apple is getting dominated by Google's Android"

    Really????

    Android has 80% of the worldwide market-share for smartphones.

    Apple/iPhone has 75% of the worldwide profit-share for ALL mobile phones (smartphones + feature phones).

    Sam, if you had the choice of being in the business of selling all Android phones world-wide, or in the business of selling all iPhones worldwide, which would you choose?

    "Market share" is meaningless if you are selling low-end products with minimal profit. But if you have a low market share but sell a high-end product that commands 75% of the "profit share", that is what really matters!!!

  • Report this Comment On February 21, 2014, at 2:03 PM, beetlebug62 wrote:

    "Apple's critics, including myself, have argued that Apple's declining market share would eventually put its iPhone business in jeopardy, as its platform would slowly lose its appeal to developers"

    This assumes a superficial look at mobile OSes, in that Android is not a monolithic OS. It's fragmented and forked. Not to mention that the high value-added users are on iOS. Once actual developers look where the money is, they realize they need to be on iOS first.

    "Cook's remarks suggest that Apple would consider offering cheaper iPhones to defend its market share if need be."

    Uhm, no, you are reading too much into that. Saying market share is not irrelevant, does not "suggest that Apple would consider offering cheaper iPhones to defends its market share". Apple would certainly consider making less expensive iPhones, but there's no hint of Cook suggesting that it would be to defend market share.

    "Motorola's Moto G, a phone that retails unlocked for less than $200, has been extremely well-received, showing that it's now possible to offer quality phones at bargain prices."

    And, for a loss.

    "market share remains vital."

    You know, if you've been wrong so far, perhaps, you should stop beating that dead horse.

    "the fact that Apple's management appeared to be oblivious was even more troubling."

    One, that's not a "fact". Two, appearances may be deceiving. Three, didn't that quote you post from Cook, just prove that they weren't "oblivious"? Why are you troubled? Your meme of market share not coming true?

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