Apple Inc.'s Tim Cook Has Been Completely Misunderstood

Apple cares about its smartphone market share relative to Microsoft and Google.

Feb 15, 2014 at 12:05PM

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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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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