Apple’s weak quarter appears to have been the result of a product-cycle gap, in which iPhone sales dropped off sharply as buyers waited for the next version of the iPhone to be released.
This weakness was most likely exacerbated by Apple’s decision to move the release of the phone from June to September this year.
This delay has certainly positioned Apple to have a bang-up December quarter, driven by both pent-up demand and holiday sales.
But the delay, combined with the release of a mere upgrade instead of a revolutionary new phone, has also done two things to weaken Apple’s overall market position:
- It has given Android-based products three more months (and now, with a less-than-revolutionary new phone, more, to catch up). The latest version of Android phones, running “Ice Cream Sandwich,” will have many features that are as good as, or better than, the latest iPhone. Both now have high-res cameras and hi-def video, for example. And Gmail is perfectly integrated on Android phones. And Android’s new texting-killer, for example, will work on any phone, not just Android phones.
- It has caused Apple to lose more market-share globally to Android.
The risk on the market-share side is that the same thing will happen to Apple in smartphones that happened to it in the PC market in the 1990s: A ubiquitous platform (Windows) grows so rapidly that eventually it becomes the industry standard and reduces Apple to a premium niche product.
This market-share loss in the 1990s nearly killed Apple, so the stakes couldn’t be higher.
Fortunately, Apple has obviously learned a lot from its near-death experience in the 1990s, and it is now fighting to keep growing its market share. In this endeavour, it has three key advantages that it didn’t have in the 1990s:
- Apple’s prices are now equal to or lower than most of the competition. In the 1990s, Macs were “premium” priced. These days, iPhones and iPads are priced at or below comparable products.
- Apple’s platform is much more “open” than it was in the 1990s, and it’s still better than Android for developers and partners. The iPhone and iPad are still the primary mobile development platform for most app developers and media companies. And the platform is much more “open” than the Mac OS ever was back in the 1990s.
- The competition — Android — is still fragmented, which reduces its value as a platform. The key competitive asset in the platform game is ubiquity. Fortunately for Apple, Android is still balkanized into many different versions and customisations, some of which are not cross-compatible. Google is working on this problem, but Android will remain fragmented for a while yet.
Photo: Mary Meeker, Kleiner Perkins
Adding to these advantages, Apple has also launched — and dominates — a whole new application of its iOS platform: The iPad. Android is nowhere in tablets, nor is anyone else. IPads are growing far faster than iPhones did in the year or two after the iPhone launch. (See chart at right from Kleiner Perkins partner Mary Meeker — iPads are blue). When you add smartphones and tablets together, Apple’s market share looks better (though it’s still far from dominant).
Nevertheless, tablets and smartphones are likely to remain two discrete markets, and Apple’s relatively low market share in the burgeoning smartphone platform market is the biggest risk to the company. As shown in the chart below, from Kleiner Perkins partner Mary Meeker’s excellent new state-of-the-Internet report, Android has blasted past Apple and is growing much faster.
In Apple’s most recent quarter, moreover, which was hurt by the product cycle gap, iPhone sales only grew 21% year-over-year. That’s paltry growth, especially relative to Android-based phones and the smartphone market as a whole, which will have caused Apple to lose a lot more share relative to Android.
Apple investors should keep a close eye on this…
Photo: Mary Meeker, Kleiner Perkins
SEE ALSO: About That Apple Quarter…
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