TIM COOK ON APPLE VS. ANDROID: 'We're Not In The Junk Business'

By just about every statistic Apple’s mobile software, iOS is beating Google’s software, Android.

In profit share, Apple leads all other Android manufacturers combined. In web traffic, iOS has 55% of the market, according to NetMarketShare.

The iPhone has been the top rated smartphone in consumer satisfaction in nine consecutive studies by JD Power and Associates.

In less concrete statistics, iOS is generally still the first choice for developers. Reader interest at our site, and at others, is off the charts for iOS, but just so-so for Android.

Apple’s also the company that rivals compare themselves against. Microsoft, Samsung, and even Motorola all make fun of the iPhone in their ads. They wouldn’t do that if Apple wasn’t the real leader.

Yet, for all of that, there is one metric where Apple falls short: Smartphone market share.

In smartphone market share, Apple is getting absolutely clubbed. It has 13.2% of the market, according to IDC. Android, meanwhile, controls a breathtaking 80% of the market.

Apple is losing share, too. A year ago it had 16% of the market, and Android only had 69% of the market.

With Apple getting increasingly marginalized in the market share battle, some people, like our Henry Blodget, are fretting that Apple is going to get destroyed in mobile by Android just like it got destroyed in the PC market by Windows.

“In platform markets, as the often-hated but always insanely powerful Microsoft demonstrated for decades in the PC market, the vast majority of the power and profits eventually accrue to the market-share leader,” Blodget recently wrote.

He added, “What Apple does not seem to understand, however, is the fate that almost all niche platform providers eventually succumb to — gradual loss of influence, power, and profitability, followed by irrelevance.”

Blodget believes Apple should sacrifice a little profit now, produce a lower-cost iPhone and grab a few points of share.

Because Apple is winning in every other measure of the smartphone market, this marketshare issue looms over the company. It pops up every few months.

It has been reignited by Apple’s decision to release the iPhone 5C, a lower-cost phone, at a relatively high price of $US550 without a two year contract to subsidise the cost for the consumer.

Tim Cook was asked directly about market share, and the Android-Windows comparisons by Sam Grobart at Bloomberg BusinessWeek.

In terms of the Windows-Android comparisons, he said, “Microsoft kept things the same, and the level of fragmentation wasn’t as much. There weren’t so many derivative works out there with Windows.”

Cook sees fragmentation as a problem for consumers and for developers. Consumers are getting older, worse Android software. Developers have to deal with supporting a lot of versions of Android.

Despite the fragmentation, people are buying Android phones. For every Android phone sold, it’s one less customer buying an iPhone. Studies show that the majority of Android users aren’t going to switch to iPhone after using Android.

So, getting the first wave of customers for smartphones is important. To do that might require low-cost smartphones, which is something Cook wants nothing to do with.

He addressed the rise of the ultra-low cost smartphones by saying, “It happens in all consumer electronics, from cameras to PCs to tablets to phones to — in the old world — VCRs and DVDs. I can’t think of a single consumer electronics market it doesn’t happen in.”

He added, “There’s always a large junk part of the market. We’re not in the junk business.”

Continuing, he said, “There’s a segment of the market that really wants a product that does a lot for them, and I want to compete like crazy for those customers … I’m not going to lose sleep over that other market, because it’s just not who we are. Fortunately, both of these markets are so big, and there’s so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business.”

He doesn’t want those customers because he doesn’t think they use their Android products. “Does a unit of market share matter if it’s not being used?” said Cook. “For us, it matters that people use our products. We really want to enrich people’s lives, and you can’t enrich somebody’s life if the product is in the drawer.”

This explains the price of the 5C. “We never had an objective to sell a low-cost phone,” said Cook. “Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost.”

This is a fairly standard response from Cook. He has always been “laser-focused” on making the “best products” in the world.

Yet, what we wish Grobart asked, and what we wish anyone that talks to Cook would ask is this: Why does Apple need to collect $US450 per iPhone sold? What would happen if it collected, say $US300 per iPhone 5C sold? Would the product really suffer?

Apple doesn’t have to attack the low-end of the market. But would it be such a bad idea to go after the mid-tier of the market?

And, in terms of people not using Android, is that a result of Android? Does Cook think people just don’t like Android? If that’s the case, then why not get iPhones in their hands? Apple’s goal is to enrich lives. It could be enriching a lot more lives if it lopped a few bucks off the price of the 5C.

Apple doesn’t have to lower its prices, of course. Contrary to what Blodget might say, this is not like the when Apple lost to Microsoft in the 1990s.

Most people misunderstand how Apple lost.

Steve Jobs explained how Apple lost to Microsoft in 1995 saying, “When I walked out the door at Apple, we had a 10-year lead on everybody else in the industry. We watched Microsoft take 10 years to catch up. The reason they could catch up is that Apple stood still. I mean, the Macintosh that’s shipping today is 25% different than the day I left.”

He added that Apple has an installed base of users which was not growing, but would provide enough revenue to protect the company for a while. He said it was on a glide path to doom, and there was no way to save it. (Obviously he was wrong about there being no way to save the company.)

The same cannot be said of Apple today. The company is still growing iPhone units on a year over year basis. It still has the best products on the market. The iPhone 5S is significantly better than the iPhone 4S, the last phone Apple developed before Jobs died.

Apple is in good shape. It’s not anywhere near doomed.

But, until it releases a low cost iPhone, or really attacks market share, the debate will persist.

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