Market Categories - iPhone vs. Galaxy S
February 19, 2013
The Android vs. iOS debate has many oft-repeated narratives that color the perception of the people subscribing to them. You can often tell what camp a person is in, and whose opinions they follow, by looking at these. “Apple makes more profit than anyone” “Android is the winner by market share” “iOS has high quality apps” “Android is an open system” …
One popular narrative is “Apple needs to make a … because someone else is successful with it”. This is mainly repeated about three different categories: A budget phone, a “Phablet” (larger sized phone, screen diagonal of 5 inches and up) and previously a 7 inch tablet.
Hence the rumors of a cheaper iPhone, or a bigger, phablet-like iPhone, or sometimes both. Both a cheaper phone and a phablet could be good categories for Apple to get into, especially a cheap, smaller iPhone aimed to replace the feature phones and low-budget Android phones that are currently replacing feature phones, perhaps an iPod Nano + Phone (but I’m fantastisizing, for fantastisizing is fun) would be something I’d like to see. I digress, back on topic.
This stems from people seeing only whole categories, rather than sub-categories. They look at the tablet market over all and Apple has to worry, because 7 inch tablets sell. Or even more prominently look at the whole phone market, and compare the Galaxy S line and the Galaxy Note line to the iPhone, when they don’t directly compete, as they are already separated by a “non-negotiable” feature (the size of the screen). The fact really is that, not just of course in profit, but also in market share, Apple is the uncontended winner in the 3.5 inch and 4 inch phone category (similar to how they are currently the uncontended winner in the 10 inch tablet market). That means Apple has a growth opportunity by attacking the 4.5+ inch market.
Now, for comparison Apple’s strategy with the iPod (which now has 70% of the market) was to start from the high end and then extend its business to lower price points (Mini, Nano, Shuffle) and different high end form factors (iPod Touch)
Now there is a new example of this strategy, the iPad Mini.
The problem is that, except for Apple, no one discloses any useful numbers in the tablet business. However some high end estimates can be made. Lets start with the Nexus 7. Google kept giving vague numbers in the first couple months how many they might have sold (500 000, 600 000, 1 000 000…) and it appears that they have sold a maximum of 4.8 million (http://ben-evans.com/benedictevans/2013/2/19/nexus-7-maths). The Kindle is likely outselling it and some estimates I’ve read are around 11 million (some of those are of course 8.9 inch devices). Samsung apparently “doubled” its sales of tablets to 7.8 million in the last quarter (of its whole line, whether that includes all Notes or just 10 inch Notes I don’t know) but it is like they won’t have sold much more than 15-20 million altogether since they started selling tablets.
It appears that Apple became, in just one quarter, not just the biggest seller per quarter, but also the biggest seller overall (or close to) of tablets in the 7 inch category. Beating out Google (who has been in the market for 6 months), Amazon (14) and Samsung (28) despite being severely supply constrained throughout the period and the competing devices being sold at miniscule margins or even at cost. And more than that, it seems very possible that within a year they could be the absolute majority seller of 7 inch category tablets.
Taking this information from other categories I would say that it is not Apple that has to make a phablet or a budget phone or a watch or a TV, but instead it is its potential competitors that have to hope and fear that Apple doesn’t, as it would likely eat their profit (if they have any)…and then their market share.
Not “Samsung is successful in that category and now Apple HAS to react”, but
“Apple can react, and if they do, you probably don’t want to be their competitor”
If you’d like to tell me how wrong or right you think I am, why not drop me a line on twitter @mhoffbauer