25 April 2008

 

I still think profit beats market share

Way back last decade, in 1999, before this website was even a blog, I wrote an article for MyMac magazine called "Why the Obsession With Market Share?" that said, in part:

Market share alone is pretty meaningless. If Apple can manufacture, market, and sell each of its computers at a profit, then whether it has 2% of 15% of the market doesn't matter at all to whether the company is financially healthy.

[...]

Increased market share is a symptom of those results, not the result itself. Keep that in mind the next time a pundit spouts off about Apple's market share -- whether it's rising or dropping -- or when you're tempted to talk about it yourself.

What counts is selling computers and making money doing it, so that Apple Computer will still be around -- to give us Mac users something to buy, and make money doing it -- years down the road.

This week John Gruber makes a similar point. Replace my old mentions of IBM, Compaq, Power Mac G3s, and iBooks with Dell, Motorola, iPods, iPhones, and MacBooks, and you can say plus ça change, plus c'est la même chose.

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# 9:38 AM

Comments:

The fixation on market share is overblown, but it is not irrelevant, as it is a weak proxy for the likelihood of further growth.

You don't want to have a growing share of a shrinking market (eg the final buggy whip manufacturer had a 100% market share, as Danny Devito said in "Other People's Money" before going bust).

You also don't want to have a shrinking share of a growing market. The analogy there would probably be WordPerfect; it dwindled away to almost nothing despite it being the initial leader of a hugely growing market.
# posted by OpenID John : 25 April, 2008 14:22
 
John Gruber also made a point to me in email that you need to be of some significant size to remain an independent business. I agree.

People often compare Apple to luxury car makers. But the truth is that most luxury cars (with some exceptions, like BMW) are made by companies that are part of larger auto conglomerates. For Apple to avoid that, they have to remain a significant player, even if still a niche one.

In any case, I think there's little argument that while Apple still has a relatively small share of the overall computer and phone market (though a huge share of the MP3 player market), as well as also being (rather impressively) profitable, it's certainly now big enough that no one's worried it will fall apart or get taken over anymore.
# posted by Blogger Derek : 25 April, 2008 15:18
 
Yup. I suspect Mr. Jobs would say something to the effect of "we are not in the PC business" or "we are in a different area of the PC business." That is certainly the case with iTunes/iPods.

Most importantly, as you say, they are very profitable *and* very efficient. Their cash conversion cycle is -77 days -- they get paid 77 days before they have to incur an expense (!), which gives them incredible flexibility to launch new products. When you look at company like HP you see that Apple is in a different league entirely.
# posted by OpenID John : 28 April, 2008 10:34
 
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