Apple will not dominate cell phones

But while Apple caused a revolution, it is unlikely to become dominant in the market. It has sold just over 20m iPhones since the first device appeared in 2007; in that time more than 1.5bn phones have been shipped by everyone else. A similar thing happened with the personal computer market. The concept was championed by Apple when it launched Apple II, the world’s first personal computer, in 1977, and the first Macintosh in 1984, but other players now lead the market.

From Sound familiar? Apple launches a revolution - and then gets overtaken

Apple sure is fun to write about, isn’t it?

From what I can see, Apple likes to make neat products that they would personally enjoy using and that can be sold for a reasonable profit. The Observer article chose to mention how Apple lost a tremendous amount of market share in personal computers within a few years of the Mac’s debut (let’s ignore the fact that that also occurred within a few years of Steve Jobs’ departure). The Observer did not choose to focus on portable music players, a market that Apple stepped into and still holds a dominant position in.

In the case of music players, Apple’s cheapest iPod is $50. I’ve seen MP3 players with comparable features for $20. Apple competes in music players not by driving prices down, but by driving features up. There is a low end that they will not touch. They same is true of Macintosh computers: Apple will compete only in price segments in which they can compete profitably. Though they ensure that their prices are not insane, they also don’t worry too much about competing on price. They compete instead on fit and finish and the software.

What does this tell us about Apple and phones? Unlike music players, the cell phone market is already quite established. As the Observer points out, Apple has had only about 1% market share. Apple doesn’t care. They may have only 1% market share, but they have a product that is generating billions a year for them. As the iPhone line expands and improves over time, Apple’s market share will likely expand as well. But, that’s not the goal: the goal is making profitable products that people want to use.

So, back to the Observer article: they say that Apple started a revolution but will be overtaken. While I am pretty sure that Apple will never have a dominant market share position in cell phones (say more than 30%), I don’t think it’s certain that they will be overtaken in the new segment that they have created: portable computing and communication devices. They have first mover advantage with the App Store and have already built a thriving ecosystem around the iPhone. Those 20 million phones sold, plus some number of iPod Touches, represent a platform for Apple to grow, rather than “just a phone”.

Apple’s ultimate success (or failure) with the iPhone should not be measured relative to cell phone market share, but relative to ultra portable computing devices in general.