Why the Obsession With Market Share?

Why the Obsession With Market Share?

It’s been a busy summer. Since my last GearHead column in June, Steve “Surprises Every 90 Days” Jobs has shown us the iBook, Mac OS 9, and the new Power Mac G4s. They all look pretty cool — but of course, as I write this, no mere mortals actually have any of them in their hands, so we’ll have to take Steve’s word that they actually are cool, for now.

We’ve also seen shares in Apple Computer Inc. surpass their previous record-high price, set way back in 1991 — finally clanging shut the door on the rampant speculation of the past two or three years that Apple was, as a company, not long for this world.

Good. We can put that behind us. Apple Computer and the Macintosh are healthy, and that’s no doubt good for the whole computer industry, whether running Windows, Linux, BeOS, Palm OS, or anything else. You can have any color Mac you like, as long as it’s not beige, and as long as you don’t want to connect ADB devices or more than three PCI cards to it. Wonderful.

Pentium-crushing numbers

But something’s still bugging me. People — journalists, industry analysts, webmasters, Mac users, and iCEOs alike — continue to be obsessed by Apple’s market share, and I just don’t get it. Recent articles have touted Apple’s rebound from 5% (or, according to some, less than 2%!) share of the PC market to as high as 13%. Woo woo.

A big part of growth in this share, as Jobs revealed at Seybold in August, is that the company sold some two million iMacs in one year. That got me thinking, “Let’s look at those numbers.”

First of all, in most cases they’re talking about Apple’s current (often month-by-month) share of new computers sold through certain channels, usually a portion of retail and mail order/Web sales. They say nothing about the percentage of Macs (or Apple IIs) in use out there at any given time.

Did we forget the old days?

But more importantly, the figures have no historical context. Apple sold two million iMacs in 1998-99 — about 165,000 iMacs per month — and hundreds of thousands more Power Mac G3s and PowerBooks, representing something like one-eighth (or less) of the overall number of PCs sold during that time.

Think back, though, to when Apple was the dominant player in the PC industry, between 1977 and 1981, before the introduction of the IBM PC. At the time, no one could touch them — not Commodore, not Radio Shack, no one. I’d guess the Apple II’s market share at something like 60%, perhaps more, for much of the period.

Yet back then it still took Apple, on average, about two and a half years to sell two million Apple IIs — about 70,000 machines per month, or less than half the monthly number of iMacs (not to mention G3s and PowerBooks) selling now. It took nine years (1984-1993) for Apple to sell 10 million pre-PowerPC Macintoshes — an average of less than 100,000 per month, or about 1.1 million per year.

Share is not health

What’s the lesson? Obviously, the computer industry has grown a lot, and on balance it has grown much faster than Apple’s share has. At the turn of the 1980s, Apple Computer was an unstoppable, fast-growing, market-dominating — and eminently profitable — company, all while selling less than a million computers per year.

So is there any reason at all that a company that was profitable selling a million products a year could not, if properly managed, be profitable and healthy selling two or three million?

Of course not.

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.

On the other hand, IBM, which took Apple’s mantle as the market leader in the 1980s, and which remains in the top five of PC manufacturers, lost $1 billion selling personal computers in 1998, while making $6.3 billion in other areas, from mainframes to services. Even Compaq, which has held the number one spot as long as anyone can remember this decade, is now being called “beleaguered.” So being big — having a large market share — doesn’t guarantee profitability in PC sales either, especially with Wintel PC prices apparently sliding from $500 to free this year.

So what matters?

Since 1997, when its share price bottomed out near $15, Apple’s focus has been on building unusual computers, refining its easy-to-use operating system, and marketing its butt off to sell both at reasonable but not ridiculously low prices. Those three things have improved the company’s market share, returned it to profitability, and brought users, the press, and software developers back to the Mac.

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.

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Derek K. Miller
dkmiller@mymac.com