Profit Share, Not Market Share

The big news this week was a report from Strategy Analytics on the worldwide smartphone market. In the report, analyst Alexander Spektor estimates that Apple generated $1.6 billion dollars in operating profit from iPhone sales in the third quarter. over the same time period, Nokia made $1.1 billion. There are two comparisons that make those numbers incredible.


While neither company started off making cellphones, Nokia has a 24 year head start on Apple in the market. Both companies certainly have a command for technology which puts them on equal foot, but we have to be amazed by the speed at which Apple has managed to create all the other parts needed to be successful in the market. Just consider the variety of ways they were able to leverage distribution through the Apple Stores, and all of outreach of the AT&T partnership to sell 30 million units since the 2007 introduction.

The second piece is even more amazing. Nokia is the market leader with 35% global share. Apple is able to generate $500 million more in operating profit with 2.5% market share. Two point five percent.

Bain & Company have been huge proponents of looking for profit pools rather than chasing market share. In The Breakthrough Imperative, partners Mark Gottfredson and Steve Schaubert list four drivers that have implication for profit pools:

  1. Everyday changes in customer preference and behavior (move from soft drinks to water)
  2. Innovations, both from within your industry and outside it, that drive longer-term customer shifts (shift from indie bookstore’s 20K titles to big box bookstore 200K titles to Amazon’s 3M titles offer more choice for customers)
  3. Changes in the bargaining power of customers and suppliers (Microsoft and Intel in capture most profits in PC value chain)
  4. Changes in the business environment (move by competitors to offshore manufacturing)

Apple clearly innovated to produce a device that was a quantum leap better than the competition creating a new profit pool for them. This also ties back to Nicholas Carr’s idea of top-down disruptive innovation, but here we have some numbers to show how powerful that can be.

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