Let me first start off by saying that Apple and Google are two different companies with different core businesses. Apple is in the hardware business and Google is in the software business. That is a bit of an over-generalization obviously, but I think you get the point. However, in order to gain market share Google has recently been combining its software and data capabilities into hardware, such as the Google Wallet service which will run on Google smartphones as well as other devices.
Apple has also been increasing its capabilities in the software business most notably with iTunes, which is helping to convert PC users over to Mac. They also create the OS, operating system, for the iPod, iPhone and iPad in addition to the software that is created specifically for Mac users.
There are many people asking, “Does Apple have a larger market share than Google?” or “Is the Google Android phone beating the Verizon iPhone?”. In order to answer that question we have to first look into what market share is.
What is Market Share?
Market share is a simple concept to understand. If there are 10 smartphones sold in a year and Google sold 4 with the Android operating system, Apple sold 4 with the iOS, and Research in Motion sold the last 2; we could assume that Google owns 40% of the market share, Apple owns 40% of the market share, and Research in Motion owns 20% of the market share.
How to Calculate Market Share
Market share is calculated just as in the example above by taking a specific company’s sales revenue and dividing it by the entire possible number of sales revenue. The companies must operate in the same industry, for obvious reasons. Typically a market research firm like NPD, would calculate these numbers.
How Does a Company Gain Market Share?
A company can gain market share in a variety of ways. Because part of the market share calculation is made up of sales, a company with a higher price point that generates as many sales as a company with a lower price point will have a higher market share. In order to gain market share, a company will need to increase unit sales by selling more, or raise prices.
What is the Market Share of Google’s Android Smartphone?
In May of 2010, the market research firm NPD found that Google’s Android operating system took second place in the US smartphone market. The most recent update posted by NPD in August 2011 shows Google Android operating devices to have about 52% of smartphone sales. See the change from the first quarter in this previous release.
What is the Market Share of Apple’s iPhone Smartphone?
Although Apple’s iPhone is a very popular phone and currently on available on the two major mobile service carriers, AT&T (T) and Verizon(VZ), it still lags in market share. Both carriers have to compete with each other in order to have the cheapest iPhone plan. According to the same market research conducted by NPD, the Apple iPhone currently boasts only 29% of the smartphone market.
How Can I Use Market Share to Invest?
This is ultimately what we want to know, right? How is this information going to put cold, hard cash in your pocket? The larger a firm’s market share, the better suited they are to generate more returns for the individual investor.
A quick way to get an idea of what firm has the largest market share in the industry, is to look at the firm’s market capitalization. For firm’s like Google and Apple, this will be a little difficult because the market cap takes into account all of the firm’s operations.
Remember that market capitalization is the number of shares outstanding multiplied by the share price. When compared to their peers, you can quickly see what firm has the largest market cap, or in other words, what firm has investors that are willing to pay more for a share of the company’s business.
To find market cap, head over to Morningstar.com and login to your free account. Type in the stock symbol and on the far right of the quote page you will see Market Cap. Currently Apple (AAPL) has a higher market cap than Google (GOOG), but I’m curious to see how this will change. Especially since Google is expanding into services such as Google Wallet and Google Plus.
What is your take on the two smartphone titans?
Disclosure: At the time of this writing, I do not own any GOOG, T, VZ, RIMM or AAPL. Keep up with portfolio updates from me by registering for email updates. See the full disclaimer here.