The Perils of Market Share

Steve Wildstrom / May 24th, 2013

If you’re on this site, you probably know we have had a lively debate going on for the past couple of days about the meaning and value of market share in the smartphone market. I thought it might be valuable to fire up the time machine and go back to look at some past winners in PC market share.

Let’s take a look at 1996, the first full year of Windows 95 availability and pretty much the peak of Windows PC dominance. The worldwide market share leader, according to Gartner data dredged up by Wikipedia, was Compaq, at 10%. In fact, Compaq led every year between 1996 and 200 with its share peaking just short of 14% in 1998. IBM held second place at 8.6%. Packard Bell NEC was third at 6%. Apple was a close fourth at 5.9%. And HOP rounded out the top five.

What has happened to each of these players? Compaq was acquired by HP in 2002 in a deal from which the company has never quite recovered. (HP has been entrenched at No. 1 for the past six mostly profitless years.) IBM sold its PC business to Lenovo which, after several years of struggle, today is the only big PC player whose sales volume is growing. Packard-Bell ended up as an entry-level brand for Acer in Europe while NEC is a small player in Asian markets. And Apple, which nearly died in 1997, now dominantes very profitable high-end computer sales, especially in the U.S., though it has never returned to the worldwide top five.  Dell, which dominated the business in the early 2000s, entered the top five in 1997 and Acer first made it in 2005.

Whatever hardware market share is good for, it doesn’t seem to translate into long-term dominance. Sic transit gloria mundi.

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • jfutral

    “And HOP rounded out the top five.”

    And all this time I thought they just made pancakes.

    Joe

  • FalKirk

    Wow, Steve, that was a fun trip down memory lane. (Fun, at least, for a geek like me 🙂

  • qka

    … Compaq led every year between 1996 and 200 …

    That decline undoubtedly caused by many sweeping world wide events of that year.

    • capnbob67

      PC sales during the Black Death also took a real dive. Still, they were all an improvement over those field sized computer of the Stonehenge era. They didn’t have bugs, they had cattle.

  • JohnDoey

    Compaq and HP merged and the resulting HP+Compaq only ended up with the same market share that HP had by itself, pre-merger. Compaq essentially disappeared without a trace.

    If you include the iPad in PC market share — and you should because iPad is a mobile PC and excluding it makes exactly as much sense as excluding notebook PC’s — then Apple did return to the top 5 in worldwide market share, and iPad represents almost 100% of PC market growth right now (the rest is the Mac.) Also, iPad is Apple’s first $500 PC, so iPad represents completely new growth for Apple, into a completely new market (low-end PC market.) No other PC maker has any growth, let alone completely new growth in an untapped market.

    But the thing, is, the 1990’s PC market is not a good analog for the 2007–forward phone market. A much better analog is music players from 2001–2007. In the first place, we’re comparing the same century. Secondly, music players have a lot of things in common with modern phones: ARM chips, flash storage, batteries, tiny displays, touch controls — and they are sold one at a time to consumers who carry them around in a pocket all day long and want the interaction design to be easy and friendly and reliable. It’s hard to imagine right now that Apple might one day have 75% of the phone market, but it was exactly as hard to imagine a 75% market share in music players for Apple in 2004 when they only had one high-end iPod model, same as they have only one high-end iPhone model today. If in 2004 you said that iPod had peaked you would look like an idiot today. So people have to be careful today about their predictions of the phone market, because Apple is not yet even active in the mid- and low-end phone markets. There are a lot of users who have a low-end Android phone that they only use for SMS and voice calls. Those users may be much happier with an iPhone nano that is basically today’s iPod nano with a cell rig and a phone and texts app, because it would be smaller, easier to use, have better music features, and the Apple brand, yet still be $149 unsubsidized — easy to buy free with contract or buy outright for $149 for 2 (or more) years of prepay use. Until we see a full range of phones from Apple get judged in the market, it’s very hard to say what things will look like in a few years.

    Also, when looking at market share it’s important to remember that there is not just one phone market or one PC market. There is a high-end PC market (around $1000 retail price point) and a low-end PC market (around $500 retail price point) and almost all PC buyers only shop in one or the other of those markets. People just don’t go shopping and compare a $1000 Mac to a $500 Dell and then pick one. They shop in one or the other. Apple has 90% of the high-end PC market — if you want market share, there it is. Apple also has 100% of the growth in the low-end PC market — in other words, iPad is growing, and all other low-end PC vendors are shrinking. And in phones, it is even more stratified, with high, medium, low, and ultra-low end as well as prepay and postpay. If you look only at the markets where Apple is competing — high-end only and almost exclusively postpay — then Apple has 90% or more of those markets. Again, there is your market share. So what is on the table now for Apple in phones is to fill out their lineup of phones to address more markets, same as they did with music players by adding iPod nano and shuffle, same as they did in PC’s by adding iPad and iPad mini. That is how Apple goes for market share. They haven’t even made that move in phones yet, except that iPod touch and iPod nano have been gradually turning into phones year after year. There has been no rush for Apple to expand their phone lineup because they have no competition in high-end phones and because they have almost all of the developer/producer/publisher support. They have had the luxury of very deliberately adding a camera to iPod touch one year, then a microphone, then FaceTime, then Lightning, and now they are only a 3G rig away from a mid-range smartphone.

    • steve_wildstrom

      Compaq had a much bigger share per-merger than HP. But your basic point is right–HP’s share post-merger was smaller than the combined share before.

  • capnbob67

    Was this researched at all? Market share and scale are not a good thing? I think Apple and Samsung and Microsoft and Intel et al would beg to differ?

    The PC market analogy is both a red herring and demonstrably false. It is and has been for well over a decade a commodity business with razor thin margins for most players. Apple has for years been the exception but let’s ignore them and their successful cherry picking strategy. Windows PCs has been tight and competitive even at the best of times and certainly since 2010 and the iPad, it has been devouring itself with lower prices for traditional products, more expensive (Apple clone) ultrabooks which consumers don’t really want and has seen profits dive and growth turn negative.

    HP and Dell have had their own specific travails between lack of leadership, overcommittment to the most depressed first world PC markets vs. the still growing Asian markets, etc. Market softness and individual issues have hurt these 2 once proud PC brands.

    BUT – let’s not rewrite history… Apart from Apple, these 2 made the lion’s share of PC maker profits before the tablet-ocalypse. Exclude Apple’s 35% from the 2009 stats and Dell/HP made >45% between them. The rest only made 20% of the industry profits.
    http://www.businessinsider.com/chart-of-the-day-revenue-vs-operating-profit-share-of-top-pc-vendors-2010-3
    Does that not suggest that there are some advantages to scale which those 2 sustained throughout the previous decade. They controlled 30% of the revenue but 45% of the profits so while they were no Apple (7/35%) they had highly successful businesses compared to everyone else.
    As others have said, a highly commoditized market for durable goods with a slow upgrade cycle is not a great proxy for a still fast growing, innovating, product category.

    Scale/share is typically good for the holder and can create virtuous circles. See Samsung grow, invest some of that growth in its enormous marketing/spiff budget and crush everyone else (hence growing scale further). They are leveraging this scale (2x the carriers of the iPhone) to increasingly grow its profit share to the point where it is now exceeding iPhone revenues and profit share is up to 35% for 2012 and >40% in Q1 2013. Scale is typically great (ask Apple or Samsung) until something else upsets the apple cart. Then it might be a millstone but that is your own fault for missing the thing that changes the game.

Protected by Gerben Law