How IDC and other numbers companies screw Apple and Dell

Posted by Rob Enderle

Numbers companies count products and equate market leadership to market share in terms of numbers of products sold. But this is a revenue model and revenue isn’t really the best measure of success in business. Rather, the optimal measure of success is typically profit, or how much cash the company has left after expenses.  

You can bracket, for instance Toyota, clearly a dominant supplier of cars, which sells volume under its own brand and high margin under the Lexus brand. Now, both brands are generally considered to be segment leaders, although I’m really starting to wonder if numbers are a good measure of leadership. So let’s talk about numbers companies this week.


Volume vs. Profit for Leadership

If you look at IDC’s ranking of vendors on volume, the firm lists Lenovo first, HP second, and Dell third. Apple doesn’t even make the top 5 in the world, although it does make 3rd in the US). However, if you were to rank the profitability of each company’s PC effort Apple would clinch first, Dell second, followed by Lenovo and HP. Now the fact we are discussing whether Lenovo or Apple should be in the lead is a testament to how far Lenovo has come. However, which company - Lenovo or Apple - is closer to leading the market? Yes, you could argue they are peers but I really doubt you could claim this with a straight face because Apple isn’t exactly struggling for a leadership position. Remember, Ultrabooks as a class were actually created by the MacBook Air.   

At least with PCs you get one per person (for the most part), but let’s look at servers. If you were to count each server individually you’d have one Mainframe, which can effectively serve up to millions of web users - counted the same as one ARM based pogo plug which can provide much more limited service to one user. This is why servers are segmented so that this doesn’t happen. 

Perhaps PCs should be segmented by class with premium, midline and value products counted separately. In this last instance Apple and Dell would dominate the premium space, Asian venders would likely dominate the value space, and I’m not actually sure what you’d get in the middle.   

But Do Numbers Make Sense?

In a world increasingly dominated by devices like smartphones and tablets at one end and Cloud services at the other does any of this actually still make sense? We have vendors like Amazon, Mainframe2, and even Microsoft supplying much of the services typically connected to PCs (from game playing to Office) from the cloud and your PC will increasingly be virtual.  

If these numbers are supposed to reflect market success then profit is certainly closer but perhaps the better metric would be blend of three factors: how many customers the vendor has, the amount of average profit per customer and a measure of customer loyalty.This would tell you the vendor’s reach, how well (financially) they are executing, and whether they can maintain this execution.

For example, if a vendor had a high customer number, high profit per customer and low loyalty they would be likely be at high risk of a decline and not a market leader. Meanwhile, a vendor with a low customer count, high revenue per customer and high loyalty (like Apple enjoys for instance) would likely be seen as superior. Granted, you’d want to do trend analysis which, in Apple’s case, would showcase both declining profit per customer and dropping loyalty. One could conclude that Cupertino's leadership would likely decline, although both Apple and its competitors would be better focused on success and less focused on a near meaningless set of market share statistics. 

Wrapping Up:  How Would You Measure Leadership?

Market share numbers, particularly those that lack granularity, focus the market on price which largely explains why PCs really sucked in the 1990s. Apple changed focus  and even though PC market share numbers didn’t reflect Apple’s leadership, their designs became the template that other vendors followed.

Profitability will do that because, at the end of the day, it’s how much cash you end up with and who follows your lead which defines market leadership. I’m not suggesting I have the final answer, only noting that any metric which made Apple seem unimportant doesn’t reflect the real world. We could argue whether Apple should be number one but not having them in the top three would have me seriously question any related report. How do you think market leadership should be calculated? For me, with respect to PCs, numbers shipped just isn’t a good measure of success anymore. 

And one last comment: "Shipped" is a really misleading number to begin, as companies like Acer have stuffed the channel (basically shipped far more products than end users buy) to make it appear they had more market share than they did. They gamed the system and any measurement that can be that easily gamed is by nature unreliable. But really, I’d like to know how you’d measure market leadership, what matters to you?