Alarm Bells Should Be Ringing At Apple, It's Getting Absolutely Creamed By Android, Which Now Controls ~80% Of The Smartphone Market

Apple CEO Tim Cook seems like a pretty calm guy.

Therefore, we doubt he's in total freak-out, mega-meltdown mode over the latest news from IDC that Android now has 79.3% of the smartphone market, up from 69.1% a year ago. Apple, meanwhile, has just 13.3% of the smartphone market, down from 16.6% a year ago.

Cook can remain calm on the outside about these stats, but inside he should be quietly freaking out, because this is not good for Apple, or its core business of selling iPhones.

He can talk all he wants about trying to build the best smartphone, not sell the most smartphones, but the truth is that these aren't mutually exclusive goals. Apple could easily sell more iPhones if it adjusted its business model.

So far, Apple has been reluctant to change. The result is Android running away with the market. It's on a crash course to some day have over 90% of the entire mobile phone market.

For years, Android took market share, and Apple was just fine. Its profits grew, its revenues grew.

That era is over for Apple.

Its profits are shrinking. Its revenue was up a paltry 1% last quarter. Its midpoint guidance for revenue suggests revenue will be down on a year-over-year basis. (If it hits the high-side of its guidance, then it will be up 2.8%.)

Previously, Apple fanboys would snark at smartphone market share numbers. They don't matter, they would say, Apple has all the profits.

Apple certainly does have impressive profits, even if they are shrinking, but it doesn't have all the profits. In fact, it's not hard to envision Apple without the majority of the industry's profits in the near future.

Canaccord Genuity, which tracks the profit share of the smartphone market, says Apple had 53% of the smartphone market's profits last quarter. Samsung had 50%. The rest of the smartphone industry is losing money.

A year ago, Apple had 71% of the industry's profits and Samsung only had 37%. The trend suggests Samsung will soon have more profit share than Apple.

When that happens, it will just be another smartphone industry metric tipped towards Android, away from the iPhone.

For the longest time, Apple had the most apps in its App Store. That's no longer true. Android has more apps, 1 million to Apple's 900,000.

Google Play, which is Android's app store is beating Apple's App Store in download volume.

Apple, arguably, has higher-quality apps because developers still focus on iOS first. The reason they focus on the App Store is that it generates more revenue than Google's Android store, and users are more engaged.

However, there's no reason to believe this will continue.

As we've noted, every favorable metric for Apple in the smartphone market has gotten weaker in the last year. There's reason to believe Android apps will generate more revenue by next year.

It's impossible to look at the landscape today and believe that developers will still be iPhone-focused in five years unless Apple does something drastic to change its competitive position.

Apple's iPhone business, as originally constructed, no longer works. The high-end is saturated. Apple needs to introduce a low-cost iPhone, and get distribution on more carriers.

Apple is reportedly going to introduce the iPhone 5C, a lower-cost iPhone this fall. Depending on how it prices the 5C, it could be the first step in reversing the marketshare trend.

In the U.S., where Apple is on equal footing for pricing and carrier distribution, it appears to beat Android ever so slightly, according to carrier data. If Apple could do the same globally, it would have a better chance at reigniting iPhone sales, and taking smartphone market share.

There are risks with getting on more carriers and lowering the price of the iPhone. Apple's profits will take a hit. And its revenue could fall.

These are risks it will have to take unless it just doesn't care about being the smartphone industry's leader. If it's okay with Android running away with the market, then it can just continue doing what it's doing.

However, we don't think Apple is cool with Android running away with the market, thus relegating Apple to a niche player in the mobile phone market.

In 1985, when Steve Jobs was introducing the Mac, he said, "If, for some reason, we make some giant mistakes and IBM wins, my personal feeling is that we are going to enter sort of a computer Dark Ages for about 20 years. Once IBM gains control of a market sector, they almost always stop innovation. They prevent innovation from happening."

Google is not the sort of company that stops innovation. So, that's less of a concern. But, you can bet that a lot of people at Apple would see an Android dominated mobile market as a dark age.

Android, for all its popularity, remains a messy, fragmented, less-than-ideal experience for a normal consumer. And, Jobs believed that Android was a stolen product that needed to be destroyed. However, Apple has failed to destroy Android. Instead, it's gotten stronger while Apple has gotten weaker.

If the idea of a new dark age where Android crushes the iPhone doesn't have Tim Cook freaking out, then we don't know what does.