Apple vs. Google: It’s Market-Share Warfare, and Cheaper May Be Better

Total smartphone users are growing much faster than Apple’s sales rate — 45 percent year over year for the market in the third quarter, compared to 23 percent year over year for Apple.

If Apple wants to close the gap between its sales and the rapidly expanding smartphone market, which is expected to grow tremendously in emerging economies in the coming years, it will have to develop a low-cost iPhone.

Assisting the argument are reports that where Apple is seeing the most growth is in sales of its newest models. That is, it’s growing faster into the premium market, and fewer people are adopting the older models, which could otherwise be substitutes for a new but low-price model. (There’s something unattractive about buying an old smartphone.)

The report from Morgan Stanley and AlphaWise found that the number of people who intended to buy an older-generation iPhone dropped by 4 percentage points between December 2011 and December 2012, while the number of people who intended to buy the newest model increased 4 percentage points.

This is not to say that, by any means, Apple’s position in the market is substantially threatened if it does not offer a low-cost alternative. The iPhone’s recent successful launch in China provides good evidence that the brand will be received well by the growing middle class that emerges with developing economies. But there is some truth to the argument that the overall smartphone market is growing faster than Apple’s sales, and if it wants to close the gap, a cheaper model could go a long way.

Investing Insights: Apple Chart of the Day: The iPad Mini Leads the Way.