Apple controls about 40 percent of the United States’ smartphone market and enjoys a 15 percent edge on its next closest competitor – Samsung. While the iPhone certainly is not ubiquitous, its position in the market can be enhanced through network externalities.
The iPhone’s popularity is mostly due to its inherent value. Being the fastest smartphone on the market, offering a long battery life, and better photo quality have already given Apple an advantage over other smartphone companies. This advantage is necessary in order for Apple to benefit from network externalities.
Applications unique to the iPhone like Face Time and group messaging are examples of direct network externalities. Defined as when “consumers value a product more, the greater the number of consumers that use the product,” (Martin 306) direct network externalities are only beneficial when a significant portion of the population is able to utilize the application. Without Apple’s high market share levels, idiosyncratic applications would detract from the iPhone’s value.
Apple has also made attempts to capitalize on indirect network externalities – or, when “consumers value a product that serves as a platform more, the greater the availability of complementary products designed for compatibility with the platform standard” (Martin 306). The iPhone’s robust nature makes it easy to integrate it with other complementary products. Cooperation with Nike has helped to make the iPhone a pedometer. Car stereo systems are also being created in order to facilitate the iPhone and other Apple products. While companies like Samsung and HTC offer comparable products to the iPhone, they are not in Apple’s position to benefit from network externalities.