In the first of a two part column, Oren Tversky, Unity's vice president of business development discusses Apple's hardware strategies in terms of a luxury market and a mass market.Lost in the machinations of the Nokia-Microsoft alliance is a related story about Apple and Android, and market share and profits.

It's just as important. As the Android robot marches forward it is leaving a trail of dying platforms in its wake. With more than 300,000 activations a day, Android’s market share threatens to overwhelm not just the newly minted Finno-American axis, but perhaps Apple as well.

The question is, just how much does market share in the mobile phone industry matter?

Big pie, big slice

From January through June of 2010, Apple produced a remarkable financial windfall. With a global market share of about 3 percent of the mobile phone market by unit volume, the Cupertino-based company managed to extract 39 percent of the market’s total profits. That is an astounding statistic - an insanely efficient bang for the buck.

Even more astounding: Apple accomplished this feat with just two phone models.

So, with those numbers, should Apple care that its market share in mobile phones is only at 3-4 percent? After all, this approach works very for its personal computer business, with its MacBook line extracting hefty margins with only an 8 percent share.

Notably though, it has taken a markedly different tack in the portable music player market, pursuing market share over pure profits - about 70 percent share with plenty of lower end models sold at lower margins.

Why has the firm pursued two such vastly different strategies? And, why does this matter for the mobile phone market? Let’s take a look.

Give me luxuryApple’s high-end approach is not unique. In traditional consumer goods markets, many manufacturers don't fret over market share.There are plenty of high end clothiers, luxury car manufacturers and appliance makers who are perfectly content to sell to an exclusive, high-end clientele at hefty margins. Think Rolls Royce, think Gucci, or think Viking stoves.

These companies have no interest in compromising their margins, tarnishing their brands or forgoing their cushy lifestyle to accommodate the masses.

Of course, economies of scale and shareholder pressure often nudge these companies into lower end markets. Think Mercedes and its C class line of cars. Still, plenty of companies are perfectly content, and make a very fine living, selling pricey stuff to rich people.

There are several reasons for this. First, the margins in most high end markets are large, without having to build a brand and marketing campaigns that appeal to the masses. And, in general, fewer products or product lines are necessary to address a smaller, less diverse clientele.

Brand can act as a huge barrier to entry and going down-market can hurt one’s brand and, compromise the fat margins at the high end. Finally, limiting the number of models or SKUs (stock keeping units) has huge advantages in terms of R&D costs, manufacturing efficiencies and marketing campaigns.

Locked in advantage

In high tech markets though, the situation is often different. Many technology markets exhibit winner-takes-all characteristics, in which one or two companies build such an advantage that it becomes too challenging for competitors to enter.

Think Microsoft Windows, think Google search, or think Intuit’s Turbo Tax. The reasons for this vary, but usually involve network effects (think Facebook), high switching costs (due to consumer familiarity or data lock in), complex value chains (with developers and OEM’s), and the massive R&D effort required to build products.

Once Windows became the dominant standard for PCs, then developer mindshare, software compatibility of applications, consumer familiarity with the user interface, massive R&D spend, and enterprise demand made it very difficult to dethrone Redmond.

(With the advent of web-based applications and new form factor devices, this is breaking down somewhat.)

Taking a biteWhy has Apple taken radically different approaches to the concept of market share?

First, let’s look at its personal computer line- the MacBook. With approximately 8 percent market share. Apple, like Gucci and BMW, is very happy to extract juicy profits of the top end of the market. Many of its MacBook models retail for over £1,500, at a time when £200 laptops are common.

Unseating Windows was never going to be a simple proposition. On the other hand, catering to a finicky, exclusive clientele at the high end of the personal computer market, could still be a lucrative business, especially since Apple controls its own destiny through ownership of the operating system.

Contrast this with the portable MP3 player market- the iPod line. Apple’s unit share of the portable music player market is about 70 percent - and it is no accident.

iTunes' Trojan Horse

There were several reasons for Apple’s approach to this market, some of which apply in the case of the iPhone. First and most importantly, as a largely closed platform and system, Apple realised that it could create high switching costs through iTunes.

In many ways, iTunes, and not the iPod is the product. The iPod was just the blade given away to sell the iTunes razor. The music collections people have built up act as a sizeable barrier to entry for everybody from music streaming service to device makers and create large switching costs.

Further, through the creation of a compelling end to end user experience, and requiring iTunes, Apple could justify chasing the lower end segments of the market, because it knew that it could recoup some of the lost money through sales of music (and eventually create iTunes customers for iPhone and iPad).

Similarly, Apple also knew that it could recoup additional revenues through sales of its iPod related accessories, which carry high margins.

MP3 players are also used in a variety of fashions, from long airplane trips, to the gym. Different products are required to address the market as a whole, and some of these, the Nano for example, are unlikely to ever command high price points. The point is, the MP3 player market was not a market in which Apple could capture 40 percent of the profits with 3 percent of the market share, nor would that share have enabled it to turn iTunes into a commanding corporate asset to be wielded across the whole of its product portfolio.

Tomorrow, I’m going investigate whether the smartphone market is a winner-take-all market, like the MP3 player market, or a luxury high-end goods market, like the personal computer market.

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With a 20-year background in both the mobile and gaming industries, Oren Tversky is Unity's vice president of business development.

As head of business development at Symbian, he launched Symbian's Korean business. Prior to receiving his MBA from UC Berkeley, he worked in the video games industry for The 3DO Company. He has also worked in senior management roles for a number of technology start-ups.You can see what Unity's up to via its website.