Apple's very happy holiday season - CNET

Tim Cook at the Apple Store in Palo Alto, Calif. as the iPhone 5S and 5C become available to customers.

(Credit: James Martin/CNET)

As 2013 draws to a close, Tim Cook has to be smiling.

Earlier this year it seemed that Apple would take a fall. Samsung and rest of the Android players were gaining momentum and share as Apple was slow to update its product portfolio and was seeing its profit margins decline. The stock went from from above $700 in September 2012 to below $400 in July 2013. Following the fall introduction of new products and good sales numbers for the holiday shopping season, however, the stock has climbed back above $560.

Perhaps Cook has been smiling all year, knowing that the company's new iPhones, iPads, and iOS 7 would be met with mostly positive reviews and satisfy the pent up demand for something even incrementally new from Apple. He knows how to exploit the particular strengths of Apple's brand. While Steve Jobs is gone, the Apple way of creating an aura around its computing devices is still working.

For the important holiday shopping season, Apple's iOS products flew off the shelves. According to Localytics' data, the iPad Air, iPad Mini, and iPhone 5C led the pack in sales over the Thanksgiving weekend, compared to the previous weekend.

iPad Air grew 51 percent over the Thanksgiving weekend, compared to the previous weekend.

(Credit: Localytics)

In addition, data from holiday sales support Cook's claims that iOS devices account for a majority of mobile Internet usage, despite its smaller share of market compared to Android. He predicted this shopping season would be an "iPad Christmas," and it's turning out that way and more.

Even the Macintosh is having a nice holiday. Apple topped the list of intended brands for desktop purchases for the first time this year, according to an annual research survey from Parks Associates.

Mobile (including tablet) worldwide operating system share trends. Android is gaining ground but Apple maintains its nearly 60 percent share of usage despite fewer sales.

(Credit: Netmarketshare)

According to IBM's Holiday Benchmark, Apple's iOS accounted for 28.2 percent of all online shopping traffic, compared to just 11.4 percent for Android. For all online sales for the period, iOS had 18.1 percent of all online sales and Android 3.5 percent. iOS users spent $127.92 per order on average on Black Friday compared to $105.20 per order for Android.

Adobe's Digital Benchmark showed that Apple's iPad and iPhone generated 76 percent of online sales for Thanksgiving and Black Friday, which was 5 times more than Android smartphones. If Android tablets were responsible for generating the rest of online sales on those days, Apple would still outpace Android by 3 to 1, the report noted.

Given Android's rising market share compared to Apple's iOS devices, those are remarkable statistics. In the third quarter, Android garnered an 81 percent share of smartphone shipments, compared to 12.9 percent for Apple, according to IDC. This was before the iPhone 5S and 5C sales ramped up, but the other part of the story is that Apple is also reaping far more profit per smartphone than its Android competitors.

It also looks like Apple finally has a stronger foothold in China, which Cook expects to become Apple's largest market (it's currently third, behind the US and Europe). A reported deal with China Mobile will give Apple access to more than 750 million additional subscribers in the country later this month, although only 170 million have high-speed, 3G access. Apple already sells its products through China Unicom and China Telecom, which have about 450 million subscribers, including about 200 million high-speed users. Analysts predict that Apple could sell between 17 to 20 million iPhones via China Mobile in 2014.

Adding China Mobile isn't going to stop Google and its Android platform from dominating in terms of market share, but Apple doesn't want to participate in a price war. Apple thinks of business more like a luxury car brand. "Apple's market share is bigger than BMW's or Mercedes's or Porsche's in the automotive market. What's wrong with being BMW or Mercedes?," Steve Jobs said in 2004.

But what has given Apple the opportunity to become the BMW or Mercedes of computing is a cycle that begins with reinventing and dominating a product category, as it did with music players, smartphones, and tablets. Apple owns the category for a period and then establishes a sizable minority share as competitors enter the space with more varied product lines and pricing. Like BMW and Mercedes, Apple's brand banks on commanding a premium price and industry leading profit margins. The Macintosh desktops and laptops, for example, have only a 10 percent market share but the $21 billion business generated 45 percent of PC category profits in the fourth quarter of 2012..

The question now, as the iPhone and iPad settle into their lucrative but shrinking domains, is whether Apple's can come up with another breakthrough product that restarts the virtuous cycle. In the meantime, Cook and Apple are having a very merry holiday season.

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