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Apple's Problem With Gravity

NEW YORK ( TheStreet) -- Perhaps the most famous apple of all time is the one that inspired Sir Isaac Newton's theory of gravity. The second most-famous Apple (AAPL - Get Report) is also succumbing to the laws of nature.

IDC's most recent survey on the smartphone market showed that Apple's iOS operating system continued to lose market to Google's (GOOG - Get Report) Android operating system, accounting for just 13.2% of the market. Android-based smartphones made up up 79.3% of the market.

Microsoft's (MSFT) Windows Phone and BlackBerry's (BBRY) BlackBerry 10 were third and fourth, with 3.7% and 2.9% of the market, respectively.

Rounding out the top five are Linux, an open source operating system, and Symbian, which is used by Nokia (NOK).

These numbers come as Apple announced it sold 31.2 million iPhones during its fiscal third quarter, surpassing Wall Street expectations. Despite beating shipment estimates, Apple continued to lose market share to the ever powerful Android. This, of course, is nothing new, as Android is available on a host of smartphones, and iOS is available on just Apple. With 236.4 million smartphones shipped during the second quarter, up 51.3% year over year, this number is only likely to decrease in the future.

A new iPhone, however, will temporarily stem the decline in iOS market share. Apple is expected to announce a new smartphone, dubbed the iPhone 5S, later this year. The Cupertino, Calif.-based firm also unveiled a new look iOS at its Worldwide Developer Conference in June, touting iOS 7 to legions of developers, media, and analysts. "The iOS decline in the second quarter aligns with the cyclicality of iPhone," Ramon Llamas, Research Manager with IDC's Mobile Phone team said in the press release. "But with a new iPhone and revamped iOS coming out later this year, Apple is well-positioned to re-capture market share."

As the smartphone market continues to grow, Apple will need to be more innovative if it wants to stem market share losses. Some have suggested Apple release a low-end iPhone, dubbed the iPhone 5C, to avoid more market share lost.

Ultimately, unless Apple decides to open up iOS to other hardware companies like Google has done with Android, it will continue to lose market share. More and more companies are adopting Android, but Windows Phone, not iOS, may be the beneficiary. "Nokia has clearly been the driving force behind the Windows Phone platform, and we expect that to continue," said Ryan Reith, Program Manager with IDC's Mobility Tracker Programs. "However, as more and more vendors enter the smartphone market using the Android platform, we expect Windows Phone to become a more attractive differentiator in this very competitive market segment."

Though Wall Street, the media and others tend to focus on market share, Apple focuses more on making what it calls the "best" product.

Speaking during Apple's recent fiscal third-quarter earnings call, CEO Tim Cook pointed to a recently published study by Kantar which highlighted a 93% loyalty rate among iPhone customers.

Cook also pointed out that usage statistics on iOS are far greater than they are on other OSes. "And so market shares are important and unit volumes are important, but these other things for us are extremely important, because we are all about customer experience and enriching lives," he said.

Under Cook, it sounds like Apple will continue to focus on making the best products, not making the most. That may upset some shareholders in the short and medium term. However, as long as more consumers continue to clamor for the bitten Apple on the back of their devices, and Apple continues to innovate, investors' focus on the worm will abate, and the laws of gravity may not apply to all.

-- Written by Chris Ciaccia in New York

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