When Apple introduced the iPhone, Steve Jobs was hoping for 1% market share. And while the audience coo’ed about the original iPhone, it wasn’t nearly as smart as it evolved to be with the app store which came a year later. Apple invented the smart phone/computer in your pocket- and is once again about to lose it’s first mover advantage.

Go back to 1984 to learn a lesson Apple. When the Mac was introduced and there was “the computer for the rest of us” there was nothing else in the category (except maybe the Amiga). The enemy was Microsoft- a company that didn’t even make a computer. Apple has seen its fortunes rise and fall with the all important market share- and the battle has taken it close to the edge of non-existence. Now, sitting on $54 billion in cash, once again- Apple is taking a huge gamble- fighting the Android operating system from Google- a company that tried to make a phone and failed (the Nexus 1).

As of this week- Android operating system, which is FREE, took third position in smart phone operating system market share. That’s third with a bullet- in a little over a year, it’s passed the iOS which has been out for 4 years.

Android is now larger than the iPhone on the world stage, analysts at Gartner said today. Google’s phone platform jumped to 10.6 million phones sold, or enough to overtake the iPhone and take 17.2 percent of the market. The researchers believe Apple sold more iPhones than it shipped, at 8.47 million, but the higher number was still enough to put it at fourth place with 14.2 percent.

via Gartner: Android has overtaken iPhone worldwide | Electronista.

The Google Apps store is quickly catching up with Apple’s in number of titles as well- and this is where the real money is for software. This is where Apple has to learn that no matter how great their hardware- the money is in Software- especially when every single iOS units buys an average of 5 apps- which Apple makes money on.

The market share in the US would be much larger if Apple ended their “exclusivity” deal with AT&T early. In fact, right now, paying AT&T off to allow the iPhone to come to other carriers before the Christmas buying season would be a smart move. Offer AT&T the profits on every Verizon app store sale through Jan 1, 2012, offer a lump sum for every AT&T switcher between now and Jan 1, 2012, but don’t continue to not be available to so many who are making moves to Android because of lack of competition. Winning that market share is infinitely more expensive in the long run.

Apple also has to look at each iOS device now as a part of its iAd strategy- which will pay more for every user connected, the revenue from AT&T will pale in comparison very soon- unless iOS gets marginalized again by Android. Smart phones are the most important data gathering devices for martketers that we know of. Google is a master at this game- and will be increasingly harder to beat.

If Steve Jobs- or anyone at Apple has the smarts to look at their own history, they’ll know that market share by having more carriers is worth more in the long run than anything else. It’s bad enough we have 2 year contracts and early termination fees to battle- now, the enemy is giving away software- and if you think it’s not dangerous- go ask Marc Andreesen what happened to Netscape once Microsoft started giving away Internet Explorer.

When it comes to marketing efficiency and software sales- market share is everything. Letting your competition leapfrog you because of stubborn business models is insanely stupid. There is no rational reason not to end the exclusivity deal with AT&T early- even if it costs Apple in the short run.