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IPhone: 4% of market, 50% of profit

tech.fortune.cnn.com

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Re: IPhone: 4% of market, 50% of profit

#11

Post by mjfern »

Apple's profitability with its iPhone business is partly a function of its vertical integration and its industry power. Consider that Apple controls the key inputs for the iPhone (e.g., the A4 system on a chip and iOS), owns important distribution channels (e.g., the Apple Stores), and exercises substantial power over complements (e.g., AT&T and apps via the App Store). In short, Apple creates substantial customer value with the iPhone, and due to its vertical integration and industry power is able to appropriate much of the value that is created (in the form of profits).

A second key reason for its profitability is Apple's low cost structure. With economies of scale and scope (consider that many components are shared across the iPod, iPhone, iPad, etc), learning curve advantages, relationships with key suppliers (Samsung) and contractors (Foxconn), and so on, Apple is able to drive down the unit costs of the iPhone and thus drive up its margins.

Re: IPhone: 4% of market, 50% of profit

#12

Post by cletus »

ptomato wrote: post #7
sliverstorm wrote: post #6

All this tells me is what I already knew- Apple products are priced with a very large profit margin included. They are the only ones who've been able to get away with it. (I think it's safe to surmise that when one company is making 25x the profit as other manufacturers per device, it's not because they have figured out how to manufacture product more efficiently)

And yet, oddly, similar phones (see: android devices) are not priced significantly less.

Excellent point.

The power of Apple's supply chain cannot be underestimated. They are constantly looking at new materials, locking up global supply of key components and constantly reinventing their form factors.

The problem with Android is that it isn't a brand. It's an idea. Motorola Android phones work completely differently to HTC Android phones. Google has succeeded in what they wanted to achieve: to commoditize the phone OS. Manufacturers are playing along and their phones too are, basically, commodities. There is no "Android experience" like there is an "iPhone experience" so they're all simply competing on price.

The other problem with the Android manufacturers is they make the same two mistakes pretty much everyone but Apple makes: they ask customers what they want and they use "shotgun marketing".

Asking customers what they want (eg focus groups) is a terrible idea with an horrendous track record.

Shotgun marketing is basically throwing everything at the market and hoping something sticks. That's why there are so many models and they pack in as many features as they can (marketers like bullet point lists). Apple is the only one who seems to have a coherent and consistent user experience.

Re: IPhone: 4% of market, 50% of profit

#13

Post by [deleted] »

ptomato wrote: post #7
sliverstorm wrote: post #6

All this tells me is what I already knew- Apple products are priced with a very large profit margin included. They are the only ones who've been able to get away with it. (I think it's safe to surmise that when one company is making 25x the profit as other manufacturers per device, it's not because they have figured out how to manufacture product more efficiently)

And yet, oddly, similar phones (see: android devices) are not priced significantly less.

[deleted]

Re: IPhone: 4% of market, 50% of profit

#14

Post by ugh »

sliverstorm wrote: post #6

All this tells me is what I already knew- Apple products are priced with a very large profit margin included. They are the only ones who've been able to get away with it. (I think it's safe to surmise that when one company is making 25x the profit as other manufacturers per device, it's not because they have figured out how to manufacture product more efficiently)

Some of the difference – not sure how much exactly – can certainly be explained with the fact that Apple is only selling smart phones. That’s why RIM (4% vs 14%) and and HTC (2% vs 5%) also have less market share than profit share.

Nokia sells massive amounts of cheap dumb phones and has correspondingly less profit than market share (15% vs 32%). (To make the same profit Apple makes with a $750 iPhone – assuming a 30 percent margin in both cases – Nokia has to sell ten $75 phones. If that were the only thing they are selling Nokia would need ten times the market share of Apple to have the same profit share.)

Re: IPhone: 4% of market, 50% of profit

#17

Post by sbaqai »

mjfern wrote: post #11

Apple's profitability with its iPhone business is partly a function of its vertical integration and its industry power. Consider that Apple controls the key inputs for the iPhone (e.g., the A4 system on a chip and iOS), owns important distribution channels (e.g., the Apple Stores), and exercises substantial power over complements (e.g., AT&T and apps via the App Store). In short, Apple creates substantial customer va…

I think this is a great example of Apple's "design strategy" being completely end-to-end.

They don't just focus on the tiniest details of industrial design; the aluminum chassis, the battery layout, the screws, friction coefficients on the trackpad, etc.. they have also designed their entire supply chain with the same attention to detail.

There was a post on HN a while ago about Apple's patent on a new headphone jack design - they redesigned what is pretty much a commoditized component (and never seen by the customer), to unlock more value in the form of greater maneuverability and internal space. I imagine the supply chain is also very commoditized, and Apple is the kind of company to take that process apart and refine it in the same way, to unlock value in the form of greater margins.

EDIT: Another area where their attention to detail is apparent is their manufacturing tolerances. They've pretty much perfected the art of physically manufacturing precision components. I've not been able to find another product, luxury or otherwise, that comes close to the fit and finish of Apple's devices - and thats including things like rolexes, ferraris, etc.

Re: IPhone: 4% of market, 50% of profit

#18

Post by [deleted] »

ptomato wrote: post #7
sliverstorm wrote: post #6

All this tells me is what I already knew- Apple products are priced with a very large profit margin included. They are the only ones who've been able to get away with it. (I think it's safe to surmise that when one company is making 25x the profit as other manufacturers per device, it's not because they have figured out how to manufacture product more efficiently)

And yet, oddly, similar phones (see: android devices) are not priced significantly less.

[deleted]

Re: IPhone: 4% of market, 50% of profit

#20

Post by forensic »

cletus wrote: post #12
ptomato wrote: post #7

Earlier quoted context omitted.

And yet, oddly, similar phones (see: android devices) are not priced significantly less.

Excellent point. The power of Apple's supply chain cannot be underestimated. They are constantly looking at new materials, locking up global supply of key components and constantly reinventing their form factors. The problem with Android is that it isn't a brand. It's an idea. Motorola Android phones work completely differently to HTC Android phones. Google has succeeded in what they wanted to achieve: to commoditize…

And the disgusting beauty of this is that the more bad companies use shotgun marketing, the more consumers are trained to only trust Apple.

Why do people buy Apple?

For many, they don't trust ANY other technology brand to provide a coherent experience. Every other tech brand from LG to HP to MS engages in shotgun marketing and thereby traumatizes customers and destroys their own market.

The reason "free" became so popular in software is because so much bad software was made where users felt buyer's remorse so they just stopped buying. Free became the only way to get your product in people's hands.

Apple has managed to avoid this with their quality control and lack of focus groups. This gives them credibility in a landscape where NO ONE ELSE is credible.

And that is worth lots of money.

Why only buy Apple? Because only Apple can be trusted not to sell you an aggravating hassle. People will pay twice as much for half the hardware specs just to get the Apple promise.

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