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Jean-Louis Gassée writes at Monday note that Apple’s most recent quarterly numbers broke a number of laws:
Law 1: Larger size makes growth increasingly difficult. The Law of Large Numbers predicts the eventual flattening of extraordinary growth. "And yet, last quarter, Apple revenue grew 30%, breaking the Law and any precedent," writes Gassée. "iPhone revenue, which grew 57%, exceeded $51B in one quarter — close to what Google achieved in its entire Fiscal 2014 year." Apple’s recent numbers show, the iPhone seems immune to modularity threats.
Law 2: Everything becomes a commodity. As products are standardized, margins suffer as competitors frantically cut prices in a race to the bottom with the PC clone market serving as a good example. "At the risk of belaboring the obvious, a rising Average Selling Price (ASP) means customers are freely deciding to give more money to Apple," says Gassée. "We’re told that this is just a form of Stockholm Syndrome, the powerless customer held prisoner inside Apple’s Walled Garden." Yet according to Tim Cook “…fewer than 15% of older iPhone owners upgraded to the iPhone 6 and 6 Plus. The majority of switchers to iPhone came from smartphones running Google Inc.’s Android operating system.” Apple’s recent numbers show, the iPhone seems immune to modularity threats.
Law 3: Market share always wins. With a bigger market share comes economies of scale and network effects leaving minority players condemned to irrelevance and starvation. Yet despite its small unit share (around 7% worldwide, higher in the US), Apple takes home about half of all PC industry profits, thanks to its significant ASP ($1,250 vs $417 industry-wide in 2014, trending down to $379 this year).
Law 4: Modularity Always Wins. In the end, modularity always defeats integration. Clayton Christensen points out that in the PC clone market, modularity allowed competitors to undercut one another by improving layer after layer, smarter graphic cards, better/faster/cheaper processing, storage, and peripheral modules. Yet, as Apple’s recent numbers show, the iPhone seems immune to modularity threats.
"I have no trouble with the Law of Large Numbers, it only underlines Apple’s truly stupendous growth and, in the end, it always wins. No business can grow by 20%, or even 10% for ever. But, for the other three, Market Share, Commoditization, and Modularity, how can we ignore the sea of contradicting facts?" concludes Gassée. "As Apple continues to “break the law”, perhaps we’ll see a new body of scholarship that provides alternatives to the discredited refrains. As Rob Majteles tweeted: “Apple: where many, all?, management theories go to die?"
(Score: 5, Insightful) by PizzaRollPlinkett on Tuesday February 10 2015, @12:12PM
Apple's success comes from creating a "want", not a need. Their devices are positioned as luxury items. Apple makes billions through arbitrage. They manufacture their devices in China at commodity prices and sell to Americans at American prices. The difference is the profits Apple reports all the time. No other tech company that I know of has perfected this buy-low, sell-high arbitrage. Other tech companies buy low and sell low, content to flood the market with commodities.
What Apple has done is position their products as a status item. Basically, the number of iPhones sold as a percent of the American population means the top 20% or so owns iPhones. It's a way to separate yourself in the socioeconomic strata the same way people shop at organic grocery stores instead of Wal-Mart and drive a Lexus instead of a Toyota. Apple has also perfected getting people to buy the same thing over and over again every couple of years. That's getting harder now because of the maturity of their platforms. What Apple has done is make their product a necessity as a status symbol - if you have an iPhone, you belong to a higher socioeconomic class. This positioning is why they make billions. A company like IBM did not do this, and they are selling off their hardware to commodity Chinese manufacturers. HP flooded Wal-Mart with low-quality computers, and they're flailing away trying to survive. Office supply stores are consolidating to survive because no one wants to buy the low-end computers they sell. I definitely see a pattern here.
Apple has also perfected the "product launch format" for generating hype, with their carefully controlled leaks of information that build up to the release of a product. The difference between them and Double Your Dating or bad stock market advice is that Apple does have a quality product you can buy. That's another reason why Apple makes billions.
Note that Apple has put their laptops on the back burner recently. Kind of a shame, since they have the best-quality laptops. But people see laptops as commodities now. Apple has trouble separating their laptops from the usual flood of Acer and HP commodity junk, so Apple has been emphasizing their devices over laptops.
(E-mail me if you want a pizza roll!)
(Score: 0) by Anonymous Coward on Tuesday February 10 2015, @01:19PM
+1 very very well written!
It is your point about commodity price vs american price that i run linux
(Score: 5, Insightful) by khallow on Tuesday February 10 2015, @01:26PM
Apple's success comes from creating a "want", not a need. Their devices are positioned as luxury items.
Economics has long since learned to not make that distinction due both to the subjectivity of the meaning of need and because it introduces extraneous issues. For example, you need air in order to survive. But I don't need you alive in order to survive. Your need is not my need. For an example of the latter point, it doesn't actually change the economics of the iPhone if we term it a want or a need.
Apple makes billions through arbitrage.
Arbitrage means risk-free. The manufacture and sale of iPhones was and is not even low-risk. There were plenty of things that could have gone wrong for Apple over the last decade. Similarly, there are plenty of large risks now with the various tricks and strategies they use now. For example, if malware bricks a large portion of the iPhone market tomorrow, Apple's future sales and reputation is on the line.
They manufacture their devices in China at commodity prices and sell to Americans at American prices. The difference is the profits Apple reports all the time.
They sell to plenty of non-US residents too. China is a big market for iPhones, for example.
No other tech company that I know of has perfected this buy-low, sell-high arbitrage. Other tech companies buy low and sell low, content to flood the market with commodities.
Welcome to the magic of pricing power. You will find that a lot of tech companies have perfected this approach. For example, anything with the buzzword "enterprise" in it. They just don't happen to be phone manufacturers.
(Score: 0) by Anonymous Coward on Tuesday February 10 2015, @03:22PM
Economics has long since learned to not make that distinction due both to the subjectivity of the meaning of need and because it introduces extraneous issues
What you guys are describing is monopoly pricing.
There is only one company you can buy an iPhone from. There are many you can buy a smartphone from.
http://soylentnews.org/comments.pl?sid=6030&cid=142721 [soylentnews.org]
To add to my point of my prev post. Apple has managed to make themselves they only maker of a desirable item. In economic terms that is 'utility' (one of the many voodoo things economics comes up with to describe demand that you can not measure very well). Apple has very carefully not called themselves a smartphone. Thru their use of marketing they make sure they are very clear it is an iPhone. This is what many companies strive for in the 'high end' segments. To not be a commodity but to be the 'only one to buy'.
Given that they are a monopoly in their segment. They can build at marginal cost but sell at price points well above others. Because they can jump to the demand curve for pricing.
Now with that artificial creation of smoke and mirrors they have created. They will have to be very careful. The reason for their current boost was the upgrade of the phone to better specs. That was seen as a reason to upgrade from the latest shiny android everyone was using (galaxy s3/s4 mostly which were pretty cool phones).
(Score: 1) by khallow on Wednesday February 11 2015, @04:06AM
(Score: 3, Insightful) by Nerdfest on Tuesday February 10 2015, @01:47PM
Apple also get hundreds of millions (at least) in free marketing because of the media's continued fascination with them.