IPhone: 4% of market, 50% of profit(tech.fortune.cnn.com)
tech.fortune.cnn.com
IPhone: 4% of market, 50% of profit
http://tech.fortune.cnn.com/2010/10/30/iphone-4-of-market-50-of-profit/?hpt=T2
9 comments
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.
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.
To add another example of Apple's details of industrial design, Apple makes two keyboards from the space they stamp out for the iMac's screen. Apple is very efficient.
Apple doesn't "control" the A4 in any way they didn't "control" all the other Samsung chips they've bought and put Apple logos on.
They've now bought the design team that worked with Samsung on it, so we might see something interesting come out of that, but it's not the A4.
The rest of your post is entirely reasonable so it's a shame to lead off with a regularly debunked misconception.
It is however fun to speculate about why Apple puts so much effort into misleading people about the provenance of this fairly standard chip. It's clearly worked on some people, but what have they gained from this deception?
They've now bought the design team that worked with Samsung on it, so we might see something interesting come out of that, but it's not the A4.
The rest of your post is entirely reasonable so it's a shame to lead off with a regularly debunked misconception.
It is however fun to speculate about why Apple puts so much effort into misleading people about the provenance of this fairly standard chip. It's clearly worked on some people, but what have they gained from this deception?
Apple has said barely anything about A4. All the 'misleading' and 'deception' you mention comes from people speculating about what A4 is and isn't.
Apple feature the A4 regularly in keynotes, product introduction videos and websites.
They used Samsung ARM chips in every previous iPhone and were happy to leave it at that. Since the iPad they have been presenting the A4 as "custom-designed by Apple engineers to be extremely powerful yet extremely power efficient."
This could be considered flat out lies, at the very least it gives the wrong impression. If you want to be charitable then they could mean "engineers employed by a company later bought by Apple" when they say Apple engineers, custom-designed could mean simply "designed to achieve certain goals" rather than "specifically for Apple" or it could just mean that someone at Apple picked certain features from a Samsung catalog.
With that background it is understandable (though still faintly ridiculous) for people to take the hints that Apple is dropping and go off on flights of fancy about the A4.
They used Samsung ARM chips in every previous iPhone and were happy to leave it at that. Since the iPad they have been presenting the A4 as "custom-designed by Apple engineers to be extremely powerful yet extremely power efficient."
This could be considered flat out lies, at the very least it gives the wrong impression. If you want to be charitable then they could mean "engineers employed by a company later bought by Apple" when they say Apple engineers, custom-designed could mean simply "designed to achieve certain goals" rather than "specifically for Apple" or it could just mean that someone at Apple picked certain features from a Samsung catalog.
With that background it is understandable (though still faintly ridiculous) for people to take the hints that Apple is dropping and go off on flights of fancy about the A4.
You are reaching, though not sure why.
"...custom-designed by Apple engineers to be extremely powerful yet extremely power efficient." is 100% valid. Picking certain features from a Samsung catalog is what the general consensus is they did, and that doesn't contradict their statement at all. I can get on a website right now and make a custom designed t-shirt or even a custom designed candy bar by picking the ingredients I want. If I tell someone I then made a custom-designed candy bar, will they call me a liar because I didn't make the chocolate and all the ingredients from scratch or because someone else cooked them and put them together to make the candy bar? Of course not. Apple engineers picked the features of the SoC they wanted, ones they felt would give them the best efficiency for how they were using them, and that is their A4. No more, no less, and exactly what they say it is. Featuring the A4 doesn't mean they are giving any details about it. No one is telling 'flat out lies'.
"...custom-designed by Apple engineers to be extremely powerful yet extremely power efficient." is 100% valid. Picking certain features from a Samsung catalog is what the general consensus is they did, and that doesn't contradict their statement at all. I can get on a website right now and make a custom designed t-shirt or even a custom designed candy bar by picking the ingredients I want. If I tell someone I then made a custom-designed candy bar, will they call me a liar because I didn't make the chocolate and all the ingredients from scratch or because someone else cooked them and put them together to make the candy bar? Of course not. Apple engineers picked the features of the SoC they wanted, ones they felt would give them the best efficiency for how they were using them, and that is their A4. No more, no less, and exactly what they say it is. Featuring the A4 doesn't mean they are giving any details about it. No one is telling 'flat out lies'.
People focus on Steve Jobs and Apple's design and marketing prowess. However, Tim Cook and Apple's supply chain management and operating excellence is just as important a part of their success.
I see the graphics. I see the app store affiliate links. I do not see the source for the data upon which the graphics are based listed.
I agree that there should be more explicit citation for this article.
The original source is IDC [1], who says the mobile phone market is:
[1] http://www.idc.com/about/viewpressrelease.jsp?containerId=pr...
[2] http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4...
[3] http://www.asymco.com/2010/10/29/iphone-share-of-all-phones-...
The original source is IDC [1], who says the mobile phone market is:
1. Nokia, 32.4%
2. Samsung, 21.0%
3. LG Electronics, 8.3%
4. Apple, 4.1%
5. R.I.M., 3.6%
6. Others, 30.5%
[1] http://www.idc.com/about/viewpressrelease.jsp?containerId=pr...
[2] http://www.asymco.com/2010/10/30/last-quarter-apple-gained-4...
[3] http://www.asymco.com/2010/10/29/iphone-share-of-all-phones-...
It is underneath the charts:
"Source: Asymco"
http://www.asymco.com/2010/09/21/can-android-change-the-prof...
http://www.asymco.com/2010/09/21/can-android-change-the-prof...
Asymco prepared the graphic, they did not collect the original data upon which it is based.
It might be Goldman Sachs. This chart from Business Insider from July, says the same thing but attributes the information to Goldman Sachs: http://www.businessinsider.com/you-cant-appreciate-how-compl...
Does this include Apple's revenue share deals with the operators or is it just phone sales?
This dead-simple analysis just goes to show you that market share is not nearly as important as so many make it out to be.
This is my biggest question (and I'd love thoughts from HN people on it); if Android is mostly seen on handsets with very small margins that compete on price with almost identical features... who's paying for the R&D to keep up with Apple's innovations?
That question assumes that innovation is important in the smartphone sector. That may not be the case I guess.
I'm just trying to understand the end situation as best I can as like a number of startups our future heavily depends on smartphones.
That question assumes that innovation is important in the smartphone sector. That may not be the case I guess.
I'm just trying to understand the end situation as best I can as like a number of startups our future heavily depends on smartphones.
Innovation is always important. The iPhone was innovative. iOS was innovative. Without those two, we wouldn't be having this discussion. We would still be using Nokias and Blackberries, or Android phones which would be like Blackberries -- not the iPhone.
As far as paying for R&D goes, how much does it take to replicate something? I'd say a fraction of the cost since you already have the product in front of you. All you need to do is duplicate it.
As far as paying for R&D goes, how much does it take to replicate something? I'd say a fraction of the cost since you already have the product in front of you. All you need to do is duplicate it.
And that's exactly where the much hated patents (software or otherwise) would have a role, in my opinion; protecting hard-earned innovation. That's what they're supposed achieve, but due to the completely broken patent system, they're only good for "patent trolling".
Apple is responsible for shockingly little of the innovation in the smartphone field.
They didn't create their processor (though they managed to brand it and fool a lot of people for a while). They didn't create the GPU.
They didn't create the "Retina display" or their memory or their touchscreen sensor.
They are a software company that other companies -- like LG and Samsung -- supply with hardware.
The electronics market has traditionally been a very low margin industry (which is good for consumers). Apple has managed a pretty remarkable game of finding a very profitable niche and exploiting it as it exploded, with them in a leadership position, however it is not sustainable, which Apple realizes.
And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash.
They didn't create their processor (though they managed to brand it and fool a lot of people for a while). They didn't create the GPU.
They didn't create the "Retina display" or their memory or their touchscreen sensor.
They are a software company that other companies -- like LG and Samsung -- supply with hardware.
The electronics market has traditionally been a very low margin industry (which is good for consumers). Apple has managed a pretty remarkable game of finding a very profitable niche and exploiting it as it exploded, with them in a leadership position, however it is not sustainable, which Apple realizes.
And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash.
Then why not connect all those thoughts together? If it was so easy and if the hardware was so widely available and if the stuff here is a commodity and if user interface design and fit and finish was so easy, then why is Apple the bunch that is rolling in cash, and not looking like roadkill?
From what I've encountered with many of the low-margin commodity products, various manufacturers reach the "it works and meets our minimal specs, ship it" stage, and we get lids and covers and doors and other pieces that don't fit or quickly break and fall off, software and firmware incompatibility or crashes, fuzzy displays, sloppy switch mechanisms, user interfaces that are somewhere between truly bizarre and purely inscrutable, and related, well, dreck.
And for the consumers, a low-margin business means plug-compatible race-to-the-bottom no-name interchangeable and irrelevant product vendors, too.
Sure. There's a market for dreck. But as you've noticed, it doesn't pay well.
From what I've encountered with many of the low-margin commodity products, various manufacturers reach the "it works and meets our minimal specs, ship it" stage, and we get lids and covers and doors and other pieces that don't fit or quickly break and fall off, software and firmware incompatibility or crashes, fuzzy displays, sloppy switch mechanisms, user interfaces that are somewhere between truly bizarre and purely inscrutable, and related, well, dreck.
And for the consumers, a low-margin business means plug-compatible race-to-the-bottom no-name interchangeable and irrelevant product vendors, too.
Sure. There's a market for dreck. But as you've noticed, it doesn't pay well.
>Then why not connect all those thoughts together? If it was so easy
Who are you responding to? I didn't say it was "easy". I further said that Apple is a software company, not a hardware company. They do software well.
Their hardware superiority is 90% myth, 10% reality. There were excellent Windows Mobile devices with high resolution displays, better processors, more RAM, and on and on, long before Apple brought that "innovation".
You could directly attribute the fact that Apple isn't responsible for most of that hardware R&D for their high profit margins. They know to buy the cutting edge from the rest of the industry, put some software on it, and they've got a product.
Apple puts some great software on it and made a well integrated device. Their only innovation is in software. In hardware they're not much more than a VAR.
>From what I've encountered with many of the low-margin commodity products
I like the addition of the editorialized "commodity" there.
However your core point is utter nonsense. Almost every bit of extremely high quality electronics hardware you can buy in the industry, from ultra-high end LED televisions to audio equipment to high performance routers to digital cameras, came from a company making very low margins, yet managing to yield a very respectable billion or so in profit.
Apple has a short time where they essentially could go to the bank on the backs of a cult-like following. That isn't a scalable business model, which is exactly why Apple is warning about reduced margins going forward.
Who are you responding to? I didn't say it was "easy". I further said that Apple is a software company, not a hardware company. They do software well.
Their hardware superiority is 90% myth, 10% reality. There were excellent Windows Mobile devices with high resolution displays, better processors, more RAM, and on and on, long before Apple brought that "innovation".
You could directly attribute the fact that Apple isn't responsible for most of that hardware R&D for their high profit margins. They know to buy the cutting edge from the rest of the industry, put some software on it, and they've got a product.
Apple puts some great software on it and made a well integrated device. Their only innovation is in software. In hardware they're not much more than a VAR.
>From what I've encountered with many of the low-margin commodity products
I like the addition of the editorialized "commodity" there.
However your core point is utter nonsense. Almost every bit of extremely high quality electronics hardware you can buy in the industry, from ultra-high end LED televisions to audio equipment to high performance routers to digital cameras, came from a company making very low margins, yet managing to yield a very respectable billion or so in profit.
Apple has a short time where they essentially could go to the bank on the backs of a cult-like following. That isn't a scalable business model, which is exactly why Apple is warning about reduced margins going forward.
Sure, they buy a lot of components off the shelf. But they are extremely involved in the design and manufacturing process of their products, and often work with the manufacturers to push the manufacturing technology forward to meet their design goals (machine milling is nothing new, but machine milling a $999 laptop requires quite a bit of innovation).
Unlike many other companies, Apple _doesn't_ just take various technologies and piece them together to make a product. And they do a lot of core technologies in-house, which is why they've bought companies like FingerWorks and PA Sami.
The interview with Jony Ive in the Objectified movie (http://www.youtube.com/watch?v=t0fe800C2CU) shows some of the thought process that is involved in Apples hardware design process.
By your logic, other PC/mobile manufacturers should have similar profit margins to Apple, but they don't. Now, the usual answer is that Apple has a "cult-like following" that will pay a higher price for "more or less the same hardware in a different box".
A better explanation, given that the "cult following" has only increased the last few years, is that Apple manages to make more appealing products by being extremely involved in _both_ hardware and software, leaving other companies to compete by sticking together commodity components. Apple did not say that they expected decreased profit margins because they would have to slash their prices, what they did warn was that their forthcoming products would have higher hardware costs. But of course, time will show.
Unlike many other companies, Apple _doesn't_ just take various technologies and piece them together to make a product. And they do a lot of core technologies in-house, which is why they've bought companies like FingerWorks and PA Sami.
The interview with Jony Ive in the Objectified movie (http://www.youtube.com/watch?v=t0fe800C2CU) shows some of the thought process that is involved in Apples hardware design process.
By your logic, other PC/mobile manufacturers should have similar profit margins to Apple, but they don't. Now, the usual answer is that Apple has a "cult-like following" that will pay a higher price for "more or less the same hardware in a different box".
A better explanation, given that the "cult following" has only increased the last few years, is that Apple manages to make more appealing products by being extremely involved in _both_ hardware and software, leaving other companies to compete by sticking together commodity components. Apple did not say that they expected decreased profit margins because they would have to slash their prices, what they did warn was that their forthcoming products would have higher hardware costs. But of course, time will show.
"By your logic, other PC/mobile manufacturers should have similar profit margins to Apple, but they don't. "
How you could you possibly extrapolate that, attributing it to me?
I propose no such thing. Electronics is a low margin arena, and this is great for consumers. High margin companies like Monster cater, arguably, to suckers.
So when someone makes a lot of margin in electronics they're usually serving the sucker market, or they're offering something other than electronics. Apple puts good software on otherwise vanilla hardware, and that's what their differentiation is. It's how they get their margin.
There's a cert cult essence to Apple that makes it impossible to discuss their products. The number of faults in their devices is legendary, and there is that telling moment of truth: When a new anointed device comes out, suddenly there's a mass realization that the last device really was kind of shoddy (see the 3GS when the 4 came out).
There just isn't anything special about them. There really isn't. Motorola has made any number of brilliantly engineered products...but it's just Motorola so who cares, right?
How you could you possibly extrapolate that, attributing it to me?
I propose no such thing. Electronics is a low margin arena, and this is great for consumers. High margin companies like Monster cater, arguably, to suckers.
So when someone makes a lot of margin in electronics they're usually serving the sucker market, or they're offering something other than electronics. Apple puts good software on otherwise vanilla hardware, and that's what their differentiation is. It's how they get their margin.
There's a cert cult essence to Apple that makes it impossible to discuss their products. The number of faults in their devices is legendary, and there is that telling moment of truth: When a new anointed device comes out, suddenly there's a mass realization that the last device really was kind of shoddy (see the 3GS when the 4 came out).
There just isn't anything special about them. There really isn't. Motorola has made any number of brilliantly engineered products...but it's just Motorola so who cares, right?
You wrote:
"You could directly attribute the fact that Apple isn't responsible for most of that hardware R&D for their high profit margins. They know to buy the cutting edge from the rest of the industry, put some software on it, and they've got a product."
I read this to mean that Apples high margins were primarily due to their offloading their hardware business to others. And I only pointed out that this is only _partly_ responsible for Apples high margins. But I see that I've read you incorrectly.
I never heard anyone say that the 3GS was shoddy when the iPhone 4 came out. Even before the iPhone 4 was released, everyone agreed that the screen resolution, camera etc. was a generation or two behind, and most reviewers had started recommending other phones with more features.
Like I said, some people "get" or appreciate Apples product design, and some don't. The fact that you're say that there's nothing special about their products shows that you don't. There's nothing wrong with that, just as there's nothing wrong with me not wearing designer clothing and being unable to tell the difference betewen a generic and a designer suit.
But as you say, it makes it impossible to discuss their products. Which is why this discussion is pointless :)
If Apples advantage was something very measurable, for instance if all their laptops had 20GHz processors and 256GB RAM, it would be obvious to everyone, including their competitors, why they were able to make so much money with such a small market share.
But it's difficult to quantify what "good product design" is. I can give countless examples of small details that Apples designers have thought about that other laptop makers haven't, but this is simply irrelevant to people who don't appreciate that. Similarly, a BMW owner could point to lots of small features and details that they like about their car, but others simply see an overpriced car with high maintenance costs.
Still, unlike Monster cables, you can point to many features or details that you simply don't get with other cars that still do the job of transporting people. The question is simply whether someone is willing (and able) to pay for the added design, features, and comfort.
I think that Apples success shows that there are enough people who _do_ care about it, and I think that's a big reason for their high profit margins.
Finally, I think you'll see that Motorola has won a lot of praise and attention for some of their better designed products, even though Apple is the current media darling.
"You could directly attribute the fact that Apple isn't responsible for most of that hardware R&D for their high profit margins. They know to buy the cutting edge from the rest of the industry, put some software on it, and they've got a product."
I read this to mean that Apples high margins were primarily due to their offloading their hardware business to others. And I only pointed out that this is only _partly_ responsible for Apples high margins. But I see that I've read you incorrectly.
I never heard anyone say that the 3GS was shoddy when the iPhone 4 came out. Even before the iPhone 4 was released, everyone agreed that the screen resolution, camera etc. was a generation or two behind, and most reviewers had started recommending other phones with more features.
Like I said, some people "get" or appreciate Apples product design, and some don't. The fact that you're say that there's nothing special about their products shows that you don't. There's nothing wrong with that, just as there's nothing wrong with me not wearing designer clothing and being unable to tell the difference betewen a generic and a designer suit.
But as you say, it makes it impossible to discuss their products. Which is why this discussion is pointless :)
If Apples advantage was something very measurable, for instance if all their laptops had 20GHz processors and 256GB RAM, it would be obvious to everyone, including their competitors, why they were able to make so much money with such a small market share.
But it's difficult to quantify what "good product design" is. I can give countless examples of small details that Apples designers have thought about that other laptop makers haven't, but this is simply irrelevant to people who don't appreciate that. Similarly, a BMW owner could point to lots of small features and details that they like about their car, but others simply see an overpriced car with high maintenance costs.
Still, unlike Monster cables, you can point to many features or details that you simply don't get with other cars that still do the job of transporting people. The question is simply whether someone is willing (and able) to pay for the added design, features, and comfort.
I think that Apples success shows that there are enough people who _do_ care about it, and I think that's a big reason for their high profit margins.
Finally, I think you'll see that Motorola has won a lot of praise and attention for some of their better designed products, even though Apple is the current media darling.
I partly agree. The design on MacBook Pros was not sufficient to make me switch, although it was very tempting. It was the combination of hardware and software that did the trick.
However, I think you are underestimating their hardware prowess. There is a certain joy to using hardware (computers, musical instruments, name it). You get that with Apple hardware because of the little things. Apple things about the whole experience, which includes software, but even on the hardware side, there are few that actually pay attention to the whole. No one does it better. Packing features into a product shows you are not thinking as a whole, but just checking boxes. Innovation comes from thinking about the end result and user experience, not from features.
However, I think you are underestimating their hardware prowess. There is a certain joy to using hardware (computers, musical instruments, name it). You get that with Apple hardware because of the little things. Apple things about the whole experience, which includes software, but even on the hardware side, there are few that actually pay attention to the whole. No one does it better. Packing features into a product shows you are not thinking as a whole, but just checking boxes. Innovation comes from thinking about the end result and user experience, not from features.
Agreed. Yet, to a lot of the readers here, it's impossible to understand why the "little things" make a big difference. They simply cannot understand why this attention to detail in a product is worth paying for.
And I think this is key to Apples success, because I suspect that a lot of CEOs and product managers in other companies simply don't see this either.
You see this with a lot of laptops where the only attention to detail is in the obviously visible parts. Compare this to Steve Jobs / Jony Ive that obsess over how their products look on the _inside_ (http://www.folklore.org/StoryView.py?project=Macintosh&s...)
And I think this is key to Apples success, because I suspect that a lot of CEOs and product managers in other companies simply don't see this either.
You see this with a lot of laptops where the only attention to detail is in the obviously visible parts. Compare this to Steve Jobs / Jony Ive that obsess over how their products look on the _inside_ (http://www.folklore.org/StoryView.py?project=Macintosh&s...)
I have to disagree with your points above, Apple create stylish / iconic user friendly products, built to last, which will reflect in the price from a consumer point of view. Where the likes of Dell, Sony, LG, Samsung and the rest build Laptops and PC's to compete in a very competitive & affordable price range set by millions of retailers world wide, whom created a price war amongst themselves. A company does not need to own or create all of their IP in order to be successful or ask a higher MSRP, they just need to distance themselves from their competition and create a buzz, which Apple have done remarkably well.
I see Apple as a type of Fashion brand or a designer - look at the handbag market for instance, why do they range from $10 -$10,000 if they do the exact same thing and majority of the time they're made from near enough from the same materials and on average cost the same to make.
Regarding your last point "And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash." I find it quite amusing to see how many people are so unhappy about the success Apple have made, when they really should be pointing their anger to laptop manufactures that are responsible for consumers spending huge sums of money constantly replacing or updating poorly built products that only last 12 months before they start cooking themselves!
I see Apple as a type of Fashion brand or a designer - look at the handbag market for instance, why do they range from $10 -$10,000 if they do the exact same thing and majority of the time they're made from near enough from the same materials and on average cost the same to make.
Regarding your last point "And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash." I find it quite amusing to see how many people are so unhappy about the success Apple have made, when they really should be pointing their anger to laptop manufactures that are responsible for consumers spending huge sums of money constantly replacing or updating poorly built products that only last 12 months before they start cooking themselves!
So you're saying Apple hasn't innovated as much as we think.
1. They didn't create their processor: I admit, I'm not really into the hardware side of Apple, but really? http://en.wikipedia.org/wiki/Apple_A4 credits Apple as the designer of the processor (and Samsung as the manufacturer). Yes, they collaborated with another company (Samsung) and bought a third one (Instrinsity) to own the talent, but that's not the point. That's like saying EA didn't make its games because they bought other studios. Apple wanted to make their own processor, so it collaborated with the companies it couldn't/didn't want to buy, and bought the companies it could. The result is that A4 has an 'Apple' name and only Apple gets to use it. What is "though they managed to brand it" supposed to mean anyway?
2. By create, I assume you mean 'designed'. Nobody will argue that Apple didn't manufacture it. So can you tell me who did design the first retina display? And which phone first used it? (I understand that 'retina display' is just a branding of a very high resolution display, but for the sake of brevity, we'll call it 'retina display').
3. Yes, they're a software company. Yes, Samsung and LG are suppliers of their hardware. But Apple is the one putting those components together in a tight and neat little package that looks beautiful on the outside, and is powerful on the inside. Look at Samsung and LGs own phones. Why are losing share if they're so good at what they do? Apple is the architect, Samsung/LG the workers. Who deserves the credit?
---
Apple did what it does best - sell you a product. Not parts; product. Apple always sells you a product. So instead of looking at each part and saying that Apple hasn't innovated there, look at the product as a whole and see what Apple has created that no-one else did.
1. They didn't create their processor: I admit, I'm not really into the hardware side of Apple, but really? http://en.wikipedia.org/wiki/Apple_A4 credits Apple as the designer of the processor (and Samsung as the manufacturer). Yes, they collaborated with another company (Samsung) and bought a third one (Instrinsity) to own the talent, but that's not the point. That's like saying EA didn't make its games because they bought other studios. Apple wanted to make their own processor, so it collaborated with the companies it couldn't/didn't want to buy, and bought the companies it could. The result is that A4 has an 'Apple' name and only Apple gets to use it. What is "though they managed to brand it" supposed to mean anyway?
2. By create, I assume you mean 'designed'. Nobody will argue that Apple didn't manufacture it. So can you tell me who did design the first retina display? And which phone first used it? (I understand that 'retina display' is just a branding of a very high resolution display, but for the sake of brevity, we'll call it 'retina display').
3. Yes, they're a software company. Yes, Samsung and LG are suppliers of their hardware. But Apple is the one putting those components together in a tight and neat little package that looks beautiful on the outside, and is powerful on the inside. Look at Samsung and LGs own phones. Why are losing share if they're so good at what they do? Apple is the architect, Samsung/LG the workers. Who deserves the credit?
---
Apple did what it does best - sell you a product. Not parts; product. Apple always sells you a product. So instead of looking at each part and saying that Apple hasn't innovated there, look at the product as a whole and see what Apple has created that no-one else did.
"What is "though they managed to brand it" supposed to mean anyway?"
When the A4 was introduced a lot of the speculation regarding it was incredible. What was this amazing new processor, people asked?
Apple, it was widely perceived, was suddenly a world leader in IC with this amazing new technology.
Only it turns out that it was a last generation Hummingbird processor designed by Samsung, though that gives Samsung too much credit given that it was a standard ARM core with a standard PowerVR GPU.
Yet the myth persists.
When the A4 was introduced a lot of the speculation regarding it was incredible. What was this amazing new processor, people asked?
Apple, it was widely perceived, was suddenly a world leader in IC with this amazing new technology.
Only it turns out that it was a last generation Hummingbird processor designed by Samsung, though that gives Samsung too much credit given that it was a standard ARM core with a standard PowerVR GPU.
Yet the myth persists.
I was actually musing on this very point in the pub earlier, having re-read an article on Apple's novel-ish approach to the SIM card (i.e., not having one) and what that means from a business perspective.
What people seem to gloss over is that Apple's major innovations come more from (or as much from) business revolutions than from hardware:
- iTunes: re-invented MP3 distribution (it was even DRM'd at first, remember)
- iPhone: screw you, carriers, it's going down like this from now on
- iOS: we've got any app you can ever imagine - our devices will make you happy.
They also innovate by knowing what their customers truly want:
- Do you really want a keyboard on that phone? Wouldn't you prefer it thinner?
- Do you really need a CD drive with that laptop? Wouldn't you prefer a bigger battery and thinner?
- Do you really need that much RAM and CPU when apps instant-resume and you have a Flash system drive?
Plus, they innovate in manufacturing (unibody, advanced castings and extrusions, laser-machining) and marketing and sales (direct-to-consumer, store layouts, try-all-you-like).
Ok, so some of the approaches they use are bought/licensed (processors, casting tech, hardening tech) and many are out-sourced. But I really don't see anyone else in the public light who are pushing hard at so many new approaches right now. How many other companies are filing so many patents in everything from chip design to UI to manufacturing methods?
So... I think I basically disagree with you :P
What people seem to gloss over is that Apple's major innovations come more from (or as much from) business revolutions than from hardware:
- iTunes: re-invented MP3 distribution (it was even DRM'd at first, remember)
- iPhone: screw you, carriers, it's going down like this from now on
- iOS: we've got any app you can ever imagine - our devices will make you happy.
They also innovate by knowing what their customers truly want:
- Do you really want a keyboard on that phone? Wouldn't you prefer it thinner?
- Do you really need a CD drive with that laptop? Wouldn't you prefer a bigger battery and thinner?
- Do you really need that much RAM and CPU when apps instant-resume and you have a Flash system drive?
Plus, they innovate in manufacturing (unibody, advanced castings and extrusions, laser-machining) and marketing and sales (direct-to-consumer, store layouts, try-all-you-like).
Ok, so some of the approaches they use are bought/licensed (processors, casting tech, hardening tech) and many are out-sourced. But I really don't see anyone else in the public light who are pushing hard at so many new approaches right now. How many other companies are filing so many patents in everything from chip design to UI to manufacturing methods?
So... I think I basically disagree with you :P
Apple didn't invent all of the tech they use, but they drove its adoption.
Apple changed the "face" of smartphones; this is what Android looked like before the iPhone came along: http://gizmodo.com/334909/google-android-prototype-in-the-wi...
Styluses and resistive touchscreens were resigned to the scrap heap soon after.
Apple didn't invent multi-touch either, but they moved gestures from a futuristic novelty in Minority report and Black & White into something that regular people use every day. Swiping and pinching have entered our UI lexicon with amazing speed.
Apple changed the "face" of smartphones; this is what Android looked like before the iPhone came along: http://gizmodo.com/334909/google-android-prototype-in-the-wi...
Styluses and resistive touchscreens were resigned to the scrap heap soon after.
Apple didn't invent multi-touch either, but they moved gestures from a futuristic novelty in Minority report and Black & White into something that regular people use every day. Swiping and pinching have entered our UI lexicon with amazing speed.
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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)
(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.
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.
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.
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.
Exactly. Unless the hardware of an iPhone costs significantly less than, say, an Evo 4g or Touch Pro 2, there's no reason their profit margin would be any better. Of course, the whole pricing model is very obfuscated at least with US carriers due to contracts, required internet plans, etc.
As a former manufacturing engineer, I can tell you Apple's devices are extremely optimised to reduce the cost of manufacture yet maintain quality and this helps their margins considerable I'd imagine.
Their attention to the cost of assembly is - to me - as beautiful as the aesthetic design; they clearly have some amazing mechanical/design/process engineers.
Their attention to the cost of assembly is - to me - as beautiful as the aesthetic design; they clearly have some amazing mechanical/design/process engineers.
From things I've read on Steve Jobs, he seems equally interested in the industrial of building the products he designs[1]. I've also heard their lead designer Jonathon Ives talk a lot about materials and how to use them, which I think underscores the fact that he is an industrial designer, meaning he doesn't just design an end product, but also designs the process, or at least designs the product with process holding equal weight with the actual aesthetic.
I've also read that they require all parts to be doubly sourced, so that if one source fails, they have a backup. I don't know how common this is, but seems like an interesting point in their process.
[1] He doesn't design them himself, but I couldn't think of a better word.
I've also read that they require all parts to be doubly sourced, so that if one source fails, they have a backup. I don't know how common this is, but seems like an interesting point in their process.
[1] He doesn't design them himself, but I couldn't think of a better word.
Ive, not Ives.
Secondly, as an Industrial Design graduate, I believe Ive has more of a functional knowledge of subjects like strength of materials. The rest is just experiential from working with industrial engineers and others at Apple. For example, what you hear him saying in the iPhone commercial about the manufacturing is experiential knowledge. His job is to design the form. It's the people under him who give him the best materials based on his requirements.
A good way to understand what the process from top to bottom is, is to hear Jobs explain how they came up with the idea for the iPhone at D8. It starts with an idea that is then handed down to relevant people to think and work on.
Both Jobs and Ive are fantastic at what they do, don't get me wrong. But the truth is they're run as much by other people's ideas as they're run by their own.
Secondly, as an Industrial Design graduate, I believe Ive has more of a functional knowledge of subjects like strength of materials. The rest is just experiential from working with industrial engineers and others at Apple. For example, what you hear him saying in the iPhone commercial about the manufacturing is experiential knowledge. His job is to design the form. It's the people under him who give him the best materials based on his requirements.
A good way to understand what the process from top to bottom is, is to hear Jobs explain how they came up with the idea for the iPhone at D8. It starts with an idea that is then handed down to relevant people to think and work on.
Both Jobs and Ive are fantastic at what they do, don't get me wrong. But the truth is they're run as much by other people's ideas as they're run by their own.
It's an amazing team. Not just Ives but Cook, Mansfield and others too. I've seen teams with similar complementary personalities and skills in industry before, and provided they have project control and/or are in high-level positions they tend to do extremely well.
Double sourcing is standard. It helps also when you try to get lower prices.
To back up what JofArnold is saying, I have been told that Hon Hai (aka Foxconn) receives about $15 for the assembly of an iPad. I'd bet they get about the same, give or take $10 for assembling each iPhone. As a point of reference an assembly worker there makes about $3,500 USD per year or $1.50 per hour (note, the company provides housing and some food).
That's an interesting figure - thanks. I'd really love to see the breakdown - the manufacturing geek in me is getting all excited thinking about whether or not they deburr, how processed the parts are when they arrive as Foxconn etc etc.
Additionally, note that in effect Apple decides the price of smartphones. Must hurt being a competitor who's making a quality product and knowing you need to price similar to them in order for your customers to understand what level of quality they are buying. Too high and people will buy an iPhone, too low and people may feel you are lower quality.
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But do android device makers get the same cut from the carrier as Apple? Notice an unlocked iPhone 4 is ~$750, and Apple probably gets a little more out of it when they sell with a contract (otherwise wouldn't they just sell unlocked phones with no particular carrier association?)
otherwise wouldn't they just sell unlocked phones with no particular carrier association?
> otherwise wouldn't they just sell unlocked phones with no particular carrier association?
Not if Apple has contracts preventing it.
Not if Apple has contracts preventing it.
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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.)
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.)
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.