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Posted on 08/17/2009 3:09:25 AM PDT by Swordmaker
How does a company that owns only 8 percent of the handset industry revenue kick so much butt? Apple's ability to reinvent markets leads to command of high-end, high-margin business.
Apple's stock has been on a tear this year, starting at around $85 per share and rising steadily to $165. Sure, the new iPhone 3GS and the ever-popular MacBook Pro line are big reasons for the lift.
But how does a company that owns only 8 percent of the handset industry revenue, according to Bernstein Research, kick so much butt?
Apple plays almost exclusively in the high end of the handset and computer markets, which translates into mighty profits. In the handset industry, for instance, Apple commands nearly a third of all profits while being only the fifth largest vendor.
Bernstein Research analyst Toni Sacconaghi, quoted in an AllThingsD post, said: "Even if we exclude the operating losses generated by Motorola and Sony Ericsson, Apple still accounted for 25 percent of industry profits. iPhone's success is akin to Apple's position in the PC industry—where the company enjoys an estimated 25 percent of industry profits, despite capturing only 6 percent of industry revenues."
Apple, of course, is known for delivering stylish high-end products. Its MacBook Pro line consistently ranks among the highest performing laptops, according to the InfoWorld Test Center, a sister Web site to CIO.com.
Oppenheimer analyst Yair Reiner contends that Apple delivers good bang for the buck. He says iMacs, for instance, match up favorably against Dell and HP's All-in-One's on a price-to-performance basis. "Apple's pricing has been perpetually misrepresented and misunderstood over the years," he told me earlier this year. "With a few notable exceptions, such as the MacBook Pro, Apple has typically offered more hardware for the money than competitors."
Although Apple slashed the cost of MacBook Pro computers earlier this year, MacBook Pros are still some of the most expensive on the market—as are Macs, which has stymied Mac's numbers in the enterprise. "You can buy a PC for $400, while the cheapest Mac is over a thousand," Jon Graff, director of IT operations at A&E Television Networks, told me earlier this year.
So why is Apple successful on the high-end, high-margins of the market? Good technology is one reason, for sure. Another reason: it's much easier to capture the highpoint in a market you've reinvented. Put another way, Sacconaghi credits Apple's first mover advantage to its success.
"With the iPhone and its Apps Store, Apple has established a formidable smartphone ecosystem, which history suggests is very difficult to overcome," said Sacconaghi in the AllThingsD post. "In fact, Apple has the potential to become a de-facto standard of sorts in the consumer smartphone market ... due in large part to its first mover advantage and tight software and hardware integration."
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“”You can buy a PC for $400, while the cheapest Mac is over a thousand,” Jon Graff, director of IT operations at A&E Television Networks, told me earlier this year.”
I see the idiot has never heard of the Mac Mini. Then again, he does work for A&E, a very much struggling network....
Also, the secret to Apple’s success is not to be first to market - but to be the ‘best to market’ with tools and tech that actually do what is promised and actually ‘just work’. And don’t require an engineering degree to operate.
Simple, but almost nobody else seems to get it.
We can learn a lot from German marketing and engineering. Apparently Jobs has.
The problem with German engineering is that it’s not really very creative or disruptive. Apple has incorporated disruption into their product development process.
I respectfully disagree. Tell that to BMW, VW and Porsche.
In stark contrast to the bottom-up variety, top-down disruptive innovations actually outperform existing products when they’re introduced, and they sell for a premium price rather than at a discount. They’re initially purchased by the most discriminating and least price-sensitive buyers, and then they move steadily downward, into the mainstream, to recast the entire market in their own image. A top-down disruption is as revolutionary as a bottom-up one. But the good news for incumbents is that they have a much better chance of surviving, or even spearheading, the former than the latter.
BMW, VW and Porsche tend to do evolution and extrapolation rather than something completely and totally new, though.
They also tend to produce machinery that requires an engineering degree to service, and sometimes to use. And when they make a mistake it’s almost invariably spectacular. :P
Oh, I should also mention - German engineering may often work well, but long-term durability still remains an issue (in general).
We have gone far afield of this thread .... the BMW Hydrogen 7 comes to mind... using the 760Li engine and directly igniting the hydrogen in its internal combustion engine, unlike its competitors innovations.
[not to mention it burns petrol like crazy]
So this is why my German auto dealership gets $175./hour to open the hood? I knew there was a good reason. ;-D
I once took on the task of doing a light restoration of a 92 750iL.
Never again. :P
LOL ....you opened the bonnet?
Only factory trained and authorized technicians are allowed to do that....for all others it is verboten. We will be reporting you to zee authorities!
They won’t come anywhere near me.
You see, I have Jaguars. The Germans are afraid of being infected by Lucas.
Until recently, Jaguar and reliability couldn’t be used in the same sentence. Meh.
You must do you own mechanical work. ;)
Of course - but my 95 is one of the cars that beat out Lexus for the top spot in short, medium and long term quality back when JD Powers was actually doing scientific studies that could be peer reviewed.
My 87 was also pretty high up in the ratings of the day, as Jaguar had fixed almost all of the problems with the car by 84 (only to screw up royally with the all new 88 model...). Road And Track tried to kill several of them in a row and failed miserably - something that many other cars couldn’t claim.
Apple does not now, and never has owned the high end.
What it is good at is simple interfaces, and elegant casings.
Anyway, back on topic here - the Germans produce elegant engineering solutions but they’re rarely reliable in the long term and rarely are all that creative.
What’s more interesting is Brit engineering and design (separate from their construction); they have some brilliant and unorthodox engineering over there - they’re just hamstrung by unions, hidebound management and idiotic cheeseparing beancounters.
This is important, because Jobs’ chief designer is a Brit who was completely unappreciated in his own country - Jonathan Ives.
This will get you a nice LCD monitor plus a PC with Windows7
One that is great for 90% of computer users
Apple has snob appeal and overkill. More computer that what 90% of users need. I know this elderly couple that is on the internet 2 hours a week but have a blazing fast DSL connection because that is what they were sold on. OVERKILL here
I told them they could save $20/month by getting slower DSL. But they ain't listening
They already *have* LCD monitors and all the hardware. The Mac mini is designed to be a one for one swapout for the PC itself in an existing system.
The point is that the A&E CIO thinks that ‘the cheapest Mac is over a thousand’ which just is not true.
An EE (PhD) friend of mine says the Germans subscribe to a principle called TEO (Teutonic Engineering Overkill). I tend to agree with him. But, they make a damned fine car.
And for Father's Day I got Dad a Dell Inspiron (15-inch) laptop running Ubuntu for $350.
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