28
Sep 10

Apple’s biggest object of lust

Since its near-death experience in 1997, Apple has been propelled by its ability to create technology lust.

Some people covet their neighbor’s iPad. Others pray for a Christmas iPod. Still others crave a new iPhone to replace the 3G that suddenly feels so pathetic.

Capitalism 101: the company with the best business plan wins in the end

But Apple’s most important object of lust isn’t something you can carry in your pocket.

It’s a business model.

All around the world, CEOs and their executive teams stare at Apple’s model, fantasizing that they can build one even half as effective. But somehow reality always seems to get in the way.

Put simply, Apple has built a business that allows it to make far more profit than the other guys — by selling far fewer products.

As was reported last week, Apple sells a mere 3% of the world’s smartphones (correction: cell phones), yet it pulls in 39% of the category’s profits — more than the top three phone makers combined. It achieves almost identical results in PCs. Worldwide, Apple gets 7% of the computer revenue while it brings home 35% of the operating profit.

This is because Apple has built a super-powerful brand. Just about anyone on earth can tell you what it stands for: innovation and design. Millions will happily pay more for an Apple product, because they believe it’s worth it.

Right on cue, many will chime in, “but their products are overpriced,” “Apple is too controlling,” “they censor apps,” “I can’t play Flash on my iPhone,” or whatever happens to be the whine of the day.

These people miss the point.

Technology is a business. Selling a product people want is part of the business. Selling a product profitably is the other part. If you can’t do both, you might as well pack it in now.

Rude as it may sound, Apple doesn’t care if you don’t like their products, or if you think they are evil incarnate. If that’s the way you feel, you’re simply not their target. No hard feelings, just move along. What Apple proves day after day is that there are millions of people in this world who do appreciate the experience they offer, and that this number is getting bigger, not smaller.

Other companies can lust after Apple’s business model, but they can’t duplicate it. At least not quickly. What Apple has today is the result of 14 years of nurturing since Steve Jobs returned to the company.

What about Android, you ask. Its market share is fast rising, right? That means big trouble for Apple’s precious business model, right?

Actually, not. Google is about to prove the superiority of Apple’s model all over again.

There will be plenty of ecstatic Android customers, all believing they got the phone of their dreams. But the makers of those phones will be slugging it out over ever-diminishing profit margins, making only a fraction of the money that Apple does.

Apple has baked it into their business model: they may not win the popularity contest, but they will always win the profitability contest.

That’s definitely worthy of a little lust.

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  • Synth

    Good article, but Apple’s 3% share in the article you referred, is a 3% share of all cell phones sold, not just smart-phones. Apple has a much bigger share of the smart-phone market.

    But yes, Nokia, for example, wastes a lot of time, energy, staffing, money, etc. selling 100 million dumb phones every year, seeming to think that they can make up their losses with ever higher volumes.

    Meanwhile, Apple makes money off of every single particle of the iDevice universe–the hardware, the apps, the peripherals, the e-books, the iAds, the music, the movies, the TV shows and even an extra retail cut from their own retail network.

  • ken segall

    @Synth:
    Whoops, my mistake. It was all cell phones, not just smartphones. But that makes the numbers even more impressive: Apple sold 3% of the world’s cell phones and took 39% of the profit in the category. That’s a pretty sobering fact for the Nokias of the world.

  • ChuckO

    and so that’s 39% of all cellphone profit, right? I thought I had read Apple is getting just about ALL the profit in smartphones.

    Here’s some additional fuel for your fire.

    Android’s Pursuit of the Biggest Losers:

    http://www.asymco.com/2010/08/17/androids-pursuit-of-the-biggest-losers/

  • ken segall

    Thanks, ChuckO. An interesting read.

  • Daniel

    @ken segall
    Great artice, thank you.

    “But that makes the numbers even more impressive: Apple sold 3% of the world’s cell phones and took 39% of the profit in the category.”
    I think that makes it not comparable. Because if the smartphone category is only 4% of all cell phones, then Apple sold the 3/4 of it and made only the ca. 1/3 profit. It would be good to know the profit % of Apple from all cell phones, or Apple share of the smart-phone market.

  • ken segall

    @Daniel:
    19% of the world’s cell phones are smartphones. Apple’s market share in smartphones is 24%.

    So, Apple has less than a quarter of a market that is only 19% of the total market — yet it takes 39% of the total market profits.

    That’s fairly impressive :)

  • Daniel

    Thank you! :)

  • NY Creative

    My Mac laptop recently experienced a fatal crash. So, I borrowed a Dell PC laptop from a friend while I waited for my Mac IT guy to return from a trip to Asia so he could help me set up my new Mac laptop. I was amazed at how cheap the Dell really was. The keys all seemed to jiggle, like they were too small for the space they fit in. The built-in speakers were crappy. And every time I needed to use a piece of software (like Microsoft Word running on a Windows OS), there were issues. Some piece of the software was missing, or needed to be reloaded, or who knows what. Issues that I never have with my Mac. So, what I’m driving at is that there are good reasons why I’m willing to spend considerably more on a Mac than a PC that go beyond simply buying the Apple brand. I really believe that their computers are designed and built better. Now, when you get into comparing the iPhone to the Android (which I haven’t personally), this may not be the case. But, certainly with laptops and desktops, it hard to beat the Mac.

  • Terrific article.

    “If that’s the way you feel, you’re simply not their target. No hard feelings, just move along.” That silently actually has been the attitude of every Mac user for a very long time and has almost acquired a cult following.

    I was a PC user forever cursing the overpriced Mac’s, complaining about not being able to use the mouse as smoothly in the Apple stores, or the fact that CTRL+ATL+DEL dosen’t work. It was only after I bought a Macbook for myself that I realized what a great machine it is.

    I agree hands down with NY Creative, They may be expensive compared to their PC couterparts, but are absolute value for money when it comes to performance and exploiting your own creative potential.

    The craze and frenzy surrounding the launch of a new Apple product in the recent times has redefined Marketing textbooks.

    What I love about the company is the passion and hunger in the top man. Who despite being as old as he is (young at heart ;) ) is out there selling his new product and always pushing innovating like you cannot imagine. I bet those guys in 1 Infinite loop are still on their toes thinking how the iphone 5 can better even though competition hasn’t come close to making an iPhone 4.

  • Daniel
  • Aun Ahmed

    Terrifically written it might be, but i was expecting elaboration on HOW Apple does rather than on WHAT it does. Only one prominence about its business model was pointed out-that about its product line.

  • ken segall

    @Aun:
    The “how” is fairly obvious: Apple revolutionizes new categories with beautifully designed, easy-to-use, high-quality products. The point of this article is that those who condemn Apple for being overpriced, overly controlling or whatever fail to understand that Apple doesn’t care a bit about pleasing everyone. They appeal only to those who appreciate quality, design and simplicity — and by doing, they pull in far more profit than all of their competitors.

    Apple makes more money because they have a superior business model. Few would argue this. And few can copy this, because it isn’t something that can be done overnight. Apple has a loyal following because they’ve been creating one revolution after another for the last 14 years: iMac, iPod, iPhone and iPad. Apple’s business model isn’t the kind you can concoct on a spreadsheet — you have to earn it. And you can only do that by making great products over a significant period of time.