Sep 11

Crapware: the search for lost profit

Apple enjoyed pointing out the difference

Everyone knows that crapware is just a fact of life in the PC world.

From my conversations with people, I’m not sure they understand why.

Basically, it has to do with profit margins in the world of PCs. Or, should I say, the lack of them. When competition became fierce in PC-land many years ago, the PC makers had to compensate for the fact that they were cutting their prices to the bone. So they started renting out their spare rooms to strangers, so to speak.

It was only about three years ago that I attended an advertising meeting with the chief marketer in Dell’s consumer division. He had crafted his plan to meet sales targets for the coming year.

(Note: in marketing meetings inside Apple, we absolutely never talked about meeting sales targets. We only talked about doing good ads. The operating theory was that if we did our job right, higher sales would be the result.)

At the proper point in the meeting, Mr. Marketer made mention of the crapware on Dell computers. And yes, he called it crapware. He pointed out that margins being what they were, crapware actually accounted for just about all the profit on each sale. He invited the agency to come up with new suggestions for companies who might want to join the club — and pay Dell for the right to clutter up their PCs just a little more.

Macs, of course, don’t have this problem. You might get a demo copy of iWork, but that’s about it. Two reasons for this: (A) Macs have a very high profit margin, and (B) Steve Jobs has taste. He was no more willing to bloat a Mac with crapware than he was to slap one of those perma-bonded Intel Inside stickers on his MacBook Air.

Macs have that higher profit margin because those who buy Macs place a value on what Apple brings to the party: design, simplicity and reliability. They’re willing to pay more to get more.

The end result: while Apple makes only 7% of the revenues in PCs, its products account for 35% of the entire industry’s operating profits. Seems to be pretty good incentive for Apple to continue working just the way it does. No crapware allowed.

Now that mobile devices are dominating technology, history is repeating itself.

Crapware wasn’t even a thought on the first smartphones. Now it’s becoming ubiquitous. Same reason as above: intense competition has carriers scrambling for profits. Apple continues not to scramble.

Interestingly, in this category, it’s not like Apple products cost so much more. Thanks to Tim Cook’s operating skills, it’s not easy for competitors to undercut the price of iPhones and iPads. So even at a similar price, Apple pulls in the lion’s share of this category’s profit as well — literally two thirds of the available profit, according to Asymco’s last report.

What’s a smartphone seller to do? Crapware to the rescue!

Mike Jennings reports his crapware findings for PC Pro. In a wide range of Android phones, he found a treasure trove of crapware installed by carriers: multiple app stores, security software, game demos, etc., etc. While you can remove this stuff from PCs with a little effort, not so with smartphones. Most of it is here to stay, installed in such a way that it can’t be removed by the user.

Of course, those who don’t care about such things will continue to point out the benefits of an “open” system. Those who do care about such things will go with the phone maker who also cares about such things — and help pump up their profits even more.

Tags: , , ,

  • Pingback: iPhone vs. Android « ScottWorld Blog: My Rants and Raves()

  • bladrnr

    Spot on! Great analysis as usual.

  • *sigh*

    “…those who don’t care about such things will continue to point out the benefits of an “open” system. Those who do care about such things will go with the phone maker who also cares about such things”

    Right, because there are only two choices: you care about openness OR you care about quality. Are you intentionally ignoring Google’s own Nexus devices, or are you just unaware of them?

    If it’s the former, you’re guilty of lame partisan hackery, which benefits no one in the long run. Why does this even need to be partisan? Promoting what Apple does well is informative and helpful! Pretending that none of their competitors do those things well grossly skews discussion and it’s flatly dishonest.

    If it’s the latter, I question if you’re really qualified to play industry analyst on this level, particularly when you go as far as to implicitly tell people what to buy. A mobile pundit comparing platforms should have at least a passing understanding of a *platform creator’s own offerings*. I don’t think that’s an unreasonable expectation.

    I sincerely hope this was simply a case of ignorance; this is an otherwise excellent article marred with a lame, needlessly polarizing, misleading conclusion.

  • ken segall

    Not sure why you’d start by quoting me word for word, then mischaracterize what I said in the very next sentence. I never said that the choice was between openness and quality.

    This article is about crapware — why it exists and where it exists. I’m assuming you won’t dispute the basic truth: crapware is a by-product of an open OS.

    I don’t believe this invalidates Android. I’m sure many would argue that the benefits of an open system far outweigh the annoyance of crapware or fragmentation (both of which have been heavily blogged about).

    That’s why, in my last paragraph, I said that those who didn’t care about crapware would continue to favor the openness of Android, and those who preferred to live in a more controlled environment would prefer Apple.

    My intent with that paragraph was to keep the discussion on the platform level. Crapware is an issue on one platform and a non-issue on the other. You’re absolutely correct that if one looks for it, he/she can find an Android phone that does not suffer from crapware.

    I should also point out that when I say things like “for those who care..,” I truly mean to be objective. I believe that people like you or me (readers of technology blogs) think a hell of lot more about this stuff than your average phone buyer. Most will just buy a phone and enjoy it for what it is.

    However, in the same sense, I don’t think that the average person will distinguish between an Android phone made by “the platform creator” vs. any other. To ordinary civilians, Android is Android. And I certainly wouldn’t expect Google to advertise that theirs is “the crapware-free Android” — as that would pit them directly against their many partners.

    Bottom line: I don’t think crapware is going to bring down the Android empire. I simply think it’s one more difference between the platforms.

  • Jens Knutson

    First, thanks for your thoughtful reply. I’ll try to be more brief this time.

    On reading your followup, I think my issue with the piece came down to two things – the first was what felt like an overall “prescriptive” feel in the article, which informed a lot of the rest of my interpretation. But you’ve said you intended it descriptively/objectively, and I can’t point out specifics to explain the prescriptive feeling, so I’m chalking this up to a subjective misunderstanding on my part. My apologies for any mischaracterizations; they were sincere mistakes.

    The other bit is this (quoting from your reply here instead, since I feel it’s a more direct wording): “That’s why, in my last paragraph, I said that those who didn’t care about crapware would continue to favor the openness of Android…” It’s the “don’t care” part. Favoring openness doesn’t mean you *don’t care* about crapware, it means you *do care* about openness, but are willing either to tolerate crapware, or to do a bit of homework when making a purchase.

    Just saying that one doesn’t care is a significant over-simplification to me. Perhaps I’m simply over-analyzing the specific wording of “don’t care” though, and anyone else would understand what you intended. (Note to self: that’s probably the case here.)

    Anyway, thanks again for your clarifications & comments – much appreciated.

  • ken segall

    Suddenly I think we’re in much more agreement than disagreement. As I said in the follow-up, many believe that the benefits of openness outweigh other issues, and that’s certainly their right. It’s not that they “don’t care” about crapware, it’s that they “care more” for the principal of openness.

    So … thanks for reading and thanks for making your points. I really don’t expect everyone to agree with me. That’s part of the fun of it.

  • Bill

    First- I HATE CAPTCHA Code !! I DESPISE IT!!

    Second- I hate all the crapware o Android and therefore either I find a vanilla one , finds a service to root AND KEEP IT MAINTAINED THRU ALL THE UPDATES OF CRAP WARE or just buy an iPhone and stop the idiot game of poising my hardware.
    If you keep buying the crap ware they will keep selling it.When i report to verizon that I would rather pay more for the product than to have all the crap on it, my report falls on deaf, and even laughing ears.
    So screw them, I’ll go elsewhere and if a decent part of the population could read, they would too !
    I WILL NEVER BUY ANOTHER CRAP FILLED PHONE, LAPTOP, or other device for the rest of my life ! if they pull the old ” well we really don’t have a working device for you to try cause it would cost too much” I’ll say “I thought you said returns cost you too much !” and the BS fight begins..I hate sales”persons” as well LIARS THIEVES….
    So stop buying crap, stop buying extended warranties, insist on SERVICE America and the whippings will end!

  • Pingback: What Happens When Hardware Makers Can Make No Profit | Naofumi Kagami()