Selling premium products for premium prices is Apple's value proposition to customers. When companies try to be all things to all people they are not long for this world.
Not in iPods. There Apple discovered they could sell in every segment with high margins, the key is product differentiation.
Even allowing for the dread car analogy I think Maserati vs cheap GM cars is off the mark.
Apple isn't making small market share exotica. They're not even making medium market share high end. They're making solidly competitive, beautifully engineered devices with best in the business user experiences which sells at mass market levels.
It's like selling a Lexus for Honda money while declining to compete at all in the entry level hatchback market. All things being equal a lot of people are going to go for the relatively cheap Lexus, but that still leaves a lot of room to sell lots and lots of much cheaper Kias, because for a lot of people price comes first. That does not mean Apple is likely to build a Kia like model to try and pick up those customers.
And of course the entire thing falls apart due to carrier subsidies, and I apologize for elaborating on a car analogy. Let's apply it to the iPad, which drives the whole cost structure even further down market while maintaining that sense of luxury quality and leaves very little room for entry level anything that doesn't fatally compromise key factors.
Yes the dreaded car analogy. The analogy, however was not intended to liken iPhones to Maserati's in terms of pricing structure, it was more to outline Apples core business model (which is to sell premium products at premium prices). Apple's vision actually aligns fairly nicely with some textbook theories on defining strategic competitive advantage in the marketplace. The first that comes to mind is Porters Product differentiation vs Low cost strategy, and the other is the theory of customer value propositions.
In customer value theory, companies try to maximize on their core competencies to deliver products that drive the perception of value to customers. Companies can focus on product leadership, operational excellence, low cost etc. A company can, at times balance two of these value proposition, but start adding more and balance is compromised.
Essentially these theories try to focus companies efforts so they don't end up claiming the "jack of all trades, but masters of none" moniker while slowing sliding out of market significance - which is all my argument was about.
Not in iPods. There Apple discovered they could sell in every segment with high margins, the key is product differentiation.
This is a very valid point, but is more the exception, and not the rule. However, it still aligns with what I said if you think back..
Apple never tried to offer the lowest cost products and compete with the bottom barrel MP3 players, it stuck to it's guns and charged the Apple premium on all it's lines.
The funny thing was, by that time competitors found out this was a viable strategy and started putting out products that could compete, Apple already had 80% of the market share and millions of people locked into the iTunes ecosystem.
Apple never tried to offer the lowest cost products and compete with the bottom barrel MP3 players, it stuck to it's guns and charged the Apple premium on all it's lines.
Yes, so the key question is will Apple find a way to offer a phone to lower end consumers which is both sufficiently differentiated from the top end to not cannibalize, but high enough build quality to still be an Apple product.
I can't see an obvious way for them to head down-market from the 3GS without sacrificing quality, but then I'm not an Apple exec, they may find a way. I could just about imagine them offering an iPod Nano based feature phone. iPod Voice perhaps?
Yes the dreaded car analogy. The analogy, however was not intended to liken iPhones to Maserati's in terms of pricing structure, it was more to outline Apples core business model (which is to sell premium products at premium prices). Apple's vision actually aligns fairly nicely with some textbook theories on defining strategic competitive advantage in the marketplace. The first that comes to mind is Porters Product differentiation vs Low cost strategy, and the other is the theory of customer value propositions.
In customer value theory, companies try to maximize on their core competencies to deliver products that drive the perception of value to customers. Companies can focus on product leadership, operational excellence, low cost etc. A company can, at times balance two of these value proposition, but start adding more and balance is compromised.
Essentially these theories try to focus companies efforts so they don't end up claiming the "jack of all trades, but masters of none" moniker while slowing sliding out of market significance - which is all my argument was about.
However my point being that Apple, with its iOS products, isn't actually in the "premium product at premium prices" business any longer. They're arguably in the premium product at mass market prices business, if not (as in the case of the iPad) premium product at industry leading value pricing business.
Which of course accounts for Apple's meteoric rise in revenues and profits over the last few years. Take away carrier subsidies creating artificially low Android pricing and they're consistently selling best in class for the same money as everyone else across the iOS line, and everyone else are having to forgo profits just to match Apple's pricing and stay in the game.
In other words Apple has set a bar for minimum quality and maximum pricing. I've yet to see a non-subsidized device that can equal Apple's quality for any less than Apple's pricing, and Apple is achieving that at higher margins than the competition.
It's a very different world from the old Mac paradigm, and even there, as with the Mac Air, we're seeing aggressively priced products that are sufficiently differentiated from run of the mill PCs to make the case for their value proposition-- that is, the Air is sufficiently different to not come off as a premium priced netbook or laptop but rather a value priced ultraportable with excellent features and build quality.
In short, Apple saw that there was no way to change the price/value equation in the PC world so that made up an entirely new equation within which they are free to establish new norms.
Just curious. . . Do all these handset manufacturers announce their net profits from mobile phones, Apple included? I've never seen them, so I'm assuming the "analysts" are simply making a semi-educated guess? I'm not sure.
Some of the handset makers only really make handsets, such as Sony-Ericsson Motorola Mobility, and perhaps HTC. Some such as Nokia break out handsets pretty clearly, others only segment by revenue, or just unit sales, and analysts will have to work back a little. Apple for example give us their unit sales in each division and Analysts have to estimate it from there.
It's not an exact science, but one can definitely produce a very solid estimate.
I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?
Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?
If AAPL 'slashed' their prices to increase demand do you think they could get their CM's to double in capacity overnight?? I think they are operating about as efficiently and strategically as a company can. I get a kick about all the talk about the number of Android phones vs. iPhones being provisioned....it is really all about the profits.
Just curious. . . Do all these handset manufacturers announce their net profits from mobile phones, Apple included? I've never seen them, so I'm assuming the "analysts" are simply making a semi-educated guess? I'm not sure.
Of course they are making an educated guess for most of the companies.
But it's substantially more than "semi".
One, many of the component costs - even adjusting for quantity discounts - are well-known thus providing an estimate of CGS. Allocation of SG&A is not rocket science. Therefore, even allowing for some room for error in the SG&A estimates, the numbers are likely very meaningful, with a fairly high degree of precision.
Two, unlike having to make a forecast of the future (which is inherently more difficult and error-prone), what they're doing here is trying to deconstruct the past - a much easier task for those who spend their lives studying the industry.
The fact that you're "not sure" may not mean much, since it's highly likely that most investors think that these are fairly decent estimates.
We can add to low R&D costs do to efficiency. We can see this in their correlation between OS X flavours Mac OS and iOS, and the use of the same basic HW across the iPhone, iPod Touch and iPad. All these things quickly bring them into the black so when you couple that with excessive unit sales you get an amazing profit margin even whilst being on par (or even cheaper) than the competition for a comparable product.
If my inside sources are accurate - the Apple R&D teams are kept small and focussed, and they are combined with other teams during production development to ensure that everything is covered end-to-end for a given device - interesting when you compare it to the siloing that most other comapnies allow to develop in their product space. This is where Apple, as the hardware company that does OS and software, or the OS company that does software and hardware, or the software company that does hardware and OS sharply differentiates against competitors like Moto, HTC or Samsung and is similar to other platform competitors like RIM, (until recently) Nokia, and (soon) HP.
RIM is differentiated because they also supply the server-side BES infrastructure and provide communication services, we all got to witness the arranged marriage of Nokia and Microsoft (and know where that's going to go), and the jury is still out on whether HP has the vision and stubbornness to develop WebOS as a true fully functional and cross-hardware OS, or if they will half-ass it and continue with the dependency on Microsoft.
You compare Apple's approach for example with Microsoft (where I also have inside sources), which is heavily siloed, and which was the source of issues with Vista. It was only once they forced the teams to work together that they were able to clean-up Vista and re-release it as Windows 7 much more successfully. I haven't heard that they have actually embraced de-siloing at Redmond - it sounds mostly like a unique remedy situation and not a lessons-learned. Time will tell.
The fact that you're "not sure" may not mean much, since it's highly likely that most investors think that these are fairly decent estimates.
With most of the profitable tech companies following the general market up/down trends, I'm not sure it even means much to investors (tho it does mean something to me).
You compare Apple's approach for example with Microsoft (where I also have inside sources), which is heavily siloed, and which was the source of issues with Vista.
You don't need inside sources to know that Microsoft's baronial internal structure is infamous, it's the reason that Office was never released for their previous tablet computing attempts.
And Gil Amelio has a bachelors, masters, and PhD in physics from the Georgia Institute of Technology.
That sound? Me sinking your battleship.
...hence the fallacy of assuming degree ownership by itself is reason for failure or compromised performance. Gil was not even bad at running Apple. He at least was able to see where the problems were and begin the strategy to recover the company - by eventually buying NeXT (as opposed to BeOS), among other things. His rep prior to and after leaving Apple is solid.
With state and community colleges offering MBAs to any who care to earn them, the tendency is to declared the degree devalued and of no effective use. Like many other benchmarks, the actual proof is in the performance - you judge the talent and skill of the MBA holder (since the degree itself instead of being a threshold of excellence simply becomes the basis for comparison between the holders). You can (for example) have the best set of tools in the world, but if you don't have the skills and experience to use them correctly, they simply become a more sophisticated and higher quality way of making a mess.
Of course they are making an educated guess for most of the companies.
Most of the big companies actually give clearly segmented numbers, or are so focused on handsets that there's no need to segment them - the exceptions would be Apple, Samsung and probably LG. I'm not even sure that Samsung don't, but their accounts are so complicated due to the mass of cross-holdings that I couldn't make head or tail of them when I last tried. After seeing Samsung I decided that I wasn't interested enough to dare LGs
They don't need to. The success of the iPhone clearly points to them having the correct price point. They are not going to go trawling the bottom of the barrel to compete with Android. They don't have to, and I'm glad they are not doing that.
While Tim stopped short of explicitly stating that Apple would pursue a lower price iPhone, he did state that Apple was working hard to ?figure out? the prepaid market and that Apple didn?t want its products to be ?just for the rich,? but ?for everyone?; he also stated that Apple ?understood price is big factor in the prepaid market? and that the company was ?not ceding any market.?
With most of the profitable tech companies following the general market up/down trends, I'm not sure it even means much to investors (tho it does mean something to me).
Nokia and RIM are, for example, still quite 'profitable.' Why don't you check to see whether and how their price movements in the past year compare to that of Apple and the "....general market up/down trends" before making such statements or figuring that "it means something" (whatever that is) to you.
Or, do that for Cisco. Or Sony. Or, say, HP. Would you like me to give you some more examples?
Comments
Cook has an MBA from Duke University.
And, Ron Johnson (the about-to-depart retail store genius) an MBA from Harvard, and Peter Oppemheimer from Univ of Santa Clara.
I bet Steve Jobs has a MBA considering how light and portable they are.
I bet Steve Jobs has a MBA considering how light and portable they are.
Wish the Cambridge Apple Store was in Harvard Square
I bet Steve Jobs has a MBA considering how light and portable they are.
http://books.google.com/books?id=O1y...urce=gbs_gdata
You mean this?
And Gil Amelio has a bachelors, masters, and PhD in physics from the Georgia Institute of Technology.
That sound? Me sinking your battleship.
GIl Amelio brought Steve back, so he's hardly the anti-Steve. That would be Michael Spindler or John Sculley.
Selling premium products for premium prices is Apple's value proposition to customers. When companies try to be all things to all people they are not long for this world.
Not in iPods. There Apple discovered they could sell in every segment with high margins, the key is product differentiation.
Even allowing for the dread car analogy I think Maserati vs cheap GM cars is off the mark.
Apple isn't making small market share exotica. They're not even making medium market share high end. They're making solidly competitive, beautifully engineered devices with best in the business user experiences which sells at mass market levels.
It's like selling a Lexus for Honda money while declining to compete at all in the entry level hatchback market. All things being equal a lot of people are going to go for the relatively cheap Lexus, but that still leaves a lot of room to sell lots and lots of much cheaper Kias, because for a lot of people price comes first. That does not mean Apple is likely to build a Kia like model to try and pick up those customers.
And of course the entire thing falls apart due to carrier subsidies, and I apologize for elaborating on a car analogy. Let's apply it to the iPad, which drives the whole cost structure even further down market while maintaining that sense of luxury quality and leaves very little room for entry level anything that doesn't fatally compromise key factors.
Yes the dreaded car analogy. The analogy, however was not intended to liken iPhones to Maserati's in terms of pricing structure, it was more to outline Apples core business model (which is to sell premium products at premium prices). Apple's vision actually aligns fairly nicely with some textbook theories on defining strategic competitive advantage in the marketplace. The first that comes to mind is Porters Product differentiation vs Low cost strategy, and the other is the theory of customer value propositions.
In customer value theory, companies try to maximize on their core competencies to deliver products that drive the perception of value to customers. Companies can focus on product leadership, operational excellence, low cost etc. A company can, at times balance two of these value proposition, but start adding more and balance is compromised.
Essentially these theories try to focus companies efforts so they don't end up claiming the "jack of all trades, but masters of none" moniker while slowing sliding out of market significance - which is all my argument was about.
Not in iPods. There Apple discovered they could sell in every segment with high margins, the key is product differentiation.
This is a very valid point, but is more the exception, and not the rule. However, it still aligns with what I said if you think back..
Apple never tried to offer the lowest cost products and compete with the bottom barrel MP3 players, it stuck to it's guns and charged the Apple premium on all it's lines.
The funny thing was, by that time competitors found out this was a viable strategy and started putting out products that could compete, Apple already had 80% of the market share and millions of people locked into the iTunes ecosystem.
Apple never tried to offer the lowest cost products and compete with the bottom barrel MP3 players, it stuck to it's guns and charged the Apple premium on all it's lines.
Yes, so the key question is will Apple find a way to offer a phone to lower end consumers which is both sufficiently differentiated from the top end to not cannibalize, but high enough build quality to still be an Apple product.
I can't see an obvious way for them to head down-market from the 3GS without sacrificing quality, but then I'm not an Apple exec, they may find a way. I could just about imagine them offering an iPod Nano based feature phone. iPod Voice perhaps?
Yes the dreaded car analogy. The analogy, however was not intended to liken iPhones to Maserati's in terms of pricing structure, it was more to outline Apples core business model (which is to sell premium products at premium prices). Apple's vision actually aligns fairly nicely with some textbook theories on defining strategic competitive advantage in the marketplace. The first that comes to mind is Porters Product differentiation vs Low cost strategy, and the other is the theory of customer value propositions.
In customer value theory, companies try to maximize on their core competencies to deliver products that drive the perception of value to customers. Companies can focus on product leadership, operational excellence, low cost etc. A company can, at times balance two of these value proposition, but start adding more and balance is compromised.
Essentially these theories try to focus companies efforts so they don't end up claiming the "jack of all trades, but masters of none" moniker while slowing sliding out of market significance - which is all my argument was about.
However my point being that Apple, with its iOS products, isn't actually in the "premium product at premium prices" business any longer. They're arguably in the premium product at mass market prices business, if not (as in the case of the iPad) premium product at industry leading value pricing business.
Which of course accounts for Apple's meteoric rise in revenues and profits over the last few years. Take away carrier subsidies creating artificially low Android pricing and they're consistently selling best in class for the same money as everyone else across the iOS line, and everyone else are having to forgo profits just to match Apple's pricing and stay in the game.
In other words Apple has set a bar for minimum quality and maximum pricing. I've yet to see a non-subsidized device that can equal Apple's quality for any less than Apple's pricing, and Apple is achieving that at higher margins than the competition.
It's a very different world from the old Mac paradigm, and even there, as with the Mac Air, we're seeing aggressively priced products that are sufficiently differentiated from run of the mill PCs to make the case for their value proposition-- that is, the Air is sufficiently different to not come off as a premium priced netbook or laptop but rather a value priced ultraportable with excellent features and build quality.
In short, Apple saw that there was no way to change the price/value equation in the PC world so that made up an entirely new equation within which they are free to establish new norms.
Just curious. . . Do all these handset manufacturers announce their net profits from mobile phones, Apple included? I've never seen them, so I'm assuming the "analysts" are simply making a semi-educated guess? I'm not sure.
Some of the handset makers only really make handsets, such as Sony-Ericsson Motorola Mobility, and perhaps HTC. Some such as Nokia break out handsets pretty clearly, others only segment by revenue, or just unit sales, and analysts will have to work back a little. Apple for example give us their unit sales in each division and Analysts have to estimate it from there.
It's not an exact science, but one can definitely produce a very solid estimate.
I know that it's the nature of a capitalist company to maximize profits, but -- since Apple is sitting on a hoard of cash, and apparently winning the handset profit race by a huge margin, why not slash prices on the iPhone line and really put the competition against the ropes?
Again, I'm not saying Apple *shouldn't* make money where it can. But if it could slash iPhone prices, still make some profit, and - say - get RIM out of the game, or seize back a big chunk of the mindless masses who're buying Android phones - wouldn't that be a good thing? Especially in the long term?
If AAPL 'slashed' their prices to increase demand do you think they could get their CM's to double in capacity overnight?? I think they are operating about as efficiently and strategically as a company can. I get a kick about all the talk about the number of Android phones vs. iPhones being provisioned....it is really all about the profits.
Just curious. . . Do all these handset manufacturers announce their net profits from mobile phones, Apple included? I've never seen them, so I'm assuming the "analysts" are simply making a semi-educated guess? I'm not sure.
Of course they are making an educated guess for most of the companies.
But it's substantially more than "semi".
One, many of the component costs - even adjusting for quantity discounts - are well-known thus providing an estimate of CGS. Allocation of SG&A is not rocket science. Therefore, even allowing for some room for error in the SG&A estimates, the numbers are likely very meaningful, with a fairly high degree of precision.
Two, unlike having to make a forecast of the future (which is inherently more difficult and error-prone), what they're doing here is trying to deconstruct the past - a much easier task for those who spend their lives studying the industry.
The fact that you're "not sure" may not mean much, since it's highly likely that most investors think that these are fairly decent estimates.
We can add to low R&D costs do to efficiency. We can see this in their correlation between OS X flavours Mac OS and iOS, and the use of the same basic HW across the iPhone, iPod Touch and iPad. All these things quickly bring them into the black so when you couple that with excessive unit sales you get an amazing profit margin even whilst being on par (or even cheaper) than the competition for a comparable product.
If my inside sources are accurate - the Apple R&D teams are kept small and focussed, and they are combined with other teams during production development to ensure that everything is covered end-to-end for a given device - interesting when you compare it to the siloing that most other comapnies allow to develop in their product space. This is where Apple, as the hardware company that does OS and software, or the OS company that does software and hardware, or the software company that does hardware and OS sharply differentiates against competitors like Moto, HTC or Samsung and is similar to other platform competitors like RIM, (until recently) Nokia, and (soon) HP.
RIM is differentiated because they also supply the server-side BES infrastructure and provide communication services, we all got to witness the arranged marriage of Nokia and Microsoft (and know where that's going to go), and the jury is still out on whether HP has the vision and stubbornness to develop WebOS as a true fully functional and cross-hardware OS, or if they will half-ass it and continue with the dependency on Microsoft.
You compare Apple's approach for example with Microsoft (where I also have inside sources), which is heavily siloed, and which was the source of issues with Vista. It was only once they forced the teams to work together that they were able to clean-up Vista and re-release it as Windows 7 much more successfully. I haven't heard that they have actually embraced de-siloing at Redmond - it sounds mostly like a unique remedy situation and not a lessons-learned. Time will tell.
The fact that you're "not sure" may not mean much, since it's highly likely that most investors think that these are fairly decent estimates.
With most of the profitable tech companies following the general market up/down trends, I'm not sure it even means much to investors (tho it does mean something to me).
You compare Apple's approach for example with Microsoft (where I also have inside sources), which is heavily siloed, and which was the source of issues with Vista.
You don't need inside sources to know that
And Gil Amelio has a bachelors, masters, and PhD in physics from the Georgia Institute of Technology.
That sound? Me sinking your battleship.
...hence the fallacy of assuming degree ownership by itself is reason for failure or compromised performance. Gil was not even bad at running Apple. He at least was able to see where the problems were and begin the strategy to recover the company - by eventually buying NeXT (as opposed to BeOS), among other things. His rep prior to and after leaving Apple is solid.
With state and community colleges offering MBAs to any who care to earn them, the tendency is to declared the degree devalued and of no effective use. Like many other benchmarks, the actual proof is in the performance - you judge the talent and skill of the MBA holder (since the degree itself instead of being a threshold of excellence simply becomes the basis for comparison between the holders). You can (for example) have the best set of tools in the world, but if you don't have the skills and experience to use them correctly, they simply become a more sophisticated and higher quality way of making a mess.
Of course they are making an educated guess for most of the companies.
Most of the big companies actually give clearly segmented numbers, or are so focused on handsets that there's no need to segment them - the exceptions would be Apple, Samsung and probably LG. I'm not even sure that Samsung don't, but their accounts are so complicated due to the mass of cross-holdings that I couldn't make head or tail of them when I last tried. After seeing Samsung I decided that I wasn't interested enough to dare LGs
They don't need to. The success of the iPhone clearly points to them having the correct price point. They are not going to go trawling the bottom of the barrel to compete with Android. They don't have to, and I'm glad they are not doing that.
While Tim stopped short of explicitly stating that Apple would pursue a lower price iPhone, he did state that Apple was working hard to ?figure out? the prepaid market and that Apple didn?t want its products to be ?just for the rich,? but ?for everyone?; he also stated that Apple ?understood price is big factor in the prepaid market? and that the company was ?not ceding any market.?
http://9to5mac.com/2011/02/28/tim-co...just-the-rich/
Skip
PS And yes, IF Apple was to make their OS available to others, there might not be any others
With most of the profitable tech companies following the general market up/down trends, I'm not sure it even means much to investors (tho it does mean something to me).
Nokia and RIM are, for example, still quite 'profitable.' Why don't you check to see whether and how their price movements in the past year compare to that of Apple and the "....general market up/down trends" before making such statements or figuring that "it means something" (whatever that is) to you.
Or, do that for Cisco. Or Sony. Or, say, HP. Would you like me to give you some more examples?