Farhad Manjoo, writing for the New York Times:
In many fundamental ways, the iPhone breaks the rules of business, especially the rules of the tech business. Those rules have more or less always held that hardware devices keep getting cheaper and less profitable over time. That happens because hardware is easy to commoditize; what seems magical today is widely copied and becomes commonplace tomorrow. It happened in personal computers; it happened in servers; it happened in cameras, music players, and — despite Apple’s best efforts — it may be happening in tablets.
All this is true.
Instead of killing Apple, commoditization caused something stranger — it hobbled Apple’s main competitor in the smartphone business: Samsung, which until last year was gaining a creeping share of the profits in the smartphone business. At its peak in mid-2013, Samsung was making close to half of every dollar in the smartphone business, according to the research firm Canaccord. (Apple was making the other half.)
But the rise of low-end, pretty great Android phones made by Chinese upstarts like Xiaomi — and the surging popularity of Apple’s large-screen iPhones — put Samsung in a bind. In July, Samsung reported its seventh straight quarter of declining profits. Canaccord’s latest estimate shows Samsung making 15 percent of profits in smartphones, with Apple making 92 percent. (The numbers add up to more than 100 because everyone else in the smartphone industry loses money, so their share of the profits is negative.)
You can expect Apple’s proportion to grow. As analysts at Credit Suisse explained in a note last week, only about 30 percent of the world’s 400 million iPhone users have upgraded to the large-screen models Apple introduced last year. Apple is bound to reap more money as the majority of its users inevitably jump to big phones over the next few years. In other words, for the foreseeable future, Apple stands virtually alone: It may be the only company making any money selling phones.
Cream rises to the top. Continued innovation (and a strong, well-protected ecosystem) protects Apple from commoditization.
Looks like the rules of business need to be rewritten. Sustainability and quality should be key to the future. Not waste and devastation of the planet.
Break the rules it may do but isn’t this the same pattern we’ve seen emerge in the desktop / laptop business? Everyone else got involved in a race to the bottom and by the time they worked out it was a bad idea Apple was so entrenched at the top end it became very difficult to convince those punters to go anywhere else.
In fairness I feel a bit sorry for Samsung (there’s something I never thought I’d say…). In the last year or two they’ve at least gone their own way a bit more and make some very nice kit indeed. Certainly from what I’ve seen and tried they’re definitely the premier handset in the Android world. Unfortunately they were late to the party and are now finding Android in general moving to a lower price point. If they’d managed to win their audience over with design and quality before that happened they may have been okay.
As it is though it ain’t looking good. Which is frustrating for me because a company with Samsuung’s production muscle should have been able to produce something remarkable. If they’d been less concerned with duplicating the iPhone they could have picked up Nokia’s mantle as producers of very nice and occasionally weird handsets. Ah well.
I think Apple’s secret is what P.T. Barnum said; “Always leave them wanting more.” The incremental update strategy keeps people wanting their products. After yesterday’s event there are now three types of iPad customers, people who will buy the iPad Pro because they were waiting for the features it offers; people who will buy another model because, now that they know what they are, those features aren’t as big a deal; and people who will wait for those Pro features to come to the smaller iPads, which is likely. That’s three lines of customers.
Actually it didn’t happen in music players. Apple’s iPod ruled throughout that market’s rise and fall.
After reading your whole comment I understand what you’re saying, but after reading just the first two sentences I thought it was pretty cynical. So I’m going to address just that, even though I understand it’s not what you meant…
I’m not sure what Apple could do differently. They’re incapable of building the Ultimate, No Ideas Left At All device. There will always be half baked ideas, things requiring hardware support that’s not ready, things they haven’t dreamed up yet, things requiring a series of moves across their product lines.
I suppose it really does come down to how often they ship. If you ship every six months it’s nothing but churn. If you ship ever two years, you build up two years of ideas waiting to ship. I guess yearly is right for iOS devices.
It’s interesting we didn’t see an iPad Air 2. I wonder what exactly that means. Is the iPad Air 2 the king of the 9.7″ lineup for six months? Another full year?
I didn’t mean to sound cynical, but I really think they plan their schedule and dole out their ideas slowly. Whether it’s to build acceptance or gain a foothold.
They come up with many ideas and decide which one or two to pursue for the next product launch. But they don’t ditch the other ideas. Those get refined into something better. I’m sure they came up with a plan for a larger iPad at the same time they released the iPad mini, but they refined it and released it only when it was ready, when there was demand, when batteries got better, etc.
I’m not saying the should make the End All, Be All device, but I’m certain they’re working on the next big thing (and probably the thing after that). They lay the foundation for their products first, like when they said ‘make your apps scalable’ long before they released different screen sizes or Slide Over.
Where I work, we’re always refining what we are doing. Things change, technology advances, and it takes time to refine the new “things” into the kind of feature Apple would allow on to their devices.
With Apple’s size, they are darn nimble in terms of execution in making more product than General Motors in terms of tonnage, let alone numbers of things. I think they do astoundingly well, and no other company could do even close to what they do.
Apple also plays a shrewd strategy game. They’ll accelerate a product or feature if they perceive an opportunity gap that needs filling. Even if that means it’s only parboiled. The iPad Pro is just barely gonna make it’s stage cue for the oh-so important holiday season. As a result, this could satisfy the current slump in tablet sales and/or shut out any competitors vying for a CES launch of their own Pro tablet in January. I believe the Pro has been on the back burner for a while, looking for a good excuse to come to the fore.
For the record, you didn’t sound cynical. 🙂 Was just my reaction to the start. The whole was quite balanced.
Do you have any evidence they’ve just been sitting on this, fully formed, for any length of time? Maybe hoping it hatches like an egg because, damnit, sitting on it is more important than revenue?