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> Apple makes 100x more margin per device than Foxxcon It's important to note that it's not necessarily labor-vs-capital. Capital-vs-capital also exhibits the

> Apple makes 100x more margin per device than Foxxcon It's important to note that it's not necessarily labor-vs-capital. Capital-vs-capital also exhibits the same dynamics. One might argue that Foxcon's business model is providing low margin manufacturing manpower; and that the real value-added is in an design and R&D of an always-connected device that fits into the pocket. But there's a counterpoint - mobile connectivity requires radio networks. There's no a-priori reason why Apple should make 60% margins, while Nokia and Ericsson barely break even. Radio networks also require a lot of R&D, are designed in Western countries and their business model is not about exporting cheap labor. The key difference is the power disparity. Nokia/Ericsson are facing powerful network operators, some of them close to an order of magnitude larger than the vendors themselves. The operators dictate the terms of the deal, the vendors have to adapt. With Apple - they're facing customers. Apple dictates the terms, customers have to adapt. In fact, 6 out 7 largest corporations by market cap (the odd one out is Saudi Aramco) are all in the same position as Apple - power dynamics heavily tilted their way.

jollybean 5y ago
So I agree with a lot of that, but Apple is different than the Big Oil companies. Market power is usually a function of competition - so mobile devices have a dynamic where in some ways (verticalized platforms), that's limited. Apple also has systematic leverage from their Mac and other products and expertise. Finally is the Brand and Marketing intangible. Nike doesn't have any 'real power' other than that, but they wield it well. So those three things together, and scale, give them leverage. The other immensely powerful players are the carriers. They have a kind of bought monopoly / oligarchy over airwaves - while they do pay into the public purse in the form of auctions, in reality, it's not a very competitive market. They reap massive revenues from their position. That said - these companies are kind of older, they have unions, and they are not hyper efficient, and they don't post the same margins as Apple, and because there's limited growth in a market, it's not likely their stock will be highly leveraged. The Carriers have immense power in some ways like Apple, but it's just that they don't have the apparent surpluses and glowing stock price due to the systematic power of their own entrenched bureaucracies. Finally you have equipment vendors. They're an essential component, but the reality is the market is much smaller, there's no direct to consumer relationship, no recurring revenues, they have China nipping at their heels. So they are in a somewhat weaker position. Also - the CCP has directed the Chinese Banking system to offer cheap loans for Huawei gear, a kind of Economic Dumping which is totally against free trade but it's like heroin to buying parties who can forgo huge cash outflows. If carriers were dynamic and efficiently run without a lot of the legacy and went with fewer storefronts - and - somehow 'got good at marketing' - and - Apple wasn't quite as good at marketing and especially if they were like Android i.e. licenced their OS, then carriers would rival Apple for power. Big Oils dominance comes from massive scale and systematic integration into the economy, geopolitical leverage (literally the US Armed Forces secure their supply chain), major geostrategic interventions (the state will represent Oil Companies or work with them), etc. etc.. If we were not facing Green Crisis then I suggest they would be much more powerful, as they were historically.

jollybean 5y ago

So I agree with a lot of that, but Apple is different than the Big Oil companies. Market power is usually a function of competition - so mobile devices have a dynamic where in some ways (verticalized platforms), that's limited. Apple also has systematic leverage from their Mac and other products and expertise. Finally is the Brand and Marketing intangible. Nike doesn't have any 'real power' other than that, but they wield it well. So those three things together, and scale, give them leverage. The other immensely powerful players are the carriers. They have a kind of bought monopoly / oligarchy over airwaves - while they do pay into the public purse in the form of auctions, in reality, it's not a very competitive market. They reap massive revenues from their position. That said - these companies are kind of older, they have unions, and they are not hyper efficient, and they don't post the same margins as Apple, and because there's limited growth in a market, it's not likely their stock will be highly leveraged. The Carriers have immense power in some ways like Apple, but it's just that they don't have the apparent surpluses and glowing stock price due to the systematic power of their own entrenched bureaucracies. Finally you have equipment vendors. They're an essential component, but the reality is the market is much smaller, there's no direct to consumer relationship, no recurring revenues, they have China nipping at their heels. So they are in a somewhat weaker position. Also - the CCP has directed the Chinese Banking system to offer cheap loans for Huawei gear, a kind of Economic Dumping which is totally against free trade but it's like heroin to buying parties who can forgo huge cash outflows. If carriers were dynamic and efficiently run without a lot of the legacy and went with fewer storefronts - and - somehow 'got good at marketing' - and - Apple wasn't quite as good at marketing and especially if they were like Android i.e. licenced their OS, then carriers would rival Apple for power. Big Oils dominance comes from massive scale and systematic integration into the economy, geopolitical leverage (literally the US Armed Forces secure their supply chain), major geostrategic interventions (the state will represent Oil Companies or work with them), etc. etc.. If we were not facing Green Crisis then I suggest they would be much more powerful, as they were historically.