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Why there will be 2 new iPhones Announced, not 1. And Apple's next Pivot.

6 points by jboydyhacker 15y ago

saurik 15y ago
"Even if they used a loss leader strategy, they'd make more on the music, movies, software and services per unit then they made a few years ago per unit sold." iPhone 4 margin: ~$170 $1 app margin: ~$0.15 (probably much lower, even) Apple would need to sell >1000 $1 apps per iPhone in order to make as much profit as they do on the phone itself. Software is /not/ something that should be included in Apple's bottom line: they do that only to make their hardware more attractive, and to push more units. As for "services", the only one they had previously was Mobile Me, a service they are now doing away with, replaced by iCloud (a service that is free for most types of users). That leaves music and movies: while I totally agree that this strategy makes sense with an AppleTV, and to some extent with iPods, it doesn't really jive well with the iPhone... the margin on music is probably even lower than that of apps, and a very large number of people who get an iPhone, especially if they were getting a "value edition", are actually looking for a phone. In essence: the inclusion of this in the argument indicates a lack of understanding of Apple's business model. If Apple were to go "value edition" with one of their devices, it would need to be carefully done to target some uncharted territory, maybe "emerging markets", as if it cuts into their existing iPhone business by even 10%, they are /not/ making that up in "software, music, and services".
- jboydyhacker 15y ago
  The smartphone market is mature. I don't believe people are going to be buying iPhones at the same rate they used to in the past-- i.e. once every new year or once every 2 years. With less turnover, Apple has to rely much more on selling services and market share. It's probably going to migrate much higher in years for the average consumer. I'd also argue that your assumptions on the purchasing of services may not give apple enough credit. If someone was just buying it for a phone and didn't plan to buy icloud, music, videos etc, then they probably wouldn't be buying an iPhone to begin with. A cheaper phone that is still up to date, gets apple in the game so they can convert a lot of these "phone only users" to buyers of their services.
  - saurik 15y ago
    I did not make a claim that users don't buy these things: I showed the profit margin from, for example, an app, and demonstrated that each user would need to buy 1000 of them per iPhone. Almost everyone with an iPhone uses apps, and a very large number even use paid ones, but that doesn't mean it is an important figure in Apple's financials. So yes: I agree that the fact that you can do all of those things with the iPhone is /why/ people get iPhones (and in fact stated something similar in my earlier comment), but the money actually comes from the sale of the hardware: not the "services, music, and videos". That said, I think the balance shifts drastically with the AppleTV: everyone I know with an AppleTV rents tons of stuff from iTunes due to the increased ease; and I can see the argument for iPods as well: if you are an iPod-user, you have bought into a specific vision of "music on the go". But seriously: take survey of everyone you know who has an iPhone, and ask the question "where is the margin"; given your response, I think you will be surprised of the answer. And really: this isn't a ding against Apple... it is to Apple's credit that they seem to understand "where the money is", while all of their competitors fight over scraps.
macavity23 15y ago
Off-topic: that unscrollable navigation bar at the top of that page is very annoying. Takes up the specific part of my browser I look at when reading articles.

6 points by jboydyhacker 15y ago

"Even if they used a loss leader strategy, they'd make more on the music, movies, software and services per unit then they made a few years ago per unit sold." iPhone 4 margin: ~$170 $1 app margin: ~$0.15 (probably much lower, even) Apple would need to sell >1000 $1 apps per iPhone in order to make as much profit as they do on the phone itself. Software is /not/ something that should be included in Apple's bottom line: they do that only to make their hardware more attractive, and to push more units. As for "services", the only one they had previously was Mobile Me, a service they are now doing away with, replaced by iCloud (a service that is free for most types of users). That leaves music and movies: while I totally agree that this strategy makes sense with an AppleTV, and to some extent with iPods, it doesn't really jive well with the iPhone... the margin on music is probably even lower than that of apps, and a very large number of people who get an iPhone, especially if they were getting a "value edition", are actually looking for a phone. In essence: the inclusion of this in the argument indicates a lack of understanding of Apple's business model. If Apple were to go "value edition" with one of their devices, it would need to be carefully done to target some uncharted territory, maybe "emerging markets", as if it cuts into their existing iPhone business by even 10%, they are /not/ making that up in "software, music, and services".

jboydyhacker 15y ago
The smartphone market is mature. I don't believe people are going to be buying iPhones at the same rate they used to in the past-- i.e. once every new year or once every 2 years. With less turnover, Apple has to rely much more on selling services and market share. It's probably going to migrate much higher in years for the average consumer. I'd also argue that your assumptions on the purchasing of services may not give apple enough credit. If someone was just buying it for a phone and didn't plan to buy icloud, music, videos etc, then they probably wouldn't be buying an iPhone to begin with. A cheaper phone that is still up to date, gets apple in the game so they can convert a lot of these "phone only users" to buyers of their services.
- saurik 15y ago
  I did not make a claim that users don't buy these things: I showed the profit margin from, for example, an app, and demonstrated that each user would need to buy 1000 of them per iPhone. Almost everyone with an iPhone uses apps, and a very large number even use paid ones, but that doesn't mean it is an important figure in Apple's financials. So yes: I agree that the fact that you can do all of those things with the iPhone is /why/ people get iPhones (and in fact stated something similar in my earlier comment), but the money actually comes from the sale of the hardware: not the "services, music, and videos". That said, I think the balance shifts drastically with the AppleTV: everyone I know with an AppleTV rents tons of stuff from iTunes due to the increased ease; and I can see the argument for iPods as well: if you are an iPod-user, you have bought into a specific vision of "music on the go". But seriously: take survey of everyone you know who has an iPhone, and ask the question "where is the margin"; given your response, I think you will be surprised of the answer. And really: this isn't a ding against Apple... it is to Apple's credit that they seem to understand "where the money is", while all of their competitors fight over scraps.

macavity23 15y ago

Off-topic: that unscrollable navigation bar at the top of that page is very annoying. Takes up the specific part of my browser I look at when reading articles.