3 ms·

You are right about the ecosystem but that is not how Apple makes so much money. iPod and app/music sales are minor portions of Apple valuation. The main profit

by fspeech 14y ago

You are right about the ecosystem but that is not how Apple makes so much money. iPod and app/music sales are minor portions of Apple valuation. The main profit center is driven by high iPhone margins, which are carrier subsidized so that people upgrade without second thought. When there are good enough lower cost alternatives carriers have all the incentive to reduce the subsidy, which either show up as lower gross margin for Apple or higher prices for consumers (which leads to less upgrades and less unit volume). Pick your poison.

simonh 14y ago
I know that's not how they make their money, but it's a large part of their value proposition to customers. iPods might have been successful without iTunes, but nowhere near as much as they were with it. Just because something is free doesn't mean it has no value. That's the fundamental principle the free/libre software movement is built on, but they're not the only ones that can leverage the power of free. Apple is very sophisticated in the way they use free or break-even software and services to massively ratchet up the value of their paid-for products. There's not wishful thinking in any of this. Amazon and Apple are not startups, they are both mature businesses in their prime. They still have a lot of risks and opportunities ahead of them for sure, but Amazon started business I think 17 years ago. Arguably Apple's reconstruction into the company it is today started at around the same time with the NeXT acquisition and the return of Steve Jobs. That's a significant track record on which to evaluate them.
- fspeech 14y ago
  I mostly agree with what you are saying. The reason we are having a discussion here is that there are at least two ways to look at the fact that Apple enjoys both mass volume and high margin: 1. Apple has an amazing business. 2. Despite 1 it is not sustainable to have both mass volume and high margin. I am trying to come up with counter examples of point 2. Coca Cola, McDonald's and Microsoft come to mind, but they share a common characteristic in that these companies control a small but high margin part of their respective value chains. The end products that consumers actually buy (Coke, burgers and PCs) are mass volume and low margin.
  - simonh 14y ago
    I'd agree that mass volume and high margin is hard to pull off, and often proves unstable. I think this is why Apple often doesn't try to address all of a market. They only produce a handful of desktop and laptop models, they have resisted producing a large format phone (though I do expect that to change), etc. They value product consistency over feature and form factor proliferation. They are perfectly happy to occupy the high end of the market, and leave the low end to others.

by fspeech 14y ago

simonh 14y ago

I know that's not how they make their money, but it's a large part of their value proposition to customers. iPods might have been successful without iTunes, but nowhere near as much as they were with it. Just because something is free doesn't mean it has no value. That's the fundamental principle the free/libre software movement is built on, but they're not the only ones that can leverage the power of free. Apple is very sophisticated in the way they use free or break-even software and services to massively ratchet up the value of their paid-for products. There's not wishful thinking in any of this. Amazon and Apple are not startups, they are both mature businesses in their prime. They still have a lot of risks and opportunities ahead of them for sure, but Amazon started business I think 17 years ago. Arguably Apple's reconstruction into the company it is today started at around the same time with the NeXT acquisition and the return of Steve Jobs. That's a significant track record on which to evaluate them.

fspeech 14y ago
I mostly agree with what you are saying. The reason we are having a discussion here is that there are at least two ways to look at the fact that Apple enjoys both mass volume and high margin: 1. Apple has an amazing business. 2. Despite 1 it is not sustainable to have both mass volume and high margin. I am trying to come up with counter examples of point 2. Coca Cola, McDonald's and Microsoft come to mind, but they share a common characteristic in that these companies control a small but high margin part of their respective value chains. The end products that consumers actually buy (Coke, burgers and PCs) are mass volume and low margin.
- simonh 14y ago
  I'd agree that mass volume and high margin is hard to pull off, and often proves unstable. I think this is why Apple often doesn't try to address all of a market. They only produce a handful of desktop and laptop models, they have resisted producing a large format phone (though I do expect that to change), etc. They value product consistency over feature and form factor proliferation. They are perfectly happy to occupy the high end of the market, and leave the low end to others.