
With 8.7% market share, Apple has 75% of cell phone profits - csomar
http://tech.fortune.cnn.com/2012/02/03/with-8-7-market-share-apple-has-75-of-cell-phone-profits/
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pg
That is an astounding graph. I didn't consciously realize this till the
example of Apple made it clear a few years ago, but market share is actually
an unambitious thing to aim for. When people treat market share as a proxy for
profit share, they're implicitly assuming all the competitors are roughly
equivalent. But Apple shows that if your products are sufficiently more
desirable than competitors', you can make market share and profit share
diverge.

~~~
sliverstorm
They can only diverge so far though. For example, Apple needs a reasonably
sized slice of the pie to maintain the App Store. If they had 0.1% of the
market, there would be drastically fewer people willing to write apps.

~~~
sliverstorm
Another thought- market share is often desirable not only for profit, but
influence in that market.

Clearly Apple has demonstrated you do not require market dominance to
influence or even drive the market, but their success in that regard does not
appear to be easy to replicate.

~~~
_delirium
Large market share might also lead to more stable profits, though I'd want to
look at empirical evidence before saying for sure. Large profits on small
market share reeks of an unstable situation, because at least in theory very
high margins shouldn't be stable in the face of functioning competitive
markets. My guess would be that high profit margins can evaporate overnight
more easily than large market share can evaporate overnight (look at how long
AOL has been cashing in on the very slow draw-down of its once-large customer
base). Though it probably depends on how fast the market typically turns over.
On the other hand, arguably Apple is in something of a luxury goods segment,
and economists have long recognized that luxury goods operate in strange ways
when compared to "normal" neoclassical markets.

~~~
dasil003
Yes, but AOL is a subscription service. Phones last 2-3 years tops. In that
time frame if your product is made obsolete you can lose your pants overnight
regardless of whether you sell 10s or 100s of millions of units today. Large
marketshare is no guarantee of anything in the fickle tech world (look at
Nokia), so I'll take profit over marketshare.

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GavinB
While this is extremely positive for Apple, it isn't necessarily bad news for
Google and Microsoft--their profits and losses simply aren't captured by this
chart. It compares profit from a firm that makes both software and hardware
with firms that only make the hardware.

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wazoox
As was noticed a long time ago on roughlydrafted.com (before it became a pure
fanboi site without anything interesting to say), it's exactly the same in the
PC market. Apple grabs something like 80% of the market in PC over 1000$,
hence they grab almost all of the hardware margin; then Microsoft grabs most
of what remains, and all PC makers are fighting over breadcrumbs.

~~~
Stormbringer
Yes, but they're much happier making budget hardware, handing over the
majority of their profit to Microsoft and fighting tooth and nail over bread
crumbs than they would be otherwise. Gotta pursue your dream dont'cha know.
It's a freedom thing. Also, even if they make a loss, they will make it back
in volume. (since that appears to be their _actual business strategy_ ,
whether to place sarcasm tags around the preceeding sentence is left as an
exercise for the reader)

Small nitpick: roughlydrafted was _always_ a pure fanboi site with little or
nothing of interest to say.

~~~
white_devil
He's certainly a fanboi, but he's been very insightful too.

~~~
Stormbringer
he suffers from Gruber-syndrome.

Which is to say, that he will argue till the cows come home that market share
is udderly (sic) irrelevant...

...right up until Apple gets a market share lead in something, when he will
whip out the megaphone and start screaming about how "we" are winning now.

He's _almost_ as bad as the people who - in complete disregard of the facts,
keep slamming Apple no matter what they do.

------
2muchcoffeeman
Apple went from 4% market share with 50% profits sometime in 2010, to 8.7%
market share with 75% profits. Which seems to imply they are also making their
devices, on average, cheaper.

Is this the start of them slowly adjusting their prices to grab some more
market share? Especially now that they actually have phone models to serve
multiple segments of the mobile phone market?

~~~
schiffern
Or pie got larger, which seems more likely.

Most of the price of the device is negotiated with the carrier, not the
consumer. So a "free" device is really $600, and a "$199" device is $800.

~~~
jamesaguilar
Or the profit everyone else was making went down. Apple could make a dollar of
profit on $50 billion sales and if everyone else was losing money, that'd
still be 100% profit share. Still wouldn't be good for an Apple investor. As
much as market share is a poor metric, profit share has similar problems.

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alexdarlington
This reminds me of something mentioned in a (very interesting) lecture that
hinted there is some deeper fundamental reason for apple's advantage. The clip
is: <http://www.youtube.com/watch?v=9RYXqCtsZsc> (watch from 21:00 for the
exact part).

It claims that Apple has some major advantage in terms of capital cost for the
devices themselves. It mentions their chips but I don't see how they can have
such a major advantage.

I'd love to hear if anyone has any insights into how they might be able to
have radically lower costs.

The guy seems pretty credible.

~~~
angstrom
He's talking about the supply chain optimization. One example is the dram
chips used to build the iphone came from Samsung. They were sourced at
quantities so large they are actually cheaper for Apple's iPhone than they are
for Samsung's own phones. Streamlined products where the only segmentation is
storage space make this possible. They can actually request such a large order
their competitors can't match and get squeezed to the end of the manufacturing
line while also paying more. To match they have to spend more. This hurts even
more if your'e not controlling the distribution.

To the average non-techie all they have to decide is what color and storage
size they want. This makes the device friendlier to consumers and takes away
stress of understanding the hardware choices. The customer is actually happier
if they don't have too many choices. People pay as much for this as they do
the curated apps.

~~~
pja
I've read elsewhere that Apple also started fronting the capital for the plant
investment required to build the components they need, in return for very
favourable lock-in agreements ("We will always be able to buy your product at
10% less than anyone else." That kind of thing.)

In short, Apple is thinking big & thinking long term all the time & they are
reaping the benefits. Even if you don't like the products (and I personally
find the whole walled garden thing somewhat creepy) you have to recognise that
their strategic thinking is what's lead them to this dominant position in
terms of profits.

(There's also the taking advantage of something approximating slave labour in
China thing of course, but sadly that's hardly limited to Apple: like
everything else they just seem to be better at it than anyone else is.)

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robin_reala
It’s worth pointing out that this isn’t profit share of the entire global
market, but profit share of the space occupied by 8 competing phone companies.
There is of course a lot to be gleaned from this chart, but I’d like to see
the same with an ‘Other’ bracket too.

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rythie
I wonder if the innovator's dilemma will apply here, with cheap Android phones
(and Windows too) catching up with the iPhone and they can no longer charge a
premium.

~~~
erikpukinskis
I doubt it, for several reasons.

1) The premium is invisible at the point of purchase... the iPhone 3GS is
free, and the iPhone 4 costs $99.

Where Apple seems to be getting its profits are in the prices paid by the
networks. I'm sure Verizon would love to pay Apple the same rate for the
iPhone that it pays for, say, the HTC Rezound. But if Verizon drops the
Rezound from their lineup, no one will care. If they drop the iPhone, they're
going to lose share, because a substantial chunk of those customers will
slowly bleed off to AT&T.

And AT&T is not going to play hardball with Apple. AT&T has witnessed first
hand what having Apple in your corner does to your marketshare, and they will
not fuck with that.

2) Android doesn't actually have a price advantage. IPhones aren't more
expensive to build than Android phones, nor are the licensing costs cheaper.
Apple has strong supply chain and patent advantages here, matched perhaps only
by Samsung.

3) Achieving parity with Apple is proving pretty difficult. Android has
strategic innovations in licensing and openness, but Apple has strategic
innovations in supply chain, battery life, credit card database, and design
that are entrenched. Entrenched in that even if Google/Samsung put their
organizational oomph behind matching them, it's not certain they would
succeed.

~~~
stinkytaco
>AT&T has witnessed first hand what having Apple in your corner does to your
marketshare, and they will not fuck with that.

I'm pretty sure AT&T/Cingular was the largest wireless provider before the
iPhone. Perhaps the iPhone kept them going while they would have been bleeding
to Verizon*, but it's hard to say.

~~~
Anechoic
_I'm pretty sure AT &T/Cingular was the largest wireless provider before the
iPhone._

Nope: [http://www.engadget.com/2007/04/11/verizon-retakes-us-
wirele...](http://www.engadget.com/2007/04/11/verizon-retakes-us-wireless-
subscriber-lead-from-atandt/)

~~~
stinkytaco
Hmmm... so much of those numbers are confused not by actual subscriber
decisions though, but by mergers (Cingular/AT&T then Verizon/Alltel). It's
very difficult to say how the iPhone affected market share because companies
were busy buying and selling subscribers. I'd like to see new user contracts
between June 30, 2007 (iPhone release) and now. But... not enough that I'm
going to go digging.

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brudgers
I take any comparison between Apple and Samsung financials with a grain of
salt. The two companies have vastly different reporting requirements and
ownership/control structures.

To a lesser degree, this also applies to the other not-US companies listed.

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nl
It's also interesting how well Samsung has protected its profits.

Q4 2008 was the only time they really struggled, but their Android devices
seem to have done well in gaining the share back quickly and protecting it
well.

~~~
m_for_monkey
And, more surprisingly, the same for is true RIM, except the last quarter.
Nokia is the big looser.

------
nutanc
So this proves yet again that Apple products are ridiculously priced :)

~~~
Cadsby
Perhaps the carriers feel that way, but price points for consumers are:

1\. Free 2\. $99 3\. $199

~~~
namdnay
The figures aren't just for the US. So they include many countries where
bundling phones and contracts is either illegal (some Nordic countries) or
dying fast (e.g. France since Free)

------
nasmorn
In Austria people take Android smartphones for free with their contracts but
outside of a hardcore geek circles I have never heard of anyone paying up
front for one. They are simply cheap enough to be a substitute for
featurephones. I know people earning less than 1500$ per month who pony up
300eur and 40 per month for an iphone. At least here Apple has won the
smartphone wars.

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neutronicus
Is this because Apple sells so many more high-end phones than (say) HTC? Or is
this because HTC has lower margins on its high-end offerings?

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swombat
Small nitpick...

"As the iPhone's share of the market in terms of units shipped has grown from
3% in second quarter of 2010 to 8.7% last quarter, Apple's share of the
profits has swelled from 39% to 75%"

Eyeballing the graph, it doesn't look to me like Apple's share of the profits
was 39% in Q2 2010, more like 60%. Anyone else see this?

~~~
bobbles
It appears to reach from around the 50% mark on the graph to the 90% mark.. so
39% looks ok to me

------
bryanh
Obligatory comment about competing on features/image/design/story/etc..
anything but price.

~~~
sliverstorm
I cannot agree with this, at least not entirely. While it is a risky path to
tread, historically market leaders have leveraged price to very great effect
against newcomers, and newcomers have done the same to crack open closed
markets.

See Hyundai, for example. For the past few years they have been leveraging
price to gain entry to the North American auto business. It's working.

~~~
_delirium
Also worked for Wal-Mart and Amazon. Everyone else (local bookstores, boutique
retailers, etc.) is desperately trying to compete on everything but price, but
Wal-Mart and Amazon continue to steamroller them primarily by winning on
price.

~~~
bryanh
Good points. I guess my comment was a bit too all-inclusive.

------
pinaceae
lessons learned:

1., There is no such thing as a loss leader. If it doesn't make money, cut it.
Apple TV is considered a hobby - but it is profitable. Yes, there is a grey
area, but at Apple it is very small.

2., Your company runs on money, not market share. This has to be the focus.
How can you guarantee the constant influx of enough money? Satisfied customers
pay more, pay more often. The quick buck loses you money long-term.

3., Focus. You can't manage hundreds of products. you confuse your customer.
Do a few things and do them extremely well. Makes it also easier to market,
analyze, etc.

~~~
swombat
_1., There is no such thing as a loss leader. If it doesn't make money, cut
it. Apple TV is considered a hobby - but it is profitable. Yes, there is a
grey area, but at Apple it is very small._

Pretty sure Apple itself contradicts this. Afaik, the iTunes music store was
in fact run as a loss leader for some time, before Apple was in a position to
argue for better terms. For all I know, it might still be a loss leader
(though I doubt that).

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equilibrium
first thing that came to mind <http://en.wikipedia.org/wiki/Pareto_principle>

------
unabridged
What is the time lag on this graph? How much of Apple profits are from
amortized phone contracts that are now 2yrs old?

~~~
VengefulCynic
As of Q1 2010, Apple uses reporting that accounts for the revenues and profits
of phones in the quarter that they're received.
(<http://investor.apple.com/financials.cfm> \- the Form 10-K/A explains the
changes on accounting principles on the Form 10-K from how they used to be
(amortized over 8 quarters) and how they are now (all reported in the quarter
where they're received.))

------
bwarp
I think that's a sign that you're paying too much for an iPhone.

------
abstractfactory
I don't doubt that Apple has vastly greater profits than any of its
competitors, but stats like this are cooked to make the ratio seem even more
impressive than it already is. The notion that a feature phone and an iPhone
are substantially in the same market is silly. It's akin to categorizing
ThinkPads and land line handsets as part of the same market. Of course,
journalists optimize for the most dramatic headline, not the most informative
or truthful article, so we're not going to see many apples-to-apples
comparisons on this subject in the tech press.

Also I have a non-rhetorical question. Apple, and several of the competitors
graphed here, have many lines of non-smartphone products. Is this graph
tracking the profit/loss of their smartphone divisions only, or profits of the
company as a whole? If the latter, then the comparison is silly, isn't it? And
if it's the former, how does this analyst account for costs shared among
multiple divisions, such as iOS development (which is a cost that's shared
with their iPad and to some extent even their Mac divisions)?

~~~
dasil003
Your first paragraph is fallacious.

If the graph includes feature phones then that will necessarily dilute Apple's
profits since they do not make a feature phone. Therefore that makes Apple's
numbers appear less impressive.

I don't have an answer to your questions, but I'm sure Mr. Dediu would be
happy to answer them transparently. He's not a journalist cooking sensational
stats, he's a serious amateur analyst who tries to make revealing graphs with
an intellectual honesty that is refreshing and a community-driven feedback
process that is producing better punditry than most of the professionals. I
know a lot of people have a chip on their shoulder about Apple, but it is
possible to be both interested and impressed by Apple and also still be a
rational observer.

~~~
abstractfactory
The headline manufactures drama from the contrast between "8.7% market share
[in units sold]" and 75% of profits. This is the silly part of the coverage.

It's not Dediu's fault that Elmer-Dewitt at CNN Money chose to be ridiculous,
so your defense of Dediu's integrity is beside the point.

~~~
rimantas

      > This is the silly part of the coverage.
    

Can you explain what's so silly about it? It's a fact, and fascinating one,
I'd say.

