

Why there will be 2 new iPhones Announced, not 1. And Apple's next Pivot. - jboydyhacker
http://www.blindreason.org/2011/10/why-there-will-be-two-new-iphone-models.html

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saurik
"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
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
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.

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macavity23
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.

