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Another way that I like to express that is "create a desert of profitability around you".

I once had a strategy professor define the Google business model somewhat like that, where "Google tries to make every other business around it free or irrelevant". It results in a few different effects:

- By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on. This shifts profits along the value chain to that link. One example is dramatically reducing the cost of phones and internet access, thus allowing customers to spend more time and money online, which generates revenue and profits for Google

- By making the other links free or irrelevant, you reduce the odds that a competitor in those links will strengthen their position and will extract more profits from the rest of the value chain. One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google

A desert of profitability shifts consumers to you, and keeps competitors away.




Exactly, most people don't realize this simple strategy and worship at the altar of Google for giving "free" software.

e.g Chrome is free and google wants to push for web technologies only because their cash cow (Web Advertising) can keep generating profits as long as there are more web users specially the ones whose behavior can be easily tracked on their browser.


> Exactly, most people don't realize this simple strategy and worship at the altar of Google for giving "free" software.

Yeah, people should stop idealizing and worshiping companies. Apple is only pursuing "privacy" because it tried and failed miserably at user monetization, but it won't think twice about handing over all your data to the government (like they did in China) if that's the best business options.

They're all companies, they're here to make a profit.

That's one reason why I find it easier to trust companies than to trust governments. I know exactly what companies want, so I can predict how they'll act.

Companies are that "friend" who will always get money from your wallet, whenever they have a chance. Governments are those friends who swear they are on your side and want to help and protect you, but will sneak their fingers into your wallet whenever you're not looking.


I think it’s more nuanced than that. Culture and values do matter in some companies, and, they are used in daily interactions. This will yield different results. Apple is no saint, but much more aligned with my values than google for example.


Governments are in the business of creating monopolies.


- By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on. This shifts profits along the value chain to that link.

By this logic, the biggest force in the universe preventing micropayments by tying media to the tawdry, corrupting mechanism of advertising, is Google.

A desert of profitability shifts consumers to you, and keeps competitors away.

Cities are supposed to impoverish the regions directly around them in this way, as well.


> By this logic, the biggest force in the universe preventing micropayments by linking media to the tawdry, corrupting mechanism of advertising, is Google.

No, it is users being willing to pay. The vast majority of users are far more ok with being shown ads than paying the equivalent of the cost of the ad to have it go away.


The vast majority of users are far more ok with being shown ads than paying the equivalent of the cost of the ad to have it go away.

What if the ad were not in the picture at all, and you had low friction micropayments? There are YouTube channels which eschew advertisements and get most of their money from Patreon instead. There are other channels that have been demonetized against their will and have gone this route as well. It's workable, and yet, Patreon is far from the lowest friction it could achieve.

If there was some party able to make micropayments work, and able to make them not ever work, it would be Google.


> What if the ad were not in the picture at all, and you had low friction micropayments?

Again, people don't want to pay for content. Between one website asking you to pay $0.10 to view an article, and another offering it for free but showing ads, people will pick the free one.

And Google has been trying: https://www.theguardian.com/technology/2014/nov/21/google-co...

But it is really hard to convince people to pay, when they can get it for free.


You wouldn't pay 10 cents though. You'd pay 1 one thousandth of a cent.

I could absolutely image people being willing to pay 1 one thousandth of a cent to read an article.


> I could absolutely image people being willing to pay 1 one thousandth of a cent to read an article.

Oh, no, way more than that. Take a look at CPMs and ad costs. If your claim was true, and an article had 5 ads, every impression would cost 1/20,000 of a cent, and the CPM would be 5 cents.

Actual CPMs are a few dollars per thousand impressions, up to 10+ in developed markets. Which means that in the US, and article with, say, 5 ads would probably require you to pay 5 cents to view that article.

Take a look at the articles of ad-paid publications: you're more likely to see 10+ ads per page.


I don't think this analysis is valid. There are far more viewer entities than there are advertisers. In the current market, one party is trying to sell eyeballs to advertisers through a middleman. In a micropayment content market, it would be creators selling directly to audience. I think you're making the same kind of mistake when early computer pioneers thought there would be no more than hundreds of computers and no one would ever want one in their home. I both cases, the conceit is that both markets are the same, when in reality, the two markets are entirely different.

I'm sure you could have used the same conceit with cable TV to prove that something like YouTube would never work.


> In a micropayment content market, it would be creators selling directly to audience.

It doesn't matter, you'd still need to generate the same level of revenue than the ad-supported business, or even more, to justify the switch.

If you didn't, content creators would just stay in the ad-supported business.

> I'm sure you could have used the same conceit with cable TV to prove that something like YouTube would never work.

That doesn't apply here. We're talking about providing the same content with a different monetization strategy. YT wasn't about the monetization strategy, but about a different type of content.


Which I always found insane... something like 90% of revenue comes in 1-2 ads. Throwing more up on a page decreases the experience far more imho than eaking out a few more cents.


And Google has been trying:

Not quite the same thing. It's one thing to be extorted by ads in order to pay. There's a lot of content for which advertisement doesn't work, so there's no extortion to shut off ads. Google doesn't want to facilitate that content for some reason. It wants to squash it.


> Google doesn't want to facilitate that content for some reason. It wants to squash it.

Isn't it providing more tools for easy media subscription? I used it to subscribe to the NYT pretty quickly not too long ago.

But hey, if you really believe that there's a significant business opportunity there, go do it!


What if automatic micropayments were made on content request? Directly from the browser.


Nobody would pay for them.

You're not getting to the real problem: if a user can see an article with ads for free, or pay 10 cents, that user will most likely opt for the free version.

And you can't compete with free.


Nobody would pay for them.

I would.

if a user can see an article with ads for free, or pay 10 cents, that user will most likely opt for the free version.

There is quite a bit of content for which ads don't work, for which people are only too happy to pay. Reduce the friction for that, and the market would increase.

YouTube just slaughtered a bunch of WeedTube channels. Then, there's also GunTube. That content definitely has an audience. That audience definitely is willing to pay! Why isn't someone making something with less friction than Patreon?


> I would.

Sure, 1 user. Maybe even a million users. Well, the solution for that exists: subscriptions.

But nobody will build a system for such a small number of users.

> That content definitely has an audience. That audience definitely is willing to pay!

Sure, niche markets always exist. HBO makes money out of subscriptions, The NYT too. If you can find a niche audience that's willing to pay for your content, that makes it a viable business model for you.

But that doesn't scale across the billions of users on the internet. Particularly when you include the 1.5 billion who are not in rich countries.


Well, the solution for that exists: subscriptions.

I think it's still a bit too high in friction. I think there's yet another model possible.

Sure, niche markets always exist. HBO makes money out of subscriptions, The NYT too. If you can find a niche audience that's willing to pay for your content, that makes it a viable business model for you.

A lot of those niches aren't advertiser friendly. Subscription kind of works already. There must be something with lower friction yet.

But that doesn't scale across the billions of users on the internet. Particularly when you include the 1.5 billion who are not in rich countries.

I don't see why micropayments couldn't work on adjusted scales. We already have different prices for things depending on the market. Also, it's a problem that somewhat fixes itself, automatically. A website relevant to low-income rural people outside the 1st world won't be able to charge as much as a 1st world website, but it might well be able to charge enough to greatly benefit the operator anyways.


> I think there's yet another model possible.

Oh, sure, there could be, but I wouldn't invest my money in trying to prove that.

What number of users do you think would be willing to pay how much for all the content they access for free today?

Are you willing to pay 10 cents for every single ad-supported website you visit?


It's hard to charge money for entertainment, because there's so much of it for free. The exception is content that is expensive, unique, and hard - something like a great book or a TV series, or a bundle of those.

But for content with deep value for the user - helping him advance his life(improving skills,health,finance ), and that is hard to copy, users do pay - for example for books, courses, bundles of articles, access to some communities.

But why aren't we seeing micro-payments for deep value content, at the article level ? Because legally "copying" a single article offers no barrier to competition.

But maybe articles of deep value with a lot of valuable graphical content, will both raise the barrier to competition high-enough, and bring enough value to the user, that he will be willing to pay enough.


Blendle tries but is struggling. It does not seem to work, not enough subscribers, unhappy papers ( uhh, advertisers ).


Thing us that our easiest way to pay online are credit cards.

But credit cards suck for the kind of small payments the web warrants.

Also, what is the chance that we would pay and get shown ads anyways?

For me it is not ads, full stop, that are the problem. but distracting/disturbing ads unrelated to what i am reading at the time.


> Cities are supposed to impoverish the regions directly around them in this way, as well.

This doesn't make any sense. Cities exist as trading hubs: where people trade labor, services and goods.

Why are you bringing cities into this anyway? Makes no sense at all...


This doesn't make any sense. Cities exist as trading hubs: where people trade labor, services and goods.

This is also true. However, the centralization causes various forms of impoverishment -- which you might also describe as "specialization." Cities develop zones around them that lack many services, but concentrate others. Think of the places where there are lots of warehouses. If you are in a city to be connected to some kind of a hub, the fact is that not all of that city's area is going to be equally well connected.

Think of what happens to towns near large cities. This has been studied by social geography since at least the 70's.


That still doesn't have anything to do with the discussion.


> Why are you bringing cities into this anyway? Makes no sense at all...

> That still doesn't have anything to do with the discussion.

Cities often act like businesses. In the U.S. cities even incorporate, just like businesses do. The "shareholders" of a city are usually its property owners who vote for city leaders who implement supply-side policies that raise property values and rents in the city, such as zoning restrictions, and demand-side policies like concentrating services, as the previous commenter mentioned. If the city is the leading commercial city in a country, it may even influence central government immigration policies, which can further increase demand for property, a.k.a. the city's "shares".

It makes a lot of sense and has everything to do with the discussion.


Maybe. Maybe there's an analogy somewhere.


My first thought was of all the wealthy suburbs surrounding even relatively poor cities like Detroit. Cities definitely don’t create a desert.


Cities definitely don’t create a desert.

Not exactly a desert. More like zones of coalescence, like areas cleared out inside a nebula that's a stellar nursery. You're not going to find every single kind of service in those suburbs. You're not going to find certain kinds of businesses. Anything that benefits by being well connected to a hub is going to be drawn into that hub, which means that other areas of the city may have less of it.

By "impoverishment," I don't mean "becoming poor" in an absolute wealth sense. I mean that certain things are sucked out of certain areas to other areas.


I haven't read a bit of your analogy that actually seems like anything close to reality.


> which means that other areas of the city may have less of it.

And make a ton of money while doing it! Farms closer to cities are richer than farms further away from cities.


> Cities are supposed to impoverish the regions directly around them in this way, as well.

Just because you can specify a business model, doesn't mean it's automatically viable, or moral, to execute in any context.


> “Cities are supposed to impoverish the regions directly around them in this way, as well.”

Where’d you hear that?


Where’d you hear that?

I read it in an Indian social geography paper while writing an undergraduate Geography "101" paper. (The course number was actually 1)


The Indian model is very different: cities create large "suburban" slums and poor villages around them. Not because of resources, but because of overpopulation.


The content market has pretty much always worked by the precise inverse of micropayments: aggregation, bubdling, and regular serial subscriptions. The addition of advertising made market size itsef, rather than the content, the goal.

Irony is that it was the Master of the Channel himself who came up with the falsehood that "content is king": Viacom's Sumner Redstone. Maybe he believes that himself, but it doesn't make it the truth.


See also Google’s efforts to commoditize content: https://en.m.wikipedia.org/wiki/Viacom_International_Inc._v.....


It’s not as simple as that. Google did not go out to commoditize content. Technology created a new distribution system that allowed them to dominate the distribution of content.

If you read the case, many of the videos Viacom was asking Google to take down, were uploaded by Viacom themselves. So everyone was scrambling to get more eyeballs, that ultimately led to commoditization.

Also referring to the parent post, “desert” is not the right analogy when you create surplus around you to keep out competition. I think the knowledge industry is more like a religion, where the information is free but there are still strong structures that support it.

In case of religion, these structures are supported by supportive communal relationships. In technology, by massive network effects.


I think that Google was more worried about Microsoft dominating smartphones, not Apple. Microsoft would be tempted to use smartphone dominance to steer search traffic to Bing rather than Google.


> I think that Google was more worried about Microsoft dominating smartphones, not Apple.

Maybe initially, before the iPhone. But the iPhone was the Dreadnaught of phones: everything that came before it became instantly irrelevant (look for HMS Dreadnaught).

> Microsoft would be tempted to use smartphone dominance to steer search traffic to Bing rather than Google.

Just as Apple would as well, unless Google pays, which it does.


Google also use to pay Mozilla Firefox millions. I don’t know if it still does.


> One example is using Android to prevent a monopoly on the smartphone side.

yeah, good point. i think it helps us understand the Android ecosystem, its SDK, its user base, etc.

it doesn't seem like Google, a search and advertising company, had a natural reason to enter the mobile phone OS market. and they didn't set out to create an "insanely great" mobile OS experience, either for the users or for the developers.

instead, the strategy was apparently to just shoehorn a camera OS into the mobile phone market, offer it for free, grab as many users as possible, and thereby disrupt/restrain Apple.

and it has worked quite well for Google. but Android has subjected users and developers to a pretty bumpy ride. a lot of people went along for that ride because the upfront costs appeared to be lower than Apple/iOS. i don't know about the longer term costs though.


Yep, one strategy analysis that I (sadly) rarely see being done is evaluating the value chain.

Essentially, you look at all the links on a value chain and look at how competitive each one of those markets are. The links with the least competition will capture most of the excess profits in the chain, and the links with the most competition tend to be commoditized and have zero economic profits (which are different from financial profits).

Taking Google's online ads value chain, for example:

Chipset & component makers > device makers > OS makers > browser makers > ISP/carriers > online platforms > content creators > advertisers > ad platform > users

(You could rearrange this in a few different, but still valid, ways)

What would happen if there was a single device maker? Or a single OS maker? Those would be able to yield monopoly pricing, capturing most of the profits in the value chain.

Now look at those links: in how many of them Google operates now in a strong way?

- Device makers (Pixel)

- OS makers (Android, ChromeOS)

- Browser makers (Chrome)

- ISP/carriers (Fi, Fiber)

- Online platforms (YT, Blogger, G+, sites, etc.)

- Content creators (indirectly, sponsoring)

- Ad platform (Adsense & Doubleclick)

Now look at where it makes money:

- Ad platform (Adsense & Doubleclick)

All those other businesses exist to protect the revenue-generating business.


nice.

one of those links i personally find interesting is "content creators."

on the top end, it appears that a handful of the apps in the Google Play Store make the lion's share of the revenue (e.g. Facebook, Google itself, and some really strong game companies).

at the same time, i've heard estimates that 50% of the independent app creators earn less than $500 per month. and it's getting worse.

in short, the android app market was quickly populated by a huge number of independent app creators (who presumably thought it would be a good, durable, new line of business). but, for the most part, these app creators became a low-income-neighborhood/swamp around the top app creators.

but Google still (indirectly) benefits from this arrangement because it offers the appearance of a free, open, lucrative, land of opportunity -- a healthy marketplace.


> who presumably thought it would be a good, durable, new line of business

Building an app isn't any different from starting a company. If you're a self-employed app developer, there's a strong chance that your app will just be yet another random app with not key differentiation.

Apps are just as competitive as other markets, and often even more as the barriers to entry to creating an app go down. This is the same with content: when creating content became almost free (hosting is free, you have a camera in your phone already, basic video editing is free) that lowered the barriers to entry, dramatically increasing competition and therefore reducing the available profits.

So, by reducing the cost of creating content, Google made its store and the ad business more profitable.

Now on some of the "monopoly" arguments being thrown around: people usually define monopoly in two ways:

1) Causes harm to consumers

2) No harm to consumers (usually benefits) but drives other companies out of business

If you're proposing (2), you're arguing that the government should be protecting less efficient companies.

Now that's a really bad idea.


FWIW, the expression "create a desert of profitability around you" is more popularly expressed as "create an economic moat".


The ideas are more different than the analogies are. A moat would be things like patents, data, expertise, etc that a competitor would need to get to match you and which are hard to develop. That doesn't have anything to do with the profitability of nearby market niches.


Exactly! A moat is less efficient than a desert. A moat is highly susceptible to niche entrants who might expand into your main market after, but a desert leaves no to little money on the table for anyone else.


You are correct, if you believe competition in the marketplace (or the battlefield) is linear -- where enemies/competitors lunge at you in turns, one at a time.

If you do not believe that competition is linear, then it cannot be true by any stretch of the imagination that a moat is "less efficient" than a desert. A moat/desert/<insert metaphor> is only one of many tactics employed to win battles.

IOW, it is not a strategy as you seem to be implying with this reply.


> it cannot be true by any stretch of the imagination that a moat is "less efficient" than a desert

Nope, a moat protects a profit center by creating barriers to entry in the form of competitive advantages.

A desert kills profit centers that could be used to attack your own profit center. Competitors can't leverage neighbor markets as an entry point, they can only attack your core business directly.

You can have both, but a desert end up being more efficient for the simple fact that it reduces the total amount of profit to be had in the market, draining competitors of resources.

The desert of profitability is the Russian winter of business models (with all the "Russian winter" caveats, so let's not go down the route of discussing if it was actually the winter or German lack of fuel, or Napoleon's whatever): you don't need strong moats when enemies die before reaching your walls.


> A desert kills profit centers that could be used to attack your own profit center. Competitors can't leverage neighbor markets as an entry point, they can only attack your core business directly.

Great! You are essentially proving my point that they are tactics that can only be effective in tandem.

A desert of profitability tactic is only feasible if you are already awash in profits.

In other words, a moat must necessarily exist to justify the expense of sabotaging your competitors' defenses, otherwise, if they prove to be resilient (Intel+AGP vs PCI) or launch a surprise counterattack, you are toast.


No, you don't need to use them in tandem, sure, they are more effective if used in tandem, but not required.

And neither of them guarantees anything. Markets change, and you might be sitting in a drying oasis, behind a massive moat, surrounded by a desert of profitability.

And both moats and deserts have the drawbacks: moats defend from attacks but make you less mobile and they can easily expire (or be bypassed) with technological changes, just as stone walls became irrelevant with gunpowder, and Vauban-style fortifications became irrelevant with mobile warfare and aviation.

Deserts restrict your movements, since you can't try to move to adjacent markets to increase your profits, making it harder to handle declines in your core market.


The problem with this argument is that it is a gross simplification of reality.

Terms like "market", "nearby market", "niche" etc are all abstractions the same way a map is an abstraction of an actual territory. They help us reason clearly but they should not be used as a substitute for the real thing ala "the map is not the territory".

A "desert of profitability" is essentially a battle tactic -- a tactic where you delay the use of your moat (fortress, trench etc) by igniting trouble elsewhere, usually in neighboring lands that enemies must traverse before the war reaches your own land.

IOW, it is a tactic used in conjunction with other tactics, it is not a strategy; all it does is buy you time. Eventually, the technology landscape will shift and such economic moats, no matter how deep, will lose their relevance.


Those aren't equivalent concepts. A moat can refer to any number of strategies to protect your business from competition.


* By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on*

Ah, a light-bulb goes on when wondering why Google spends on CDN and DNS services. (The additional internet telemetry-streams are nice-to-have but probably not the actual point, economically speaking.)


But wouldn't that work against Google app engine? Who would pay lots of money for cloud services if it's impossible to make a living from the results?

Also these big companies have so many competing interests - how do these empires manage internal conflicts of interest?


Perhaps the App engine is intended to aid in creating that desert of profitability.


Google app engine isn't the biggest source of revenue for google.


Don't know how much they make but there is a lot of money in cloud services, just ask Amazon


Also, we can consider GCP as a complement to their main source of revenue, advertising. Companies need to host their content somewhere and other cloud providers could in theory corner them in the ads market, so they decided to protect themselves in this way. They even can afford to operate at a loss.


They have GCP which is different from App Engine. App Engine is a small part of it.


> One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google

In the case of Apple vs Android I'd say Apple is doing pretty good and are arguably doing substantially better than Google in spite of not having followed this strategy themselves.


Apple absolutely does follow this strategy: it's not presently very profitable to be a supplier of small electronic components, or a contract manufacturer, or an app developer, or an Apple retail store employee. At least in the case of app development, Apple puts significant effort into making their dev tools powerful and their development experience easy, with the goal of bringing in as many devs as possible and keeping the market commoditized.

The difference is that most of Apple's complements are B2B suppliers and so are rather invisible to the general public, while many of Google's complements were formerly consumer-visible markets. So it's much more obvious when Google turns the web browser or ISP market into a commodity than when Apple turns the electronic supplier marketplace into a commodity.


Calling their suppliers compliments lacks understanding of what Joel meant. You don't use apple's contract manufacturer with your iPhone - its not a compliment product. iPhone apps however are compliment products, and apple has successfully dropped the price of most to $0.99 or free.


The strategies are orthogonal. Google's interest is not in making money from smartphones, it's in preventing Apple from having a monopoly wherein they can charge Google unlimited amounts for access to mobile users.


But Google still pays Apple $3 billion a year....

https://www.cnbc.com/2017/08/14/google-paying-apple-3-billio...


Exactly. Can you imagine how much it would be if Apple had a monopoly on smartphones?


Apple would never have a monopoly on smart phones even if Google had not come along. Most people either can't or won't spend the amount that Apple charges for phones. The cheapest iPhone is $100 more expensive than the average price of the Android.

If anything, Microsoft would have won over OEMs and been where Android is.


True, but now I have to wonder how much MSFT would be charging Google for the privilege?

Or maybe a different company, like if Amazon didn't fail with Fire Phone. Perhaps that entity could have been more forgiving since they're not as aggressive with the same set of productivity services. But in general Google has lost that moat for the rest of the mobile era. At best they can hope for is a partnership.

Actually, imagine now homegrown Alternate-Android competitor that was based in China. Google would be cut from that too.


I think BlackBerry might have won if Android wasn't around.


The other OEMs weren't going to just stand still and RIM never licensed their OS. Someone would have offered a platform for the other OEMs or maybe J2ME would have evolved. But Ms was the only company that had any experience with building a platform or the developer relations.


Apple could create its own 2nd tier.


Apple already has a second tier, and it's constantly ignored in all the discussions about how much more Apple devices cost than alternatives. The second tier is the resale market.

When I sold my 3-yr old iPhone, which cost around $700 new, I got well over $200 for it. The net cost was under $500. Android phones might be cheaper, but you can't really sell them when you're done with them because there's always newer Android phones that are also inexpensive.

The same effect happens with Apple's desktops and laptops...by not offering a bargain basement tier, they foster a thriving resale market that's reliable enough that you can factor it into the price when buying a new device. Apple is essentially charging for both the primary sale and the secondary sale up front. Once you account for that, a lot of the difference in price between them and their competition goes away.


$500 is still more than twice as expensive as the average price of a new Android phone.


Which is exactly the point. $500 is very competitive with the cost of the Galaxy/Pixel -class phones.

At $200, the 1-2 generations behind used iPhone is very competitive with the slower, cheaper Android phones that you can buy new.

The phones you're comparing the iPhone to are second-tier phones. But, as I said in my original comment, second-tier iPhones are resale, not new.


Yes they are "second tier" phones. The world is buying 2nd tier phones and even the average selling price for Samsung phones is around $182 (http://www.businessinsider.com/apple-and-samsung-sell-phones...). In the grand scheme of things, an insignificant number of people are buying high end Android phones.


Most of the devices at that price tend to be underwhelming performance wise, so here's that.


And they are good enough for most Android users.

For instance, my son has one of these and it's a perfectly capable device.

https://www.amazon.com/Moto-PLUS-5th-Generation-Exclusive/dp...


Thanks, that was another thought I'd had, but didn't mention.

The accellerated EOL impinges on this though.


In the 40 years that Apple has been in business, it's never gone after the low end market. The Apple // series was always more expensive than its contemporaries, as was the Mac and now the iPhone. There was a brief time that Apple had the lowest cost media players but that was because they cornered the market on the hard drives that they were using and then the flash market.

But why would they? They already capture 80%+ of the profit in the global cell phone market.


Apple's never owned an entire segment, as it did smartphones.

And, actually, it does have a tiered presence: iPad, iPhone, iPod, Shuffle. I'm not sure how many of those remain extant.

The goal would be staving off encroachment from below.


But the "tier" is just lower priced compared to other Apple products, not lower priced compared to competitors.

The average selling price of an Android phone is $202 (https://www.statista.com/statistics/309472/global-average-se...). That's still $150 less than the cheapest iPhone.

The average selling price of a tablet is still much less than the lowest cost iPad.

Apple doesn't sell iPods anymore except the iPod in name only iPod Touch.

Apple only has about 12% world wide market share in smart phones.


I understand that. My point being that, at least for "mobile distraction device", Apple does in fact have a tiered, price-discriminating (in the economic sense) set of products.

There's also the used-device market, as noted by another reader. I'd considered making that point as well, though uncharacteristically for me I decided to focus on a single thread.


> In the case of Apple vs Android I'd say Apple is doing pretty good and are arguably doing substantially better than Google in spite of not having followed this strategy themselves.

They follow a different strategy: vertically-integrated walled garden.


"Other links" means things other than smartphones. You read the comment incorrectly, I think. They're saying Apple would have more power over other actors (including google) if they had a smartphone monopoly.


Apple is not making money from links.


Desert of profitability is an evocative phrase, but remember that deserts can be beautiful.

It means free stuff or low prices for consumers. This is another consequence of the "invisible hand" which is sometimes used to justify capitalistic competition.

A commodity market working well is also a desert of profitability.

The opposite of a desert of profitability is economic rent.


> “The opposite of a desert of profitability is economic rent.”

Or perhaps an Amazon ;)

I don’t know if the analogy makes any sense, I just couldn’t resist


> It means free stuff or low prices for consumers.

The "free stuff" is an illusion, a monopolistic sleight of hand. Consumers are subsidizing "free stuff" in one market by paying excessive rent in the neighbouring market. In the end, consumers pay more, not less.

> This is another consequence of the "invisible hand" which is sometimes used to justify capitalistic competition.

These deserts are not a feature of competition, they are an attempt to avoid competition by shrinking the pool of viable competitors.

> A commodity market working well is also a desert of profitability.

No, it's the opposite of that. A commodity market working well is what you get when monopolistic tricks such as "deserts of profitability" have failed, and you are forced to compete the old-fashioned way.

> The opposite of a desert of profitability is economic rent.

Again, the exact opposite is true. Deserts of profitability exist to protect economic rent. Show me any "desert of profitability" and I will show you the economic rent that is subsidizing it.


None of your arguments make any sense when you take in account the fact that such business model has enormously benefited consumers.

It just doesn't make any sense.


Would you also say that the original phone system model (basically, ATT owns everything, including your handset) was equally immune to such criticism?

After all, consumers benefitted enormously from the phone system coming into existence. It only cost everyone else their ability to do anything with telephony ATT didn't like.

(Yes, government monopoly vs. private action. It doesn't change anything in terms of the presence or absence of actors in the space.)


> After all, consumers benefitted enormously from the phone system coming into existence.

You're mixing two distinct periods of time. When there was the expansion of telephone systems, there was no consumer harm, but when AT&T stopped others from entering the market by using its monopolistic power to prevent competition, there was harm to consumers.

Those two periods are over half a century apart.

Similarly, when SO invested in horizontal integration, it was great for consumers: the reduction in cost and standardization of plants and materials (oil, metals, etc.) created a boom.

But when it used its monopoly to prevent competition and extract rents, there was consumer harm.


> None of your arguments make any sense when you take in account the fact that such business model has enormously benefited consumers.

I think I already explained my position pretty clearly, which is that consumers benefit from the free stuff less than they suffer from the monopoly subsidizing it.

I'm happy to defend my position but you need to give me an argument of your own first, besides "it just doesn't make any sense".


> I think I already explained my position pretty clearly, which is that consumers benefit from the free stuff less than they suffer from the monopoly subsidizing it.

Well, you need to prove that to start with: consumer harm.


> One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google

Your example actually shows the opposite and that's because conventional wisdom is often wrong.

Conventional wisdom states that there is a direct correlation between market share dominance and excess profits which is why anti-trust laws target monopolies to protect consumers from price-gouging, but this characterization is not always the case, as Apple has proven by not pursuing a market-share focused strategy.

Apple enjoys 87% of smartphone profits from a mere 18% of all shipments [0].

[0] https://www.investors.com/news/technology/click/apple-rakes-...


They weren't talking about profits in the smartphone market. Everyone seems to have read OP wrong.

They were saying that if Apple had a monopoly on smartphones, they could extract more value from adjacent markets (google search, etc)


You are correct if you believe the term "adjacent market" represents an actual thing.

If you do not believe it is an actual thing, then an adjacent market is no more real than a map is real. An adjacent market is merely just a mental aid, it is not somewhere you or I can schedule a visit to.

At the end of the day, a hypothetical Apple monopoly in the "smartphone market" would mean consumers would have less money to spend on other things like google search (to use your example), apps & games, Netflix subscriptions, etc all of which exist in "adjacent markets".

My gripe is that the use of jargon here is very misleading as it has lead you and others to conclude that there is a dichotomy -- between a market and its adjacent(s), where none exists in the real world where all of this matters.


I think it was meant more in the sense that Apple would have a lock on phone users, which would let them monetize access to them for others such as google. They would also have been able to be more influential as an ad company.

They already do charge for making google the default browser, so it's not a stretch to imagine this payment would be larger and other similar payments would exist. I'm not sure why you think this is a hypothetical when it already happens.


Thanks :)


How are you disagreeing with him? Just because the luxury/high-end part of the market is making most of the profits doesn't mean a luxury company wouldn't extract even more money with few competitors.


The gp talked about a threat of a smartphone monopoly from Apple, a threat that never existed to begin with. The argument is revisionist at best.

1. Before the iPhone, Nokia enjoyed a large market share on mobile phones based on Series 40, Series 60, Maemo, etc. Essentially they had several OSes. There was also BlackBerry which had several editions of one OS but was huge as a "smartphone" for checking email.

2. Before the iPhone went on sale, Steve Job's target was 1% of all phone shipments in the original 2007 keynote:

957 mobile phones in 2006. Goal: 1% of market share = 10 million iPhones in 2008. [0]

3. Prior to the public unveil of the iPhone, Eric Schmidt who was a board member at Apple, frequently recused himself from board meetings focused on the iPhone due to the conflict of interest from Google's own mobile phone efforts. IOW, there was no monopoly threat to quelch because both companies were working almost simultaneously.

Monopolies sometimes get overused as a metaphor as in this case where the gp talked about them in the context of excess profits. My point being you don't really need to control market share to enjoy the bulk of an industry's profits as shown by Apple. Heck, even the terms market share, industry etc are proxies for determining (abuse of) market power. Their overuse/overreliance as a measure of power can be misleading when trying to reason about the effects of competition.

[0] https://www.engadget.com/2007/01/09/macworld-2007-keynote-li...


My critique of your comment is not based on a dispute over facts about the history of phones.


That's because for Google the loss in per-unit sales of cheap phones versus $1000 iPhones is entirely made up by the data they're collecting from Android users.


Not entirely. The largest phone markets - China and India - don't have integrations into Google. They took the open source version of Android to use with their own phones.


India does have, only China doesn't.


another analogy is simply the Feudal Castle system


What course is that




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