I understand the belief that if you make a significantly better option, it will sell well. I question the validity of this belief. As well as the ability of anyone to do so.
It's actually quite simple, and any student of the tech industry should be able to follow along. When the iPhone was initially released, it was unambiguously, head and shoulders above any other smartphone. Just way better. And in contrast to Apple tradition, they priced the iPhone at a level that made it impossible for new entrants to compete on price in a meaningful way, due to the nature of carrier subsidies.
So people flocked to it, even people who wouldn't buy a Mac in a million years. The software and hardware of the iPhone had great integration and typical, good Apple build quality. So in other words, a great head start on a very hot industry segment. Then they started a robust developer ecosystem, and a lot of small developers made an unexpectedly large amount of money selling cheap apps that iPhone users snapped up because they were cheap, and the economy of scale made it work, and made Apple an unexpectedly huge amount of money from its app store take. Suddenly, just like Microsoft before them, Apple was in control of a bonanza platform.
Quality product + good price + industry head start + robust and lucrative developer platform = dominant market position.
And like Microsoft before them, Apple has let the power go to its head. And of course Apple has a long history of control-freakiness and closed platform tendencies anyway. But just as decades of Windows being just unimaginably shitty didn't knock Microsoft off its PC perch, even as alternatives to the iPhone flourish, Apple keeps a strong lead because of natural inertial and platform lock-in forces. In my opinion, Apple's doing a good job of shooting themselves in the foot at every opportunity, but just like hapless Microsoft, it will take years for them to successfully piss away their lead.
Then why did they reduce the price by $200 after a few months on the market?
Once they've verified that they can actually produce it a low price and at scale, and after having been paid by a significant chunk of the population that had paid the higher price, they made a move that made their product viable to a much larger population, and made it harder for others to compete. That's completely in line with the GPs claims.
If Apple's marketing were not key to its business why would they have spent over $1 billion on iPhone and iPad marketing since launching the devices (Google it)? Have you spoken with a teenager lately? Every single one of my younger siblings (1 in middle school, 2 in highschool) have an iPhone. They have an iPhone because their friends all have iPhones, because it's cool to have iPhones. They don't care about anything else.
So again, while your points are solid, discounting marketing all-together is very silly.
HP and Microsoft outspend Apple in Advertising every year. They should be doing much better than Apple if that is really the "key".
Apple's marketing budget relative to its size is quite tiny.
Is this remarkable to you because it seems like a big number? Or is it because this is actually a lot less than what their competitors spend? Samsung alone spent a lot more than Apple did last year on marketing and advertising. What do you think of that?
I think a really good example of this phenomenon is the whole screen size debate. The tech press just could not understand why Apple was so hesitant to join in the screen size war and go from 3.5" to 4.0" to 4.3" to 4.7" phones. The tech press is, of course, almost entirely male. Meanwhile, more than half of the potential customer base for these phones is female, and disproportionately young females at that. Females have substantially smaller hands than males. My wife, who has no exposure to the tech press debate over screen size, lamented to me that her new iPhone 5 was great except she didn't like how the screen was bigger and harder for her to use one handed.
Apple gets it. Apple understands that teenager girls are a bigger market than male geeks and designs its products accordingly. If you think, instead, that Apple's dominance is the result of Apple being better at targeting advertisements to teenage girls, then you've completely lost sight of the ball.
Having to explain this as a guy with small hands to really big guys is annoying. But I have noticed that larger people (physically) don't mind the larger/wider phones. But their hands are actually bigger. I can't use a phone much wider than the iPhone. Once I get to the point that I have to shift the phone in my hand I feel like I'm holding a mini tablet.
I know everyone raves about the bigger devices but I can't use them for more than a few minutes. They're too wide for me, no matter how much I may want to use android I have to side with the women on this one. 3.5" width is the sweet spot for the other 50% of the population. As guys the sooner we realize that our physical characteristics influence what we buy we'll be better off.
For the record my glove size is 7.5, big for womens hands, tiny for guys.