I think with Apple, you have a lot of networking effects and switching cost that aren’t present in “commodity” electronics. Back in the day, take the Razr phone for example. How fast could you have switched from that phone to another? It was a basic device with talk and text. Same as a TV. If I took the TV in your house and swapped it for another brand, I doubt it would take long to figure out and you probably wouldn’t miss the old one.
With the app store, Itunes, Icloud, ect, I think Apple locked down a lot of people. Businesses, like my former employer spent a lot of money to code specific apps for the Iphone to work to what they wanted it to. Consumers bought lots of media through Itunes. You have a device that takes a good amount of time to figure out how it works and that works well. The premium over a competitor’s device is tiny if you finance it over it’s life or a service contract. The device itself is used for very addictive and time consuming activities (social media, entertainment, and work).
And we’re just talking about normal users, not touching the fanboy base. When was the last electronic device in history that had fanboys? What typically happens to a company with fanboys? Do they stay the long-run or get bored and leave after a while? What factors decide that?
Me, personally, and nearly everyone I worked with at my former company, would not give up their iphones, just like how we would not give up Microsoft Excel for Google Sheets. However, I’ll acknowledge that anything can happen over the long-run and I could be wrong.
If I have an iPhone 5 and the iPhone 7 doesn’t offer a high enough degree of differentiation, then the product becomes commoditized against its own product base and the have to lower the price to incentivize switching. That’s just one way that has already begun to take effect. I did not say they are commodity products, but simply that they are increasingly moving that direction as the pace of advancement wanes. Over a long period this is an a near certainty as technology evolves. A company that operates under high margins in a competitive industry that depends on advancement but begins growing its dividend through lack of internal investment opportunities has already begun the process of surrendering margin. See Microsoft circa late 90’s. The primary flaw of wall streets is the general lack of imagination that results in a sort of regime dependency in their thought process.
I already stated that the upgrade cycle is going to slow, the smartphone market is a mature market. That’s not the same as commoditization where there is no distinction between your and competitor products. People may not jump from 5 to 7, but they’ll move from 5 to 8, or 5 to 9. What they are unlikely to do is move from 5 to Android or 5 to Windows Phone.
I agree, and just from observation, people at work, friends, etc, just continue to upgrade to new iphones. They don’t really switch out. Even my tech fearing dad has an iphone now. All he can do is answer calls and take pictures of the dog, but he’s paying the same money as anybody else.
I’m definitely thinking of adding at these levels.
Apple Inc. recorded 92% of the total operating income from the world’s eight top smartphone makers in the first quarter, up from 65% a year earlier, estimates Canaccord Genuity managing director Mike Walkley. Samsung Electronics Co. took 15%, Canaccord says.
It’s not one data point, and all data will be a year old given sales data for the latest model isn’t out yet. You sure you know what you’re talking about here?
if samsung galaxy is being sued and losing for looking too much like the iPhone (same hardware) and basically all apps are available for both Android and iOS (same software), how are they actually different. can you tell me a couple of meaningful features that actually differentiates the iPhone? i mean, i think Apple stock at 10x P/E is a good price compared to peers but i certainly don’t think i’m buying into something incredibly impermeable. as i’ve stated before, i’m less concerned about switching as i am outright bailing on smartphones for a more useful product like a wearable or something more like a connector to various terminals a la Minority Report. Apple will likely be a part of the next movement but i’m not confident they will maintain the same pricing power. with Apple at 10x trailing P/E, the key concern is not about switching, it’s about their key business not really existing within the next decade.
You tell me. If GS and iPhone are identical in hardware, software, and experience, then why do people overwhelmingly prefer one of the two? Why are Apple’s margins so much better than every Android maker? Why is it that Apple, despite having small market share, has dominant profit share?
Maybe, your hypothesis is wrong and the products are different? It’s up to you to determine what the difference is.
Yeah, I provided the facts showing that the actual iPhone margin has been steadily declining over the past 5 years and you come back with some datapoint showing a high relative share of industry profit. Why would the relative profit share matter? I don’t get paid in relative profit share, I get paid in absolute dollars, which are being threatened by falling margins both in apple’s product and the overall market. Not to mention the math of that chart is suspect as pointed out above.
because people are dumb and don’t explore options. you’re the one who is claiming they are differentiated products. in your opinion, how do they differ? i didn’t recently buy AAPL because i believe the iPhone is different. i bought it because i believe people are dumb and will likely be dumb for quite some time. people are too lazy to switch and are only really motivated to switch if there is some major trangression against them.
if you slap a big Alcoa stamp on a piece of aluminum it doesn’t mean it’s not a commoditized product…
i’m looking at an HP computer right now. are you claiming that HP business computers are not commoditized? Dell, Gateway and Compaq would beg to differ.
That doesn’t make any sense. Even if people are dumb, they still overwhelmingly prefer one brand. Why is that? Why don’t these dumb people prefer Samsung or HTC? After all, according to you, they’re all the same.
HP computers are commoditized, but Macs are not, they are in a different league. Commoditization means everybody makes the same product, which is true for white box PC makers and Android makers. It is not true for Apple, as it is in a different market.
