Since its founding in 1976 by a Business-Master Mind and a Nerd ‘Steve Jobs,’ Apple has had a unique place in the Tech Market. Today, there is a Diverging Entity, but historically, Steve Jobs has always assured that Apple products were friendly to non-technical people.
Making things simple to use; opened up the door to a much broader market. Despite this plan, things haven’t always gone their way. In the 1990s, Apple lost the PC battles and was failed. But Fortunately, Bill Gates in 1997 saved Apple with a 150 million dollar investment deal.
It would only be after the return of Steve Jobs and the iPod’s release in 2001 that would make Apple a tech aesthetic symbol for the 21st century. The iPhone only fixed this. Apple recently passed the 1 trillion dollar mark, which is more than Mexico’s GDP or Indonesia or Turkey. However, this is just a market estimate; Apple does actually have stockpiles of actual profit.
So the question must be asked, just how does Apple earn so much money?
1. iPhone Turned Apple’s Market
The original iPhone was a groundbreaking project; using your own fingers to operate a pocket device with smart software seamlessly made the iPhone absolutely smashed former mobile kings. Nokia and BlackBerry were annihilated, and the mobile touch software combination sparked a transformation that forced Microsoft and Intel to the sidelines.
As it turned out, people just considered a pocket computer that was easy to use. After its launch in 2007, the iPhone slowly replaced the iPod as Apple’s biggest income driver. With this being said, it shouldn’t be any wonder that Apple makes most of its money from the iPhone. About 70% of its profits come from this iPhone device.
Between 2008 and 2017, the number of iPhones shipped climbed from 11.6 Million to 216 Million units. During that same period, Apple’s annual income towered over 600%.
In terms of raw profit, Apple survived to produce iPhones for $370 or less and sold them for an average price of $720, and of course, the iPhone 10 ships were over $1000. To sustain this high price, Apple has placed its products as luxury devices. Other companies that sell their devices are much lighter margins.
To give you an idea, Apple rakes in 86% of the entire smartphone industry’s profits, despite dominating just 24% of the global market. Interestingly, the iPhone 10 alone takes in 35% of all profits of the whole industry.
“OK, so that’s kind of interesting, but we have to ask the question, Is Apple too dependent on smartphone sales?“
In reference to the smartphone market, Tim Cook said in an analyst conference call, “Whether it grows by 1 or 2% by 5% or shrinks, it’s still a huge market.”
Tim is correct. As long as iPhone sales are growing year over year, things are good. But ultimately, iPhone sales will slow.
“So you might be questioning, how could I be so sure that they will slow?“
Pretty much everyone who wants a smartphone has one, and to add to this, with strong Android phones coming out for as little as $300, the market is more open than ever before. Yes, some people might want to update their phone every year, but as phones slowly become good enough at everything in a few years, fewer and fewer people will update.
Not only this, but the iPhone isn’t the only best phone out there right now; there was a time when the iPhone was miles leading of anything else in the market, but that’s not the case anymore.
If Apple doesn’t make extreme changes after a while, the iPhone’s interest will only last for some years.
When iPhone sales finally sink, Apple wants new products and services to pull up the slack. But in the meantime, they have an extra way of earning money.
2. Steve Jobs Master Mind to Lock their iPhone Users
I’ve heard so many of my friends say, “I’ve had a few iPhones, and I like them less and less, but I don’t want to switch to Android because I’ll lose all of my data.” Even though one of my friends has an iPhone, she called Apple the tech world’s cult for confining her in the ecosystem.
The combination of Apple’s walled software garden and brand loyalty makes the iPhone an ideal lure for growing Apple’s service business. Apple services are items like the App Store, iTunes, Apple Music, i-books, Apple Care, and Apple Pay.
After iPhone users end buying the apps and media from the App Store and iTunes, they’re much less liable to leave behind their purchases by switching to Android devices. Tim Cook is very aware of this, and he has repeatedly affirmed that Apple plans to expand its software services to offset the gradual slowdown of iPhone sales. Thus, the services section of Apple is becoming more and more influential as time goes on.
As the smartphone market shrivels, Apple has to make more money out of the market they’ve earned from iPhone users. The company wishes to double its services revenue by 2022, and it appears to be on a path to be doing so.
Apple’s lock-in strategy also helps, as well, and the upgrades program lets people spend on iPhones every month for two years. After 12 months, users can shift to the latest iPhone and reset the payment method.
3. Apples Made Dongles a Hot-Seller
Apple can earn a bit of extra cash by selling accessories, for example, some of the best selling Apple products right now, not the iPhone, but Dongles and Ear Pods, mainly because of excluding the headphone jack from the iPhone. Regular USB dongles on the MacBook Pro are also hot-sellers.
4. Apple Users Were Treated Like a Celebrity
Okay, so I would put promotion as a reason for Apple’s success, but I feel that Apple’s promotion isn’t working as effectively as it once did. Direct promotion might not be as powerful, but in the age of reality TV, the status symbol aspect of Apple’s brand is controlling. Pretty much all important celebrities use iPhones, and whenever there’s the media coverage on that celebrity in question, there they are with an iPhone or MacBook.
After a while, this free promotion, the Apple devices become a status symbol in their own right. For sensitive people, this may mean that the iPhone is the only phone worth getting, further driving Apple sales.
So I think the mystery to Apple’s success is multipronged, but not totally a surprise. I think Tim Cook has forced the company into a strictly business attitude. His leadership, Apple, has found ways to generate more profit from higher margins, aggressively kept consumers in the Apple ecosystem, and made dongles a top seller.
But that being said, there’s a large part of me that wonders, where is the old guns of Apple?
The iPod, iPhone, and even Mac were all upgraded products. It really has been a while, and I’m sure customers would love to see another better innovation. The Apple Watch and Homeport would not do it. Apple isn’t operating out of money any time soon, so they’re not in trouble, and it doesn’t really matter what they do in the end, but the room is no longer empty.
Microsoft has grabbed on to the idea of trying new things with projects like the Surface Line and HoloLens or Project Andromeda. Maybe Apple has something big up on their cover, but the customers aren’t going to wait forever.
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