So How..?
There’s no question that Apple makes an unbelievable amount
of money. In
fact, last quarter, they exceeded one hundred billion dollars in revenue for
the first time. But
what’s even more impressive, is their huge mountain of cash. Almost
200 billion, more than any other company in the world. This
is a complete 180 from where they were two decades ago. When
Apple had just escaped bankruptcy. So
how were they able to make so much money, so quickly, to become the most
valuable company in
the world? Well,
that’s exactly what I’m going to explain in this blog. Alright now one of the biggest reasons Apple is doing so
well today, is due to their business strategy,
which was way ahead of its time.
Back
in the 80s, computer companies like Microsoft made money licensing their
operating system. But
Jobs refused. Instead
hedging his bets on hardware sales. Believing
that you can only create a great product if you retain control over the hardware and
software. And
you can only charge a premium for hardware if it’s objectively better than the
competition. The
problem with this strategy in the 80s and 90s, was that most customers didn’t see
the difference between Macs and PCs. At
least not enough to justify the Mac’s higher price. This
resulted in Apple controlling only a small share of the computer market. But
their focus on hardware and software integration and optimization would become
much more valuable to
customers as the industry shifted toward mobile devices.
Apple first caught a glimpse of this with MP3 players. There
were many cheap models on the market, but their iPod became a runaway success. Eventually
capturing almost eighty percent of the music player market. And
that’s because optimization is crucial when it comes to battery life,
portability, and
ease of use. Something
Apple already had experience with, but other companies like Sony and Microsoft didn’t. The
iPod’s click wheel navigation made browsing music effortless. Its
software interface was intuitive and easy to understand. And
adding music was simple, since almost everyone was familiar with iTunes. Not
to mention the iTunes Music Store, which worked seamlessly with the iPod.
Apple
designed their hardware to operate flawlessly with their software which
operated flawlessly with
their services. And
users began to notice the tangible benefits of that seamless integration with
the iPod. Which
is why they didn’t mind paying a premium for the device, even though there were
alternatives for
half the price. The
iPod’s high profit margin and high sales volume contributed to Apple’s
monumental growth
rate from 2001 to 2007, where the company grew 25 to 100 percent nearly every year. This
was the beginning of Apple’s most profitable era, and they were in the unique
position to
do something no other tech company could i.e.., creating an ecosystem where
every product
becomes a wild success. This
was crucial to Apple’s explosive growth. They
couldn’t simply release new products that sold well, like the Macintosh in
its early days. They
needed each device to perform like the iPod, dominating their respective markets with
high profit margins to deliver record-breaking revenue. And
that’s exactly what happened.
Apple moved quickly, releasing the iPhone in 2007, their
most profitable product ever. It
was a hit right away, and immediately spiked Apple’s annual revenue. But
the iPad, released just three years later, took things to a whole new level. Everyone
expected Apple’s tablet to cost at least one thousand dollars. So
when Steve Jobs announced its starting price of five hundred dollars, the hype
surrounding the
product grew even more than with the iPhone. Once
it went on sale, the iPad became the fastest-selling consumer electronic in
history. By
2011, Apple’s annual revenue had grown to over one hundred billion dollars. Making
them the most valuable company in the world. This
came just two weeks before Jobs would retire as CEO from Apple. Now
if you’re wondering what a day in the life of Steve Jobs was really like, I’ll be
writing about that soon so be sure you’re following my blog for that. But
one downside of creating products that sell so well, is that achieving market
saturation becomes
inevitable. Which
means it’s pretty much impossible to find new customers, and you can only make money
from existing customers upgrading the devices they already own.
Apple tried to remedy this by focusing on emerging markets
like China and India, where their
products aren’t popular. But
because of the price sensitivity of those countries, sales of Apple products
didn’t increase
the way they’d hoped, and a new strategy was needed to boost revenue. So
Apple took two approaches: first, was the decision to increase prices of almost
every product
in their lineup. This,
for the most part, took place in 2018. When
the iPhone and iPad’s base price increased by fifty dollars, the Apple Watch by
seventy dollars,
the Mac mini by three hundred, and the MacBook Air by two hundred. These
price bumps were pure profit for Apple, since the manufacturing cost of these
products largely
remained the same. Second,
was to focus on growing their services business, which allowed Apple to
capitalize on
their existing user base with recurring monthly payments. That’s
what led to the creation of Apple TV Plus, Apple Arcade, Apple News Plus, and Apple
Fitness Plus. These
services were also very profitable, since their costs were fixed, no matter how many
people signed up.
How effective were these strategies in generating revenue
for Apple?
Well, after all of the prices increases of 2018, Apple had
their most successful year since
2015, totaling 265 billion in revenue. But
what happened next was even more impressive. Through
the next two years, Apple began rolling out various subscription services to
their existing
users. Apple
News plus launched in March 2019, the Apple Card in August 2019, Apple Arcade in September
2019, and Apple Fitness Plus in December 2020. This
flurry of new services fueled even more revenue growth for the company. Setting
a new annual record in 2020, at over 274 billion dollars. But
perhaps the most notable thing about how Apple makes so much money, is that
virtually none
of it is from selling user data to advertisers. Although
they do employ some targeted ads on their News app and App Store, it’s on an
extremely a small scale and collects much less data than companies like
Facebook or Google. And
I think Apple deserves some credit for this. User
data has become more valuable than oil, and Apple could begin fracking their
user base
at any time to generate tens of billions in extra revenue. But
since the beginning, they’ve refused to do this.
Acknowledging that they’re in the unique position to charge more for their products by providing a superior experience and treating their users with dignity by handling their private data responsibly. And so far that approach has proven to be the most profitable, since Apple remains the most valuable tech company in the world, with the ability to sell a high volume of high margin products. Alright so that is how Apple makes so much money, don’t forget to subscribe to catch for upcoming blogs. .Stay Safe...
