Drucker on Apple | Hacker News Reader

Drucker on Apple

krmmalik.posterous.com

39 pointskrmmalik19 comments

I don't understand it. I only know companies that started small and eventually bought their suppliers. For example I read about Matsushita who started with bicycle lights and eventually bought the battery manufacturer.

How does this even apply to Google? They didn't own the internet infrastructure (still don't).

Apple is hardly a newcomer, and only now have they bought a chip manufacturer.

I think it applies to Apple as a way to model their advantages when entering a new market; they tightly control the hardware, and run their own OS and applications.

They where newcomers to MP3 players, to cell phones, and now (I guess) to tablet computers.

EDIT: That's "I think" as in "I think that is the perceived relevance of this quote", not as endorsement.

But they never controlled the whole economic chain? Also, doesn't every hardware manufacturer control their hardware? I just don't see what I am supposed to learn from that snippet.

I believe Apple is controlling the economic chain where the iPod, iPhone and iPad is concerned, even if it's through multiple companies.

Unless i've mis-understood the question?

Not controlled the whole economic chain, but knows and manages the costs of said chain. Switching over to Intel after Motorola proved itself unmanageable. Keeping OS development inhouse instead of buying from MS. These are managed costs.

Dell gets basically blackmailed by Wintel, Apple has an alternative for everything they buy.

So it's ultimately the management of this process to enable better value creation right?

I have troubles understanding that. What does know and manage the costs mean? Surely every manufacturer knows how much their supplies cost? Of course if you have more options (inhouse dev, other suppliers), you have more leverage and control. But there is a limit. I still don't see what is to learn from the snippet - that if you control the whole production chain, you can make it big? Hardly?

Switching to Intel was a huge success for Apple, if I remember correctly.

Also, for the iPad it is only the chip that Apple creates themselves. Or are they also creating their own IPS panels and SSD disks now? I wouldn't be surprised if the panel cost more than the chip.

You are right. But the ARM ecosystem is different from the x86 one. Apple is doing something closer to system integration than CPU design, they almost certainly couldn't afford to do that and keep up with the Joneses (Intel, AMD, ARM, IBM).

The screens and drives are also from third parties.

> Surely every manufacturer knows how much their supplies cost?

They know the price today, but not the price next year. Think about Apples predicament with PowerPC not that long ago. It probably cost them quite a lot to make the change to Intel. I think A4 is a hedge against that same situation happening again - where they face a technical challenge altering their platform to avoid a critical performance disadvantage.

> Also, for the iPad it is only the chip that Apple creates themselves.

From a performance (battery and speed) standpoint the chip is probably more important than the display panels. Disks and RAM are debatable. AFAIK they manufacture the controllers for those though. That allows them tight integration with their OS. That is definitely an advantage since they can write their code with a much more limited architecture in mind.

All this being said, I doubt this is an advantage that will last. Companies that specialize generally outpace companies that generalize. I wouldn't be surprised if in 5 years, once Intel or whoever catches up with a chip specialized for this type of hardware, then Apple switches back.

This is really more a first mover advantage. They get to come out of the gate with a better overall package because they rolled their own practically everything (and can you think of anyone else who could ... from chip to OS and most of the inbetween). Remember this is a new category of product - the types of internal components well-suited to this type of technology are not in wide spread production at the moment. By the time they are turned into commodities Apple hopes to have a market lead.

manage the costs == doing something about it

Yes, I agree with "unwind". They were newcomers to the markets they disrupted that's why it made me think of them.

Except that Google does. Google has been buying up so called dark fiber all over the place thousands of miles, and while what they are doing with it is not public knowledge, at the least, they've got to be interconnecting data-centers and/or other infrastructure critical pieces on their own terms instead of AT&T's. Additionally, I'd be that they take advantage of peering agreements to minimize their per byte cost of traffic (though one can only speculate if this manages to hit the 30% cheaper quoted in the article).

Of course, this happened later in the company's early-timeline, rather than sooner, but to say that Google doesn't own any business critical infrastructure feels disingenuous.

I know about that, but I meant in the beginning. I don't think it was a factor in them making it big.

"But in every single case, the newcomer also enjoys a tremendous cost advantage, usually about 30 percent."

This doesn't seem to fit Apple. Their products are more expensive than the competitors, e.g. iPlayer vs Zen, Mac vs PC. They market their products as being more stylist, easier to use, trendy...

I wouldn't be surprised if Apple in fact is enjoying these cost savings. They just don't happen to be passing them onto the consumer, rightly or wrongly.

It's well known that Apple regularly tries to corner manufacturing on key components for a spell. If I recall Samsung had an agreement with Apple for a number of years for nearly all of their flash memory of a certain type.

http://www.engadget.com/2009/02/20/apple-once-again-squeezin...

Are you so sure? With iPod, at least, Apple has made it extremely difficult for competitors to undercut them. For example, they got bigger discounts from RAM suppliers than any of their competitors, because they were placing a bigger order.

Quickly googling "zune prices" and "iPod prices" right now, for example, I see a 32GB HD Zune listing for $269 and 32GB iPod touch for $259. Microsoft can't even by the crappier, but cheaper version in the market because they don't have the scale in this market that Apple does.

Looking at Amazon the iPod is most expensive:

iPod touch $269.99, Amazon Creative Zen X-Fi Touch 32GB $229.99, Zune $234.99

The difference for lower spec players is large with the iPod being twice the price of its direct competitors!

iPod nano 8GB $133.99, Sony Walk 8GB $67.57, Creative Zen 9GB $87.68, Philips GoGear 8GB $69.88

Cost advantage has nothing to do with price or market segment. In the premium car segment, Audi has cost advantages over BMW, despite them both selling luxury vehicles.

You may be confusing cost advantage with price competitiveness. A lower cost of goods, or a better-controlled supply chain, can enable price competitiveness (like it appears to have done for Apple this time), but that's only one of the benefits.

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