That question assumes that innovation is important in the smartphone sector. That may not be the case I guess.
I'm just trying to understand the end situation as best I can as like a number of startups our future heavily depends on smartphones.
As far as paying for R&D goes, how much does it take to replicate something? I'd say a fraction of the cost since you already have the product in front of you. All you need to do is duplicate it.
They didn't create their processor (though they managed to brand it and fool a lot of people for a while). They didn't create the GPU.
They didn't create the "Retina display" or their memory or their touchscreen sensor.
They are a software company that other companies -- like LG and Samsung -- supply with hardware.
The electronics market has traditionally been a very low margin industry (which is good for consumers). Apple has managed a pretty remarkable game of finding a very profitable niche and exploiting it as it exploded, with them in a leadership position, however it is not sustainable, which Apple realizes.
And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash.
From what I've encountered with many of the low-margin commodity products, various manufacturers reach the "it works and meets our minimal specs, ship it" stage, and we get lids and covers and doors and other pieces that don't fit or quickly break and fall off, software and firmware incompatibility or crashes, fuzzy displays, sloppy switch mechanisms, user interfaces that are somewhere between truly bizarre and purely inscrutable, and related, well, dreck.
And for the consumers, a low-margin business means plug-compatible race-to-the-bottom no-name interchangeable and irrelevant product vendors, too.
Sure. There's a market for dreck. But as you've noticed, it doesn't pay well.
Who are you responding to? I didn't say it was "easy". I further said that Apple is a software company, not a hardware company. They do software well.
Their hardware superiority is 90% myth, 10% reality. There were excellent Windows Mobile devices with high resolution displays, better processors, more RAM, and on and on, long before Apple brought that "innovation".
You could directly attribute the fact that Apple isn't responsible for most of that hardware R&D for their high profit margins. They know to buy the cutting edge from the rest of the industry, put some software on it, and they've got a product.
Apple puts some great software on it and made a well integrated device. Their only innovation is in software. In hardware they're not much more than a VAR.
>From what I've encountered with many of the low-margin commodity products
I like the addition of the editorialized "commodity" there.
However your core point is utter nonsense. Almost every bit of extremely high quality electronics hardware you can buy in the industry, from ultra-high end LED televisions to audio equipment to high performance routers to digital cameras, came from a company making very low margins, yet managing to yield a very respectable billion or so in profit.
Apple has a short time where they essentially could go to the bank on the backs of a cult-like following. That isn't a scalable business model, which is exactly why Apple is warning about reduced margins going forward.
Unlike many other companies, Apple _doesn't_ just take various technologies and piece them together to make a product. And they do a lot of core technologies in-house, which is why they've bought companies like FingerWorks and PA Sami.
The interview with Jony Ive in the Objectified movie (http://www.youtube.com/watch?v=t0fe800C2CU) shows some of the thought process that is involved in Apples hardware design process.
By your logic, other PC/mobile manufacturers should have similar profit margins to Apple, but they don't. Now, the usual answer is that Apple has a "cult-like following" that will pay a higher price for "more or less the same hardware in a different box".
A better explanation, given that the "cult following" has only increased the last few years, is that Apple manages to make more appealing products by being extremely involved in _both_ hardware and software, leaving other companies to compete by sticking together commodity components. Apple did not say that they expected decreased profit margins because they would have to slash their prices, what they did warn was that their forthcoming products would have higher hardware costs. But of course, time will show.
How you could you possibly extrapolate that, attributing it to me?
I propose no such thing. Electronics is a low margin arena, and this is great for consumers. High margin companies like Monster cater, arguably, to suckers.
So when someone makes a lot of margin in electronics they're usually serving the sucker market, or they're offering something other than electronics. Apple puts good software on otherwise vanilla hardware, and that's what their differentiation is. It's how they get their margin.
There's a cert cult essence to Apple that makes it impossible to discuss their products. The number of faults in their devices is legendary, and there is that telling moment of truth: When a new anointed device comes out, suddenly there's a mass realization that the last device really was kind of shoddy (see the 3GS when the 4 came out).
There just isn't anything special about them. There really isn't. Motorola has made any number of brilliantly engineered products...but it's just Motorola so who cares, right?
"You could directly attribute the fact that Apple isn't responsible for most of that hardware R&D for their high profit margins. They know to buy the cutting edge from the rest of the industry, put some software on it, and they've got a product."
I read this to mean that Apples high margins were primarily due to their offloading their hardware business to others. And I only pointed out that this is only _partly_ responsible for Apples high margins. But I see that I've read you incorrectly.
I never heard anyone say that the 3GS was shoddy when the iPhone 4 came out. Even before the iPhone 4 was released, everyone agreed that the screen resolution, camera etc. was a generation or two behind, and most reviewers had started recommending other phones with more features.
Like I said, some people "get" or appreciate Apples product design, and some don't. The fact that you're say that there's nothing special about their products shows that you don't. There's nothing wrong with that, just as there's nothing wrong with me not wearing designer clothing and being unable to tell the difference betewen a generic and a designer suit.
But as you say, it makes it impossible to discuss their products. Which is why this discussion is pointless :)
If Apples advantage was something very measurable, for instance if all their laptops had 20GHz processors and 256GB RAM, it would be obvious to everyone, including their competitors, why they were able to make so much money with such a small market share.
But it's difficult to quantify what "good product design" is. I can give countless examples of small details that Apples designers have thought about that other laptop makers haven't, but this is simply irrelevant to people who don't appreciate that. Similarly, a BMW owner could point to lots of small features and details that they like about their car, but others simply see an overpriced car with high maintenance costs.
Still, unlike Monster cables, you can point to many features or details that you simply don't get with other cars that still do the job of transporting people. The question is simply whether someone is willing (and able) to pay for the added design, features, and comfort.
I think that Apples success shows that there are enough people who _do_ care about it, and I think that's a big reason for their high profit margins.
Finally, I think you'll see that Motorola has won a lot of praise and attention for some of their better designed products, even though Apple is the current media darling.
However, I think you are underestimating their hardware prowess. There is a certain joy to using hardware (computers, musical instruments, name it). You get that with Apple hardware because of the little things. Apple things about the whole experience, which includes software, but even on the hardware side, there are few that actually pay attention to the whole. No one does it better. Packing features into a product shows you are not thinking as a whole, but just checking boxes. Innovation comes from thinking about the end result and user experience, not from features.
And I think this is key to Apples success, because I suspect that a lot of CEOs and product managers in other companies simply don't see this either.
You see this with a lot of laptops where the only attention to detail is in the obviously visible parts. Compare this to Steve Jobs / Jony Ive that obsess over how their products look on the _inside_ (http://www.folklore.org/StoryView.py?project=Macintosh&s...)
I see Apple as a type of Fashion brand or a designer - look at the handbag market for instance, why do they range from $10 -$10,000 if they do the exact same thing and majority of the time they're made from near enough from the same materials and on average cost the same to make.
Regarding your last point "And it is simply perverse seeing people actually bragging on behalf of Apple about the fact that they are rolling in cash." I find it quite amusing to see how many people are so unhappy about the success Apple have made, when they really should be pointing their anger to laptop manufactures that are responsible for consumers spending huge sums of money constantly replacing or updating poorly built products that only last 12 months before they start cooking themselves!
1. They didn't create their processor: I admit, I'm not really into the hardware side of Apple, but really? http://en.wikipedia.org/wiki/Apple_A4 credits Apple as the designer of the processor (and Samsung as the manufacturer). Yes, they collaborated with another company (Samsung) and bought a third one (Instrinsity) to own the talent, but that's not the point. That's like saying EA didn't make its games because they bought other studios. Apple wanted to make their own processor, so it collaborated with the companies it couldn't/didn't want to buy, and bought the companies it could. The result is that A4 has an 'Apple' name and only Apple gets to use it. What is "though they managed to brand it" supposed to mean anyway?
2. By create, I assume you mean 'designed'. Nobody will argue that Apple didn't manufacture it. So can you tell me who did design the first retina display? And which phone first used it? (I understand that 'retina display' is just a branding of a very high resolution display, but for the sake of brevity, we'll call it 'retina display').
3. Yes, they're a software company. Yes, Samsung and LG are suppliers of their hardware. But Apple is the one putting those components together in a tight and neat little package that looks beautiful on the outside, and is powerful on the inside. Look at Samsung and LGs own phones. Why are losing share if they're so good at what they do? Apple is the architect, Samsung/LG the workers. Who deserves the credit?
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Apple did what it does best - sell you a product. Not parts; product. Apple always sells you a product. So instead of looking at each part and saying that Apple hasn't innovated there, look at the product as a whole and see what Apple has created that no-one else did.
When the A4 was introduced a lot of the speculation regarding it was incredible. What was this amazing new processor, people asked?
Apple, it was widely perceived, was suddenly a world leader in IC with this amazing new technology.
Only it turns out that it was a last generation Hummingbird processor designed by Samsung, though that gives Samsung too much credit given that it was a standard ARM core with a standard PowerVR GPU.
Yet the myth persists.
What people seem to gloss over is that Apple's major innovations come more from (or as much from) business revolutions than from hardware:
- iTunes: re-invented MP3 distribution (it was even DRM'd at first, remember)
- iPhone: screw you, carriers, it's going down like this from now on
- iOS: we've got any app you can ever imagine - our devices will make you happy.
They also innovate by knowing what their customers truly want:
- Do you really want a keyboard on that phone? Wouldn't you prefer it thinner?
- Do you really need a CD drive with that laptop? Wouldn't you prefer a bigger battery and thinner?
- Do you really need that much RAM and CPU when apps instant-resume and you have a Flash system drive?
Plus, they innovate in manufacturing (unibody, advanced castings and extrusions, laser-machining) and marketing and sales (direct-to-consumer, store layouts, try-all-you-like).
Ok, so some of the approaches they use are bought/licensed (processors, casting tech, hardening tech) and many are out-sourced. But I really don't see anyone else in the public light who are pushing hard at so many new approaches right now. How many other companies are filing so many patents in everything from chip design to UI to manufacturing methods?
So... I think I basically disagree with you :P
Apple changed the "face" of smartphones; this is what Android looked like before the iPhone came along: http://gizmodo.com/334909/google-android-prototype-in-the-wi...
Styluses and resistive touchscreens were resigned to the scrap heap soon after.
Apple didn't invent multi-touch either, but they moved gestures from a futuristic novelty in Minority report and Black & White into something that regular people use every day. Swiping and pinching have entered our UI lexicon with amazing speed.