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Comment by wmab | Hacker News Reader

Apple succeeded because they managed to do something that was previously unimaginable in business theory - create a mass-market luxury good. A well taught theory in business school is Porter's general theory, which was to create a sustainable competitive advantage you either competed on differentiation or cost, and if we did something in the middle, you would die.

Apple managed to create a luxury product - the iPhone (differentiation) at mass-market scale (low cost base) which has driven the majority of their profitability since it's launch.

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That's half the story. Apple makes ~10% more this year than last year, but it's more than 2x as valuable as it was a year ago today.

The other half of the story is low interest rates/high asset prices. A year ago federal funds rate was ~2%; today it's ~0%.

Yes, I seriously question whether their business in the whole has doubled in that year. Ie twice the revenue and profit, etc.

No need to question that, it clearly has not: https://finance.yahoo.com/quote/AAPL/financials?p=AAPL

It's just more in favor now than it was a year ago in investor sentiment

I think it’s just a group dynamic pushing this stock up buoyed by developments like Apple silicon.

Agreed, that's correct for public market prices in general. I'm not commenting on the valuation of the business, merely the business model that "succeeded" (one definition is valuation). I would have said the same 2 years ago when they hit 1T.

Right. They’re clearly not an income stock based on their dividend. They’re a heavily weighted future value stock. (Basically a tech stock but wonder whether there’s a more general term?)

That's not what's most relevant when talking about a company valuation though.

A better question would be whether the expected value of all future cash flows has doubled. Evidently, a lot of people seem to think so. (Whether these people are rational is whole another question)

> A better question would be whether the expected value of all future cash flows has doubled. Evidently, a lot of people seem to think so. (Whether these people are rational is whole another question)

It's rather than all other investments are worse, not that this one is real.

==A better question would be whether the expected value of all future cash flows has doubled. Evidently, a lot of people seem to think so.==

If there is a finite limit of "investable assets", then the relationship between those assets prices is not necessarily driven solely by sentiment in favor of Apple.

It could be that almost all other assets have seen their expected future cash flows fall while Apple's has slightly risen.

It could be that people's decision is not driven by future cash flows, but some other metric or feeling.

Have Tesla's expected future cash flows increased by 8.6X in the past 12 months? It's stock has gone from $220/share to $1,900/share.

Right. It’s clearly hard to brass tacks a valuation of a 2T company, but one had better be forthcoming of even questionable quality. If no one else then Apple has a vested interest in knowing how close this valuation is to their internal knowledge. If they’re under then they could consider growing to the new valuation with opportunities otherwise unavailable outside this valuation. They could issue even more debt or offerings and go on a buying spree. Nvidia has a valuation of 300B (though probably also high relative to fundamentals). They could buy nvidia and own the future of the ML/AI market as well as the gaming market they’ve typically been shut out from competing. Toyota’s more like 190B. They could buy Toyota and immediately be one of the top auto manufacturers. They could probably do this an embarrassingly large number of times for many industries at this valuation.

They won’t buy companies that bring their margin down; automakers have been struggling on hair-thin margins for years.

Agree if they were to continue run Toyota as is.

That said said, if Apple bought them for accelerating their self-driving car development, the historical profit margins are irrelevant. The the valuation would still be all about the future opportunities and future cash flows. This relative to other opportunities in the market, as other commenters rightly point out.

It's going to be extremely interesting to see how Apple will take advantage of their sky-high valuation. Not to mention the pile of cash they're sitting on.

Yup, the valuation doesn't have to be driven solely by what Apple is doing as a company. In fact, Apple doesn't need to do anything at all if all other stocks and asset classes suddenly become less attractive.

> A better question would be whether the expected value of all future cash flows has doubled.

In real dollars, or nominal dollars?

Not even that, with changes in interest rate the discount rate changes. Also, with increase in monetary base TINA but invest into a few yielding assets.

> The other half of the story is low interest rates/high asset prices. A year ago federal funds rate was ~2%; today it's ~0%.

Yep! S&P 500 reaches pre-COVID level record high again recently all thanks to U.S. Fed's UNLIMITED Quantitative easing (QE) policy. The aftermath and the side effects[1] are going to be serious concerns now.

[1]: https://en.wikipedia.org/wiki/Quantitative_easing#Risks_and_...

Even with all the stimulus and lowered lending rates, today's PE ratios were dwarfed by the dot-com bubble. We're at 31, max was 44.

https://www.multpl.com/shiller-pe

But I'd argue the economic forecasts look a lot more bleak than in 1999.

In the short term, sure. But we have a more skilled, more educated population with more knowledge and better technology than ever before. We have challenges ahead of many sorts, but in terms of economics we’re pretty well equipped globally. You could argue the US is poorly equipped for manufacturing but that’s only one part of the economy.

Sorry but this is not the state of things if you are under 50 years old. If you are under 50, you are probably better educated but have much less wealth than your parents did at the same age. Your health suffers from years of having no health care. Your teeth are bad. Climate change is going to change your life imminently, and nobody in a position to do something about it cares. You are putting off having kids, or choosing not to. You’ve seen three economic crises in your lifetime and expect more. You’re not so much hoping for things to get better as much as you’re waiting for the other shoe to drop. There is just little reason to be optimistic right now.

I don't know why this comment is downvoted when the income/wealth data supports it.

So much of the US economic engine after WW2 up to 2000 was driven by the fact that people were having lots of kids, and the taxpayers back then were borrowing from future taxpayers. That works if you continue to have lots of kids, but now that that has slowed down, plus the increase in labor supply via women in workforce, and outsourcing to other up and coming countries, plus decrease in demand of labor due to automation, makes for a bleak future outlook for many (as opposed to a growth outlook in the decades after WW2).

This is ignoring climate change and its effects. Which can only be remediated with reduced consumption. Which would also cause a reduction in demand for labor.

Thank you, I don’t take it personally, you have to expect some flak when you tell people things they don’t want to hear. I think I’ll go back and edit where I said there was no reason to be optimistic about anything, because that’s not exactly true, and people on HN are very sensitive to hyperbole. If you are going to say something unpopular you have to be very careful to be accurate.

I mean, I guess you’re right. I’m the counterexample (grew up poor, have more than the zero of my one parent and my outlook looks good) but it took some time to get here. My college friends (all from wealthy families) are all well-off, but my friends from home are still poor and have poor economic prospects. But some of that is self-imposed because they haven’t put serious effort into economic pursuits.

I am quite tired of economic crashes, but I’ve failed to convince enough others to vote and advocate for changes. Those who do care about change are focused on matters other than economics, which I believe to be a mistake.

How so? Looking at this Pew data[1] on median household income in 2017 dollars, which appears pretty comprehensive, if you have a college degree, millennials are doing slightly worse than Gen X, but better than all generations before that looking at the same age range.

Even those with "some college" millennials are slightly worse off, but within 5%.

It's those with only a high school degree that have seen a significant hit.

[1]https://www.pewsocialtrends.org/essay/millennial-life-how-yo...

Your teeth are bad

Unless you're an average citizen of the USA. I swear, I've never seen so many gleaming white and healthy sets of choppers as I have in the USA (particularly compared to, say the UK or Eastern Europe)

I think this speaks mostly to the kinds of people you have interacted with in the USA. White teeth are very much a status symbol since you have to be at least upper middle class to have them, so people go out of their way to have teeth whitening procedures done as sign of high social status. But if you went on a tour through an amazon packing plant you’d see a lot of people with missing or crooked or yellow teeth. Our working class is almost invisible; if you’re well off you might not interact with them much at all, but they exist.

Sadly education is not historically a factor, as highly educated people are among the first to flee a doomed economy while government 'economists' keep assuring everything will be fine.

"Flee" _where_ this time? All economies are fucked, if not now then a month from now when it gets colder and all of this starts anew where they managed to subdue the first wave. I think these insane valuations are just pricing in the upcoming global wave of inflation at this point. FWIW, I'm betting on it. I'm taking on a ton of debt by buying another house.

How much inflation could we have? The only people getting more money right now are the super-rich and the most poor. Lots of middle class / working class can’t work or earn money and those are the people that drive costs of anything we care about.

> How much inflation could we have?

Very close to unlimited amount if it gets out of control. See e.g. Venezuela, Zimbabwe, or Russia in early 90s, among other countries.

> can’t work or earn money

They will be able to soon if they still can't. You can't keep the economy shut down forever. So it'll be shut down selectively until Nov 3 and opened completely shortly thereafter. /s

On a more serious note, having lived through hyperinflation myself, people who can work will have their salaries adjusted upward enough to keep them working (and therefore putting some semblance of food on the table), but not enough to keep up with inflation. At least that's how it worked in Russia in the 90s. In Russia, though, the situation was relieved somewhat by the availability of the almighty dollar. You could temporarily protect your rubles from hyperinflation by buying dollars, and then selling them for rubles when you need money. With dollar (and really, all currencies) collapsing, I'm not sure what people are going to do, worldwide. Seems to me that a global inflationary spiral could de-facto reduce everyone's debt obligations to each other. So whoever is owed debts of any kind would take a massive haircut. In the 90s that was the Russian Government. The beneficiaries were people now known as "oligarchs". They borrowed unimaginable amounts of money (with kickbacks to government officials of course), bought up the Soviet factories, mines, and oil production that didn't yet collapse, and then paid back with hyperinflated money, fractions of a kopeck on the ruble.

> You could temporarily protect your rubles from hyperinflation by buying dollars, and then selling them for rubles when you need money. With dollar (and really, all currencies) collapsing, I'm not sure what people are going to do, worldwide.

You could temporarily hold bonds, stock, etc. Many other equity classes out there with high liquidity, which can be converted to cash whenever you like.

No, you don't understand. For one thing you'd need to be completely brain dead to hold _bonds_ in this scenario specifically. You're basically lending money to whoever is issuing bonds and they'll be paying you pennies on the dollar in devalued currency. You should be _issuing_ bonds, if you're a company, and hoping you find enough fools to buy them up. For another, US stocks are necessarily tied to the US economy, which will be completely fucked for a decade if hyperinflation were to occur. I think you can deduce for yourself what will happen to stocks in this case.

Don't get me wrong, I think Venezuela-style hyperinflation is unlikely (unless we get a communist government or something in which case hyperinflation will be the least of our problems, and the economy would be fucked for a hundred years). But higher than normal inflation is very, very likely indeed, and you need to start thinking in terms of what that means for you. The old things like "buying bonds" might cease to work to increase, or even maintain wealth, irrespective of yield, if this gets even remotely out of control.

If there's going to be hyperinflation in the US, there's going to be hyperinflation elsewhere. The US sets the baseline for global macroeconomic health. You mention why bonds are bad, I'll concede that, but you could have enumerated other asset classes in more detail. US Stocks are bad, because the US is doing bad... what about foreign stocks? What about gold? You don't have to hold cash.

You're conflating two things, currency exchange rate changes and inflation.

Inflation to a first approximation is wage rises. "Too much money chasing too few goods" is the traditional formulaion.

Western economies have split. For the majority wages are not rising. For the affluent minority incomes are rising sharply. So we see little inflation in the goods and services bought by poor people, but steep price rises in goods bought by rich people.

The latter are mainly collectibles: stocks and bonds, real estate, artworks, gold and jewels, cryptocurrencies, etc.

We won't see Zimbabwe-style hyperinflation unless there is massive redistribution.

Would we consider tech workers affluent? Tech wages have been high for sometime, but I am not too privy to how much they're increasing, if they've plateaued (but are still high), etc.

> Inflation to a first approximation is wage rises.

Wage rises are always sub-inflation during hyperinflation. Goods, by the way, and especially complex goods with long supply chains, will also become scarce in all this as inflation makes it difficult to maintain stock necessary to manufacture or distribute goods. That is, that widget you bought today might cost more than you're charging for it when you need to replenish the stock. So you raise the price accordingly, using your best guess as to how much money you will need to still turn at least some profit. And _everyone_ throughout the entire supply chain does the same thing.

You haven't lived through a hyperinflation and I have. So you'd be wise to listen right about now, and if you're wealthy, you'd be wise to also read up on hyperinflation.

It's not the kind of "managed" inflation you're used to. It is, by definition, out of control completely, and very hard to get out of.

I mean, we know how the dot com boom ended.

With the current state of the economy, I'm not expecting anything better after a bust.

> With the current state of the economy, I'm not expecting anything better after a bust.

As someone who has another couple decades until retirement, a drop in asset prices would be great for me personally (though I'm sure it would be painful for many Baby Boomers).

For better or worse I wasn't very liquid when the stock market indexes tanked in March. Another lessons learned: invest in bonds at least a bit, not only to reduce volatility, but also because you'll have some 'dry powder' available to be able to rebalance when you equities take a hit.

Though total returns on bonds isn't too bad:

> The Nasdaq 100 ETF (QQQ) is up an astonishing 25.5% this year during a pandemic and that’s including a 29% peak-to-trough drawdown. But the long-term treasury ETF (TLT) is up 27.3%.

* https://awealthofcommonsense.com/2020/08/why-would-anyone-ow...

One other thing that makes comparison hard is the changes in the tax code. PE ratios in the past were based on certain corporate tax rates, which have been reduced significantly. Something like after tax PE ratio might level the field when comparing PE ratios across time.

Earnings are already after tax. That's why EBITDA is EBITDA (earnings before interest, tax, depreciation and amortization).

Thank you! For some reason I thought they were pre-tax.

Edit - It seems like adjusting for whatever the fed funds rate is might provide a more accurate comparison.

https://www.suredividend.com/interest-rates-valuation/

A fun outlier is Tesla :)

> PE Ratio (TTM) 984.55

https://finance.yahoo.com/quote/TSLA

If you want to look at individual companies, there were lots of publicly-traded companies in 1999 that not only had negative earnings, but didn't even have revenue.

Like NKLA? With a market cap of $16B

Ha yes I worked for a company that went public in 1996 with approx 75k of revenue for the previous year.

It's something to keep an eye on, but it doesn't seem like we're going to have issues from too much inflation in the immediate future.

We could stand to do better about wealth inequality...

The Fed is a driver of wealth inequality by inflating asset prices and backstopping risk. Inflation hurts the poor and middle classes the most.

I really feel there are going to be big political ramifications of all this. The inequality is, honestly, not just unjust now, it's humiliatingly so.

Expect more angry people electing even angrier people into important posts. There is some incredible short-termism in all this policy.

Inflation is wealth inequality. It benefits disproportionally the rich, and when done as part of QE it goes straight into assets like AAPL.

Technically it benefits those with share of productivity be it income or assets or in enough debt that the diminishment of existing value helps them more than it hurts.

The people that applies to may be largely rich in any given instance in practice but this bit of pedantry is important as "rich" are not homogenous in their interests.

What is your explanation for single-digit P/Es the last time the US saw real inflation?

I do believe Apple's stock has also increased almost 20% since they announced their 4 for 1 stock split (less than a month ago).

> Yep! S&P 500 reaches pre-COVID level record high again recently all thanks to U.S. Fed's UNLIMITED Quantitative easing (QE) policy.

I question the validity of this hypothesis, at least in so far that it has a predominant or even major effect:

* https://www.youtube.com/watch?v=K3lP3BhvnSo&t=8m50s

The video cites an US Fed paper on the subject (see Section 3):

* https://www.federalreserve.gov/PUBS/ifdp/2014/1101/ifdp1101....

It's mostly "policy shocks" / surprises that cause changes in bond rates, which may have knock-on effects to other asset classes.

Indexes have gone up and up and hit all-time highs regularly over the decades on their own: there's no need to throw QE magic pixie dust as a cause.

Further, in the past, a much smaller percentage of the population probably had equity ownership: as pensions have given way to private retirement funds (401(k) in the US), and so you have people buying the S&P 500 in their Vanguard accounts.

On the flip side, you have a large population cohort (Baby Boomers) entering retirement age, and they want safer asset classes so are going after bonds, driving down yields. With yields getting lower, anyone who wants returns is stuck with equities.

So you have one group of people bidding up equities for growth towards retirement, and another group bidding down bonds for safety in retirement.

I'm not confident about the 2008-present effects of QE, but I think it's more likely to affect stock and bond prices than Baby Boomers retiring.

The announcement of the most recent round of QE is one of the "policy shocks" of the kind referred to by the 2014 Fed paper. Prior to the announcement, Apple, S&P 500, and bond funds were at 1-year lows. This month they are at all time highs.

And these days MSFT, FB, AAPL, AMZN and GOOG have about 20% of capitalization of SP500. I'm sure there are a lot of mega funds who have exposure to these stocks and they do not want them to fall (until they can dump on someone else I guess).

You can compare that with other big tech. It's not just ERP or Revenue growth, the stock is just in a bubble.

That money is made from services. Profits from services has a higher P/E ratio than hardware traditionally.

Valuation is a result of demand for Apple stock. There is no direct link between increase in earnings and increase of demand for stock. Increase of demand might be result of external factors, for example, people flocking to Apple safe harbor, without necessarily inherently increasing trust in Apple as business.

A relatively small increase in earnings might also cause outsize increase in valuation, if that increase was not expected or if it signals to the market the company is strong regardless of tumultuous market situation.

This, exactly. The other thing is that everyone and their brother wants to create an app store to get 30% of revenue. The thing they miss is that you have a consumer driven device that users want even without the app store. That is what Apple nailed. They were also first. They will continue to ride this wave for a long time.

Yes, the app store was genius. We'll see how the 30% shakes out in the long term, with the recent revolt from Epic etc, but creating a platform on top of your software/hardware vertical integration is a decent monopoly play that creates sustainable revenues.

What's funny is how much friction and persuasion it took to get them to actually do the App Store. Steve was hellbent on WebApps and I hope the history books recognize how much influence jailbreakers had in shifting the discussion to native apps

https://youtu.be/8Vq993Td6ys?t=32

That's super interesting, thanks for the video! Perhaps they understood that there might be resistance to native ("small market" at the start) and so looked for something that could help the transition?

More likely, they knew the hardware couldn’t really run much more.

The first iPhone had 128MB of RAM and ran at 412 MHz, underclocked from 620 MHz (https://en.wikipedia.org/wiki/IPhone_(1st_generation) ), and there was disbelief that what they showed could be built at all at the time with the advertised battery life.

They likely also didn’t want to commit yet to an API for third-party apps, as they didn’t know what was reasonable there.

I was under the impression Steve was (rather unhappily) forced into this position because of the state of native apps by launch. Can't remember where I read this or I'd gladly link it.

I agree with you, I'd be amazed if Steve "Control Freak" Jobs would have wanted an open app ecosystem.

> Yes, the app store was genius.

Meh. make was genius. Makefiles were genius. pkg_install and pkg_add were genius. PMS was genius. RPM was genius. FreeBSD's ports tree is genius. pkgsrc is genius. Like nearly everything Apple ever did, AppStore is not at all original, not remotely the first, not by over a decade. It is really no different from any other binary package manager. It is Brew for iOS.

It's exclusive, with a gatekeeper, and no workaround. It just works. It has payment processing built in.

Like most Apple things, they weren't the first. Their genius isnt being first, it was spit polishing things to be simple for the masses. Over the years, they have lost a bit of that vision and turned googly with new products not quite replacing old products (how many times has photo sharing and backup been redesigned) but comparing the whole suite to components is a bit unfair.

As others have said, the genius of the app store isn't the technology (as you rightly point out, the technical problems have been solved for decades). The genius of the app store is in the business model: Make and market a device with unlimited demand, give third parties only one way to reach such a large market that they're willing to pay you 30% (while drastically lowering technical barriers to entry), and raise the barriers-to-exit so high for users that nobody ever leaves the ecosystem. Rinse, repeat, profit.

Nothing you listed has a competent GUI. For a mass market product that is everything.

How about Cydia, which predated AppStore by 2 years?

it amazes me that people still seem to think that the app store was some reactionary response to jail breaking and not a calculated move. the iPhone was launched in June 2007, the app store in July 2008. Apple did not build an entire developer SDK and software marketplace within 1 year as some afterthought. those wheels had been in motion before we knew what the iPhone was.

if Apple had launched the app store with the iPhone, it would have had no where near as big of an impact as it did by waiting just a year. they created the demand first.

and no, Cydia was launched 5 months before the app store.

I was suggesting nothing of the kind. But certainly it wasn't the other way around, either.

My only point is that the AppStore is not the Second Coming. It is and it only is a package manager. Just like all the others that came before it. And nothing more. It is not some searing example of genius. It is one package manager among countless. That it includes a payment system is an irrelevant detail.

What Apple did that is amazing is creating a community of developers out of nothing and gave them excellent tools to create software for their platform. It seemed overnight that the ocean of Windows applications, mostly due to obsession with backward compatibility, was no longer all that special.

Rod Holt helped Woz build the Apple ][, and was then responsible for its design and manufacture, he was one of three VPs when Apple incorporated (Jobs and Woz were the other two) and he was in charge of the Macintosh group when it launched.

An old engineer friend of his asked Holt about several topics, and I think his answers were interesting, including what was baked into early Apple that made it succeed at what it was trying to do over the years.

https://louisproyect.org/2015/08/28/steve-jobs/

(The beginning of the blog post are comments by the old friend about the Jobs movies, followed by Holt's two replies).

and their value is the most defensible as well. Devs might see the pitfalls of Apple's walled garden restrictions but for general public their image still holds supreme. In developing world their products are seen as sort of status symbols. Imagine loving a brand so much that you put their stickers on your car. [1]

I think only Google probably had the image of superior products(Search, Maps, Mail) which rivalled/beat Apple but that has been kind of tarnished now.

[1] http://damniwish.com/wp-content/uploads/2012/08/car-sticker-...

Right, Google doesn't play in the "luxury" space, they decided that strategy early on, allowing any smartphone maker to ship the Android OS. This won them the market share for operating system - currently 75% to iOS's ~24% [1], but they are unable to capture a fraction of the value that Apple did with their luxury mass-market strategy.

[1] https://www.statista.com/statistics/272698/global-market-sha...

I may be wrong, but for me it looks like it was their goal to begin with. Google analotics knew they have to chance to compete with Apple in that regard so they went with other profitable options. At least from outside it looks like a sane decision.

I wouldn't be sure of this. Google at one time was a darling of the tech world. Sure, the data collection issue has been there from the start because of the business model. But their products, engineering, openness was looked upon. Add to this their principled approach to things like when they decided to pull out of China because of their values.

The biggest qualm with Google was their incoherent product strategy like what happened with Gtalk, Reader etc.

If anyone had the brand value to push a smartphone OS, it was Google. Once Android started going mainstream, they could have chosen a different strategy for the high end models.

HN loves to riff on cancelled Google products, but Google is essentially throwing products at the market to see what sticks profitably. It's worked in the past and most consumers (outside of HN) still don't care about the failed products.

I am not just talking about the cancellation, I am also talking about product strategy. Like the example of Gtalk. Gtalk was interoperable, worked well and yet missed the beat of messaging apps.

Look at the messaging space now. Messenger, WhatsApp, iMessage. Google should have led this space with evolution of Gtalk.

Even for users, as it used XMPP we would have had an open platform where we could have just plugged in our own favorite messaging apps with it.

Didn't GTalk become Hangouts?

That's my point though - the features that HN users find valuable (XMPP standard) are not the same as what most consumers do.

Yeah, you are right about that. My main point was just about messaging in general where Google couldn't evolve Gtalk into a smartphone era messaging app.

XMPP I consider as an advantage personally as with lock in to platforms like Messenger/WhatsApp we complain about the total control these companies have. In an XMPP world, at least you could have had more control over clients and the ability to talk to a different Jabber server from the same client app.

I agree though that the XMPP bit, no normal user cares about.

>It's worked in the past and most consumers (outside of HN) still don't care about the failed products.

I singlehandedly moved my entire extended family into the iOS space because I got tired of dealing with Google's bullshit messaging apps. I'm not going to waste my life teaching non computer literate people how Hangouts/Meets/Talk/Duo/Allo work.

WhatsApp came along and took the messaging space, while Skype and Hangouts and Talk or whatever couldn't figure it out. And Facetime was the only decent video calling option that didn't need to be troubleshooted.

It was ridiculous that I couldn't easily send a contact to anyone in the world until WhatsApp came around. Then I didn't have to worry about who had what phone, I sent them a contact in WhatsApp, they got it for free and it worked.

But Google's strategy isn't simply in selling phones, but in then showing ads to the users of those phones.

It is not that simple. Ad industry has a lot of money and I personally find nothing wrong with ads as such. We can argue about targeting but that's a different topic. StackOverflow does ads and they seem to really go well with the page. Even Apple tried coming into the market with iAd.

After all, ads earn them revenue. You can have product differentiation where your devices don't have to necessarily earn by ads. A very good example of this is Amazon. They have two versions of Kindle, with the ad free version costing more.

All I'm saying is that Google earns X from selling phones, Y from ads. Apple earns Z from selling phones, and 0 from ads.

GP is claiming that Apple is doing better in the phone space, because Z>X. But the appropriate comparison is not Z vs. X, but (Z+0) vs. (X+Y).

Yeah, my point was that only. You can either charge the user upfront or you can earn money with ads as the user uses the platform.

For high end devices, maybe some of the services could have been considered paid off for before and could have skipped ads. That way, even Google gets 'Z' from phones.

Amazon has a lock on the kindle store, enforced DRM, and a subscription program. That's more like iOS than Android in strategy.

Very well could have been Google's strategy in high end devices as well with charging upfront for few services in the cost of the phone itself.

This just cuts into privacy as a marketing point for iPhone.

How exactly would Google have done that as a software company and not a hardware company?

By giving it out almost-free to OEMs, Google solidified the majority marketshare as the cost leader. That is much more strategic than dumping capex into manufacturing against an already established quality brand.

The iPhone is a great product but the way it's financed is brilliant. I suspect not many people buy their new phone with a $1000 charge on their debit card and that new phones are always financed. I use a 6s, available used for $70 all in, and it gets the job done.

Carriers finance the new model at a seemingly low rate ($15/mo.) then charge more on the wireless service. I can get the $15/mo phone, but only at the $60/month plan not the $35/month plan. If I don't pay, the product is worthless (no service).

You can calculate the amount of housing or auto debt that is out there, but have always wondered how much 'iPhone debt' is outstanding w the wireless carriers?

I've always paid cash on new phones. Is there a credit check associated with financing a new iPhone?

Phone costs/profits are baked into most plan pricing. If you have such a plan and are paying for your phone outright, you're paying twice for a large chunk of it.

You can get phones directly from Apple.com at 0% interest over 24 monthly payments, assuming you would have purchased AppleCare+.

https://www.apple.com/shop/iphone/iphone-upgrade-program

Well the iPhone is their only mass market luxury good, and that's simply because people don't pay the whole cost at once. The get it on credit, under contract, from their mobile provider.

I don't know the history of mobile phone contracts before the iPhone but i feel like that was Apples innovation (or they made the best use of it), rather than the product being so good that everyone had to spend ~$800-$1000 up front for one. Not that it isn't a good product, just without a phone contract it would have sold far less at the premium price point.

In fact iPhone phone contracts seemed to spawn a trend in getting many other products on credit (and over paying for them).

Also, I seem to remember Apple pushing mobile network providers hard to almost subsidise the cost of the handset around the 2012s, when they were still competing at market share with Android phones.

Wrong. Apple succeeded because they managed to tap directly into the newly printed fiat money by borrowing vast amounts of money to avoid tax all over the world and benefiting directly from international currency inflation and doing stock buybacks.

As a consequence, I wonder if there's measurable harm being done on a mass scale, persuading so many people to give more money than they should be comfortable with to one company. I've seen kids in subsidized housing and no jobs with iPhone 11 pros. Clearly not as many can afford them as there are who own them. Being car or house broke is perhaps a parallel that is more concerning

I'd add that a huge factor behind their luxury good becoming mass market is the finance/payment plans that Apple and the cell carriers offer.

I'm willing to bet the adoption of smartphones and regular upgrades wouldn't be happening at nearly this scale if all customers had to pay $600+ up front.

Apple got lucky because it entered an industry where the sellers (carriers) are more than willing to subsidize the cost of the phone or bundle it with service to make the cost of the phone seem irrelevant.

Over 24 months, the difference between a $650 phone and a $250 phone is minor.

3k rings, 30k cars, 300k houses, ...?

I definitely agree with the rings, but you don't buy many in a lifetime.

Less so with the cars, the vast majority of cars sold are with relatively thin margins.

And houses aren't sold by a single business, it's just the law of supply and demand.

I would add Nespresso as an example: They've definitely managed to mass-market a luxury good (outrageously expensive coffee pods)

All three are below median prices for the coastal US.

If you are in Chicago, think 6k rings, 60k cars and 600k houses.

Surely cars are mass market luxury goods? They've been around a lot longer than iPhone.

>Apple succeeded because they managed to do something that was previously unimaginable in business theory - create a mass-market luxury good.

How's that different from all kinds of clothing brands?

I think just the difference in the "mass" part of "mass-market."

That was part of my question. Those fashion brands are also "mass".

I'm not talking exclusive to rich people Armani's here, I'm talking all the mass market luxury brands. Heck, even Nike's $200+ sneakers...

Apple’s market cap is 15 times bigger than Nike’s. That’s all I meant.

Sure, but the quote:

"they managed to do something that was previously unimaginable in business theory - create a mass-market luxury good."

Is not about that. It is about the (perceived) impossibility of a mass-market luxury good.

But "mass-market" is a term for broad appeal/sales (dictionary: "the market for goods that are produced in large quantities"), not for over-the-top revenues.

And as for that, more people have Nike shoes than have an iPhone. But even if 1/15 as many had, it would still a mass-market good, with luxury price / appeal.

Mass-market luxury is sort of an oxymoron.

The exclusive nature is part of what supports the luxury brand. One case study: how ray ban managed to recover their "luxury" status by removing low cost, high volume items from their catalogs.

https://fortune.com/2016/01/27/ray-ban-luxottica-retooled/

it's also a peculiar time in human history.. technological convergence like that don't happen often and Apple took the first seat at the right time.

> luxury good

"just works and doesn't waste hours of my time" != "luxury"

Also, similar to Amazon, they treat customers really well. Customer centricity definitely played a role in Apple's rise.

A clean and simple product UX != treating the customer well. Gouging their customers for repairs and being outright hostile to anyone other than themselves managing the device is not being customer-centered.

I once brought my old 17 inch MacBook Pro into an Apple Store because it had died. Apple Care had expired. They fixed it anyway (exchanged the motherboard in the process), at no cost. That's pretty customer centric.

It's also pretty untypical.

I think that varies by customer. I wouldn’t call my experience customer centric or even close.

I had a 2015 MacBook Pro that had died recently and like you Apple Care had expired. This is my work laptop and was not be able to earn anymore income until it was operational again. I did all the basic troubleshooting myself resetting PRAM, etc and nothing helped. I contacted Apple support and they had me do the same tests and some additional ones without success. This all happened two weeks ago and due to Covid-19 the area I’m in has no in person support available. The only solution offered was to wait until Apple stores open or buy a new one.

I tried to find third party to help with no luck. I decided to take a crack at repairing myself by buying individual parts from Amazon. I soon realized this isn’t as simple as it should be. I had to buy Apple specific tools to open the MacBook case and then realized even the SSD on a 2015 MacBook Pro is a proprietary version so I had to buy a specific over priced version to replace the drive. I felt like the last thing they wanted was for the customer to try and repair the laptop.

Nothing ended up working. So, I had to buy a new one. I thought I could at least use this current MacBook Pro to get some trade in discount. Nope, they offered zero trade in since it didn’t turn on even though it was in excellent physical condition. I ended up buying a new one from Amazon and restored data from a previous timeline backup.

IMO, The least a company this wealthy could have done is offer a small discount considering the times we are in. I was very disheartened with my experience.

Sorry to hear that. I guess Covid-19 is special, and my incident was also over 5 years ago.

I hope you upgraded to a 16 inch one! Sounds like a good update anyway.

I agree. I wanted to share a bad experience. Otherwise, I have rarely needed any support from Apple in the last ten years.

I did, and it hurts looking at my previous one I loved right across from me considering the price I paid for the new one. "Well, at least I have Touch ID now" is what I keep telling myself.

I hope you didn't buy another Mac after that experience.

I didn't want to and tried using a windows based laptop for time sensitive work as I was waiting for parts to arrive. I spent more time troubleshooting getting stuff to work on a windows machine. Some tools I use and App dev work I do requires a Mac OS. Luckily, I had some savings to use but others in the same situation may not be very fortunate or even have options.

Now that I think about it, I could probably get away with a Hakintosh setup. I didn't consider it with everything going on.

> being outright hostile to anyone other than themselves managing the device is not being customer-centered.

But it is. The customer isn't you, the tech literate professional; their target customer is the average person on the street.

Apple doesn't want their device ecosystem to be inclusive to the things that confuse, defraud, or frustrate non-savvy users: unethical or unqualified repair, advanced (mis)configuration, side-loading apps, etc.

Back when I worked as an IT tech, upwards of 80% of issues I dealt with were caused by one of those confusions that are completely solved by a walled-garden approach. It might not be your preference, or my preference, but there's no denying the utility it has for others.

I’m not sure the tech literate professional is the right group there. Plenty of us pick Apple products because we’d rather use our time and skills to make money instead of tinkering with gadgets.

Yes, I'm suggesting that their viewpoint might be biased by their expertise -- not that all with expertise share that same bias. I have some Apple devices for exactly that same reason.

Wrong. It's not a luxury product when 47% of the population choose to buy it (US).

The US is rich, at a global scale. And I'd imagine poorer people in the US don't buy new Apple devices.

>And I'd imagine poorer people in the US don't buy new Apple devices

One thing that is pervasive in the US, is financing of expensive things (relatively speaking) through "easy" monthly payments.

That's a bit misleading. What actually happened is Apple first created said smartphone market, and then used their advantage to create a walled garden to keep people in, and also indirectly force others to enter the garden (iMessage, FaceTime, etc).

The only reason their luxury good is sustainable is exactly because people have to join it to be able to communicate with their friends, and can't leave.

A very strange comment, which is far from the experience of anyone I’ve ever heard of.

I have an iPhone, but I communicate with my friends using WhatsApp, Facebook Messenger, Signal, and Skype as well as iMessage.

Some of them have android phones, and some of them have iPhones. And some of the iPhone users use Facebook messenger, Signal, and WhatsApp, to communicate with me

I only use FaceTime to communicate with certain in-laws, and the some of my extended family and some local friends use Amazon Echos for video.

I'm not saying communicating other ways is not possible, but the majority of people actually do care about "blue bubbles vs green bubbles".

I think that was true 5 years ago when SMS was still a thing.

The majority of people are comfortable with Facebook and WhatsApp now.

Also - caring about the colors of bubbles is very different from ‘unable to communicate with their friends’.

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