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Comment by norea-armozel | Hacker News Reader

It's weird how Samsung, LG, and HTC are struggling to make a profit on their phones (some have very good phones like the LG G4 which even Chris Pirillo said it was a good phone), but Apple just keeps growing their profits. I wonder if it has to do with how they've limited number of phone models or is it purely brand recognition that's driving this growth.

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Is it possible--not saying it's so, just asking a hypothetical question--that Apple just makes more desirable phones?

[Edit] Wow, everybody, I meant more desirable as in; people are willing to pay more. I know FTA that they are only 20% by volume.

Apple's actual market share is less than 20% of all smartphones worldwide, though their share of profits is at 92%. This is not about their phone selling more than other phones (they aren't necessarily), but rather how Apple manages profit margins. Their phones are much more expensive than the competition, command premium prices and thus yield premium profits.

And would that not mean that their phone is more desirable? Lots of things are desirable that are not affordable and are not, therefore, purchased in vast quantities.

Depends how you quantify "desirable" but since there are many more Android phones in the world than iPhones, some would say that means Android phones are more desirable. But either way, that really has little to do with profits. If I sell just one item in my entire life for a million bucks, something that cost me ten bucks to make, that is pretty impressive profits, even though it was not desirable since only one person bought it.

I think you can only associate desirability with units if you hold other things equal: price, availability, etc.

Yet, in at least North America, equivalent "high end" Android smartphones cost the same on contract and even off contract than iPhones. I can get an older iPhone 5c for free (probably a 5S is I go with a smaller carrier). Where are people paying a "premium" for the iPhone?

Is is that not enough people choose the flagship Android devices to move the needle? I'm genuinely curious/asking because it seems/appears there's some parity (price) between the current flagship Android devices and Apple's newest.

Well I paid $1000 including Apple Care for my iphone, so that's a pretty hefty profit to Apple!

Also, profit formulas aren't that simple. You have consider Apple's costs vs their revenue for each phone, and also their contract terms with providers vs other phones. I don't know the details. But perhaps Apple earns more for their phone contracts even if consumers pay the same. One thing we do know is that Apple leads the world in an extremely well-oiled production pipeline and network of suppliers that no doubt also helps keep their costs down and thus their profits high. I doubt Android manufacturers are operating at that same margin.

Good points. I would imagine that Apple has a better supply chain, and more aggressive/favorable terms with each provider than competing smartphone makers. I'm not sure it accounts for the entire difference. I wonder if there's a middle area or marketplace where people pay disproportionally more on average which helps this figure (92%) climb so high.

> But perhaps Apple earns more for their phone contracts even if consumers pay the same.

Considering the demand for iPhones a few years ago I'd be amazed if this wasn't the case, I suspect the carriers also pay a chunk of the advertising if it's an exclusive deal.

I think this is it exactly. The number of people who buy high end Android phones is a tiny slice of the total Android market. The vast majority are the same people who bought Nokia candybars in the past--people looking for whatever they get for "free" on contract.

This is also why the Apple app store sells so well compared to the Google Play store. People with crap low end Android phones struggle to run many apps, and their phone didn't come with enough storage for them.

"...their (crap low end Android) phone didn't come with enough storage for them"

My brand new iPhone 6 only has 12 GB of usable storage. I'm currently using more than half with only a small selection of apps, photos and music. IMHO that's pretty crap - and I paid a premium for it (doh!)

Android phones for some reason rarely come with enough storage. It's easy to buy 8GB phones, and Android is less space efficient than iOS. The only saving grace is that they often include uSD slots, although convincing your apps to use that space can be difficult sometimes.

Those really are incredible figures when you think about it. 20% of market share reaping 92% of the profits. Is there any comparable in any other industry? Ever? I'm currently in the android camp but I have to say I'm astounded how Apple consistently pulls off these kinds of numbers.

I wonder if someone has done marketshare numbers with respect to flagship phones. I thought the Nexus 5 was a great phone for $350, but then the Nexus 6 went back to full flagship price and pushed me back to an iPhone for that amount of money.

My thought is, if Apple is pulling all of the profits then they are the flagship to buy if someone is in the market for a flagship phone. Otherwise, if someone is buying on price it is Android all the way.

In 2015, not proportional to that profit difference, no. iPhones are not dozens of times better than all Android phones. There's something else to it, the construction of some sort of successful moat that allows them to charge more.

More desirable as in; people are willing to pay more.

Yes, that's my point. There has to be more to it than just "they're better", because no matter how Apple fanboy someone may want to be today, there's no conceivable way they are that much better. There must be some kind of moat. Full stack integration or some sort of big savings from owning the OS or something, because it has to be more than just "they're better". Besides, if it were just a raw "they're better" they'd have a much bigger market share, too.

Hardware is nothing without software.

They make more desirable phones because they make iOS.

People don't so much care about the iPhone; they want iOS and the safety, convenience, and integration with the Apple software ecosystem.

Apple has leveraged this into a hugely profitable position by making the only hardware supported by this OS.

The iPhone is crap when evaluated on battery life or camera quality, for example.

It's software that's eating the world.

I would kind of agree with you. I use android because I can simply plug it in and drag and drop any file I want. Yes, there's dropbox, etc. Those aren't options for me. Also, I love the way Android allows data to be shared between apps. I find it very intuitive.

If iOS had those things, I think I'd try switching, just to get something new.

AirDrop - you don't even have to plug it in.

Not sure this would cover my requirement.

It seems based on the tech site reviews that I've read, flagship Android phones have only now caught up to or surpassed iPhones with regards to camera quality with the latest iterations of flagship Samsung and LG phones.

If it were that simple, wouldn't they have more than 20% market share? It seems clear to me that iPhone owners are paying a premium for the branding, which is pure profit from Apple's perspective.

Which would indicate desirability, no?

For that 20% of the market, sure. For the 80% that buy non-Apple phones, they are clearly more "desirable" to them.

How many people that bought a Corolla would have taken a Camry for the same price? (Again, not saying that Apple is better.)

Even with price parity through on-contract upgrades, apparently not that many. We should expect Apple marketshare to be much higher if the iPhone really is so clearly superior and more "desirable" to any rational consumer.

I do not disagree; but keep in mind that I've never spoken of "clearly superior", only desirable.

Also, since when did rationality enter the discussion? A beloved wants diamonds so their partner buys them. But diamonds are not worth anywhere near what's commonly paid for them.

There is a far mix of rational/irrational behavior in most luxury purchases--it's not an Apple exclusive trait.

This is very close to correct. The better analogy is something like Tesla vs the generic commuter subcompact field. The generic consumer subcompact marketplace is extremely competitive and therefore there are approximately zero profits to be made, whereas the Tesla has one model at one price and basically no competitors.

Want an iPhone, you'll buy THE iPhone for whatever Apple wants to charge.

Want an Android phone, you'll select from a zillion basically identical competitors all more or less profit free (because competitor A can't extract an extra 5% profit if that would drive 100% of competitor A's sales to sellers B thru Z)

This shows the fallacy of "the smartphone market", there's the non-competitive iphone market with about 20% sales and the hypercompetitive confuseopoly market the other 80% buy into.

ObBadCarAnalogy: Well, a Ferrari Enzo is more desirable to me than a Skoda Octavia, but I own a bicycle, so there's that.

Why is it clear to you that the premium is purely a function of branding, and that physical attributes of the product are not also factored in somehow?

This is not a rhetorical question: I could imagine a study that would explore the influence of brand vs. size, density, materials, etc.

Most people would consider a Ferrari to be more desirable than a Toyota, yet Toyota sells many magnitudes more cars than Ferraris because Ferraris are out of reach for most consumers. If money were no object, many more people would own Ferraris in lieu of Toyotas (but not all, given that Toyotas may be more practical, more reliable, easier to maintain, etc.).

Why is it so hard to accept the notion that people are paying a premium for a premium product?

Because, having used both, there's nothing "premium" about the iPhone experience except the perception in iPhone users' heads.

But that's just it. "Premium" is a subject term. I’ve used both (you mean Android, right? there's other platforms) and found that Android is garbage. So I'm paying good money for a good product. You're free to disagree about the quality but don't tell me I'm brainwashed without offering to pay for a psychiatric evaluation.

I suspect that this is a motte and bailey trick. Users of the iPhone claim that they use a better product, where by better they mean "objectively better", but when challenged on what it is exactly that makes it so much better, retreat to, "Well it's just my preference", and then as soon as the critics say, "That's fine if it's just your preference, but recognize that you're paying a massive tax for what you've admitted is just a subjective preference," they move back to, "Apple makes better products so they make more money." As if it's some kind of objective truth, even though they've admitted that it's not.

"People pay premium for a premium product" doesn't signify to me a subjective difference. Especially when it's used to argue that the premium paid has nothing to do with Apple's branding, an objective and extremely common reason that people pay premium prices for products that are objectively identical to their competitors.

Premium products usually cost more to make justifying the price. The point being made is that the cost to manufacture the iphone isn't any more than say an android device, so your just paying apples exclusivity tax.

It's probably a mix, they have only a few phones so they're easy to understand ("I have the bigger iPhone from last year" or "I have the HTC One M9" - the former is easier to remember and understand for non savvy people), and better brand recognition - despite being expensive is HTC considered luxury like Apply is?

This is true, fewer models make buying easier. Plus if you buy the current generation you are getting "top of the line", last generations still on sale is still usable.

Plus with just 2-3 models apple only has to pay for engineering and designing 2-3 models. Plus it saves on the software testing (which despite that still is a bit buggy).

As long as your use-case meshes with apples things are good.

Apple has for a while excelled at market striation, they tend to enter the market with 2-4 of any one product, it removes the Paradox of choice.

Laptops are horrible at this, do I want the MX50S, MX50X, MX51, MX51S and on and on.

With Apple it's Macbook, Macbook Pro, Macbook Air.

It's a smarter strategy and I wish more manufacturers did it.

This is pretty relevant:

"When Jobs returned to Apple in 1997, it was producing a random array of computers and peripherals, including a dozen different versions of the Macintosh. After a few weeks of product review sessions, he’d finally had enough. “Stop!” he shouted. “This is crazy.” He grabbed a Magic Marker, padded in his bare feet to a whiteboard, and drew a two-by-two grid. “Here’s what we need,” he declared. Atop the two columns, he wrote “Consumer” and “Pro.” He labeled the two rows “Desktop” and “Portable.” Their job, he told his team members, was to focus on four great products, one for each quadrant. All other products should be canceled."

https://hbr.org/2012/04/the-real-leadership-lessons-of-steve...

I'd consider the HTC One series and the new Galaxy S6 to be luxury phones on par with the iPhone or even better in some respects. The build quality and refinement is top notch.

Are they really good phones? All the android devices I've owned have lots of fairly glaring usability problems.

Most recent example: My nexus 7 periodically does something that kills the battery, and the touch/tap responsiveness is quite laggy.

I could go on and on. Apple devices have significantly better usability and many fewer warts than Android devices.

IMHO the only people who think the two platforms are on par are people who look only at hardware specs.

That's what happens when you compete on price. Nobody is going to pay an extra $50 for an Android phone over another comparable Android phone.

Samsung alone outspends Apple on marketing. Samsung needs to continuous battle against the other Android phones.

If you want an Apple phone either you pay what they are asking or you don't get it.

Apart from Apple, the other company that was doing well at capturing profit from Android phones was Samsung -- e.g. this link from 2012 when the S2/S3 were selling well [1].

I believe the rise of Apple's profit share correlates with the rise of cheaper Chinese phone manufacturers like Xiaomi who operate on much thinner margins than Samsung.

[1] http://www.digitaltrends.com/mobile/how-apple-and-samsung-co...

Post-Xiaomi, a potential Samsung buyer could think about a cheaper replacement -- functionally Xiaomi is still Android, after all. Sure, an Apple owner can "go Android" too, but imho p(Samsung to Cheaper Android) > p(Apple to Android).

Apple captured the top 10% of world's population in terms of discretionary income, and so they are making massive profits. Their key demographic is well-to-do in developed countries and rich in developing/middle-income countries. There is a NYU Professor who mapped iOS and Android devices, and the map of LA showed really rich parts dominated by IPhone.

I am not sure if you are talking about the same but this may be the source[1]. Also the blog discusses about the relation between device usage to the degree of affluent neighbourhood[2].

[1]. https://www.mapbox.com/labs/twitter-gnip/brands/#5/36.280/-2...

[2]. https://www.mapbox.com/blog/visualizing-3-billion-tweets/

Perhaps it's related to the distribution channels. Apple sells through their stores and website, where they must take in a significantly better portion of the sale than through sales by carriers.

Google sells through a website, but I'm not aware of other manufacturers selling direct to consumer like this.

All the money is in the flagship phones. If Apple has a good year for flagships (like finally releasing larger phones), and the others have a bad year (like the underwhelming Galaxy S5), Apple is going to make most of the money.

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