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August 20, 2012

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That's not the secret to Apple's success at all. The secret to their success is that they've figured out a way to essentially swallow entire companies whole. Look at the charts of, e.g., RIMM (phones), HPQ (tablets replacing PCs), SNE (portable music players). The list goes on.

Very little of Apple's profits come from the app store. Most of their money comes from selling iThings which have huge profit margins.

Actually, it was reported a few years ago that Apple makes FAR more on hardware than they do off their App Store vig. Things may have shifted a bit since then, but I suspect the big picture remains the same.

Apple is able to charge premium prices for its products because they successfully convinced people that iDevices are "cool" luxury goods. This happened by a combination of solid engineering, outstanding advertising, and good luck.

http://tech.fortune.cnn.com/2010/06/23/app-store-1-of-apples-gross-profit/

http://ismashphone.com/2009/05/how-much-profit-did-apple-make-on-1-billion-apps-not-much.html

Their value transference occurs much before in economies of scale and artificially cheap Chinese (slave) labor for production, while charging brand name premium pricing for hardware and services (Apple care insurance) that the masses think is worth overpaying for.

Apple's marketing team is ingenious for inflating their intangible value and brand equity for such a mainstream product. This strategy is similar to Abercrombie and Fitch, Nike, Haagen Dazs and BMW.

All pseudo-luxury for the middle class and below.

Apple is also the industry leader in many new products and services, which allows "exclusivity" pricing.

Once they start their own search engine and television service, they will become a truly unstoppable blue chip.

Yeah, sure, that's what it is.

All of iTunes (music and app store) represents a whopping 4% of Apple's revenue or 1.2% if you subtract the revenue that goes to the content creators.

Most of that 1.2% is probably for music so the "Apple tax" that computer programmers pay to be on the iPhone is a piddling portion of Apple's income, certainly less than 1% of income.

-Mercy

[HS: I would assume that the 4% figure represents Apple's share of the commissions, so it's pure profit. But maybe I'm wrong about that.]

How much of their profits come from apps aside, is it worth pointing out that computer programmers who make an iThing app have only 'created value' because Apple also created value? Namely, the iThings and the ecosystem that can mass-distribute apps on them?

Or should I not bother?

Apple iphones are just flat out better then all the competitors. I tried out one or two apple competitors and they sucked.

Of course that advantage can't last. It's just a clever way of doing the interface and design. People could copy it and drive down profits. But apply is trying to stop this by essentially copyrighting the idea of small rectangular cubes wiht nice screens. Remains to be scene if that kind of copyright trolling will work.

The story here is the paucity of US jobs from Apple. Only 43,000 US jobs.

Meanwhile Apple has outsourced almost a million jobs to China.

http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=1&pagewanted=all

The article says that China is used not merely for price but for superiority. Steve Jobs told Obama to his face that the manufacturing jobs (Apple was once a big US manufacturer) are not coming back ever, i.e. not at any price.

Half, you blogged about HBD investing. This is it. Apple is HBD aware and they stay the hell away from diversity, to their cosmic financial benefit.

Apple is successful because their devices are easy to use and look nice. Corporate IT departments don't like them much, but for an average user, they're easy to set up and use.

The app store gives some reassurance that the program isn't malware, and will do more or less what it says it will. It's not really value transference, and more than a book publisher is.

Apple is innovative: the iPad was really a step ahead of the competition when it came out, and it was easy to use, easy to configure. People don't want to spend time downloading drivers and configuring crap.

For those that do, however, like techy stuff, there's jailbreaking the iPhone, which apparently Apple doesn't really mind...

Apple's success is that it's the only software company (and yes it is at its core a software company that just happens to control the hardware ecosystem) that actually cares about user interface design.

Small case in point that illustrates this. Ever notice how on OS X the menu bar for the application runs at the top of the screen, versus Windows where it runs at the top of the window.

That's the result of years of observing user interaction where Apple determined that when people go to click the menu at the top of the window they almost always slightly overshoot then have to pull back. This makes going to a menu much easier on OS X then Windows, especially when using a touch pad on a laptop.

There's millions of tiny examples like this. Apple is run by user interface designers, where at every other major company the UI designers are second-class citizens and the engineers run the show. This is a good strategy for enterprise software company's like Oracle, but in the consumer space UI is king.

HS has a few pet ideas that he applies mindlessly to
various topics. It's a lot easier than informing yourself and thinking hard before you write.

He has some good posts, too, which is why I read him.

Your value transference theory is not new, it is a restating of monopolistic mark ups/monopolistic competition and in some case you site, rent seeking.

"It's a lot easier than informing yourself and thinking hard before you write."

Ah, but we learn so much from his commenters!

"Apple is successful because their devices are easy to use and look nice. Corporate IT departments don't like them much, but for an average user, they're easy to set up and use".

This is the only reason why Apple is worth more than Microsoft. But their success really comes from proprietory rights of their hardware which stifles any competition and monopolizes a segment of the computing market.

"Apple is HBD aware and they stay the hell away from diversity, to their cosmic financial benefit".

"Steve Jobs told Obama to his face that the manufacturing jobs (Apple was once a big US manufacturer) are not coming back ever, i.e. not at any price"

Yes, the late Steve Jobs was definately unPC (no pun attended). I'm sure he believed that NAMs are of an inferior intellect and thus less capable in many important areas of life. The guy was razor sharp perceptive and unyielding when it came to his beliefs. He seemed to disregard liberal policies such as charity, which are of a waste money anyway, since they tend to cater to NAMs.

Today: "...you have to sell it on the App Store, where Apple gets 30% of the profits, thus transferring money from the value-creating computer programmers to Apple."

On August 17: "Commissioned people in the financial services industry offering investment “advice” are the world’s worst scum..."

What is wrong with sales staff earning commissions and retailers earning a markup? Goods and services need to be sold, and people need an incentive to sell.

"HS has a few pet ideas that he applies mindlessly to various topics."

Yep. That's the winning game plan.

"The secret to Apple’s success is value transference."

Apple's success doesn't meet your standard of what qualifies as value transference. In order for Apple to be practicing value transference, they would have to be deceiving people about their product's quality. However, as demonstrated through market share and independent marketing surveys, Apple has too many satisfied customers for their business practice to be deceiving their customers about their product's value. Indeed, customers even play with Apple's iphones and ipads in Bestbuy and compare them to competing devices to test how much value they think Apple's hardware is worth before they purchase anything. And overwhelmingly, customers choose Apple. The only way customers would be this satisfied is if Apple was actually creating value for their customers.

[HS: MONOPOLY power is a form of value transference.]

"In order to create software for an iPhone or iPad, you have to sell it on the App Store, where Apple gets 30% of the profits, thus transferring money from the value-creating computer programmers to Apple."

You have no idea what you're talking about. The iPad has changed the way people read forever because reading on a computer tablet is superior to reading on a laptop, desktop, or paper

Buy an iPad and review before you knock it.

Other topics you can entertain us all with this week, Sigma:

1) Gluten free diets have become the SWPL Atkins diet because what's allowed an not allowed on gluten free diets are close to what's allowed and forbidden on a standard Atkins diet.

2) The college tuition scam.

3) Buy an iPad and humor us with your review.

I've blogged on this topic for more than a few times. Basically most of Apple's value if you look at the 10Qs and yearly reports, comes from Iphones. Iphones are HEAVILY subsidized by the mobile phone network companies because they generate a LOT of revenue they can charge against. Voice and text are regulated, data fees are not, guess which ones the phone companies like.

And this revenue source is unlikely to last. Apple is a non-presence in China, the world's fastest growing mobile phone market, and potentially the world's biggest by volume. Samsung and other companies are already charging ahead in China offering smart phones at a fraction of the cost.

Moreover, companies like Samsung and so on can challenge the key part of Apple's success -- the willingness of phone companies to subsidize say $200-300 of the retail cost of the phone. Lets say Samsung or Motorola or HTC or LG offer a very competitive smart phone on Android at only say, $10 a phone retail cost to the phone company. That's a huge offer and eventually the phone companies will back away from subsidizing the Iphone.

Can Apple make the same profits as it does today when consumers pay full retail, i.e. around $700+ a phone? My answer is no, and then Apple is a boutique, high priced laptop company that makes desktops, and Ipods, and Ipads. It won't fall from grace, but its just another company.

And don't forget, without Steve Jobs their ability to envision and produce something new (basically computerizing but making it easy an existing, non-computer device) is limited. It is more than just design, it is FUNCTION. No one really knew they needed a smart phone until Jobs drove the mixture of functionality and ease of use (and killed PDAs with it). Palm and others like RIM had part of the equation, but never the ease of use and sheer functionality.

Apple can't coast on Iphones for much longer, and there is no around with the vision to say, make a TV "Apple-ized" in function and usefulness (I would like one that recorded all my shows, and I could plug in my Ipod or Ipad or Iphone or laptop and watch them on the go). Part of that exists in TIVO, but the other part doesn't, getting that to happen while dealing with TV pushback (the networks will HATE HATE HATE that) is going to be tough.

Apples are designed to be products so easy to use that any woman can use it. It is even marketed to women. Notice the status competition between the fat, beta-male Microsoft guy and the hipster Apple guy.

Apple stores are even designed to emulate any makeup counter at Macy's.

"Apple's marketing team is ingenious for inflating their intangible value and brand equity for such a mainstream product. This strategy is similar to Abercrombie and Fitch, Nike, Haagen Dazs and BMW...All pseudo-luxury for the middle class and below." LL


Yes Apple's success is driven by making boring consumer technology purchases into the must have item for the SWPL status arms race. One time I was even told by someone "I have a better phone than you". That cemented what apple is all about.

The world's most valuable company is a toy manufacturer.

It isn't a manufacturer of machine tools or industrial robots or construction equipment, etc.

Free market capitalism is sometimes competitive and sometimes not. You can fool a lot of people for a long time. Especially when those people are fat tattooed morons.

Think of all the human capital/talent wasted at Crapple.

"MONOPOLY power is a form of value transference."

Apple isn't a monopoly. They have very strong opponents in the form of Google, Samsung, and Amazon. But Apple still comes out on top because their hardware and software is excellent. Again, buy an iPad and see for yourself.

"[HS: MONOPOLY power is a form of value transference.]"

But the app store isn't really a monopoly, and Apple is offering value for its 30% vig. It's not a monopoly, because you can offer apps direct to iPhone users, as the FT does, or offer mobile sites which work the same way. But most sellers use the app store because it offers certain advantages, for example, integrated payment. What's going to have a higher closing rate for a paid app: making the user whip out his credit card and pay directly via your mobile site, or paying through Apple, which already has his credit card info on file?

" Lets say Samsung or Motorola or HTC or LG offer a very competitive smart phone on Android at only say, $10 a phone retail cost to the phone company. That's a huge offer and eventually the phone companies will back away from subsidizing the Iphone."

Dizzam, Whisky, you're right. And soon as Samsung starts selling gem-quality diamonds for a couple cents a carrot, they gonna knock DeBeers outa da watah.

I've used Apple for over 20 years as well as Dell, HP, Compaq etc. I've called support many times. Every Apple support call I've been made has been answered by a native English speaker from the US, UK or Australia (depending on time of day). Not so with the other manufacturers.

Call centers in California and Utah cost more than they do in New Delhi or Kiev; I'm sure that helps drive prices up. It's worth it to me anyway.

I've used Apple for over 20 years as well as Dell, HP, Compaq etc. I've called support many times. Every Apple support call I've been made has been answered by a native English speaker from the US, UK or Australia (depending on time of day). Not so with the other manufacturers".

Apple is a company made up of very smart and savvy people. They have boundaries, and know what they can do and cannot do in order to satisfy their customers and enrich themselves along the way. They know when to outsource and when not to, as in the case of customer service. As one poster here has said. They are likely HBD aware and therefore don't do a lot of stupid things like hiring low IQ NAMs when they shouldn't.

"The world's most valuable company is a toy manufacturer. It isn't a manufacturer of machine tools or industrial robots or construction equipment, etc"

Exactly. Apple's designer toys are simply fashion accessories marketed by salesman extraordinaire Steve Jobs. The Jobs cult of personality reached a crescendo with the media blitz which went on and on over his death, while the passing of CS giants like Dennis Ritchie (C, Unix) and John McCarthy (LISP and coined the term "Artificial Intelligence"!) barely registered with media philistines.

While everyone here is busy looking stylish with their iToys, the Japanese have been putting real effort into robots which can perform tasks in the human domain (cf aging society in Jp). Japanese companies such as Fanuc beat the west in industrial robotics, and "service robotics", perhaps coupled with improvements in AI, may be the next such coup.

Meanwhile, our brightest are busy at apple making more toys for metrosexuals. Great.

Ask yourself if this guy looks happy:

http://www.quickmeme.com/meme/35sp50/

He will go to a good school, make a nice income. But man I doubt he will be happy. Nor will he be happy to be around.

"[HS: MONOPOLY power is a form of value transference]"

Seeing as you have no objective definition of value transference, you can claim that about anything, which is what makes this topic so pointless and boring.

Either come up with a coherent scientific method of measuring value transference, or shut up about it.

[HS: Value transference is a MODEL for explaining economic outcomes. It can be estimated based on the model, but it's not something you can weigh on a scale.

http://en.wikipedia.org/wiki/Economic_model ]

Your value transference concept sounds very similar to the concept of market failure:

http://en.wikipedia.org/wiki/Market_failure

You should define value transferers as people who directly benefit from market failures, and you should define value creators as people who directly benefit from market efficiency.

"I don’t have anything against. Asians."

Asian Americans can't Americanize like Japanese Americans have UNLESS they are constantly interacting with white people and European-based culture.

Since we've clearly reached the point where there are so many Asian immigrants that whites - even the most "tolerant" SWPLs - are racially self-segregating from elite private high schools and top universities like Berkelye, shouldn't you, Sigma, support whites only immigration (or maybe >=95% white immigration) so that Asians are surrounded by enough white people that can assimilate better?

They can't assimilate as smoothly as Japanese Americans if hundreds of thousands are immigrating a year and driving even upper class whites out of the most desireable suburbs and cities and schools because this ethnic balkanazition prevents them from interacting with elite whites.

So, assuming we have any immigration in the future, shouldn't you support overwhelmingly or exclusively whites only immigration like I do?

@Doug:
"Apple is run by user interface designers, where at every other major company the UI designers are second-class citizens and the engineers run the show."

Apple's UI is no better than anyone else's, what Apple is good at is simply marketing it as better. The example you give of putting the menu for an individual application at the top of the screen rather than in the relevant Window is a great example of user-unfriendliness to me, as it makes switching between multiple different application windows a pain (FWIW I used Apple computers for over 10 years exclusively).

Apple is also prone to doing stupid, asshole moves that other companies would catch hell for. I remember when Apple updated OS X to force OS X to behave the same way when it comes to scrolling windows as iPhones, even though the devices are completely different and people have been used to scrolling on the PC for ~30 years.

Personally I agree with the Half Sigma interpretation that Apple is a value transference company. They don't make good products, they make well-marketed products. But the influence of all this marketing is to encourage wealth-destruction in the form of buying inferior products which is then funneled back into Apple's marketing.

"Apple's UI is no better than anyone else's"

With desktops and laptops, perhaps not. But the UI/UX of the iPhone was revolutionary compared to what came before, as anyone who remembers using a Palm Pilot should acknowledge.

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