What it is: Apple’s iPhone has far less market share than Samsung, yet consistently earns 94% of all smartphone profits.
There’s a reason many companies study Apple. It’s because most companies want to be like Apple with a loyal fan base and products that people line up to buy. Yet far too many companies don’t understand how to create a company like Apple. Many companies like Samsung and Huawei simply build copycat products and think that’s the answer. Then they scratch their heads and wonder why they aren’t making the same amount of money and generating a fanatical fan base like Apple.
The answer is simple. Apple strives to build quality products. Just look at the mess that the PC and smartphone markets have created for themselves. In the PC market, manufacturers like Hewlett-Packard and Lenovo load their PCs with bloatware so they can make additional money. In return, then bloatware inconveniences the customer with software they don’t want and that’s a nuisance to remove.
Even worse, much of this bloatware consists of antivirus software that customers could download for free instead of getting tricked into paying for an annual subscription. So bloatware not only inconveniences the customer by slowing down the computer and gobbling up hard disk space right from the start, but it also takes money away from the customer unnecessarily if the customer pays for the bloatware.
In the smartphone market, manufacturers only make money selling devices so they have zero incentive to provide software updates since that takes time and resources. Instead, they’d rather you just bought another smartphone if you want an operating system update.
By actively working against the customer, the PC and smartphone industries make the customer’s life harder and more difficult. No amount of mimicking Apple’s products can overcome the root of the problem, which is not thinking of the customer from the beginning.
Where Apple succeeds is that they (mostly) think of the customer first. That’s why the packaging of their products are carefully designed to help you have a great experience with the product right away, rather than fishing through confusing technical manuals. Despite having a far lower market share than Samsung, Apple captures 94% of the smartphone profits while Samsung captures 11%. That means the remaining Android smartphone manufacturers are actually losing money trying to sell Android smartphones.
How long can any company stay in business selling products at a loss? That means many companies will simply give up like Sony gave up selling PCs. When companies start giving up on Android smartphones because they can’t make a profit from it, it’s only a matter of time before Android suffers as fewer and fewer companies offer Android-powered smartphones.
If other companies give up on Android, that means the only real competitor will be iOS. Samsung tried to develop their own operating system called Tizen, but no company wants to support Tizen if it means helping a rival like Samsung. Likewise Microsoft tried to offer Windows Phone for years but only Nokia supported them. Samsung, HTC, and others actually sold Windows Phone smartphones, but they sold so poorly that most companies simply gave up, which foreshadows the possible future of companies giving up on Android as well.
Microsoft has now tried to make Windows 10 run on smartphones, but few smartphone manufacturers want to support Windows 10 on smartphones until it proves it can help sell devices. Even if Windows 10 does well on smartphones, why would any manufacturer offer a Windows 10 smartphone when most people will just buy a Microsoft/Nokia branded Windows 10 phone instead? By developing their own hardware, Microsoft is competing against their own partners.
Neither Android nor Windows 10 will dethrone iOS in the profitable smartphone market because you can’t dethrone a leader by offering inferior products and customer experiences.
People buy Apple products for the quality, which translates into higher resale value in the future. People buy PCs and Android smartphones to save money up front, but they lack the same resale value that Macintosh computers and iPhones have in the future.
The biggest mistake most companies make is targeting people who want to pay as little as possible. That means these companies have to make up for their razor thin profit margins by selling in volume, and even then they have to work hard to sell those volumes of devices. Meanwhile, Apple sells one Macintosh and makes the same profit as another company selling four PCs. Apple sells one iPhone and makes the same profit as Samsung selling several Galaxy smartphones.
If companies want to be like Apple, they should also seek to develop the best products possible that focus on the customer experience. That’s the reason why Apple takes over 94% of the smartphone profits. It’s really that simple, but that simple fact eludes companies like Samsung and Huawei every day, which shows that most corporate executives aren’t worth the paper that their paycheck is printed on.