Stop me if you’ve heard this before, but if you’re losing money on every unit of whatever you’re selling, all you have to do is make it up on volume.
That old line is more than full of truthiness. Profit is important. If what you sell isn’t profitable in small numbers, it may be more unprofitable in large numbers.
Bloomberg reports that Microsoft plans to sell more Windows Phone in China than Apple.
How? Low prices.
Simon Leung, Microsoft’s Chairman and CEO for the Greater China region says Microsoft plans to pass iPhone then Android.
How? Low prices.
Apple has carved out territory at the high end of the smart phone segment, with a deadly combination of high volume, high revenue, and high profits.
Android has carved out territory at the low end of the smart phone segment, by giving Android away for free.
Along comes Microsoft, and using some kind of new math or a Wayback Machine to alter history, plans to stake out the middle of the smart phone segment.
Uh huh. Sure. Yep. I can see it now. Well, not quite. The math part escapes me.
Apple sells an iPhone for about $600 on average. From that, the company makes perhaps $300 of gross profit, per phone.
Microsoft plans to sell Windows Phones for less than $200. From that, Microsoft might make $20 of gross profit on licensing, per phone.
Doing basic middle school math, if two trains are traveling in opposite directions, and one of the trains leaves at midnight and travels 60-miles an hour, and the other train leaves at 2:00 AM and travels 45-miles an hour, then how far apart will they be by Noon?
Wait. Wrong example.
How many phones must Microsoft and their endangered species partners sell to match Apple on revenue? On profit?
In other words, Microsoft isn’t making any real money on phones that sell for less than $200 (or, any phones for that matter), so why are they even trying?
To make the same gross profit as Apple makes on iPhones, Microsoft needs to sell 15 times the number of phones Apple sells.
That math is brain dead.
But it’s OK. Microsoft thinks in terms of unit sales market share. Apple thinks in terms of cool products, revenue, and profit, and they don’t seem to give a damn about unit sales market share.
Maybe it’s time for Microsoft to begin copying Apple. Again.