The know the old saying, ‘You have to spend money to make money.’ Obviously, there is truth to that. Companies spend billions on product development to launch new products with no guarantee of sales, profits, or financial success. Let’s take a look at the smartphone and tablet industry. Many players with financial losses; few with financial success.
At the top of crowd is Apple, with an estimated 80-percent or more of the entire mobile industry’s profits. Samsung makes up most of the rest, far behind Apple despite selling more than twice the number of products (according to guesstimates; Samsung doesn’t say).
Is it any wonder why Google, Microsoft, and Amazon never divulge how many units they sell? It would be embarrassing and a public humiliation.
How can all those smartphone and tablet manufacturers make a dent in the industry’s profit duopoly?
A good old-fashioned price war. Or, simply build a better product.
We’re already seeing examples of the former because the latter is just so darned difficult to pull off. For example, and despite copying Apple’s designs at every turn, Samsung’s latest Galaxy smartphone, the S5, still comes in behind Apple’s iPhone 5s from last year. To compete in the marketplace, Samsung has to cut prices.
The same holds true for every smartphone and tablet competitor. Apple sets the standard in design, durability, usability, and everyone else copies some aspect of that design, but has to lower the price tag just to move units. As competitors drop prices, gross margins drop accordingly. While Apple doesn’t normally have sale prices, the company has been known to allow price drops to remain competitive in the pricing segment.
How else do you explain the recent rash of iPhone 5s models for zero down or $99? Apple doesn’t want to engage in a price war, but isn’t afraid to compete, thanks to notoriously high gross margins on the entire product line.
Price war or not, Apple comes out the profit winner.
The real question not asked by technorati elite, or market pundits, is, ‘How long can Apple’s competitors continue to lose money in the smartphone and tablet industry?‘ Yes, you have to spend money to make money, but making money is the end game; not spending it.