In nearly every product category Apple has maintained a tight lock on the premium end of the spectrum. That’s where the money is. Jan Dawson on the growing trend from Apple’s competitors.
The consumer electronics industry has always fascinated me. I spent my first ten years as an analyst covering the telecom industry, which historically has had very good margins. But, when I started covering the consumer electronics industry, I was struck by the fact the vast majority of players in that market make razor-thin margins, if they’re profitable at all. Even more striking is Apple, which might be described accurately, if incompletely, as a player in the consumer electronics market, makes telecom-like margins while competing with those barely profitable vendors. And just as interesting is the fact that, as players that have historically only competed indirectly in the consumer electronics business enter it, at least some of them are choosing to follow Apple’s route to the high end of the market.
Increasingly, Apple has competition at the high end (according to Dawson), and it’s not Samsung.
But there are three relatively new players in this business who have traditionally participated only indirectly in this competition and who are entering the computing hardware market (in its broadest sense) in new and interesting ways. Google and Microsoft have traditionally participated mostly by providing operating systems to hardware vendors, while Amazon has participated largely as a seller of other people’s hardware. Each of their strategies is unique and different but, with two of them, there’s an emphasis on the high end which I find interesting.
Interesting, perhaps. But it must be said, despite the analysis, that success in premium products still eludes Google, Microsoft, and Amazon. Amazon is an outlier and has always had trouble making profit. Google and Microsoft are different; both cash rich, but suffering from the common OS syndrome, and neither company makes much money at the high end of anything.
To massacre an old analogy, just because you can follow the money trail to the premium end of the product spectrum, doesn’t mean you can get the customer to drink.