“Amazon ‘loses’ money, Apple makes tons if it – yet Wall Street prefers Jeff Bezos’s losses to Tim Cook’s,” Jean-Louis Gassée writes for The Guardian. “Despite the company’s flat-lined profits, Wall Street loves Amazon and keeps sending its shares to new heights. Since its 1997 IP0, Amazon has gone from $23 to $369 a share. Amazon uses its e-commerce genius to prime the money pump. The company seduces customers through low prices, prompt delivery, an ever-expanding array of services and products, and exemplary customer attention.”
“Amazon’s daily revenue was about $200m ($17bn divided by 90 days). If it waits just 24 hours to pay its suppliers, the company has $200m to play with. If it delays payment for a month, that’s $6bn it can use to invest in developing the business. Delay an entire quarter … the numbers become dizzying,” Gassée writes. “Apple doesn’t need to play Amazon’s timing games. Product margins range from 20-25% for desktops and laptops (compared to HP’s 3-5%), to 65% or more for iPhones. With cash reserves reaching $147bn at the end of September 2013, Apple has had to buy shares back and pay dividends to bleed off the excess. Wall Street’s cautious regard for Apple seems ill-advised given Apple’s ability to generate cash in embarrassing amounts.”
“Audi, Tim Cook’s preferred brand, owns a small portion of the luxury car market (about 7.5%), but it constantly posts increasing profits – and shows no sign of slacking off. Similarly, today’s $21bn Mac business holds a mere 10% of the PC market, but Apple ‘uses’ that small share to command 45% of market profits,” Gassée writes. “The formula is no secret but, as with Amazon’s logistics and service, the payoff is in the implementation, how the chef combines the ingredients. It’s the ‘mere matter of implementation’ that eluded Steve Ballmer’s comprehension when he called the MacBook an Intel laptop with an Apple logo slapped on it. Why wouldn’t the Mac recipe also work for smartphones and tablets?”
Read more in the full article here.
MacDailyNews Take: As we explained back on October 23rd:
The well-heeled customer chooses Apple… These are the desirable customers. These are the customers that pay for substantive R&D. These are the customers that matter. This is why they get the world’s first and only 64-bit smartphone. This is, in fact, why they get the world’s modern smartphone in 2007, years before anyone else gets a serviceable knockoff.
These are the customers that pay for not only the best devices, but also for the best apps and services. This is why market share doesn’t matter for Apple and why Apple doesn’t really care about general market (unit) share. This is why the Mac lived while all the others’ PC businesses slowly died during Microsoft’s dreadful Dark Age of Personal Computing. This is why the Mac continues to thrive today. All of the smart and rich people have Macs. Intelligent developers understand this.
In each market in which it competes, Apple owns the only part of market that matters: Consumers with taste, the ability to discern value, and who possess disposable income and the will to spend it. Google, Samsung et al. can have all of the leftovers. They’re more trouble than they’re worth, which isn’t much, not even en masse.
If you have a billion users who settled for your product because it was part of a Buy One Get One freebie, how much content (music, movies, apps, books, etc.) are they going to buy and to how many paid services are they going to subscribe and how much are they worth to advertisers? Pretty much bupkis on all three counts.
We’d rather have the 400+ million (and rapidly growing) customers with the taste, the intelligence to recognize incredible value, and the money and the will to spend it. Wouldn’t you?
As long as you corner the market on the best customers, and there are enough of them to support a healthy business (very healthy in Apple’s case), market share doesn’t matter.