Apple could end the game. Its just a matter of time!

Very catchy title indeed. But what if I tell you that Apple is in a position to make it excruciatingly hard for premium smartphone manufacturers to survive; harder than it already is, and its just a matter of desire, intent and time. In case you didn’t know, while Apple has a meagre 13% market share in global smartphone sales, it dominates the profit share in the smartphone industry by pocketing close to 70% of the industry’s profits. The 13% market share was more so because Apple’s devices were meant for the elite with devices being extremely expensive in highly populous markets like India, where buying a current generation was completely out of question. But today, Apple is different due to a change in approach that was triggered a few years ago. Considering Apple’s status as a market maker with an unflustered brand, smartphone manufacturers should be extremely wary of potential obliteration. 

Premium smartphone experience: Apple shockingly has the lowest total cost of ownership in the long run: Apple is a company like no other. They make their own devices, have a closed platform ecosystem, have arguably the best cross device experience, and believe me when I say this, an underrated inexpensive premium smartphone experience for the average consumer, in the long run. Surprised? Let me give you a quick example. The most expensive purchase for anybody to enjoy a premium smartphone experience is the device itself. Let’s say you buy a premium smartphone from Apple and Samsung for $1,000. The iPhone’s processing prowess, optimization, and extended software support would mean the device lasts you at least for 5 years, translating to an average spend of $200 a year. Say you’ll spend another 70$ on annual subscription for Apple’s services. So that makes it $1350 over a period of 5 years.

Now let’s look at a Samsung flagship for $1000. Samsung provides three years of support, with the latest device getting precedence over the others. So typically, after a year and half, your $1000 smartphone is no more Samsung’s priority. So, on an average you spend $350 over three years, with subpar support beyond 1.5 years, assuming you spend nothing in the form of subscriptions on Android. Add to that the iPhones have a greater buyback value than any smartphone, making your upgrades cheaper, and the argument gets even stronger for Apple. (PS: Apple’s software rollouts happen simultaneously for all supported Apple devices within few days of announcements)

While its no apples to apples comparison (no pun intended), the conclusion is that the premium smartphone experience for an average consumer is relatively cheaper to subscribe for with Apple than it is with any other manufacturer in Android, barring the Pixels. This is primarily for one reason. While Samsung has to sell devices to make profits, Apple, as the platform owner, is under no compulsion to sell devices to generate cashflows. So, Samsung is under more pressure to force obsolescence to sell more devices, since it doesn’t have an ecosystem to create stickiness, nor proprietary technology to coarse customers to spend more with them. As for Apple, they were very clear about how this would all work in the long run.

In 2018, Apple stopped reporting device sales since they were no more an indicator of how much the company makes, and instead started to report total revenue and cost of sales. So for Apple, having you in its ecosystem would mean it can sell you more, tempt you into its addictive cross device experience, and in the process ensure that all your smart computing and personal automation requirements are fulfilled by Apple and its partners. This results in a significant cumulative spend over several years to come.

An Apple for all: iPhones across price points

While all of what I just said captures how platform businesses operate, this is where it gets a little intimidating. In the most recent iPhone launch, Apple made its strategy very clear. Today there is an iPhone at every price point from $400 up to $1400 for the top spec-ed variant. This is where no other smartphone in the market can compete with Apple. While the SE isn’t as awesome a device at $400, the devices starting from the iPhone 11 can compete pound for pound, in parameters that matter to the average consumer, with any smartphone in the market today. And you can even add 2020 flagships to the mix.

In the year 2020, flagship smartphone prices have hit tizzy heights. While none by any means offer a revolutionary experience, manufacturers have conveniently blamed 5G as the primary driver of the smartphone price increase, at a time when 5G is more hype than substance. When you pit the $600 iPhone against any other smartphone in the market, unless you are an enthusiast, comprising 5% of the market at best, the most obvious choice would be the iPhone.

Now in the case of the iPhone 12 it gets funnier when you look at other 5G enabled flagship smartphones in the market. Let’s look at one of the lower priced flagships in the OnePlus 8T 5G, that starts at US$750. Now when you put into perspective that not many end up paying full price for their smartphone, the difference in monthly fee over a 12 / 24-month period is reasonably low. Add to that the average consumer is convinced that the iPhones are great devices, so the onus is on the other smartphone manufacturers to convince the customers off their predispositions. This makes the challenge all the more daunting for non-Apple flagship smartphone manufacturers.

Apple makes more than others. Period!

One trend that has never changed since the launch of the first iPhone is that the others just copy Apple with utter disregard for what their loyal customers may say. Apple is a master at making business decisions sound customer friendly. Whether it be the removal of headphone jack to sell more accessories, or axe accessories from the box of the iPhone to cut on cost of goods sold, Apple can get away doing some of the most outrageous things and get no backlash from the customers’ wallets.

What makes Apple’s business special is the fact that almost everything you buy needs to be proprietary. Be it the lightning to 3.5mm dongle, the Airpods with the W1 chip, the Apple Watch to make the most out of the connected ecosystem or even the recently introduced Magsafe, Apple makes money from almost anything you buy in its ecosystem. Compare that to an Android user, who can buy any fast charger certified by Qualcomm, any Chi-certified wireless charger, a whole host of Android wear smartwatches and a slew of Bluetooth headphones, now that there are hardly any Android smartphones left that sport headphone jacks.

In short, while a premium smartphone owner needs to invest in a set of accessories to benefit from a connected computing experience, the difference is that Apple commands a substantial wallet share of its customers owing to them owning the platform. That is not the case for other device manufacturers. A typical Android customer has a greater choice and hence the money spent on accessories is scattered across multiple players (companies). Since no device manufacturer can replicate the stickiness created by Apple, their revenues are heavily reliant on smartphone sales and when you add Apple’s application store, along with the broader scope it offers for monetization, it is no more a contest.

The future is open for Apple to take over

Apple is probably the only brand that can make more from its devices by not increasing the prices of its devices. Today, at least in the developing markets, the only reason Apple has a lower single digit market share is because it has consistently priced itself out of contention. Two of the biggest reasons for the prices being so high, at least in India, are local taxes and import duties. For context, consumers in India pays Rs. 21,344 in taxes for the iPhone Mini that retails for Rs. 69,900. While it may take time before Apple starts to source components from within India and manufacture top tier iPhones, notwithstanding a potential tax reduction and Apple’s intent to offer iPhones at all price points, owning an iPhone may no longer be as intimidating to the consumers.

Apple’s India strategy is clear – there is intent to bring increased focus and localization. The beginning of that was to get an Apple India page and get their web identity in place for the country. The second, of course, is to get its supply chain in place. The third is to work around the massive price elasticity of demand in the country. With Apple devices having greater shelf life, the iPhone 12, two years from now, should be priced around the 35,000 to 40,000 price point, making it an absolute steal. With 5G, and other features that are considered key by the mainstream consumer, it would make the iPhone a better buy than the mid-tier flagships from Android.

The iPhones are the gateway for consumers to experience what Apple essentially offers. And if Apple is willing to drop the prices of its older iPhones, to onboard first time iPhone customers, they can recoup all the subsidies over time by virtue of selling accessories, services, and even cross sell other devices in their ecosystem to complete the experience. This makes it a dangerous proposition for the other smartphone manufacturers who are mostly device sellers, with little to no platform stickiness or monetizable services on offer.

From a consumer standpoint, like I have said in the past, the migration from Google to Apple is relatively simple considering Google’s services suite is available in the Apple Ecosystem. And most applications including the social media apps are much better optimized for Apple than it is for Android, due to the sheer diversity of the devices in the Android ecosystem.

Apple’s takeover of the smartphone market is imminent. Its just a matter of time and Apple’s intent to challenge the only advantage that the others have – Price!

Note: This article is written with the average consumer in mind. The assumption is that the prosumer and enthusiast make up a very small percentage of the consuming population. 

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