Some strange debates over at Guardian tech in the past fews days – about whether or not Apple is predominantly a software or a hardware company, and in which direction the tech giant will develop in coming years. The reason i consider it all a bit strange is not because of the quality of the article (Charles Arthur has once again done some thorough research), but simply because the whole thing seems to hint at an entirely false distinction when it comes to understanding Apple’s profit dynamics.
After all it may be obvious that in terms of actual revenue most of Apple’s turnover comes from hardware, with relatively tiny sums being derived from softeware such as iPhone apps or Mac OS X. But this is to miss the intrinsic dependency that one has on the other. Quite obviously, if there were no iPhone app store then iPhone sales would be only a fraction of what they are now, meaning that separating profits into software vs hardware categories is slightly futile.
Yes, on paper Apple makes most of its money ‘at the checkout stage’ from hardware – but it can only do so because it is developing software to ensure the successful market position of products such as the iPhone or iPod. To look at a similar business concept think of your local supermarket – most of the profits come from products such as fruit and veg (which have a huge percentage mark-up), while items such as big brand alcoholic drinks are often deployed as loss-leaders (i.e. sometimes making no profit at all, or even a slight loss). It is the latter however that often work to bring customers through the doors, at which point they then also decide to spend some cash on the less value-for-money stuff like fruit and veg.
To suggest however that such companies would do even better in the future if they simply concentrated on fruit and veg (because that’s where the profit is) is clearly ludicrous. Most people understand that such a business model is dependent upon multiple products and services performing different jobs and the clever balancing of such (cheap beers get people in, carrots and apples make you some cash).
Likewise Apple’s huge success is derived from its continued commitment to producing very profitable hardware, as well as the essential software that demonstrates the potential and quality of the former – with the iPhone and the related app. store being a perfect case in point. Whatsmore the folks over at Apple are far too clever to mess with this balance just because they make 100 times more dough from a laptop than from a software app…
Dejan Levi