Apple’s Share of Smartphone Industry’s Profits Soars to 92%

http://on.wsj.com/1M4WXQx

by andore_jr • 11 years ago

75 121 11 years ago

on.wsj.com

It's weird how Samsung, LG, and HTC are struggling to make a profit on their phones (some have very good phones like the LG G4 which even Chris Pirillo said it was a good phone), but Apple just keeps growing their profits. I wonder if it has to do with how they've limited number of phone models or is it purely brand recognition that's driving this growth.

shawndumas6• 11 years ago

Is it possible--not saying it's so, just asking a hypothetical question--that Apple just makes more desirable phones?

[Edit] Wow, everybody, I meant more desirable as in; people are willing to pay more. I know FTA that they are only 20% by volume.

hellofunk4• 11 years ago

Apple's actual market share is less than 20% of all smartphones worldwide, though their share of profits is at 92%. This is not about their phone selling more than other phones (they aren't necessarily), but rather how Apple manages profit margins. Their phones are much more expensive than the competition, command premium prices and thus yield premium profits.

jerf2• 11 years ago

In 2015, not proportional to that profit difference, no. iPhones are not dozens of times better than all Android phones. There's something else to it, the construction of some sort of successful moat that allows them to charge more.

sneak• 11 years ago

Hardware is nothing without software.

They make more desirable phones because they make iOS.

People don't so much care about the iPhone; they want iOS and the safety, convenience, and integration with the Apple software ecosystem.

Apple has leveraged this into a hugely profitable position by making the only hardware supported by this OS.

The iPhone is crap when evaluated on battery life or camera quality, for example.

It's software that's eating the world.

dublinben3• 11 years ago

If it were that simple, wouldn't they have more than 20% market share? It seems clear to me that iPhone owners are paying a premium for the branding, which is pure profit from Apple's perspective.

josephmx• 11 years ago

It's probably a mix, they have only a few phones so they're easy to understand ("I have the bigger iPhone from last year" or "I have the HTC One M9" - the former is easier to remember and understand for non savvy people), and better brand recognition - despite being expensive is HTC considered luxury like Apply is?

acomjean• 11 years ago

This is true, fewer models make buying easier. Plus if you buy the current generation you are getting "top of the line", last generations still on sale is still usable.

Plus with just 2-3 models apple only has to pay for engineering and designing 2-3 models. Plus it saves on the software testing (which despite that still is a bit buggy).

As long as your use-case meshes with apples things are good.

camelNotation• 11 years ago

I'd consider the HTC One series and the new Galaxy S6 to be luxury phones on par with the iPhone or even better in some respects. The build quality and refinement is top notch.

smackfu3• 11 years ago

All the money is in the flagship phones. If Apple has a good year for flagships (like finally releasing larger phones), and the others have a bad year (like the underwhelming Galaxy S5), Apple is going to make most of the money.

sremani• 11 years ago

Apple captured the top 10% of world's population in terms of discretionary income, and so they are making massive profits. Their key demographic is well-to-do in developed countries and rich in developing/middle-income countries. There is a NYU Professor who mapped iOS and Android devices, and the map of LA showed really rich parts dominated by IPhone.

__Joker• 11 years ago

I am not sure if you are talking about the same but this may be the source[1]. Also the blog discusses about the relation between device usage to the degree of affluent neighbourhood[2].

[1]. https://www.mapbox.com/labs/twitter-gnip/brands/#5/36.280/-2...

[2]. https://www.mapbox.com/blog/visualizing-3-billion-tweets/

FigBug• 11 years ago

That's what happens when you compete on price. Nobody is going to pay an extra $50 for an Android phone over another comparable Android phone.

Samsung alone outspends Apple on marketing. Samsung needs to continuous battle against the other Android phones.

If you want an Apple phone either you pay what they are asking or you don't get it.

signal11• 11 years ago

Apart from Apple, the other company that was doing well at capturing profit from Android phones was Samsung -- e.g. this link from 2012 when the S2/S3 were selling well [1].

I believe the rise of Apple's profit share correlates with the rise of cheaper Chinese phone manufacturers like Xiaomi who operate on much thinner margins than Samsung.

[1] http://www.digitaltrends.com/mobile/how-apple-and-samsung-co...

Post-Xiaomi, a potential Samsung buyer could think about a cheaper replacement -- functionally Xiaomi is still Android, after all. Sure, an Apple owner can "go Android" too, but imho p(Samsung to Cheaper Android) > p(Apple to Android).

lost_name• 11 years ago

Perhaps it's related to the distribution channels. Apple sells through their stores and website, where they must take in a significantly better portion of the sale than through sales by carriers.

Google sells through a website, but I'm not aware of other manufacturers selling direct to consumer like this.

grandalf• 11 years ago

Are they really good phones? All the android devices I've owned have lots of fairly glaring usability problems.

Most recent example: My nexus 7 periodically does something that kills the battery, and the touch/tap responsiveness is quite laggy.

I could go on and on. Apple devices have significantly better usability and many fewer warts than Android devices.

IMHO the only people who think the two platforms are on par are people who look only at hardware specs.

venomsnake2• 11 years ago

And that kids is what you get when you deal with carrier update plans for your devices, allow bundling of crapware with the phones and do your best to kill your operating system with fragmentation ...

A political decision that was bad is keeping on giving.

Apple victory was given to them

smackfu3• 11 years ago

Except that Android phones sell great, they just don't make much money for their makers.

visarga• 11 years ago

The point stands. People who have a choice (have enough money) choose iPhone rather than allow crapware and not having access to timely updates. I am very pissed with Samsung for not upgrading my Android from 4.4.2 yet. I used to be an iPhone user and while using iPhone I didn't have problems upgrading my phone to the latest version.

vidar• 11 years ago

You can move units of most things if you slice the price enough.

venomsnake2• 11 years ago

Of course. Because at the high end phone where the high margins are, the case for non ios device is weaker.

I prefer Androids for 2 reasons:

1. Unlocked bootloader 2. Root 3. Screen size

But the fragmentation of the ecosystem since 2.2 still hurts (and seems like 4.2 is the new gingerbread)

JimmaDaRustla3• 11 years ago

This is about Apple's massive profit margins, not some vendors inferior ecosystem which still does a decent job of making billions.

North America is accustomed to overpaying for their mobile phones and services so much that they can get the most expensive device for next to nothing because they sign a 2 year contract with a telecommunications provider who's plans are nothing short of gouging.

Now the real question is, how come no one is competing with iPhone dollar wise? I would love to see someone come out with a top-end $900 Android phone that is as stunning as an iPhone. It seems Android hardware vendors are more tuned in to bloating the OS with gimmicky features rather than creating tier 1 hardware.

silverlake• 11 years ago

Isn't this similar to the PC market? The beige boxes became a commodity, and all profits went to Intel and Microsoft. Dell, Compaq, Gateway, HP, etc. all barely made money in the consumer market. How will Samsung, HTC, et. al differentiate their devices?

Eric_WVGG3• 11 years ago

Not exactly. The profits went to Intel and Microsoft because they were figuratively selling ALL the computers. Apple is gobbling the profits in a different way.

Samsung/HTC/others aren't failing to make money because their products aren't differentiated, it's because they're selling large numbers of low-end, low-margin products. The question is how they can compete with Apple on the high-end. Nobody's managed to do that.

roymurdock4• 11 years ago

None of the other companies have a repeatably successful flagship phone that comes anywhere close to the iPhone in terms of brand recognition and prestige.

Some might argue the Samsung Galaxy, but the image associated with the galaxy is not one of luxury, but of practicality and a sacrifice in usability in exchange for for customization; the general Android vs. IOS argument.

Luxury breeds profit by turning users into silent evangelists/role models. Combine this with Apple's extremely strong ability to [1] set prices (Android is not a direct competitor, it's a whole different marketplace with its own internal competition) and [2] force costs onto partners (who wouldn't want to work with Apple and see that volume of business with those nice margins?) and it's no surprise that the iPhone is destroying competition on the profitability metric.

Cyph0n• 11 years ago

Maybe before, but the S6 screams luxury IMO, and is very clearly attacking the iPhone head-on.

adevine3• 11 years ago

But roymurdock's point about Android not really being a direct competitor to iPhone is pretty much true. It is EXTREMELY rare, outside of the tech/developer set, for someone who has an iPhone to consider switching to Android, especially once they have a decent app investment.

roymurdock4• 11 years ago

I would still argue that Android does not compete directly with IOS. People who are purchasing the iPhone are buying into more than just a phone: they are buying into the Apple lifestyle and joining the iPhone/Macbook/Apple Store experience.

People who are purchasing the S6 aren't buying into any lifestyle as far as I can tell. Maybe they'll share a common bond with some other S6 users, but I wouldn't call the Samsung ecosystem (what is the Samsung experience even?) luxurious. It takes more than just one product to build luxury and desirability.

vfrogger• 11 years ago

I don't understand why people say that IOS is more usable than android. Android phones tend to have a much better "phone" usability in my mind. For instance, I can go to my recent calls on an android device and just swipe to the right to send a text to someone. In IOS, I have to click the i icon to go to that contact, click send a message, then click the phone number. Or the built on "swype" keyboard on my old note 2 is much better than the default apple keyboard on my current i6+. Really, the only thing that I would call noticeably better on my iphone over my note 2 is the camera functionality.

roymurdock4• 11 years ago

Not arguing that one is more usable than the other (although I have an iPhone so I suppose that is a tacit argument), just stating a general opinion.

superuser23• 11 years ago

I got a nexus 6 last night-simple things like pinch to zoom and animations tend to stutter, tapping small touch targets in chrome is very hard (iOS has a nice assist there), Firefox freaks out and fails to render HN with nontrivial frequency, etc. Android does seem to support more customization but iOS but iOS's existing features actually work.

smrtinsert• 11 years ago

Whenever I see people use ios devices near me it's pretty funny. Androids voice command abilities makes Siri look like a Speak & Spell from the 80s.

edit: agreed with sibling comment that camera appears to be the only technically superior offering.

cies• 11 years ago

This is called a "Winner takes it all market". What is interesting is that smartphone became such a market considering the profits, because when considering the revenue it is much more fragmented.

Dwolb• 11 years ago

This quote stands out the most, "One key to Apple’s profit dominance: higher prices. Apple’s iPhone last year sold for a global average of $624, compared with $185 for smartphones running Android"

Literally Apple can command a 3x price premium in the same product category. I'd like to see Android flagships broken out from this number, however.

The issue of Apple profit dominance is pretty complex and I'm sure there are really smart people looking to understand and attack it.

gtk402• 11 years ago

As a consumer, I'm glad other companies aren't extracting as much profit this way. I'm quite happy with my Moto G which I got for a small fraction of what I would have paid for an iPhone, and it's just as good for my use.

paublyrne• 11 years ago

That average price includes phones of low specs and high specs, while Apple only does high(ish) spec. The Samsung Galaxy is similarly priced to the iPhone.

There is plenty of price premium built in there though, that's for sure.

JohnTHaller2• 11 years ago

Apple only does premium phones whereas Samsung et al do premium as well as mid-market as well as down-market devices.

The iPhone is basically always more expensive than the equivalent Samsung Galaxy device. The Galaxy S6 is currently $549 for a 32GB version with a high-res 5.1" QHD screen (better than 1080p). The semi-equivalent iPhone 6 is $649 for a 16GB version with a mid-resolution 4.7" screen (approximately 720p) is a full $100 more expensive than the S6. Upgrading the iPhone to the next memory size up (64GB) adds $100. Upgrading to a high def screen (6 Plus with a 5.5" 1080p screen) is another $100.

One big reason Apple makes so much more profit than everyone else is that they sell lesser specced phones for a higher price than the competition's higher specced phones. Most people think of the iPhone 6 as being equivalent to the Galaxy S6 despite having a smaller, lower resolution screen, 1/2 the storage space for music and pictures, slower processor, etc.

JimmaDaRustla3• 11 years ago

It helps that most consumers can "sweep" the price of their phone under their 2 year service contract. Especially considering that cost of services don't fluctuate when not in a contract, or when you get a cheaper phone.

Damn, I wish the FCC or CRTC would put the ban hammer down and force mobile service contracts to be adjusted based on the retail price of the phone. I just don't understand how they stand to gain so much when a customer chooses to get a cheaper device.

tim333• 11 years ago

I see Nokia got around 2/3 the profits in 2007 when the iPhone started. I guess the profits tend to flow to those who have the best designed phones. I wonder if it'll still be Apple in another 8 years.

(http://9to5mac.com/2015/07/13/apple-smartphone-profit-share/)

adevine3• 11 years ago

But 2007 was really before the whole app ecosystem took off. For anyone who has invested a significant amount in apps, there are much higher switching costs now than there were in 2007. Plus, besides just the actual monetary costs, people USE their smartphones MUCH MUCH more than in 2007, so there is a much greater cost in just having to learn a different OS.

orkoden• 11 years ago

The costs for switching isn't that high. Most people don't spend a lot of money on apps. More than half of the money is spent on games anyway. These are played for a while and then new games are purchased.

The handful of productivity apps won't exceed 20$ for the vast majority of users.

I buy lots of apps and games. Every time I switched platforms (webOS -> Android -> iPhone -> WP), I spent around 15$ to cover my initial needs. Compared to what I pay for a phone, it's negligible.

gtk402• 11 years ago

I probably spent more on Palm OS apps than I ever have on my newer smartphones. I remembering buying CD's for $10-$20 to get stuff like word processors and dictionaries.

vii• 11 years ago

The comparison is extraordinarily apt.

Apple invests only a small proportion of its profit into R&D. http://appleinsider.com/articles/15/01/28/apples-rd-spending...

Samsung invests more absolutely and more proportionally. http://www.strategyand.pwc.com/global/home/what-we-think/glo...

Of course, much of an iPhone is also made by Samsung. Not sure why creaming off profits is considered a good thing or sustainable . . .

andy_ppp2• 11 years ago

I'm going to suggest why Apple are successful at phones:

1) Timing/Being First (remeber before apple when everything had a hardware keyboard?)

2) Branding and Advertising

3) Product Hardware (features are all just right - camera, battery, performance, screen etc.)

4) iOS + App Store (no-one wants to change their apps)

5) New features first (consistently first with new features - iphone, retina, gorilla glass, siri, touch id)

6) Android + whatever seems inferior (and largely is)

7) They charge lots more money

8) They have fewer products and so can drive down the cost of manufacturing.

9) They are run by smarter people not marketing departments.

10) They do all of the above TOGETHER and all of the above support each other. If they start missing one the others start to be less desirable/possible too.

JustSomeNobody4• 11 years ago

1) No. 2) Yes. 3) Battery life is not "just right" Ask ... anyone.

... this is boring...

9) Wait, what? Did you really just say that?

andy_ppp2• 11 years ago

Battery life is just right to mean you'll upgrade.

If Samsung had Tim Cooke in charge they would produce much better phones. Not even slightly contovertial IMO.

You left out point 10 which was the whole point of the comment. Glad you liked it ;-)

omikun• 11 years ago

1) Who else had 60fps smooth UI on a phone/tablet before Apple? 9) Marketing drives gimmicky features and empty specs - Samsung's hover touch and gaze detect that is off by default because using them is a pain, 4 slow cores instead of 2 fast ones, OS defaults that favor energy burning features (location services, true multi-tasking), screens with higher res that are indistinguishable to retina screens but with worse color profile.

Some companies have fixed some of those pain points with their recent models, but it's too little too late for the existing consumer base who buys flagship products.

lucozade• 11 years ago

An Apple spokeswoman declined to comment

But the huge, smug grin on her face was probably telling...

I tend to have Apple devices nowadays but I have to say this is a bit concerning. One would hope that there's enough money to go around to encourage innovation and competition. If it stays this dominant for one vendor, it surely will cause things to stagnate.

mcphage2• 11 years ago

If it stays this dominant for one vendor, it surely will cause things to stagnate.

It might, although I could also see the opposite: if everyone is doing okay, selling enough to get by and grow with the market, there might be less push to get out there and try new things. Instead, companies would compete on price, on advertising, on superficial design. But if there are lots of companies struggling to find a foothold, then they'll be lots of motivation for trying new things, in search of anything that'll work, and give them an advantage. There's no margin for them to be complacent.

cwyers2• 11 years ago

The headline makes it sound like Apple is doing better compared to Samsung than it really is -- as the article details, Samsung makes 15% of the profits. Apple and Samsung's share of the profits combined exceeds 100% because some manufacturers are losing money.

smackfu3• 11 years ago

Yeah, it's an odd stat. For instance, if someone new enters the phone market, and spends a ton of money and loses a LOT of money, the total profits for the industry go down, and if Apple makes the same dollar profit as the year before, their profit share number goes up. If the next year, that new competitor goes out of business, their loss is not included in the total profits of the industry, and Apple's share of the profits goes down.

So you could make a pretty convincing argument that this profit percentage number is kinda meaningless. Why not just look at gross profit? Dollars compare to dollars pretty well.

cwyers2• 11 years ago

The article also notes that Microsoft took a huge loss on Windows Phone writing down the acquisition of Nokia. That's not a loss they're going to repeat -- Windows Phone may well continue to lose money, but not that level of money.

mcphage2• 11 years ago

For instance, if someone new enters the phone market, and spends a ton of money and loses a LOT of money, the total profits for the industry go down, and if Apple makes the same dollar profit as the year before, their profit share number goes up.

I think it said that the 92% figure was based on the top 8 manufacturers, which are mostly stable in terms of who they are from year to year.

bsaul• 11 years ago

Funny how this news makes me think i may have a better deal buying an android phone next time, since they're making less margin over me.

roymurdock4• 11 years ago

This also means that they care about you less. It's a numbers game for these high-volume, low profit companies.

Grue3• 11 years ago

Alternate title: "20% of people paid waaaay too much for their cellphone".

unprepare3• 11 years ago

What a curious thought, that i seem to see repeated over and over.

What exactly is more expensive about the apple product here:

Apple iphone 6 - $649.92 full retail price

Samsung galaxy s6 edge - $779.76 full retail price

LG G4 - $599.76 full retail price (on sale)

HTC One M9 - $649.92 full retail price

This puts the iphone as the second least expensive flagship phone currently available, prices are all straight from tmobiles site.

If we expand the storage and bump to the top models:

Samsung galaxy s6 edge - $959.83 full retail price

Apple iPhone 6+ - $949.99 full retail price

Was your point only that everyone who buys a flagship smartphone is paying 'waaay too much' for their cellphone?

If your point was that Apple's smartphones are somehow the most expensive ones, then you are simply incorrect; this is the belief i was trying to counter with these numbers.

edit: formatting

jjbiotech• 11 years ago

I paid $1 for my Galaxy S5 upgrade, with a two year contract extension. Essentially I got the phone for free because I planned on keeping my carrier for the next two years anyway. That cost was subsidized by my carrier, and probably indirectly by Samsung also. I've never paid sticker price for an Android phone, and I don't know anyone who has.

"One key to Apple’s profit dominance: higher prices. Apple’s iPhone last year sold for a global average of $624, compared with $185 for smartphones running Android, according to Strategy Analytics. "

You can't say the same when buying an iPhone. There's more complexity to this than sticker price. The numbers don't like, Apple pulls in 92% of the market's profits while selling less than 20% of the phones. Use logic and tell me what that means.

scoreponok2• 11 years ago

"20% of people paid waaaay too much for their cellphone"

This seems, to me, to be saying that people are overpaying given Apple's huge profit margins.

mark_l_watson• 11 years ago

I am surprised. I have friends and family members with iPhone 6 and 6+ and they are very nice but I think my Note 4 is even better. The quality of the videos and pictures I take are unbelievable. The Android OS is configurable and easy to use.

I do have a theory: I see some people install hundreds of crappy apps on the Android devices; perhaps that hurts performance? I use my Androids as is, except for a very small number of additional apps.

davidf18• 11 years ago

Because of Apple stores, iPhones have an enormous amount of good support. In Manhattan there are 6 stores including one open 365/24/7. You could make a Genius Bar appointment at 3 AM if you wanted. The people are nice and the support is good including 1-800-MyApple.

I use iPhone's FaceTime Audio a lot domestically and internationally since it has better audio quality (HD audio) then the regular network. Verizon is now offering HD audio but only on their newer phones and only within the Verizon network.

On the iPhone 6, FaceTime Video over cellular uses half the bandwidth of previous models.

droopyEyelids• 11 years ago

If anyone else is curious about the bandwidth thing, it's becasue the new phones have a h265 chip, and use that codec.

http://www.phonearena.com/news/New-Apple-iPhone-models-use-h...

If anyone else is curious, this does a decent job of explaining it. http://www.digitaltrends.com/computing/h-265-hevc-encoding-e...

prapam2• 11 years ago

So why are so many companies jumping in if there were not much profits? I see variety of low end Android sold in India, surely they would exit if they don't make a profit.But many are now upping the specs and releasing good quality mobiles. I checkout out a 400ppi mobile with Android 5 which seemed better then my N4. It seems at least in India the mid to high level mobiles sales might fall back.

skc• 11 years ago

You really have to wonder why any one would even want to consider getting into this business at this point. It's a blood bath and there is only one winner it seems.

Apple’s Share of Smartphone Industry’s Profits Soars to 92%

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