A company with plenty of capital can continue to operate at a loss, sometimes for years. That happens all the time. Profits are the lifeblood of a business, and when profits dry up, companies become desperate or die. Or, both.
Apple And Samsung: Strange Bedfellows
Apple was heavily criticized by the establishment when the iPhone debuted. What both competitors and tech pundits didn’t realize then, and don’t seem yet to understand, is that customers matter. But customers do not always translate into profits.
What doesn’t matter is what tech media pundits think of a product or its chances in the marketplace. What counts is what customers think, and it should be apparent that Apple has an understanding of what customers want and are willing to pay for.
Almost everything Apple does these days is highly profitable. Mac. iPod. iTunes. App stores. iPhone. iPad. All are profit leaders among the competition.
Apple’s Mac alone is as profitable as the next five PC manufacturers. Combined. Not even Amazon rakes in the profits that Apple does with iTunes and App stores.
Among smartphone manufacturers, only Apple and Samsung are significantly profitable. Nokia, BlackBerry, HTC, LG, Sony, Nokia, Motorola all lose money competing against Apple. How long can that continue?
Among tablet manufacturers, Apple retains the lion’s share of profits, with Samsung in a distant second place. All others struggle on low margins and lower sales volume. How long can that continue?
Microsoft and Google have deep pockets and, so far, have endured the loss of billions on their smartphone and tablet efforts. Not one of Apple’s competitors is willing to publicly announce unit sales of products which compete against iPhone and iPad. That indicates embarrassment to an extreme degree.
How long will these competitors continue to bleed in a race for leftovers?
Another aspect of this slow strangulation is desperation. Google and Amazon sell their tablets near the manufacturing costs, eschewing profits in the hopes of a return on media sales. Thus far, that effort has demonstrated anemic returns.
Microsoft, also with deep reserves of cash, and still dining well of the Windows and Office gravy train, has failed to make a dent in tablets with the Surface RT or Windows 8. Windows Phone, while critically acclaimed, doesn’t bring much that’s different or better to customers which would compel them to switch from an iPhone or Samsung Galaxy.
The stakes in this war are huge and the survival of once prosperous companies is on the line. If Apple and Samsung continue to suck the profits out of the smartphone and tablet industry, the future does not bode well for the second tier of manufacturers who are likely to be relegated to a niche player status.
Apple’s history is replete with examples of the company’s focus on profits at the expense of marketshare. That strategy seems to be paying off as one competitor after another exists peripheral businesses.
Oddly, competitors often seem to be in a race to the bottom while Apple, Samsung Share of Handset Industry Profits Declines to 100 Percent. That article by John Paczkowski has a funny title, but the details are serious.
The competition is being strangled to death.