Today must be Black Tuesday because every feature image on the home page for today’s Mac360 articles are black. No, there’s nothing sinister going on. I checked with the other writers and it’s pure coincidence.
No coincidence? Well, if you believe Special Agent Leroy Jethro Gibbs‘ Rule #39, there is no such thing as coincidence. In this case, that’s all it is. Oh, and Apple does not make razors or razor blades.
Color me as one of those Apple admirers and customers who believes there is no such thing as a free lunch, and the marketing hype that razor blade companies sell the razor cheap so they can sell blades at a higher price to make more profits on the necessary part of the transactions is all myth.
Larry Dignan, writing for ZDNot, thinks something like this:
Banking on iPhone X: Apple’s new phones are the razors, services are the blades
Ludicrous. So, somehow, a $1,000 iPhone X is an inexpensive razor, while inexpensive but ongoing Services components are the expensive razors.
That is nonsense. The math just doesn’t work. Let’s say, over the course of two years of owning an iPhone X– at $1,000 or so– what would I need to spend on Services to make it the expensive and ongoing razor blade expense?
$1,000? $3,000? What? The razors are supposed to be inexpensive, while the razors are supposed to be expensive and used over a long period of time. Supposedly, that’s where the profits come from. Razors. Over time.
How would that work with iPhone and Services (iTunes, App Store, Apple Pay, Apple Music, Apple Care, et al)?
It would not. Why not? The iPhone is too damned expensive. Even at $350 for an iPhone SE the math doesn’t work.
Apple’s likely iPhone lineup may reflect a slow-growth reality and reliance on services. Apple’s spin is that it can still sell you premium iPhones as well as bank the recurring revenue.
Reliance? No. No. And yet another no. That’s not how it works.
Despite Services continued growth and high profit margins, such analysis is overlooking a basic fact. Apple is a hardware company. Without hardware there are no services.
Dignan won’t stop:
Think of it as razors and blades. Apple’s latest lineup of iPhones, which reportedly will adopt the iPhone X design, are the razors that cost you anywhere from $800 to $1,300. The recurring revenue — the razor blade — is going to be made on Apple services going forward.
Yeah, that’s the argument.
Recurring revenue on Apple Services? Sure. What’s the point? Selling accessories like silicon cases brings in additional revenue, too. Is that a razor? Not unless you buy very expensive cases or new cases every week.
Simply put, the iPhone is going to be one expensive razor. The big question is whether razors for more than $1,000 will work in the long run.
No, it’s not a big question. It’s a ludicrous premise.
Yes, the iPhone could be an expensive razor, but to match the myth of inexpensive razor vs. more profitable blades over a longer period of time, there must be something expensive within Services to make it more profitable than the blades (over time).
There is not.
Apple’s spin is to make money on the hardware, software, and services. But the pivot to services is already underway. June quarter revenue for Apple services was $9.55 billion. In other words, Apple’s services unit is going to be on a $40 billion annual run rate real soon.
There is no pivot. It’s a natural movement whereby Apple has enough customers in the base– about a billion or so, Mac, iPhone, and iPad– that all of them buy other Apple products and… insert the famous drum roll here… Services. No pivot. It’s natural. Services might be worth as much in revenue as Mac and iPad combined, both of which own their respective industry’s profit margins, but where would Services revenue be without the hardware?
Don’t get carried away with the business school case studies. Apple may be the only company that can make a nice profit on the razor and the razor blades too.
Damn. We’re right back to zero again. The razor and razor blade idea just evaporated, erased by the very writer that brought it up.