Horace Dediu takes a deep dive into Apple's 'pivot'
“The iPhone is the most successful product of all time.”
From Dediu’s “The Pivot,” posted on Asymco Thursday:
There are about 1 billion iPhone users. Economically speaking, iPhone sales have reached one trillion dollars. Since the iPhone launched, Apple’s sales have totaled $1.918 trillion. Of those trillions about one half a trillion was accumulated in the form of income. Of that half trillion in income, $360 billion was paid out to shareholders. and $131 billion was paid in taxes.
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… But no business is good if it is static. What makes a business great is dynamism. The idea is to constantly maneuver for a new or enhanced way of doing business as technologies enable entrepreneurs to fundamentally change how value is captured or allocated.
The iPhone story isn’t static, the “pivots” or change in direction are several:
- The App Store, a platform for collaborative innovation where millions of developers are offered the chance to improve the product.
- Accessories, a licensing model for third-party hardware that works with the iPhone
- Distribution through multiple channels
- Integration with other Apple Products
- The marketing of older products alongside new ones at reduced prices
- An expanded product portfolio with a broader range of prices
- Trade-in and financing options
Each of these initiatives contributed to the iPhone growth story but the biggest change in business model was the addition of services…
Some would argue that even with a $43 billion revenue rate, ($80 billion billing rate) Apple’s business is still a hardware business and that comes with low margins, potential for disruption, non-recurring revenues and cyclicality.
This is not the case. Apples’s business has high margins (64% gross margin for services, 34% for products), has been resilient over 12 years while attracting hundreds of imitators at lower price points, and has loyalty and satisfaction which results in more than 90% re-purchase rates. Cyclicality is driven by seasonality and product lifespans, not competition
My take: Pure Dediu gold, down to the footnotes.
- The milestone of $1 trillion iPhone revenues was reached in the fourth quarter 2018 during which time the stock price of Apple fell by 40%.