iPhone Monopoly
Poon Lok Yi, Joyce 1155082158
One of the successful technology titans, Apple’s iPhone has
dominated the mobile devices market. Nowadays, the iPhone has accounted for
around 34% of all smartphone, leading all other smartphone brands such as LG,
HTC and Samsung. (Reisinger, 2017) But what makes the customers willing to pay
a high price to purchase a smartphone? What makes iPhone become a monopoly in
the smartphone arena? In the following sections, I am going to apply the four characteristics
of becoming a monopoly that stated by Thiel.
Characteristics
1. Proprietary
technology
Before the invention of iPhone on 2007, the mobile
phones were used to be a tiny display screen with physical keyboard. However,
the iPhone has brought a breakthrough to the smartphone arena. It is no doubt
that iPhone has a comprehensive of proprietary technologies especially the
touchscreen technology. In 2007, Apple released the most innovated touchscreen
technology anyone had yet seen. The iPhone interface is completely touch-based,
including the notorious virtual keyboard. Apple's line of iPhones led to other
devices like the iPod Touch and the iPad. The incredible touchscreen technology
has substituted the physical keyboard on the phone and the customers can do
various of tasks such as checking the direction, browsing the network and
communicate with their friends via the instant messaging apps all using their fingertips
to swipe on the phone screen. Obviously, Apple launched the iPhone at a point
where innovation was practically dead in the mobile phone industry. Besides,
iPhone is using the exclusive operating system called iOS and most of the
in-app that pre-installed on the phone can only be downloaded via the Apple
Store, which means that the phones of Android or Microsoft cannot install the
iOS on their phone. With Apple's iOS at the forefront, the rise of mobile
computing has dramatically reduced Microsoft's decades long operating system
dominance.
2. Network
effects
Apple’s iPhone also has a strong network effect from
it content ecosystem. There are thousands of developers write software and new
applications for Apple devices because the software that the app developers
invented can let millions of users to use it and let them to stay on the
platform because of the apps. It will increase the value for the app developers
to invest and concentrate on inventing the iOS apps which will make the apps
more variety and also increase the value of owning an iPhone to be able to use
these apps. For example, iPhone has the Apple-centric features like FaceTime,
iMessage and Game Center. Users can use the iPhone-to-iPhone communication application
called iMessage to text or send images to their friends who are also the iPhone
users easily and instantly without charge any extra SMS fee. Generally, when
users think the apps can bring some benefits for them, it will motivate them and
their friends to keep using the same applications. According to Apple’s Senior
Vice President of Internet Software and Service, he indicated that more that
200,000 messages were sent out via iMessage per second on 2016. (Business
Insider, 2016) It shows that iPhone has a powerful network effects among the
users not only purchase the devices, but also motivate them to use their
exclusive iPhone applications.
3. Economics of
scale
When it comes to large companies, such as Apple, one thing
which they all benefit from is economies of scale which mainly refers to the
fixed cost of a product such as engineering, production, manpower cost. Most of
the company’s revenues are dependent on the iPhone sales, accounting for 68% of
the total revenues among Apple’s products in the first quarter of 2016. (Mclellan,
2016)
Actually, the reason that iPhone can generate a high
sale than the other products is mainly because with its low manufacturing cost.
The bulk share of the device’s costs are actually come from the display
production as well as the baseband processors, while other costs such as camera
only costs less than USD19. It is estimated that the manufacturing cost of an
iPhone 6S was only USD$245 while the retail price of the device is almost 3
times as the manufacturing cost, meaning that the company makes a staggering USD$515
from each module. The shipment of iPhone 6S and iPhone 6S Plus was 85 million
on 2016. It leads the total profits of nearly $42 billion solely for the
devices. Hence, the low fixed cost with a large quantity of products make the
company generate a huge profits from iPhone on every year.
4. Branding
Thiel mentioned that a
monopoly usually has its strong brand. It is undeniable that Apple has a strong
technology brand. With the one-of-a-kind luxurious material design and
multi-functions of the iPhone as well as the playful keynotes speech conducted by
the Apple’s CEO and the omnipresent advertising campaigns in both online and
offline, customers can’t get their eyes off on the new iPhone launch and order
it online. Besides, Apple also cares about the consumer experiences on their
products. Genius Bar, which is a one-to-one technical support service for the
customers who need to repair their products and their experts would also help
to solve the problems that related to the products. With the unique product
design, omnipresent advertising and the close control over the consumer
experience, these underlying substances contribute to a perception that Apple
offers products so good as to constitute a category of their own.
Obviously,
we can see that the reason that makes Apple becomes a monopoly in the
smartphone arena are based on the integration of those characteristics. Creative
monopolists not only can add the new categories of the abundance to the world,
but customers can also have more choices to choose the products which may bring
different benefits for them.
Reference:
Business Insider (2016). Apple
says people send as many as 200,000 iMessages per second. Retrieved from: http://www.businessinsider.com/eddy-cue-200k-imessages-per-second-2016-2
Mclellan, C (March, 2016). Apple's
March 21 iPhone and iPad event: The market background. Retrieved from: http://www.zdnet.com/article/apples-march-21-iphone-and-ipad-event-the-market-background/
Reiginger, D (2017). Apple’s
iPhone Market Share Tumbled During Critical Holiday Season. Retrieved from: http://fortune.com/2017/01/18/apple-iphone-market-share-2/
Thank you Joyce, you give us an explicit and vivid explanation of what make Apple’s iphone become a monopoly in the smartphone arena. I appreciate that you did some data research and references to make your viewpoint more convincible.
ReplyDeleteFrom my perspective, the debut of iphone created a brand new smartphone market all over the world which overturned the traditional thoughts about phone. On the one hand, it is the combination of proprietary technology and excellent art design that really counts. The design of iphone considers both user interface and user experience which can really meet customers’ needs.
On the other hand, up-to-date innovations make iphone outstanding among other smartphone competitors. To put it another way, becoming a monopoly, iphone is more than 10 times better than its homogeneous products (). Gradually, customers form a kind of brand loyalty and they are willing to purchase any new products made by Apple.
By the way, advertising plays a pivot part in sales. For instance, the latest Apple ads adopts rooster painting made by Victo Ngai. As we all know, 2017 is the year of Rooster in China. And the ads strategy aims to cater for Chinese people to further broaden its market in China, even the whole Asia.
Happy Chinese New Year! :)
LI,Wei (1155082136)
Thanks Joyce for this inspiring study about iPhone Monopoly. On top of the unique iOS, Apple's close-end functions also play important role to network effect and as a result leads to its monopoly. For example, Airdrop is a file transmitting function exlusive for Apple users. It distinguishes iphone and andriod phone users, which may motivate some Andriod phone users to change to use iPhone if most of their friends are using iPhone.
ReplyDeleteAnother interesting finding about network effects is about accessories like phone case. While iPhone is the monopoly in the market, phone case demand for iPhone is definitely much more that other models of smartphone, not to mention the huge variety of brands and models exisited. According to the Supply and Demand curve, increase in demand will lead to increase in supply. It is also more profitable to produce a phone case of one size in huge amount, rather than many different phone cases for various models with smaller number of users. It explains why iPhone users can have more choices on phone case. To some people having high concern about outlook of smartphone, it may be one of the concern motivating them to choose iPhone instead of Andriod phone.
Liu Tung Mei Cynthia (1006601593)
From my perpective, the analysis of Apple's iphone dominating the mobile devices market is not actually true. If Apple' s market share was 100%, Apple would have a monopoly. As reported by Forbes in 2016, Apple's brand value was approximately $154.1 billion, however, other tech giants still earn profits in the market. Samsung, Huawei and even Xiaomi offers lower-entry products while Apple sell iphone to high-end customers. Other competitors may offer similar products and service with lower price. Android manufactures are updating their business services such as the user friendly operating system and innovations.
ReplyDeleteIn addition to that, Apple's branding marketing is inspirational. Based on the four characteristics, to some extent, branding makes Apple successful. Although Apple's entry level phones are higher than others, an increasing number of early adopters are willing to purchase Apple's innovations. The reason is that Apple has focused on the lifestyle, passion and innovation of Apple users and built a hard core of fan bases through different marketing campaigns. By engaging its emotion with customers, Apple's brand marketing advertised customers and made them believe that the service and products offered by Apple would make them more satisfied. Thereby, technology is not the main point that it is an isnpirational story from Apple, creating emotional networks and inspiring missions may be the true.
Xieyi Xu Eva(1155084062)