Apple really is one of those companies that is quite polarising – so many people love them, so many people hate them, and if you don’t fit into one camp then people assume you are in the other one.
But love them or hate them, I don’t believe that people actually consider the financial implications of owning apple products often enough and that is what this post is about.
What this post is not about is me being a hater of Apple products, so I’m hoping that people can resist the urge to hurl abuse at me and instead consider the actual content of this post.
To get proper context I believe people need to understand a basic history of Apple and how their business model has evolved (or not evolved) over the years, and so I set out below some key steps in their evolution (in my opinion).
1. Apple in the old days – do you even remember the old days?
People may not recall, but in the old days there was Apple, who came up with some great ideas, and there was also Microsoft, who knocked off some Apple ideas.
Notwithstanding the whole “let’s copy someone else’s idea thing”, a key difference between the two could be highlighted by the following points:
- Apple wanted to do as much as possible (software and hardware) and make money out of all of it; and
- Microsoft wanted to just make the software (probably copying some features along the way), make less money out of each unit of that software, but make more money overall by allowing others (and we mean lots of others) to make the hardware.
The result was that Microsoft (PC) products were far more popular, but had far greater fluctuations in quality and functionality. No one could deny that there were (and still are) plenty of crappy PCs out there.
Now, does anyone remember which model proved to be more successful in financial terms (in the old days at least)? It should be obvious, but it was Microsoft’s business model (software for the PC), by an enormous margin.
There are plenty of reasons for this, which we don’t really need to go into for this post, but a key reason is price – PCs were just about always (in fact and in perception) much cheaper than Apple products.
Because Apple’s approach is to make a better product at a higher margin and control everything that goes with it, if they sold lower volumes, they would still make money, and if they sold higher volumes, they would make a stack of money. In the old days, they just couldn’t get the volume, but then they somehow got their branding and products right and the volume took off…
2. The iPod – what was the business model?
The iPod itself was a pretty simple concept, and tapped into technology (similar to MP3s) that essentially already existed. Even so, I don’t care who invented it first or who copied it.
The important thing to note is that they got their branding and products right, and while still running with the high margin model, it finally took off, and they made a killing…
Tied in with this product was of course iTunes, which allowed them to make money out of the sale of the music as well. Yes iTunes was (and still is) great, but a key attraction for Apple was that they could make tons of cash out of it.
Again, they controlled everything – even the music sales via their iTunes service…
3. The iPhone – was there something funny they did there?
You guessed it, when they released the iPhone, which really was (and still is) a great product, they again controlled everything, and added another piece which was the mobile phone carriers.
In the US and other countries they made deals with the individual carriers to get a cut of each mobile phone plan, thereby making more money. The profits went through the roof…
4. ApplePay – hang on, aren’t they trying to do something strange with this as well?
Now Apple are releasing ApplePay in the US, which is essentially using Near Field Communications (NFC) to allow contactless credit card payments from your mobile phone. They will again make deals with Visa, Mastercard and American Express to get a cut of the merchant fees out of this. A very smart approach if they can pull it off, and it will again make them a stack of money…
So what’s the problem? Why shouldn’t a frugal person use their products?
Apple run a fantastic business model – no one can deny that. But using their products is the equivalent of buying your groceries at the local milkbar/convenience store. It sure is easy and you don’t need to use any of the stuff between your ears, but it costs you a stack in return.
Part of being a frugal and aspiring-FI person is shunning convenience, learning how to solve problems yourself, and actually seeking out a cost-effective deal. You don’t just buy a Mercedes Benz (yes we all know that they are beautiful cars) when a much cheaper car (but not so cheap that it’s a heap of shit) will do the job.
The Apple approach makes them more cash, and the cost of their profit is passed through suppliers and onto consumers, even if it isn’t immediately obvious to them. So even if your Apple handset didn’t cost more (but it does), and your Apple phone plan didn’t cost more (but it does) and your iTunes songs/movies didn’t cost more (but they do), I still can’t see how a frugal/aspiring-FI person would support their products.
The Apple approach of controlling as many aspects as possible (and making way more money than anyone else from those aspects) has had a resurgence, but it is being taken over again now by competitors that provide a more free-market approach. While I have watched the resurgence of Apple, it always felt like the pendulum swinging past the point of equilibrium, and it was always going to swing back to the free market suppliers as the more natural state of play.
I firmly believe that Apple will lose market share eventually but will always retain a critical mass of customers because of the positives that they provide. All that I can hope for is that frugal/FI people (especially readers of this and other PF blogs) will move away from Apple products onto the numerous cost-effective solutions that are out there instead.
All of this is quite logical in my opinion, but as I said at the start of the post, a lot of people love Apple products so I’m not sure that logic will really change their minds…
P.S. Please remember that I am not a hater of Apple products – it’s more a case of me being a fan of cost-effective solutions. I’m sure I’ll get hate-mail as a result of this post all the same though.