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  • Apple the Monopoly?

    March 10th, 2017

    Over the years, Apple has been accused of monopolistic practices. It’s really hard to make an assumption of that sort of a company that is not really dominant in most markets it serves. So this has to be put in perspective.

    So, consider the Mac. Over the years, even in the early days, global market share was in the low double-digits or single digits, and that, with its ups and downs, is pretty much how it stands today. Even though the PC industry is dying, for the most part, with a few down quarters, Mac sales have remained fairly constant.

    True, Macs occupy higher shares of the middle and high-ends of the PC market, but such companies as Dell and HP will sell many times more units. When it comes to total sales, however, Apple’s revenue from the Mac is quite similar. When you add iPad revenue, Apple is way ahead. But that state of affairs doesn’t give Apple a monopoly, even though it uses its own operating system.

    Windows still holds a 90% market share. There’s also little doubt that Microsoft has done things over the years that were designed to take Apple and other companies down. It goes beyond Apple’s original complaints against Microsoft about cribbing the Mac OS in creating Windows. Consider how Microsoft would release inferior versions of its flagship apps, such as Office for the Mac, with reduced features. The implicit message was, if you wanted the full Office experience, you had to get Windows.

    These days, Microsoft sees plenty of growth in services and is delighted to deliver regular Office updates for macOS and iOS. Indeed, a mobile version of Office came to iOS — and later Android — before a mobile version for the Windows platform arrived. Microsoft went after the money regardless of platform.

    It is true that Apple dominated the digital music player business with the iPod, but the iPhone/iOS market share is way behind Android.

    This doesn’t mean that the iPhone doesn’t have a few advantages. Among premium smartphones, the iPhone earns a hefty share. When it comes to profits, Apple gets 79.2% of the global market. Apple also earns a high percentage of PC industry profits.

    That appears to be enough for one analyst, from UBS, to suggest that Apple may have what he calls “an anti-fragile monopoly.” This particular analyst, one Steven Milunovich, attributes this to Apple’s pricing power, that it forces other companies to compete on price to get their own pieces of the pie.

    By pricing power, consider the fact that the iPhone’s ASP neared $700 in the last quarter, largely due to the success of the iPhone 7 Plus, and has remained within a fairly narrow range since 2008. In contrast, Google’s main revenue creator, online advertising, is generating lower cost-per-clicks nowadays, which means more ads have to attract clicks to keep the cash flowing in.

    But Google’s problems in maximizing revenue from clickable ads is not caused by the high price of an iPhone. Advertisers seek the highest possible return on their investments, and online ads do not have the impact they used to have. I suppose part of that is because such ads have become more intrusive, with many sites putting up ads that interrupt and overwhelm the display of content until dismissed, or autostart multimedia content without your permission. All that does is encourage people to use ad-blockers, which hurts anyone who depends on income from online ads.

    Apple doesn’t do any of that. It sells retail products that you can choose to buy or not buy — your choice.

    What Apple has is not monopoly power but discipline. While prices sometimes come down on Apple gear, overall profits remain consistently high. Apple rarely competes on price. While other tech companies do offer a selection of premium gear, they have opted to compete on volume rather than price for the most part.

    So to cater to people who maybe cannot afford expensive gear, they race to the bottom with the cheapest stuff. Such devices do not generate much in the way of profits, although I suppose they keep the cash flow at a fairly decent clip. So maybe that satisfies many company accountants. Certainly the key players in the industry, such as Dell, HP, Lenovo and Samsung, all offer confusing arrays of products in different market segments. There’s tons of gear out there, and they dwarf Apple in market share.

    Except for the failed foray into model profusion with such Macs as the Performa series of the mid-1990s, Apple has stayed away from flooding the market with junk. Again that’s discipline, not monopolistic behavior.

    Some of Apple’s critics believe the company should license iOS and macOS to boost market share, but don’t forget the the company is selling hardware, not software. Licensing software that is given away free hardly makes sense. It will only serve to dilute sales of genuine Apple gear.

    It has also been suggested that Apple might consider licensing macOS to one or two of the larger PC makers to build high-end gear in markets Apple doesn’t serve, such as gaming machines, workstations to replace the Mac Pro, and perhaps servers. But nothing prevents Apple from putting high-end graphics into the iMac and to develop a special Mac Pro for gamers. That way they’d earn all the profits. Why give anything away?

    What’s more, if one wants to talk about potential monopolies, Google’s share of the search market now exceeds 80% according to Net Applications metrics. Nobody else comes close? Bing and Yahoo (which uses the Bing search engine) are way back in the single digits. Isn’t that real market dominance?



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    4 Responses to “Apple the Monopoly?”

    1. KiraK says:

      Apple is already giving things away. For example, I want to buy a laptop and a desktop, but Apple does not make a Mac that interests me. And I am not alone. I personally know a number of people who express the same thoughts, their frustration with Apple. Making macOS available to vendors who want to build computers that pros want is not going to cost Apple business at all. It does not compete in this arena any longer. It will however, keep those same people working with the Mac platform, however; and that is better than losing them altogether.

    2. Jim Stead says:

      This is all a fine set of concerns, but is unrelated to “monopoly”. Monopoly means one. No choice. Like Standard Oil and AT&T once were.

    3. DaveD says:

      Along with “alternative facts” I got to learn another dumb term, “an anti-fragile monopoly.” Whatever that means. From my old Econ 101 days, one price a product that the market will bear. Price it too high, nobody will buy. Price it too low, one can go out of business. One tactic called “dumping” is to price it so low as to gain market share. At some point when one becomes the dominant player, the prices go up or keep it low enough if other parts of the business make a lot of profits.

      In the nineties, Microsoft used their monopoly position by creating a free web browser to push Netscape off Windows. But today, it appears that there is a good monopoly and a bad one. With Amazon’s e-books, as long it is low price, that is a good monopoly. Apple got slapped down by the courts when it tried to help the book publishers to get better pricing deals. So, I’m guessing that Apple is an example of a bad monopoly. A monopoly with a dominant position in cash-on-hand, revenues, and profits. Market share be damned.

    4. dfs says:

      I can think of only one time in its history that Apple did something actionably monopolistic, when it jumped the gun on controlling the prices of its products at the retail level a bit before a revision in the law made that legal. That being said, it does strike me as a bit strange that Apple has done (and still does) some of the same stuff that once inspired governmental agencies at home and abroad to accuse Microsoft of monopolistic practices, such as bundling its OS with the company’s own browser preset as the default one, without any eyebrows being raised. Probably back in those days prosecutors let Apple get away with the same practices they were trying to criminalize in Microsoft because they principally regarded Apple as a useful counterweight in the marketplace. In retrospect the whole Microsoft-as-monopoly movement seems like a bit of a silly witch hunt (spiced with a dash of European Union anti-American jealousy) and nowadays regulatory agencies are a lot more careful about checking what the letter of the law actually says before calling press conferences.

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