Yesterday, we saw Apple's earnings for their amazing third quarter and rightly so, everyone was amazed. But, in breaking down the numbers, we can see the continuing trend that the computer company is less and less and Apple is more and more a mobile company. The Q3 numbers now show that 68% of Apple's revenue comes from iPhone and iPad sales, so let's look into those numbers a little more.
Leading the charge
It's no surprise that mobile has been exploding for the last few years, and Apple has been leading the charge since the introduction of the iPhone back in 2007. Now, you can argue all you want about whether iOS is the best mobile platform, or whether or not Apple "stole" ideas from those that came before them, but, those arguments are basically pointless. Which mobile OS is the best is purely subjective and dependent on your needs and preferences. If your friends and family are spread around the world and all have BlackBerries, you'll probably get that for BBM. If you are deep into iTunes, or you want a simple, clean interface, you go with an iPhone. If you want absurd amounts of customization options, you go with Android. No one choice is better than another for everyone.
And, success is never based on who comes up with an idea first or even who brings it to market first; success is reaching a mass market first. Sure, there were smartphones and touchscreens before the iPhone came alone, but there is no argument that Apple was the first to make that form factor into a commercial juggernaut. Apple was the first to prove that a full touchscreen phone and slate could be commercial successes and not just niche devices.
Going Mobile
Now, mobile is the bulk of Apple's business. Traditional "desktops" and "portables" (laptops) made up just 17.9% of Apple's Q3 revenue based on the numbers released. iPods constitute 4.6% of revenues and iTunes sales are 5.5%. That leaves 46.6% of revenue from iPhone sales, and 21.2% from iPad, for a combined 67.8% of total revenue coming from Apple's mobile hardware. Of course these numbers include peripherals and accessories for iPhones and iPads, but that still marks year-on-year growth of 183% and 142% for the iPhone and iPad respectively. And, last year Q3, iPhones and iPads made up just 48% of Apple's revenue, further showing the leap mobile has made in the last year. Of course, the launches of the iPad 2 and Verizon iPhone no doubt are a big part of these numbers.
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Apple has a long history of taking ideas that already existed, making them better and making them commercially successful, then being overshadowed by its competition. Many will point to this as Apple "losing" to Microsoft in the PC days, or to Android today, but that idea doesn't take into account Apple's end goal. Apple has never been in the business of having the biggest market share, if they had there would have been $500 MacBooks years ago. Apple's end goal has always been high quality devices with high profit margins and revenue, and mobile gives Apple just that.
Big money, no whammies
Apple computers have always had the same downfall: they were the best built, but the price for entry was too high. Add that to the "leap of faith" needed to go Apple, and the company had what seemed to be a permanent place as the underdog. Being the first to market a successful smartphone, Apple looked like they would be the winner of the mobile race, but their business model never changed, and so the results were inevitable. Android phone came in all shapes, sizes, prices, and on all carriers, and so took over the market. Luckily, as noted earlier, market share was never the end game for Apple. Much of Apple's allure these days is in their placement as the cool option. Everyone has a PC, but Macs are cooler. iPhone achieved that through controlled demand. iPhones were cool because they were only on AT&T, then by the time the iPhone started to spread to other US carriers, Android had already taken the market share, so iPhone is cool because it's the underdog again. Through it all, Apple played its own game, constantly posting huge earnings that often rivaled or beat out the earnings of competitors who were striving for ubiquity rather than revenue. Mobile hits the sweet spot for Apple in this regard.
The price point may have been a barrier for Apple computers, but it has been a boon for mobile options. At $500, the cheapest iPad hits the magic spot for consumers. And, for Apple the cost of production makes it all the more worthwhile as teardowns of iPads estimate production costs at anywhere from $230 for the original iPad, to around $330 for the iPad 2, leaving anywhere from $170-270 of profit on each iPad. Given that Apple has sold approximately 25 million iPads to date, that revenue adds up quickly.
Not as quickly as the iPhone though. The iPhone is the perfect storm of cash for Apple. Reports peg the iPhone 4 production costs at around $190, and sells for $200. Not much there until you account for carrier subsidies. Apple may only pay $190 to produce an iPhone, but it then sells that iPhone to carriers for somewhere close to $600, the difference between that an the contract price is then made up through carrier subsidies. And, Apple notoriously gets higher carrier subsidies than any other phone maker. Early on, Apple was reportedly getting as much as $450 per iPhone in carrier subsidies, meaning AT&T bought the iPhone from Apple for $650, but sold it to the public for just $200.
It's these subsidies that have brought Apple more and more away from traditional computers to mobile devices. Apple can now make high end devices and not have to worry about whether or not consumers will pay $650 for a mobile phone (at least in America), because carrier subsidies bring iPhones down to the magic number of $200 for consumers. Of course, these carrier subsidies aren't as much of a factor in Europe, but consumers there are more used to paying full price for mobile phones anyway, so paying a little extra for an iPhone over the competition isn't that big a deal. For example, a 16GB iPhone on Apple's UK site lists for £510, which converts to $823, and €659 on the Italian site, which converts to $934, and that iPhone still costs just $190 to produce.
Holding the gameplan
The question is: will there come a time when Apple deems traditional computers unnecessary to their business model? Apple has been slowly bringing in more and more iOS-like features to OSX, and there are have been rumors that the two operating systems may converge at some point. If they do, that would almost certainly alienate many of the power-users on OSX, but alternatively, it could bring in far more casual customers who want a unified experience from mobile to desktop. It also would ease the conversion from Windows to Mac, as customers will have learned to use the OS through the iPhone and iPad.
It seems unlikely that Apple would completely remove traditional computers from its product lineup, and it seems just as unlikely that iOS will completely supplant OSX. But, Apple's mobile ventures are proving to be the driving force behind the company these days, and could be the path leading forward. iPads and especially iPhones have allowed Apple to continue its focused goal of high quality devices, that are easy to use, and have high profit margins, but Apple knows better than to completely forgo its fanbase which drives much of the hype around each new launch. But, don't be surprised if OSX continue to be afterthoughts to the powerhouse of iOS.
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Michael Heller is known for his clear and informative articles on mobile technology. He explores important topics such as the rollouts of 5G networks and the advancements in mobile payments, offering readers insights into the evolving tech landscape.
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