Entering commoditized, fiercely competitive low-margin services cannot substitute for the high-margin profits that will be lost as global recession and saturation erode iPhone sales
Apple has always been equally an enterprise and a secular religion. The Apple Faithful do not tolerate heretics or critics, and non-believers “just don’t get it.”
So the first thing any critic must do is establish their credentials as a Believer:
The problem is that the proprietary features of the iPhone that have generated strong demand as prices kept rising are reaching diminishing returns. People want the status of owning an iPhone, but there are limits on what the bottom 90% can pay for that status.
The new features of the $1,000 iPhones have also reached diminishing returns.
As we all know, the “fix” for saturation is to speed up the product cycle so the existing owners are forced to buy a newer and much more costly model every year or two. But this strategy also has diminishing returns: people get tired of getting ripped off by accelerating replacement cycles and eventually some percentage step off the merry-go-round and switch to a much cheaper and less demanding (product-cycle-wise) alternative.
Then there’s the other problem: without Steve Jobs, there is no “next big thing” at Apple. As I’ve explained many times here and in my books, value flows to scarcity, and Apple’s enormous profits are based on the artificial scarcity Apple has been able to impose on the market by closely guarding its proprietary mix of hardware and software. But as this chart attempts to explain, the price innovators can charge as competition increases diminishes as the innovations lose their scarcity value. The faster the advances and product cycles, the faster the erosion of pricing power. Why the Innovation Premium Is Diminishing (January 16,2013)
The innovations of late-cycle iPhones are out of synch with the price increases
Apple is moving from selling innovations worth an extra couple hundred dollars to resting on its status-symbol laurels as a “luxury brand.” That may work well in
Lastly, the “services” Apple is
Apple is facing a secular decline in its proprietary flagship that generated huge profit margins. Entering commoditized, fiercely competitive low-margin services cannot substitute for the high-margin profits that will be lost as global recession and saturation erode iPhone sales.
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