How did Apple manage to sell millions of user-hostile butterfly keyboards?

Because it’s a monopoly says Ben Thompson, speaking loosely but not legally.

From the closing of “Integration and Monopoly,” posted Monday on Stratechery:

This article is not a legal argument: in particular, I have used the term “monopoly” very loosely. What makes Apple so brilliant from a business perspective is that it has managed to, via hardware and software integration, earn monopoly profits in a way that would not normally be classified as a monopoly.

Still, it seems to me that while “integration” results in good outcomes, “monopoly” doesn’t: note the contrast between the advantages of integration I began with and the bad outcomes of late:

    • The superior user experience of Apple’s integrated products somehow ended up with Apple delivering the user-hostile butterfly keyboard for four years and counting.
    • Apple’s ability to leverage its user base to bring new products and features to market also meant that Apple could retard the development of NFC applications.
    • Apple’s ability to drive superior profits from software-differentiated hardware is increasingly augmented by the attempt to extract rents on digital goods and/or give the company’s own services a competitive advantage.

The issue in all cases is a familiar one in technological markets, which often start in an ultra-competitive state, but quickly devolve into monopolies or duopolies as things like network effects and economies of scale takeover. We have seen similar progressions in operating systems, in search, in social networks, in digital advertising, in e-commerce — Apple pressing its advantages is hardly an exception!

The reason I find the Apple example particularly illustrative, though, is that it helps draw a line between the sort of healthy integration that is broadly beneficial, and monopoly rent-seeking that mostly goes to the dominant companies’ respective bottom lines.

My take: “Earn monopoly profits in a way that would not normally be classified as a monopoly” pretty much sums up the business model.

14 Comments

  1. Fred Stein said:

    Hmm,

    Cisco’s GM is 64%, but their SG&M is 22%. Apple’s GM is about 37.5% but their SG&M is only about. 7%. Likewise Apple’s R&D as a percent of sales is low compared to most tech companies.

    That said, Cisco, Oracle, Microsoft, IBM, as old guard, and Google, FB etc as newbies all have “franchises” a virtually lock but not a monopoly. Aside from tech, look at Disney. Their theme parks are literally a walled garden. They are THE destination for many. We could look at Tiffany or Gucci, etc. Their only lock is brand which gives them high GM, backed up with really big ad budgets.

    What sets Apple apart is their efficiency, as in lower R&D and lower SG&M compared to nearly anything. And what makes them so efficient? Quoting Steve Jobs, “we say no a lot.” They try to only sell winners. Next time we hear some self-appointed pundit say Apple should do this or acquire this company, ignore.

    This monopoly profits idea, seems exaggerated.

    As for the keyboard, yeah, it seems to be a valid issue. Don’t know, my MacBook is really old.

    2
    November 19, 2019
  2. David Emery said:

    I bought another used 1tb Mid ’15 MBP rather than a newer machine a year ago. Keyboard was a factor. SD card slot was a significant factor. System performance was NOT a significant factor. System storage was a Big factor. Your selection criteria may vary.

    1
    November 19, 2019
  3. Aaron Belich said:

    Eh, after reading the whole article… Apple is going to sell a ton more MBP’s as word gets out (much like repressed MacPro sales) and at higher ASP’s given the small segment of MBP purchasers who’ve been going after old, heavily discounted stock, will now go straight to the newer models, either direct from Apple or still through the usual approved, third-party sources.

    Current valuation is valid and still has room to grow.

    The keyboards is but a small segment of Ben’s article.

    0
    November 19, 2019
  4. Gregg Thurman said:

    Just another hack writing about something he knows very little (if anything) about and cares even less that he doesn’t. “Show me the clicks”.

    0
    November 19, 2019
    • Keith Hope said:

      Ben does write for a living, but the dismissive ‘hack’ suggests unfamiliarity with his work.

      I have been a Stratechery subscriber for several years. Worthwhile to read (and listen), generally thoughtful perspectives.

      1
      November 19, 2019
    • Aaron Belich said:

      Ben is definitely not a ‘hack’. And his newsletter is well received on both sides of the Aisle of Apple.

      1
      November 19, 2019
      • Gregg Thurman said:

        If you say so.

        I’ve been reading about Apple/AAPL for more than 20 years. Print something based on nothing more than vague supposition and terrible reasoning, no matter your past, and you’re a hack in my book.

        1
        November 20, 2019
  5. Gregg Thurman said:

    OT: From MarketWatch today.

    “Credit Suisse analyst Matthew Cabral tells investors in a research note that nearly two months into the iPhone 11 cycle, data points continue to suggest a meaningful improvement in units y/y. Government data suggests iPhone units are up 6% y/y in China over September and October combined, with Cabal adding that his firm’s tracking data suggesting the iPhone has yet to hit full supply/demand balance eight weeks post-launch.

    Cabral also stated that he is “uncomfortable” with AAPL’s PE expansion.

    1
    November 19, 2019
    • Aaron Belich said:

      Credit Suisse and Deutsche Bank are the old mainstays that reek of pump and dump.

      0
      November 19, 2019

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