Apple may not dominate the cell phone sales in terms of unit numbers, but profits are still going their way. Big time.
John Dvorak, a tech writer, that mobile phone consolidation was heading in the direction of two dominant players: Nokia and Motorola. With this in mind, Horace Dediu has created a video and posted it on Asymco with a subtitle of “The evolution of Shipments, Revenue, Profitability and Cost structure of eight vendors selling mobile phones between second quarter 2007 and second quarter 2011.” At least it is animated with funny music in the background.
What the video shows is a series of graphs where the average price of each company’s device is then shown in comparison to their vendor profit margin and against their market share. In the beginning Nokia dominates both in market share and profit margins, while maintaining the smallest unit price. In 2007 their market share grows larger, but so does the entire market and the competing companies continue to get larger together.
The arrival of the smart phones in 2008 does shrink the share for all the previous five main mobile phone producers, though the smart market share is miniscule by comparison. Their prices more than double the average mark up of the other phones, but their vendor profit margin is several times that of any standard phone. None of this compares to when Apple jumps on the market, with a phone that almost doubles the price of the other smart phones and comes in at about four times the standard. The profit margin could be stated at about ten times that of a regular phone, and in this situation the profit margin on several standard phone models dropped into the negative. This could be because the business model has shifted so far in the direction of the smart phone that standard phone models are just for carrier profits, and this may lead to the later advancements.
2009 sees the entire market shrink temporarily before beginning to grow even further. Apple’s share continues to grow and though their profit margin shrinks somewhat, it still blows every competitor out of the water. As we finally get to the second quarter of 2011 we see that Apple’s profit margin has shrunk quite a bit from its first release, but its market share more than makes up for it. The conventional mobile market has seen a major hit, with one of the major manufacturers being knocked out of the running entirely.
This is not so much the success of one or two companies, even for Apple. Instead, it is a general change in what is expected from a mobile phone and what people will be willing to pay for it. Today, many people’s live require constant internet and email connections, the ability to treat text messaging like an instant message, to use social networking as a standard communication form, and generally use the types of tools that the iPhone is now making standard. We will not move backwards from this, but perhaps in the coming years we will see the same type of starting graph we had from the second quarter of 2007. This time it will all be smart phones.