The Apple Advantage

Either by luck or by design, Apple has created the perfect company for consumer electronics. Because of these advantages, it is difficult for their competition to compete with Apple today, and in the near future as well. Most of these advantages are unique to Apple, and very difficult for the competition to replicate.

- They have a strangle hold on supply of components, giving them very low costs. The really expensive stuff like Flash Memory is shared across most of Apple's product line, giving them extremely good volumes - unmatchable by their competition.

- They are sitting on a massive pile of cash where they earn very low rates of interest. This gives them the power to make strategic moves because the hurdle rate on return on investment is very low. For instance, on the Nortel patents, Apple invested $2.6B. They earn only about $50M as interest on this money - so even if they can make $50M in licensing fees on these patents each year, it is a good deal for Apple - and they can easily make several times this amount each year! They recently prepaid for $4B worth of equipment - if they even get a 2% discount on pricing, it is a par return for Apple - and in reality they can get several times that discount!

- They have invested tons of time and money on things like battery chemistry, materials like Liquid Metal, processes like Unibody construction, Transparent Aluminium (laser thinning used for the battery indicator of the Mac Book line), etc. While their software patents might be violated, these process and product patents are a lot easier to defend. Things like dynamic processor clock speed in the A5, and tight integration between Software and Hardware gives Apple a huge edge in battery life compared to the competition.

- They have an excellent split between design and manufacturing, where they get the best benefits of integration as well as cost savings of outsourcing. They have optimized this so well that they can make custom machines in China and air ship direct to their customers in the US, for free!

- They have a complete ecosystem to add value to their products, so their products are a lot more usable out of the box. Every app purchased from the App Store, and every song or video purchased from the iTunes store has a lock in effect to keep the customer tied to Apple for the future as well.

- They own the distribution chain, right down to the Apple Store and Apple Website, so they keep all the margins inhouse

- They gets millions worth of free advertising, as pretty much every one in the media publishes every small rumor and story about Apple's forthcoming products.

- They have excellent customer satisfaction, because of which people are ready to buy their products sight unseen.

- They usually have just one problem - they cannot make enough of their products to meet demand - which is a good problem to have!

- They have successfully straddled both the luxury market and the mass market, without diluting itself in any way in either market. This allows Apple to have huge volumes and high margins, without depending on a monopoly - which is unique not just in the computer or consumer equipment space, but in any industry.