Contrasting Business models and Why Apple will never subsidize hardware for content
Ben Kunz, writing for Businessweek, wants Apple to make some sort of “petite glass” small TV screens that aren’t computers:Second, Apple’s real play will be content sales, not TV hardware profits. As I noted last September, the typical U.S. consumer still watches 5 hours and 9 minutes of television a day, but only about 18 cable channels out of the 130 received by the average home. There is huge bloat in what we subscribe to, and we pay cable companies about $74 billion annually for this privilege. Add the $70 billion in TV ad spending, and Apple could grab a slice of a $144 billion video market if it could convince us there’s a better way to stream moving images.
This betrays a complete lack of understanding of how Apple functions financially. They make almost all their money, both revenue and profit, from hardware. Media content — movies, TV shows, music, apps — is icing on the hardware cake. Compare Apple’s financials to, say, Amazon’s. And Amazon’s model is pretty much exactly what Kunz is espousing here — lower-cost low-margin hardware that exists not as a profit center unto itself but rather as a platform for media content sales.
Amazon’s most recent quarter: $192 million in profit. Apple’s: $11.6 billion. The quarter was 90 days long. That means Apple made $128 million in profit, on average, per day. Let that sink in: Amazon made $192 million in 90 days. Apple made $128 million per day. Methinks Apple will stick with its focus on hardware profits.
I completely agree with John Gruber. Apple has never put out low-margin hardware in the past and i don’t see why they need to do so in the future. Apple didn’t see a need to make a netbook, a cheap feature phone and a cheap, crummy tablet to get to where they’re today.