Contrasting Business models and Why Apple will never subsidize hardware for content
John Gruber Commenting on a Business Week Article:
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.