Renowned analyst Ben Thompson: Is Apple a technology company?


Editor’s Note: This article is from the WeChat public account “outside the stack”, author Ben Thompson, 36 氪 authorized to reprint.Original title “Ben Thompson: Is Apple a technology company?”If you rely solely on the hardware strength of the iPhone, Apple may not be able to stand out from the competition of traditional mobile phone manufacturers.But in the face of many Android rivals, the iPhone can still dominate.There is no doubt that software power is one of the key factors driving the success of the iPhone and Apple.If Apple simply sells equipment, it can only be regarded as a consumer electronics company.Apple’s software, services and ecosystems, combined with a strong hardware foundation, make it a true technology company.A purely hardware company will encounter low margin risk and enter a low-profit negative feedback loop.It can only increase revenue by continuously expanding its scale. At the same time, costs are increasing, but the goal of high profit margins is turned into a bubble.The way to effectively change the status quo of hardware companies is to differentiate themselves through software services and distinguish them from their peers.At the same time, the network effect of software services is utilized to expand the scale, reduce costs, and increase profits.Originally from Stratechery, author Ben Thompson, this article has been officially authorized by translation technology companies like hardware companies and most authors, I have been not satisfied with what I wrote, but this feeling is particularly prominent today.Originally, I wrote to myself yesterday, “What is a technology company?””I was satisfied and fell asleep comfortably, but I woke up in disappointment at three in the morning, and then spent a whole day in a sullen mood.The reason I am frustrated is that I always ignore the hardware company, and ironically, the case of the Internet fitness company Peloton turned out to be one of the motivations for me to write this article.But my negligence has a certain reflective meaning: For many years, even if there is the most dominant product such as the iPhone, why has Apple not been optimistic?The answer to this question is echoed by the reason I ignore the hardware company: at least from the business model, the hardware company does not fully comply with the business model of modern technology companies.What is worth exploring is the problem of marginal cost: it takes hundreds of dollars to make an iPhone, and it takes more than a thousand dollars to become a Peloton member. That is to say, it is still far away to achieve zero marginal cost.In this, we far underestimate the value of software.Recalling that when I started publishing articles in Stratechery, I often complained about such negligence.In the opening of “Reviewing Two Bear Markets”, I wrote: In the modern PC industry, there is a very annoying phenomenon – the comment sites all say that “Mac series computers are only PCs from any angle.”.Let’s take a look at CNET’s evaluation of the MacBook Pro in 2007: advantages: CPU performance and image processing capabilities, but the price remains the same; LED backlight display, can extend battery life; support 802.11n transmission technology.Disadvantages: There are very few optional configuration items; only 90 days of free technical support; there is still no card reader.Take another look at the PC Mag 2006 evaluation of the Macbook: Advantages: Configure the Core 2 Duo processor, complete the notebook product line; thickness is only 1 inch (about 2.54 cm); excellent performance; configuration iSight camera; configuration moreMultiple hardware driver options; front panel interface and remote control.Disadvantages: DVD recorders do not use standard models.It is worth noting that OS X is a jump ticket, and only these Macs can run the OS X operating system.While optional configuration items and card readers can be important, if I care about whether my laptop can run the OS X operating system, all of the above shortcomings, including price, are not important.The evaluation of the Mac series, one after another, they indulge in the processing speed of the hardware, ignoring the most fundamental differences brought by the software, and the final conclusion is correct, but the whole is invalid.I want to put Samsung and Apple together for discussion, but there will be a problem. The challenges faced by the two companies are quite different: Apple’s market is saturated, and Samsung needs to show its own characteristics.After all, only the iPhone runs the iOS system, while other “ambitious” challengers use Android.The title of the 2014 article quoted an article published in 2013, “Two Bear Markets,” which was my first article in Stratechery: “Bear City Argument 1″ is a face of a significantly lower cost alternative.Product, the iPhone is about to collapse.”Bear Market Argument 1″ assumes that the iPhone is competing on hardware and is therefore susceptible to low-cost alternatives.But in fact, the iPhone is not just a device, it is also an entry ticket to the ecosystem.”Bear City Argument 2” is the iPhone’s market stop growing.This situation means that the iPhone’s high-end market is saturated, and even if iPhone users are constantly changing their devices, iPhone sales have not increased significantly.The iPhone has few rivals in the differentiated high-end market.It is reasonable to assume that such a market is limited in size; it is very stupid to expect consumers to switch to cheap equipment.This is not to say that “bear market argument 1” is not reliable at all.In fact, this is a bear market argument for Samsung.On the Android platform, there are few products that can distinguish the high-end market from the low-end market, and the low-end products are not only getting better and better, but also have incredibly low prices.Forgive me for quoting in this big section, but I hope to clearly explain the article from the previous two days, “What exactly is a technology company?》Contact.Apple: Around OS X, especially iOS, developed a series of ecosystems to build a service service with almost zero marginal cost on the iOS platform. The device is constantly being improved with the update of the operating system and subject to the entry price of the device.Limited allows third-party payment to enter its ecology. From Apple’s coordination of the last two points mentioned above, it can effectively benefit from the value created by itself: hardware sales profit reaches 30%; closed iOS system gives it full controlWith the App Store, you can get 15% to 30% of the total revenue of third-party developers, and bring 64% (Apple Music significantly reduced this number, because I have already pointed out in the article “Spotify’s environment”) service businessProfit margin.In short, a hardware company that differentiates its software services (Apple is one of the better examples) can be considered a technology company.Hardware manufacturers that are not differentiated are more like consumer electronics companies, and their profit margins are closer.(You might think of Samsung as a case for another company: having large-scale manufacturing capabilities, including Samsung’s chip manufacturing division, TSMC, etc. Of course, these are definitely technology companies, and this article focuses on more business.Model, not a specific professional company).The same analysis of Apple’s analysis (as I wrote before) applies to Peloton as well.Just like Apple’s “bear market argument”: How big is Peloton’s market size?If it’s positive, Peloton is a great brand in the fitness industry, selling hardware services in addition to selling bicycles and treadmills.If it is negative, those who are willing to spend money to enter the ecosystem, but also actually exercise, are still limited, not enough to support the valuation of the company.In other words, Peloton is a typical hardware company that uses software services as a differentiating element, with all the pitfalls and shortcomings of such companies.The price of low profit margins is also worth noting about profit margins: the general development trajectory of technology companies is that they must first have fixed costs that are pre-invested, invest in marketing to acquire new customers, and then let these customers not only be in the value cycle.Buying costs for marketing costs and paying for the company’s fixed costs.The more the company earns, the easier it is to implement this program.The problem with selling products other than software (whether hardware or real-life services such as carpooling, leasing, or content) is that companies need to use relatively low profits to cover the same high costs as software companies.In other words, their cost of sales is high (whether or not calculated by the income statement).It’s worth noting that consumers don’t care what the income statement will be. They think it’s the same thing to spend $10 on Uber or $10 on Spotify, which is the same as their $10 subscription on Stratechery.The difference is that Uber gets $2.50, Spotify gets $4, and I get $9.5 from Stratechery.Taking me as an example may be more extreme, but the key is that I don’t need to scale up to cover my work costs because my profit margin is high.In contrast, Uber and Spotify need to be much larger than the pure software companies of the same income to get the same profit.We know that due to the lack of network effects, the larger the consumer, the more difficult it is to get a marginal customer.The larger the company, the higher the cost of obtaining customers, and the further dilution of profits.In other words, low margins have a higher risk of entering a negative feedback loop.Compared to pure software companies, they must scale to larger scales to cover the cost of acquisitions and fixed expenses.But the process of scaling up will increase their customer acquisition costs (and possibly fixed spending).For Peloton, this is definitely a crisis.I might say: Peloton’s hardware profit (basic) can cover its cost of getting paid, which is not bad.But the cost is now well over $1,000 and is still rising. How much is the final cost of the marginal customers who can make them profitable? As for WeWork, the situation is even more serious: the “pre-opening venue costs”, “growth”And new market development costs are put aside, just looking at “sales and marketing expenses,” their customer acquisition costs have jumped from $1,449 in 2017 to $1,762 in 2018.Not only is this a sign of a financial failure, it also shows that software advantages cannot reduce these costs over time..