Saturday, September 08, 2007

The Economy of the iPhone, or How Apple is Going to Take Over the World Part II

I left you with the notion that basic economic principals do not apply to Apple.

Hmm. The first thought is, of course, that Steve's Reality Distortion Field has affected me.

No. Not at All.

Let's have a bit of a history lesson. It's good for the soul. Or something.

The iPhone is a long-awaited dream of Steve's that's taken years to bear fruit. Why?

Well, why not indulge in a bunch of fanciful speculation? At least my speculation is better than

Or whatever passes for a tech blog/news site/rumor mill/ these days.

Steve got his start with the infamous cracking of Ma Bell's phone network. He has, for his entire life, bucked the system that says, "Go forth and multiply Corporate Domination." Steve never wanted a part of that. When he had his own companies, he didn't want that. When he saw kids his age doing that kind of thing, he didn't like that. Steve is, among other things, anti-corporate.

It's practically inarguable that he saw the potential in the music player market of the late 90s/early 00s. Now, he owns it. Fast-forward to today. Steve identified another ripe market just waiting for his solution. His goal is to own it.

But how do you truly own a market? Ma Bell thought it owned a market . . . every time a company thinks it owns a market, someone complains about monopoly.

What happens? The government takes privately-owned property and forces the owner to "compete on equal terms" with the competition. The companies that laid down that cable networks we all use had their cables removed from them. They were forced to rent their own wire from themselves and pay fees for infrastructure they built. Because that's fair. Or something.

Of course, a company that that gains a huge market share and then rapes consumers is no better than the government solution. It's probably worse. Which is why we let the government "fix" the problems that we consumer-sheep create for ourselves.

What does this have to do with the iPod or the iPhone? It has a lot to do with them. Steve has a chip on his shoulder. He is on a mission to prove that market dominance is not the same as monopoly. How? Why? Because dominance is accomplished by merit; monopoly is not. One is a good that is so good that everyone buys it by choice, the other is a bad that is so bad that people only buy it because they have no other choice.

Steve hates monopolies, but he loves dominance. And, for the reason above, this is not the paradox it seems to be. Steve is on a mission to destroy monopolies by beating all of them at their own shitty games. And in the process, he is doing it without hurting consumers. He is using Apple's market dominance to lean on companies that were, until recently, impossible to bargain with. Apple is negotiating with all the major players in content, and Apple is winning.

But Steve is responsible for the company. So when Apple launched the iPhone after years of costly R&D, Apple knew that it could command a hefty pricetag. Apple knew that the early adopters with money to burn would subsidize the cost of development. When sales numbers hit X, the price was dropped to a price point that fell in line with normal iPod offerings. Apple did what no other tech company I know of has ever done: they got consumers to pay for the total cost of a product in less than 3 months.

Apple is doing what it has done before, and what few companies have ever done: turn a profit while pwning the market.

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