It has long been said that Apple earns more than 90% of all profits in the smartphone hardware business. Apple has also seen the first sales decline for more than a decade. It doesn’t take a marketing genius to see that it will be difficult from now on for Apple to grow this business in the future.
On the other hand, Google and Amazon are continuing to grow their businesses at a healthy rate. What is the difference here?
One perspective is to look at which buckets of spending each companies revenue is coming from. Take a look at the following fantastic chart that I took from The Economist; “How countries spend their money”
Although I do have some issue with the figures in this chart (the spending on communications seems much too small, for example), it does illustrate the point that the whole economy is much more than tech. In fact, tech spending by the average consumer is probably only a bit larger than their cell phone bill.
Apple’s business is confined to tech. They only capture the expenditure that a person is willing to spend on communication and recreation. On the other hand, Google carries ads for everything from housing, transport, food transport, to education. Similarly, Amazon can capture a margin for every product sold through retail stores. Apple’s business in only tech, whereas Google and Amazon earn money from the mundane non-tech daily activities and necessities that have been part of the economy for hundreds of years. This is why Apple’s business currently has a hard limit whereas Google and Amazon are in markets that can enjoy growth for much longer. Consider that Google still have a very small portion of total advertising expenditure, and likewise Amazon has only a very small percentage of total retail.
Therefore, unlike Google and Amazon, Apple has to find new markets to enter if they want to continue to grow rapidly. Strengthening their position in tech profits doesn’t help them much if human beings only tend to spend so much on communications and recreation. They must enter markets like housing, transport, education and health. On the other hand, Google and Amazon do not. They just have to worry about being disrupted.
Another thing to note is that Amazon has much more business potential in physical goods than it has in digital. Digital goods like those that Amazon sell only serve the need for recreation and education. On the other hand, their physical goods serve recreation, health, clothing, furnishing and alcohol. These are collectively much larger buckets than the digital goods. It makes total sense that Amazon is not really interested in making money from digital goods, but is instead using them to attract customers for the physical ones.
Of course for Apple, entering new markets is something that it has done quite well in recent years. Recent activities and rumours suggest that it is going to enter transport and health. Its activities in education also should not be ignored. Personally, I would like to see enter housing since the housing market is often the centre of economic turmoil and Apple might do something good about that.
Naofumi Kagami 