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In 3 years, Apple has siphoned most of Nokia Profits...

Fascinating analysis on how Apple - in 3 short years - has transformed the entire smartphone landscape and sucked all the profits away from the former incumbents. It serves to illustrate how marketshare can be extremely deceiving, as it does not necessarily equate to profit and therefore a company's overall viability - hence the rapid strangulation of some of the previous incumbents. What is striking, is the speed and scale of the "wealth transfer". Its almost unbelievable.

http://www.asymco.com/2010/08/17/and...iggest-losers/

Quote:

Looking at the pure smartphone vendors RIM and Apple, the picture is nothing short of astonishing. This before-and-after share-of-available-profit chart shows that the two entrants went from about 7% profit share to 65% in three years.

Apple in particular is capturing about half of the available profits with three percent of the units. It dwarfs all the other vendors, more than double the nearest (Nokia). All that in three years and with the added burdens of only three models, a recession and limited distribution.

WHAT DOES IT ALL MEAN?

Here are my conclusions, enumerated:

1. The lack of a real response. The recurring theme in this series of articles has been that giant multinational incumbents in a vast and rapidly growing industry, enjoying all the advantages that size and incumbency, have had their profits taken from them. And they don’t seem to have put up much of a fight.

2. It’s all wealth transfer. Note the total amount of profit available has not increased markedly; this is not about incumbents growing the pie. Two thirds of what should have rightly been theirs moved from the incumbent shareholders to the entrant shareholders.

3. Speed. This shift of profit occurred over an unprecedentedly short period of time. Three years is no more than two product cycles in the industry and it’s an order of magnitude faster than what happened historically to other industries.

4. Disruption is the diagnosis here. The incumbents were caught in the headlights. Disruptive innovation leads to asymmetric competition and this is what we just witnessed. History has shown that the shift of profits is usually the last stage of disruption and is usually irreversible because ;the change in business models cannot happen at the rate of change of profit transfer.

Quote:

There is a secret to Apple’s profit capture. What allows them to get the outrageous margin is that they dip (indirectly) into the service revenues of the carriers. What I really need to do is expose how Apple is using a hardware product to receive service revenues from mobile broadband carriage fees. To get away with this scheme, you need a product that compels people to move to higher ARPU and do so enthusiastically. There are a few pivotal moments in history when customers move to higher price points (think cable vs. broadcast TV and broadband vs. dial-up). Apple is able to essentially carve a piece of the service pie out.

So the question on where the essential value is gives a clue to how the whole “device” EBIT pie will grow. Imagine a transfer of wealth from operators to (a) device vendor. Then you start to see the bigger picture.

http://lh3.ggpht.com/_S_QOl2ziOgk/TG...vk70/photo.JPG