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How Apple Came To Control the Component Market
An anonymous reader writes "Phillip Elmer-Dewitt draws on several sources to argue that 'Apple has become not a monopoly (a single seller), but a monopsony — the one buyer that can control an entire market.' According to Dewitt, Apple uses its $70 billion cash hoard to 'pay for the construction cost (or a significant fraction of it) of [tech factories] in exchange for exclusive rights to the output production of the factory for a set period of time...' This gives Apple 'access to new component technology months or years before its rivals and allows it to release groundbreaking products that are actually impossible to duplicate.'"
It would make sense that a term with somewhat dubious connotations would contain the word "Sony."
allows it to release groundbreaking products that are actually impossible to duplicate
Just because the design of an Apple product is distinctive doesn't mean that the product is automatically groundbreaking.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
That's why Apple's stuff looks so futuristic, they buy it before it exists.
Just because you are wrong and I called you out on it doesn't mean I am a Troll.
... and which are groundbreaking for YEARS to come ...... they do have a ground breaking marketing department and followers who are ground breakingly gullible.
how much other manufacturers are really being stopped from using said components. My inclination from past experience is that most non-Apple companies would choose to use lesser quality components to keep prices down. LCD displays for example, have for the most part been a lot worse on laptops, music players, etc.
Yes, h4rr4r we know you hate Apple. Is your life so devoid of meaning that you have to remind us countless times a day about this? Seriously, you need to go see a psychiatrist to work out this unhealthy obsession you have with Apple and Steve Jobs.
Lots of people are crying anti-trust but the question I have is who did the R&D for the components in question? Did Apple do the development and contract with the fabricator or did the component company have something cool and Apple said "Okay, we'll back you in exchange for the first production runs."? If Apple did the development work, I see no grounds for anti-trust. Even if it's the latter, so what? It's not like other companies can't do the same thing with other fabricators.
...but can someone name one product for me that Apple has made which is "groundbreaking products that are actually impossible to duplicate"?
Sure but only if we include patents in the discussion. If we are just talking tech parts then no, there aren't any that are both groundbreaking and impossible to duplicate.
This is well known, the reason the iPod got so big is because Apple dared to buy in such huge amounts they not only got the output of entire factories, they managed to drive the unit price they payed down so that nobody else could compete. This is why you there is no such thing as a 64GB mp3 player from Cowon and why Archos tends to go to HD, they just can't buy flash at the price that allows them to compete with apple and its 64gb offerings.
BUT Apple ain't got it all their way, they misjudged Amoled and for now it seems they can't just buy their way in. Samsung needs all the displays it can produce for itself. Small players like Cowon can get their displays but if Apple wants to use them, it better make some friends. Why should Samsung help Apple with the iPad3? They got their own tablets to sell.
Is amoled that hot? Well, I compared a nexus S with a iPhone and the nexus can easily be read in broad daylight, the iPhone not so much. As for all angle viewing, I can't always hold the screen steady or at an optimal angle. Enegery usage is claimed to be lower as well (can't verify this myself), they are thinner and lighter and resolutions might be higher for a lower cost.
So, Apple gets flash nobody else can afford at the same price but they don't get it all. It has always been the tradeoff for a company relying on parts from others. You can buy what you want, but will always be depended on others for what you can buy. The cutting edge will always be held ultimately by those who develop in house but at the huge risk that you bet on the wrong horse and end up with something nobody wants. Remember minitiature HD's? Not the ones that were in the first iPod's, even smaller ones, destined for the smartphones of the future... I seen them in some MP3 players but the risk those companies took didn't pay off, the world turned to flash instead.
And for all its market power, where is the real innovation with the iPod? What did it, does it do, nobody else did before them AND does it better?
In many ways the iPod is the wallmart player, it shows the power of bulk purchasing and putting it in a saleable package but little else.
Or maybe I am just defending my order for a Cowon d3.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
This gives Apple 'access to new component technology months or years before its rivals and allows it to release groundbreaking products that are actually impossible to duplicate
B.S. Due to economies of scale, Apples competitors could always produce the components for cheaper than Apple, assuming they know what they're doing, which apparently they do not.
Given equal quality of management, etc, Apple will always get a lower rate of return on their cash that their competitors or a 3rd party would get.
The only reason for Apple to finance their own stuff, is because they have an extremely specific set of requirement for their individual device... Nothing stops Nokia or whoever from doing the same thing.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
This writer needs to join the rest of the world for a little while. Samsung just sold 3 million Galaxy S2 devices in 55 days (without a US launch http://www.engadget.com/2011/07/03/samsungs-galaxy-s-ii-becomes-companys-quickest-selling-phone/">Link ). Get your head out of Steve's ass and have a look around. This type of forward buying might actually limit Apple's abilities and agility.
Its just another: "We build the factory, you operate it" agreement. Things like this exist in Mining, Oil refining, basically all kinds of manufacturing processes where some big company decides they need more resources of a certain type and sees the possibility to use some of their cash to invest in something where they know it will make revenue.
I hope for Apple that they don't exaggerate it to the level that the ties created by this investment will hinder their design. If some competitor produces something better, switching has an added cost.
| Why should Samsung help Apple with the iPad3? They got their own tablets to sell.
Maybe to recoup the losses they accumulate attempting to sell their own tablets?
Case in point
Shortly after its release, iPod became synonymous with mp3 player. Sure, there were other mp3 players out there. However, Joe and Jane Public knew them as iPods or even worse "iPod knockoff." If im not mistake, Blackberry introduced the consumer market to the smartphone with the Curve. However, the market exploded with the release of the iPhone. In today's tablet market the iPad is king. I hate Apple products, because of their dependency on iTunes(ya, there are shitty alternatives) but im simply stating the facts.
Why are these products a staple within their respect markets? Its because they are advertised as such. People might like the fact that they are shiny. The fact that the UI remains consistent across product lines is nice too. The fact remains, if iProduct wasnt marketed so well it would be just another plain box on the retail shelf.
I hate apple and despise them for their lockdowns. Whining about this is just bullshit though. Basically all Apple has done is shown it's not stupid to keep cash on hand.
Other companies are free to continue their blatantly retarded path of buying up shitty companies for far more than they are worth. That's apparently the "proper" use of extra cash.
This is a great example of how a natural monopoly works. Patents were intended to give their owner a monopoly for a limited time to make back the R&D cost. This shows what I have always said. There are natural monopolies that exist when you do new things. First there is a time to see if the product will be successful in the market place and then more time to ramp up production to copy it. The beauty of a natural monopoly is that the time of the monopoly is proportional to the advancement of the idea. If it is something simple it gets copied quickly and easily. If it is radical it make take years. This is far better than our patent system which awards the same term to all patent classifications.
I love Jesus, except for his foreign policy.
It's nothing that their competitors couldn't do. Investing in production to get a discount and/or exclusive supply is simply good business. The notable differences are that Apple seems to be doing it pretty often and that every time Apple tries it it's a home run (aluminum machining process = macbook air, capacitive touchscreen = iphone/ipad, etc.). But just because a competitor can't duplicate a product or component on their own and can't purchase from Apple's supplier doesn't make it anti-competitive. Also, it's not like they're doing this to cripple supply for other competitors. They're not buying all that DRAM in order to sit on it and starve the market. They're shoveling it into products and selling them. ( a notable exception might be LiquidMetal but we haven't seen any products using it yet except for the SIM eject tool in iPhones. LiquidMetal is protected by patents so competition couldn't make it if they could).
These products do get commoditized eventually. Does that happen faster or slower due to Apple's intervention? If it's slower then maybe competition isn't as serious as it should be. If it's faster then what's the problem?
Hate on Apple all you want, but if Dell, HP, or Acer wanted to invest in custom gear for a factory in order to get exclusive output, there's nothing preventing them. I'd be surprised if they haven't already, and it's just flying under the radar. The only reason this is news is because it's Apple.
bah.
>> In many ways the iPod is the wallmart player, it shows the power of bulk purchasing and putting it in a saleable package but little else.
Usability. It's the feature that tech people don't think is a feature.
They have to walk a very fine line where they claim that Apple doesn't actually produce products with any intrinsic value, but instead they trick billions of people into thinking that they do with "marketing". Oh and Apple is evil for locking down their devices eventhough the overwhelming majority of their customers are perfectly happy to have them locked down.
What a sad, pathetic little tribe.
Run along back to your Ruby coding.
Remember back when companies actually owned their own factories, made their own parts, and assembled them? Computer companies too, had all sorts of factories making tons of their own components. That set up exactly the same situation but worse, because to make an equivalent part you would have to build it elsewhere, as no one was going to sell to their competitor.
This outsourcing of all production is a new thing which was brought on by globalization and the availability of cheap labor in places like China and South Korea. So Apple invests in building a factory, and gets a big amount of its output, but in the end it is not Apple's factory, and they can make contracts with others once their deal with Apple expires.
Not that I like Apple doing this, but they have really figured out how to get the best of both worlds. They get the cheap prices of globalization, and the competitive edge of controlling their own production.
Not really exclusive tech, but more like "we can get them and you can't".
Which makes sense. Let's say you make NAND flash, or hard drives. Would you want to sell to Apple who wants to buy several million of them a month, or 100 different customers who want 10,000 each? You can bet Apple with it's order in the tens of millions of parts will get the best pricing and first delivery over smaller customers.
And competitors are complaining because Apple can soak up so much production that they're paying through the nose for parts. The price of NAND flash goes up during the summer and fall seasons as Apple gears up the holiday season and suppliers are simply too busy fulfilling Apple's order to fill in anyone else's.
Apple buys chips in such huge quantities that it's no wonder vendors give them exclusivity and all that. Apple will buy up entire production lines (original iPod - Apple bought Toshiba's entire production for 3 years), and vendors will open up Apple-exclusive production lines just to fulfill Apple's orders.
Ditto everything else - and hell, if you make something cutting edge, Apple will even pay you to make a new factory or R&D or whatever, in return for some exclusivity (which doesn't matter too much since your production will be 100% going to Apple to fulfill their orders anyhow). Apple's done this with NAND flash manufacturers (wasn't it like $6B?) and LCD (Sharp reportedly got a huge investment for a new LCD factory from Apple).
Suppliers will also take margin cuts if it means a big run of continuous business - a year of guaranteed output for Apple versus having to deal with all the smaller customers who come and go like the wind?
As for competitors, the Blackberry Playbook was delayed simply because the touchscreen manufacturer was busy making iPad/iPad2 touchscreens (by the millions) that it really didn't have time to deal with dinky customers wanting just 100,000 or less per production run.
And hell, Apple's now Samsung's #1 customer, ousting out Sony.
Other customers may buy more of a product (e.g., Dell with Intel processors), but Apple tends to buy a very limited range of product so runs are huge. Dell may make 10 times more PCs than Apple, but I'm sure Apple only orders maybe 20 different CPUs at most from Intel, while Dell orders whatever's cheapest at the time (probably Apple leftovers), so for any one processor model, Apple probably outbuys Dell, even though as an aggregate, Dell buys more.
Hell, on the retail side, we see this as Wal-mart, Sam's Club, Costco and others - buy a huge quantitiy, get a discount. They buy so much suppliers give them all sorts of discounts and concessions.
The part I don't get is why, if they paid for the factory to be built, is it such a problem that the factory only builds things for them? And what's stopping other billion-dollar companies from building their own factories?
Apple products aren't magically intuitive. For example, i can't seem to grok my girlfriends ipod. I don't think the wheel is a good way to navigate a linear list, at least not in the way they've presented it. Apple obviously doesn't either, since they haven't emulated this same interface into the iphone/ipad.
So just because you've learned to use apple products doesn't make then intuitive, it just means that you've learned their paradigms, and therefore perceive them as more intuitive.
Those unaware of history are doomed to make stupid statements...
I remember when some did. Contrary to popular belief, it's never been universal.
Nor is outsourcing as new as you think. Across the 20th century and right down to today production in the US was 'outsourced' to places like the West and the South because land and labor there was cheaper than in the East (especially the Northeast). (That's one of the reasons there are so many abandoned textile and lumber mills from the late 19th and early 20th centuries scattered across the Northeast.) Another key that most people miss is cheap bulk transportation - railroads through the 20th century to now, and container ships from the late 20th century. (Arguably, without containers, the whole 'globalization' things falls apart due to the high labor costs of handling individual boxes multiple times as they switch transportation modes.)
Sears & Roebuck was doing the same thing with production 'outsourced' to the (American) Midwest and the South as early as the 1920's.
There really is nothing new under the sun.
This is kinda like arguing with a creationist.
There is literally no evidence one could present to you that would convince you that people buy Apple products because they are good products and not because they say Apple on them. Essentially you are making claims which are not falsifiable--which is pretty much the definition of a religon. Have fun with your religon.
The article talks about innovation in components and manufacturing processes, not commodity devices. When Foxconn builds factory A and Apple has negotiated an exclusive contract for a component which is so expensive to manufacture that the competition cannot or will not produce it equally or cost-effectively, then that makes Apple the single buyer of that component.
Apple has taken the initiative may times to buy out the full output capacity of these factories, and at times, actually paying for the construction of such facilities in exchange for more exclusive access to their output.
If they do this with a brand new manufacturing process, while it is still being developed, then it is quite literally inaccessible to the rest of the world.
Notice that the article doesn't claim that Apple invented every single component in the iPhone, nor that all their devices are made completely, head to toes, from magical pixie dust or Spacely Sprockets from the future. It claims that Apple invests huge amounts of capital in acquiring exclusive deals to produce new technology components, or new manufacturing processes to produce existing ones. This does not preclude licensing inventions from others.
Like others have said, nobody stops any competitors from doing the same, but they haven't so far, for it is an immense gamble. Apple also could fail and buy out the full capacity of some widget that ends up in a landfill somewhere, but that hasn't happen so far either.
-dZ.
Carol vs. Ghost
I never said it was good, did I?
You're arguing that it's normative, preferable to the other available outcomes (the duck's ass outcome in particular), and that Wintel succeded becasue of a position that manifests a moral value, openness. The word did not excape your lips but your argument is a functional value judgement.
Anyway, it was not a wintel hegemony that clobbered apple in the 80's
This is where I'm supposed to sit and let you pretend that people actually were successful selling x86 ISA computers that didn't run MS-DOS and Windows -- the hardware platform was open (GOOD) but none of that openness filtered down to the application developers or end users (BAD). MS leveraged an open platform to sell a closed one, and the combination was the thing people bought, because that was how the market worked. Granted it wasn't in their long-term interest to buy the same OS everyone else did, but adverse selection is a tough mistress, and just because someone could sell other OS's, and other people could buy them and use them, this doesn't dispose of the fact that no one did, and all that openness really didn't benefit anyone but the largest market participants.
And there's really no evidence Android will turn out any different, with an open OS, built to the carrier's orders, selling closed services on locked phones; all the while the fanboys reminding us that people can run cyanogenmod, while at no time realizing that no one does and thus no one enjoys the benefits.
"Openness" is a statement of potential, nothing more. It says almost nothing about what actually is available in the market, or what an end user can do.
Don't blame me, I voted for Baltar.
STOP WITH THE ONE BUTTON MOUSE ARGUMENT ALREADY!!! The last 1 button mouse was produced in 2000 or 2001...you know, TEN YEARS ago. And even then, multi-button mice where supported al the way back to OS 7.6(?)