Slashdot Mirror
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.'"
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.
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.
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.
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
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.
>> 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.
Much as I think the current patent system is screwed, if we didn't have anything, all that would happen is the little guy would get walked over. Not many inventors creating products in their shed could afford to bankroll factories to produce the goods ahead of the competitors, and the second they showed it to a big company with a view to investment without some kind of protection, they'd have their idea stolen. In my view each additional patent you secure should increase the cost to secure more exponentially. That would allow the little guy to secure a handful of patents while effectively preventing global corporations from patenting hundreds or thousands of ideas (they'd have to cherry pick what was worth protecting and what could go to the open market).
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.