The Economics of Apple

Written by Priyanshu Rastogi

Apple does a lot of things which are often bizarre, perplexing, and sometimes even seem outright absurd. Here we find out why they do what they do.

If I had to describe Apple (the company that is) I would probably use the word ‘smug’. If Apple were a person it would probably be one of those complacent, mean, rich, but smart and talented people which I’m pretty sure we all have encountered at least once in our lives. You know one of those people who think too highly of themselves, make questionable decisions, and still somehow manage to stay at the top of the game? Yeah…those kinds of people. No matter how much we try to deny it Apple is making money, and huge sums of it, even though they have made quite a few questionable and perplexing decisions over the years. Decisions include always pricing their phones at above industry standards, selling $1000 trolley wheels, and getting rid of smartphone ports which were essentially used by the majority of people that…well, use smartphones. But why? Why does Apple keep doing these things? Why is Apple the way it is?

“The rich kid in the block”

The one question that people are unable to get a proper answer to when it comes to Apple is, “Why is it so expensive?” Is it because they want to make more money? Is it because they manufacture their products on Mars? The answer to the latter would be NO (unless China is located on Mars), while on the other hand, the answer to the former is…complicated.

You see, at the end of the day Apple is a company, and companies are meant to make money, but says the only reason they price their products so expensive is that they want to make more money would also be incorrect due of the following two things –

a) That’s not how businesses work. If that were the case, any company would start pricing their products at $1000 and swim in the pool of endless cash.

b) Apple makes its own software. And this aspect of Apple products which is often overlooked is one of the primary reasons why their prices are so high. All the operating systems found in various Apple products, be it iOS, macOS, watchOS, iPadOS, etc, are made in houses, by Apple engineers working from scratch to integrate new features in the system. Unlike Samsung, Oneplus, or other android manufacturers that can just put a skin on stock android which they licensed from Google, making the operating system in-house, takes a lot of effort. The amount of money and time invested in the research and development is far more than putting a launcher on top of an already existing OS. On top of this, services like iCloud, iMessage, Appstore are also made and run by Apple itself. This, the cost of running the servers for these services adds to the cost of all the Apple products.

“Complacency at its best”

Just to be clear, I am talking about the $1000 Pro Display XDR stand, and the Mac Pro trolley wheels also priced at $1000. When you look at it from the perspective of a consumer these seem tremendously, and I mean TREMENDOUSLY useless and overpriced, but what we have to do is look at it from the perspective of Apple, as a company, and not just any company, a luxury technology company. Apple is not naïve, selling ridiculously overpriced accessories; they don’t hope to make a profit from these sales, that’s not what the purpose of these accessories is. There are actually two reasons for selling these products –

a) To establish themselves as a luxury brand, and

b) To make the headlines for free PR

Apple really wants us to think of them as a luxury brand, a brand that can sell bricks for the price of gold plates, or as in our case, wheels for the price of a laptop. This enables them to create a sort of impression in our minds that their products are superior to any other brand in the market, this is the power of that ‘luxury brand’ tag.

The second reason as I stated was PR. Now think about this, how many news websites, blogs, newspapers, magazines, published a story regarding the $1000 XDR stand? If you keep up with tech news, you’d know, quiet literally every news media source published about it. What this did was essentially give free publicity to Apple, and yes it was negative PR, but then again “Any press is good press”.They may not have made profits of those products but gains outweigh the losses, so it’s a win for Apple nevertheless.

“Maybe not as mean as we think”

The removal of the headphone jack from the iPhone 7 back in 2016 was met with a lot of criticism, customers and critics alike were absolutely flummoxed. Why did Apple remove that nifty port on their phones, which is used by almost every person who knows how to use a phone? At that time we thought it was because they wanted to increase the sales of their newly released wireless earbuds- Airpods…and that was true, partially.

Apple is a company with high ideals, they are the ones that set the trend for the market; they take it upon themselves to revolutionize the industry, to constantly nudge the industry towards the future. If they hadn’t removed that headphone jack, the wireless earbuds industry wouldn’t be on the rise like it is today, not to mention their goal for a port less iPhone wouldn’t have been as close as it is today.

This was one of the many bizarre choices Apple made in the past, but in a similar fashion, every decision has had a reason, be it to push the industry forward or to fulfill their objectives.

“Smart. Moves.”

Out of the big four of Silicon Valley ( i.e. Google, Apple, Facebook, and Amazon), Apple has been the only one pushing the privacy agenda since the inception. They have been extremely vocal about it and have built their entire marketing campaigns around it. It was their third consecutive year in 2019, in which they highlighted privacy as one of the most important features of the iPhone. You can find several Apple ads highlighting the security features your iPhone has or how Apple handles your data, or how customer privacy has always been high on their priority list, and whatnot. On the other hand, we have Google, Amazon, and Facebook, who I’d agree have been vocal about it, but nowhere near as much as Apple and there’s a reason for it. The other three companies are heavily data-oriented companies; they absolutely need user data to improve their products, serve ads among other things. Google and Facebook are advertisement companies. Their main source of income is an advertisement, and the more they know about you, the better the ads they’ll be able to serve and the more money they’ll make. Amazon uses user data for similar purposes. The data that is collected is used to improve its services like Alexa, suggest items to the user on their Amazon page, set prices for items to maximize sales, etc.

Apple does need to collect data because it is a hardware company at heart, but for the areas where they do need data, they employ a different technique. Almost every year Apple makes at least one machine learning or artificial intelligence-related acquisition, in 2017 it was Lattice Data ( an AI company), in 2018 it was Laserlike (a company specializing in machine learning), and Skill Labs (another AI company). These companies are bought and then their technologies are implemented into devices like Siri, Apple Maps, etc. This way Apple can easily use the data they bought along with the company to improve upon their products, and because these companies are so small they fly under people’s radar, all the while Apple gets to brag about how privacy-oriented they are, and makes them stand out among the big four.

Apple is as sophisticated a company as its technology itself, and what all I mentioned above was just a snippet of the ‘Daedalian’(definitely did not pull that word from Google) policies of it. Every move by them, good or bad has some level of depth and thought given to it. After all, you don’t become a trillion-dollar company by sheer fluke.