Tim Cook and Apple's $100 billion problem

Reduce the product mark-up?

Perhaps Apple could put the money to use by reducing the profit per item they sell to bring better value to their customers?

By skarlock on 26 Jan 2012

This is one time I do hope apple tell the market Computer says no!

By JamesD29 on 26 Jan 2012

skarlock, the markup is what makes Apple products unique. Without that, you might as well buy from Samsung or HTC.

By Lacrobat on 26 Jan 2012

Give it to Bill

Perhaps Apple could do something to make up for the total lack of philanthropic activities under Jobs and give a good portion to BillG to do some good in the world, thereby creating a new generation of potential Apple customers.

By 959ARN on 26 Jan 2012

They could always change it to doubloons and bury it under a tall tree on a tropical island.

Or change the name to Smaug Corp. and store it in a mountain.

By Josefov on 26 Jan 2012

@lacrobat

In what way does a markup make a product itself unique? All it means is that they take more money per unit out of the pockets of their customers

By KevPartner on 26 Jan 2012

@KevPartner

I suppose it's the same logic that leads people to pay well over the odds for a TAG watch that performs no better than a Seiko.

By 959ARN on 26 Jan 2012

@KevPartner

Lacrobat was being ironic (or at least I sincerely hope that was the case). :)

By jontym123 on 26 Jan 2012

@KevPartner

It makes it more desirable because there are always idiots around who will buy needlessly expensive items because they are known to be more expensive and are thus a way of showing off.

The Samsung Galaxy II is generally regarded as a better phone but it is not a better status symbol because dimwits prefer to wave around a phone that is more widely known to be expensive.

By qpw3141 on 26 Jan 2012

@959ARN

Good sentiments.

Ask anyone who would win a huge amount of money on a lottery and they'd always say they'd give some to charity.

$100Bn could do a lot of good. However, the way it was got, low paid workers in terrible conditions, fed by the hunger of the masses to desire the latest gadget, did a lot of bad.

Now the investors, starved of any other markets to play in given the current climate, are grasping for some play money to do more work - none of it good.

Obscene. At least Carnegie saw the light.

By CraigieDD on 26 Jan 2012

Reading the Jobs biography (someone gave it to me for Christmas) I think I now understand the pricing philosophy.

In his first stint at Apple, Jobs' perfectionism forced the product pricing way over the odds. This limited market penetration, but also created "the cult of the Mac" - once you convince people to pay high prices they become maniacally anxious to justify their purchase both to themselves and to others. So they become both fanatically loyal customers and an unpaid sales-force.

When Jobs returned to Apple, they had off-shored and outsourced their manufacturing, vastly reducing costs. With Jobs back they could revive the cult, maintaining high retail prices and so generate a huge profit margin.

For Jobs, it was about the cult not the profits, but I am sure his successors will quickly manage to milk his magic cash-cow to death! Already they seem to have slowed the pace of product development which likely explains the short-term and unsustainable kick in profits.

By JohnAHind on 26 Jan 2012

The ethical issues and price point stuff has nothing to do with it.

The board's job is to increas value for shareholders.
All listed companies should either invest the profit money in a project or return it to shareholders. The project could be an aquistaion but only of they can add value.

The reason for this is that shareholders can diversify there investment easier than a company. For example Apple could buy Yahoo, but it should only do this if it believs changing the name to Apple iSearch would increse its value otherwise it should return the profits to shareholders who could just buy Yahoo stock if they want. Or leave it in their own bank. Of cousre paying £100Bn in dividends would knovk about the same off their Market Cap, which may lose them the top spot (not that it should matter).

By PhilGQ on 26 Jan 2012

@qpw3141

Perhaps some people buy Apple products because they (and this will come as a shock to some people) prefer them over the competition? The Samsung Galaxy II maybe a decent smartphone but if you prefer an iPhone (i've had one for 18 months and it the first phone that i've had no problems with - and i've had a few!) then thats your choice. Just because someone has a piece of Apple kit it doesn't make them a dimwit or after a status symbol.

By russell_g on 26 Jan 2012

@russell_g

Try telling that to some commenters (Especially one very vocal one). I think Apple products sell in sufficiently large numbers at higher prices that other factors for their popularity must come into play (build quality, user experience). However some people put their fingers in their ears, and trot out the same old Apple clichés.

After all, if Apple products were rubbish, would they really sell in such large numbers, in spite of Apple's image? Wouldn't world of mouth, and reviews find them out.

By pbryanw on 26 Jan 2012

It's down to personal choice

Some people choose ease of use, some people prefer anything connected in any way with the Arts. Others prefer what they are used to and never check the specs nor do they do any research. Some choose what they use at work so as not be be confused anymore than they already are.

Apple's cash pile grew so fast last quarter because of the success of the Siri equipped iPhone 4S, driven by TV ads that talk not about how many megapixels the camera has (most consumers still don't know what that means) but about the verbal instruction and interpretation - and there's a lot of humour included in the responses Siri gives. Imagine, a phone with a sense of humour! People LIKE that.

In fact, they liked it so much they talk to each other about it. It is the only phone that can understand and interpret voice interface input, rather than just recognise a list of commands that may not be very well understood.

When a load of people you didn't expect buy your phone, of course your profits go up - just look at any chart of Fixed Costs, Variable Costs and Gross Profits - and you'll see how quickly cash can pile up in a good quarter. But one swallow doth not a summer make. You can't rely on the money pouring in every quarter.

By SwissMac on 26 Jan 2012

Over $5 BILLION profit a month, not too shabby...
Oh what to do...

By Wilbert3 on 26 Jan 2012

@SwissMac
So by that logic, simply writing an Android App that interprets voice commands, and creates linked responses, would make all the Android phones as good as an iPhone! Brilliant!
I don't know how I've managed for the last 20 years with those silly "commands"! I'm sure behind Siri, its just another set of boring old "icons" too...
:)

By Wilbert3 on 26 Jan 2012

@russell_g

"Just because someone has a piece of Apple kit it doesn't make them a dimwit or after a status symbol."

Really? I've always worked on that assumption - and have rarely been proved wrong.

Now, with Apple's rabidly infectious "walled garden" (c.f. Tom Arah's articles here - and btw thanks for the support of open standards, Microsoft) plus its increasingly hysterical attempts to leverage a massive cash-pile into courtroom weapons of mass destruction against any and all competition, Apple has simply lost any other redeeming grace, however enticing the design or build quality.

If you're at all aware enough to see that the route Jobs has taken Apple looks increasingly like destroying freedom of choice, for all of us, both consumers and developers, then you wouldn't, on principle, buy any Apple product. Unless, that is, you didn't have sufficient confidence in yourself to be able to stand up for those principles.

Which, logically, leads me to the conclusion that those who buy a piece of Apple kit are either "... a dimwit or after a status symbol".

N'est-ce pas?

By mikelaye on 26 Jan 2012

@mikelaye

Does someone need to take their 'calm down" pill ;-)?

By hickeypa1 on 26 Jan 2012

Product differentiation is a complex issue, add to that mix that some people just don't value design: form and function are so important to a product you interact with. There is no question than many Apple products are beautifully crafted and designed, attention to detail which many other manufacturers can't match. From personal examples: I have what is considered to be one of the best PC cases (new Fractal Design) housing a new PC, and compared with a ten year old Mac G4 tower, for design and access purposes, it's still an extremely poor contender. The quality of my high end 24" Dell display, just doesn't match that of my Apple iMac. Apple put a premium on their products and some people are happy to pay. I own some Apple products but I own a lot more PC based products, I use and choose products which fit the task and requirements at the time, but quality and longevity are also important considerations. Product differentiation is the same across the retail world - would you call someone who buys a Merc/BMW/Lexus a dimwit over someone who buys a Ford/Vauxhall/Citroen; someone who buys a bespoke suit one over someone who buys from M+S; examples ad nauseam? Many premium products have design and functionality that cheaper products don't, but others perhaps don't. You pays your money, you takes your choice. But sweeping generalisations about a purchasers being "dimwits" and purchasing "status symbols" shows a serious lack of education IMO. Companies are out to make a profit, they aren't charities, so if they charge a premium price for a premium product it's hard to knock that logic for their shareholders.

By isofa on 26 Jan 2012

@hickeypa1, @isofa

Quite calm, thanks. Just pointing out that it is knowledgeable people (like PC Pro readers), who understand the issues involved, who need to start a movement against the Apple/Jobs type lock-ins.

Otherwise - as is now happening with Win 8, it seems - other companies will have to follow their fiduciary duties to their shareholders and follow suit. The open web, open app, open OS will all be history.

And, yes, Apple kit is a cut above many others (though not all), but that's not a reason to tolerate bad corporate behaviour, in my opinion.

By mikelaye on 26 Jan 2012

@mikelaye

I think its safe to say that the only dimwit here is you. How old are you? 15?

"If you're at all aware enough to see that the route Jobs has taken Apple looks increasingly like destroying freedom of choice, for all of us, both consumers and developers, then you wouldn't, on principle, buy any Apple product"

I'm not being funny, but this is the single most piece of rubbish I have seen in a long time. Apple is a consumer company that is focused on making the best products it can, providing the best experience to its customers- and through that making money for their shareholders. Normal people don't get home and think- oooh- I need to go and defrag my drive (maybe IT pro's do) - and they certainly don't pick up their mobile phone and say ah- I need to remember to update my antivirus. Buying an Apple product is a choice, a choice between a more closed platform which is easier to use and intuitive or an open platform with lots of different players, a tonne of confusion, and no clear method to get help when you need support.

As a developer, the App Store has been a raging success, meaning that any old schmuck who can learn a coding language and has creative focus to make something that is popular can make a huge amount of money and not have to worry as much about OS fragmentation and clear purchase processes. And you don't have to create a game- look at Malcolm Barclay who made Tube Deluxe- thats his full time job!

I don't expect you to understand- this is PC Pro after all- and maybe you take pleasure after a long day at work sitting at your computer, sipping coffee and watching your disk defragment- or having to deal with driver issues. For me, I like to get home, cook dinner and chat to my wife. Its called having a life. And I can do that knowing the majority of tech that I have around me really just works- and I don't have to sit there and worry about the silly things. All of this stuff that we use are just tools- they shouldn't take over our lives and thats why having an Apple product is such a joyful experience.

By willdamien on 26 Jan 2012

Sweeping generalisations aside...

lI have yet to meet an iPhone owner with either a balanced or informed opinion. I have no doubt there are some for whom the iPhone is genuinely the better choice (Apple lock-in notwithstanding), but I would be amazed if the majority did not regard it as a status symbol and allow that to determine their purchase decision. Whether that is sufficient to describe them as dimwits I will let you decide.

By dubiou on 26 Jan 2012

iPhones and teens

Thing is iPhones have now lost their popularity among the younger generation due to their Dad's often owning one. This has according to the kids in my girls school made them uncool, afterall who wants the same phone as old people use?

By skarlock on 27 Jan 2012

@willdamien

"Does someone need to take their 'calm down" pill ;-)?"

:)

You're right, we PC Professionals don't understand. With all your blabbering about having a life, expecting stuff to "just work" (the bane of anyone who's ever had to try to teach our iphone-equipped, and as a result utterly lacking in technical curiosity, yoof anything) and the joyful experience of owning an iphone, I thought I should just mention that the Cosmo site is thatta way.

By TheHonestTruth on 27 Jan 2012

The Last Word (or The Bottom Line)

Quote PC Pro: "Apple now has around $104 in cash per share, but its runaway success presents Cook with his first real public test as chief executive officer - figuring out what to do with the money."

Quote BBC News: "The Bill and Melinda Gates Foundation has committed a further $750m (£479m) to a global fund to combat AIDS, tuberculosis and malaria."

"These are tough economic times, but that is no excuse for cutting aid to the world's poorest," said Microsoft founder Bill Gates at the World Economic Forum (WEF).

and:

"On Wednesday, Mr Gates said that "the world is better off" because of capitalism."

"We're going through a tough period, but there is no other system that has improved humanity," the Microsoft founder told the BBC.

"The Bill and Melinda Gates Foundation has given $26bn to fund health, development and education projects."

"1984" indeed - Microsoft, Hate! Hate!

Now I'm off for a wonderful evening defragmenting my drivers.

By mikelaye on 27 Jan 2012