There’s no question that Apple makes an unbelievable amount of money.
In fact, last quarter, they exceeded one hundred billion dollars in revenue for the first time.
But what’s even more impressive, is their huge mountain of cash.
Almost 200 billion, more than any other company in the world.
This is a complete 180 from where they were two decades ago.
When Apple had just escaped bankruptcy.
So how were they able to make so much money, so quickly, to become the most valuable company
in the world?
Well, that’s exactly what I’m going to explain in this video.
This is Greg with Apple Explained, and this topic came in first place in the last voting
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Alright now one of the biggest reasons Apple is doing so well today, is due to their business
strategy, which was way ahead of its time.
Back in the 80s, computer companies like Microsoft made money licensing their operating system.
But Jobs refused.
Instead hedging his bets on hardware sales.
Believing that you can only create a great product if you retain control over the hardware
and software.
And you can only charge a premium for hardware if it’s objectively better than the competition.
The problem with this strategy in the 80s and 90s, was that most customers didn’t
see the difference between Macs and PCs.
At least not enough to justify the Mac’s higher price.
This resulted in Apple controlling only a small share of the computer market.
But their focus on hardware and software integration and optimization would become much more valuable
to customers as the industry shifted toward mobile devices.
Apple first caught a glimpse of this with MP3 players.
There were many cheap models on the market, but their iPod became a runaway success.
Eventually capturing almost eighty percent of the music player market.
And that’s because optimization is crucial when it comes to battery life, portability,
and ease of use.
Something Apple already had experience with, but other companies like Sony and Microsoft
didn’t.
The iPod’s click wheel navigation made browsing music effortless.
Its software interface was intuitive and easy to understand.
And adding music was simple, since almost everyone was familiar with iTunes.
Not to mention the iTunes Music Store, which worked seamlessly with the iPod.
Apple designed their hardware to operate flawlessly with their software which operated flawlessly
with their services.
And users began to notice the tangible benefits of that seamless integration with the iPod.
Which is why they didn’t mind paying a premium for the device, even though there were alternatives
for half the price.
The iPod’s high profit margin and high sales volume contributed to Apple’s monumental
growth rate from 2001 to 2007, where the company grew 25 to 100 percent nearly every year.
This was the beginning of Apple’s most profitable era, and they were in the unique position
to do something no other tech company could; that is, creating an ecosystem where every
product becomes a wild success.
This was crucial to Apple’s explosive growth.
They couldn’t simply release new products that sold sort’ve well, like the Macintosh
in its early days.
They needed each device to perform like the iPod, dominating their respective markets
with high profit margins to deliver record-breaking revenue.
And that’s exactly what happened.
Apple moved quickly, releasing the iPhone in 2007, their most profitable product ever.
It was a hit right away, and immediately spiked Apple’s annual revenue.
But the iPad, released just three years later, took things to a whole new level.
Everyone expected Apple’s tablet to cost at least one thousand dollars.
So when Steve Jobs announced it’s starting price of five hundred dollars, the hype surrounding
the product grew even more than with the iPhone.
Once it went on sale, the iPad became the fastest-selling consumer electronic in history.
By 2011, Apple’s annual revenue had grown to over one hundred billion dollars.
Making them the most valuable company in the world.
This came just two weeks before Jobs would retire as CEO from Apple.
Now if you’re wondering what a day in the life of Steve Jobs was really like, I’ll
be making a video about that soon so be sure you’re subscribed for that.
But one downside of creating products that sell so well, is that achieving market saturation
becomes inevitable.
Which means it’s pretty much impossible to find new customers, and you can only make
money from existing customers upgrading the devices they already own.
Apple tried to remedy this by focusing on emerging markets like China and India, where
their products aren’t popular.
But because of the price sensitivity of those countries, sales of Apple products didn’t
increase the way they’d hoped, and a new strategy was needed to boost revenue.
So Apple took two approaches: first, was the decision to increase prices of almost every
product in their lineup.
This, for the most part, took place in 2018.
When the iPhone and iPad’s base price increased by fifty dollars, the Apple Watch by seventy
dollars, the Mac mini by three hundred, and the MacBook Air by two hundred.
These price bumps were pure profit for Apple, since the manufacturing cost of these products
largely remained the same.
Second, was to focus on growing their services business, which allowed Apple to capitalize
on their existing user base with recurring monthly payments.
That’s what led to the creation of Apple TV Plus, Apple Arcade, Apple News Plus, and
Apple Fitness Plus.
These services were also very profitable, since their costs were fixed, no matter how
many people signed up.
So how effective were these strategies in generating revenue for Apple?
Well, after all of the prices increases of 2018, Apple had their most successful year
since 2015, totaling 265 billion in revenue.
But what happened next was even more impressive.
Through the next two years, Apple began rolling out various subscription services to their
existing users.
Apple News plus launched in March 2019, the Apple Card in August 2019, Apple Arcade in
September 2019, and Apple Fitness Plus in December 2020.
This flurry of new services fueled even more revenue growth for the company.
Setting a new annual record in 2020, at over 274 billion dollars.
But perhaps the most notable thing about how Apple makes so much money, is that virtually
none of it is from selling user data to advertisers.
Although they do employ some targeted ads on their News app and App Store, it’s on
an extremely a small scale and collects much less data than companies like Facebook or
Google.
And I think Apple deserves some credit for this.
User data has become more valuable than oil, and Apple could begin fracking their user
base at any time to generate tens of billions in extra revenue.
But since the beginning, they’ve refused to do this.
Acknowledging that they’re in the unique position to charge more for their products
by providing a superior experience and treating their users with dignity by handling their
private data responsibly.
And so far that approach has proven to be the most profitable, since Apple remains the
most valuable tech company in the world, with the ability to sell a high volume of high
margin products.
Alright so that is how Apple makes so much money, don’t forget to subscribe to catch
an upcoming video about a day in the life of Steve Jobs.
And I’ll see you next time.