Farhad Manjoo points out that Apple seems to be the counterexample to the disruption mantra that has become foundational to the business weltanschauung of our time: expensive tech with high margins is supposed to be disrupted by lower-cost, lower margin upstarts. That’s Clay Christensen’s disruption theory, which is taken as a given in most circles. (Jill Lepore and others have exploded Christensen’s dogma, but that has had little effect: the model is persuasive, even though overly simplistic.)
Here’s Farhad’s take:
In many fundamental ways, the iPhone breaks the rules of business, especially the rules of the tech business. Those rules have more or less always held that hardware devices keep getting cheaper and less profitable over time. That happens because hardware is easy to commoditize; what seems magical today is widely copied and becomes commonplace tomorrow. It happened in personal computers; it happened in servers; it happened in cameras, music players, and — despite Apple’s best efforts — it may be happening in tablets.
In fact, commoditization has wreaked havoc in the smartphone business — just not for Apple. In the last half-decade, sales of devices running Google’s Android operating system have far surpassed sales of Apple’s devices, and now account for the vast majority of smartphones in use.
For years, observers predicted that Android’s rising market share would in turn lead to lower profits for Apple (profits, not market share, being the point of business). If that had happened, it would have roughly approximated the way the Windows PC industry eclipsed Apple’s Mac business. “Hey, Apple, wake up — it’s happening again,” Henry Blodget, of Business Insider, warned in 2010. And again in 2011, 2012, 2013 and 2014.
None of those predictions came true. While the iPhone’s sales growth slowed in 2013 and 2014, it rebounded to near-record levels later last year, and its profits have remained lofty.
Leaving Blodgett’s endless folly aside, what are we to make of Apple’s denial of gravity: the company’s stranglehold on profits in a world that should want to pay less for what should be a commodity, but somehow continues not to be?