The Apple and Amazon Comparison
Horace Dediu has a fantastic article about The Anti-Apple (in reference to Amazon). If I might summarize, Horace believes that there are two perceptions that are likely incorrect: First, the perception that Apple is fragile because it must continue to produce ‘hits’ to stay relevant. Secondly, that Amazon has an infinity to become profitable.
The latter assumption is especially interesting. Amazon has razor thin margins, but the stock market treats the company like a fantastic long-term play. The theory is that, while Amazon is buying up market share, it can turn on the profits whenever it wants. That’s really a poor assumption to make (i.e. dumb).
What Horace didn’t mention is one key differential between the two companies: Apple can always increase revenue by sacrificing profit. The margin on iPhones is as high as 50%. If Apple wanted market share, it could slash that down to a slim 10% profit margin and own the market. Apple’s profit margin has been decreasing, suggesting just that.
Meanwhile, Amazon is currently at absolute maximum performance at the moment. They can’t afford to go cheaper, or greater. If their prices are no longer the best, they’re no longer relevant. That, to me, is the key difference. Apple has plenty of growth left if they want to sacrifice profit, meanwhile Amazon’s growth is guaranteed to shrink if they decide to go for profit.