Apple’s apparent anti-consumer closed ecosystem is in fact its most consumer-centric strategy that has made it the largest smartphone company in the world.
The smartphone industry has been growing but at a steadily declining rate. Some companies have had to offer large discounts just to encourage sales and keep their numbers up. The only company that has seemingly not been phased is Apple. Its market share is actually rising despite never offering discounts and having a lineup of iPhones all on the expensive end. Apple has done this by playing the long game, all aligned to put Apple in the strongest position in the smartphone market.
Growing Consumer Base
On average every year fifteen million people move up to the high-income category and naturally consume more expensive products with the additional disposable income. This works in Apple’s favour which only makes expensive products. The expensive lineup has helped Apple establish itself as an aspirational brand. While other smartphone companies offer phones as cheap as USD 50, the entry-level iPhone is USD 400 with the iPhone SE.
Apple has intentionally targeted the high-end consumer segment because, after years of existing in the market as a phone brand beyond the reach of the average consumer, it has established itself as an aspirational brand that consumers feel more proud to own, compared to Android devices.
This aspiration is not as visible in countries that already have a high income, but for those that are rapidly developing, or recently heavily industrialised, iPhones are seen as a status symbol. India, Indonesia and Vietnam are Apple’s strongest growth areas and as more people graduate to higher income brackets in these countries, the more Apple is able to secure a position as the brand of choice.
Network Effect
The network effect refers to the concept that the value of a product or service increases as the number of its consumers increases. Apple has been engineering its products around this philosophy since the launch of the first iPhone. The iMessage was made exclusively for iPhones and lets users send unlimited messages for free, but only to other iPhone users. AirDrop, a convenient file transfer method works only if both users have iPhones. Apple Notes allows for collaboration, but only if other users are also iPhone users. Recently, Apple made Facetime accessible to Android devices as well but intentionally made it browser-only for them.
By making all its services exclusive to iPhones, and only teasing a few standard features to Android devices, Apple has made it clear to consumers that the Apple network effect is strong, will get stronger, and people will eventually migrate to the Apple network in order to enjoy all its features.
The network effect refers to the concept that the value of a product or service increases as the number of its consumers increases. Apple has been engineering its products around this philosophy since the launch of the first iPhone.
Apple Ecosystem
Apple’s transparent marketing message that it wants consumers to slowly get into its ecosystems was once ridiculed by tech enthusiasts. Over time, the commentary has taken a U-turn, and tech enthusiasts now accuse brands of trying to follow in Apple’s footsteps of building their own ecosystem, but lacking the vision to be as good.
The Apple ecosystem is robust and seamless, and offers increasing value to consumers the larger it grows. AirTags update their location whenever there is an iPhone near them, so the more Apple devices are in an area, the more precise its location-finding capability is. HomePods can pick up anything that is playing on an iPhone and immediately start playing from the speaker, at exact timestamps.
At a certain point, iPhones became so good that consumers had no need to upgrade to the latest version. To compensate for that, Apple regularly introduces new accessories to add to the ecosystem, locking in consumers in their closed system, but offering them a level of convenience other smartphone companies lack the budget to develop. AirPods, AirTags, HomePods, and even Apple Pay, all work best with iPhones. Consumers understand that in exchange for the premium price tag, they can maximise utility if they have an iPhone, its accessories, and all other major Apple products, and the experience will only get better as the lineup of Apple products gets bigger.
Incremental Upgrades
Around 2010, Android phones were bursting with innovation, creativity, and ground-breaking design features. Every new flagship Android phone was the next big thing that kept consumers excited. On the other hand, Apple took a safer, less experimental route, making minor upgrades to features that worked well, and introducing only a couple of new ones that consumers would like definitively.
Over time, consumers realised that features that looked flashy didn’t necessarily serve a purpose, and the gimmicky attraction of Android phones could no longer be a selling point to justify flagship price points. On the functional end, Android phones very quickly exhausted helpful and innovative design features, so it became increasingly difficult for newer releases to have any room left for innovation. On top of that, Android phones were competing against each other, while Apple took its time. The reason Apple was not caught up in this rush was because of its loyal consumer base that recognised early on that iPhones, while not packed with the latest technology, had perfected the select ones they were equipped with.
Apple slowly caught up to Android phones. The first dual-camera Android phone came out in 2014, while Apple did not introduce them till 2016. Wireless charging came to Android in 2013, and Apple did not bring it in till 2017. By this time, Android phones were saturated with top-of-the-line features; high-resolution cameras, large screens, and fluid animations; but Apple consumers always had something to look forward to. Apple maximised its profits by not rushing in as fast as possible, but by teasing those features over a longer period. Each iPhone upgrade is significant, but not to the extent that future upgrades would be robbed of a key selling feature.
Consumers understand that in exchange for the premium price tag, they can maximise utility if they have an iPhone, its accessories, and all other major Apple products, and the experience will only get better as the lineup of Apple products gets bigger.
Consumer Loyalty
Apple wants to be a closed ecosystem where all products and services and controlled by Apple. Repairs can only be authorised through Apple-certified mechanics, iPhones can only be charged using the Lightning connector, and now, with the EU’s USB-C mandate, Apple is likely going to include a chip in the charging port that recognises Apple authorised USB-C cables. To non-iPhone users, this might seem irritating, frustrating and anti-consumer, but for core Apple fans, this drives loyalty. Those willing to spend on Apple-certified products and services are treated to an experience that is not only seamless but feels like a reward for their loyalty.
There have been numerous surveys over the years that have shown that very few consumers migrate from iPhone to Android. Apple’s consumer acquisition may be slow, but every time Apple does ‘steal’ an Android user, the user is highly likely to stay with Apple. Perhaps the one Android competitor Apple was concerned about was Huawei. Huawei’s relentless technological innovation, integration, and incorporation were so spot-on, that it captured a significant portion of both iPhone and Android consumers. But, on 15 May 2019, Huawei was banned in the US as part of an executive order from then-President Donald Trump. This released millions of users in the market and a lot of them migrated to Apple.
Apple is now the most profitable smartphone company in the world. Its market capitalisation is valued at USD 3 trillion as of July 2023. This also makes it the most valuable company in the market. As much as this is due to Apple making phenomenally well-designed devices, its biggest success factor is its ability to harness the power of consumer loyalty.
