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How iPad Educates

The fact that the iPhone is contributing over 90% of the operating profits in mobile phone sales has penetrated even as far as the Wall Street Journal. However, it’s not yet commonly known that the Mac captures a majority of personal computer operating profits, at least when considering the sale of hardware.

My calculations suggest at least 60% of operating margin in personal computing hardware is captured by Apple. This is mainly due to the fact that the average Mac sells for more than $1200 while the average PC sells for less than $450.That is equivalent to $1.5 billion per quarter for Apple vs. $930 million for all the other PC makers combined.

Screen Shot 2015-07-17 at 12.16.27 PM

If we are to consider the iPad as a “PC equivalent” computer[1] then another $billion/quarter is contributed to the profit pool. It increases Apple’s share of profits to 73%. As a result, Apple absolutely dominates computing profits.

But, as we know, computing, even on handheld devices, is enabled by a multitude of business models. Selling hardware is one thing, but Microsoft showed that one could sweep up profits in the industry by selling enabling software. It’s much harder to assign a share of profits if we try to consider all the business models associated with computing and all the form factors that computing has taken shape in.

The problem can be acutely observed with the iPad alone. It’s sold with a decent margin[2], though not one which approaches that of the iPhone[3]. It also enables an ecosystem with thousands of collaborating firms and users.

Consider the uses of the iPad in education. 15 million iPads were sold to educational institutions. An unknown number of millions have been hired for education uses by end-users or teachers. The result is over 100,000 education apps are available in the App Store.

The education sector’s “jobs-to-be-done” has led to the product being associated with entire new processes for education. Education is not a product but a process and therefore any technologies must be hired as part of the process. In the App Store you can see the “Apps in the Classroom” guides along with impressively powerful apps being used in education. These are educator-created guides designed for other educators.

There is no way to measure the “profit” in this endeavor.

Nor is there a way to capture the “profit” in people engaging in exercise because they wear an Apple Watch.

Nor is there a way to track the operating profit of HealthKit which has enabled 1000 apps to help people manage their health.

These education and health efforts are not designed to be profitable. And yet Apple is very profitable. That is because creating valuable things generally leads to value being accrued by their creator. How that happens is not very important. Indeed, focusing of the how is actually often self-defeating. What matters is the why and the what is done.

Understanding this leads us to understand the foundation of any great organization, not just Apple.

 

Notes:
  1. for a substantial minority of tasks []
  2. my estimate is a gross margin of around 27% []
  3. my estimate of the iPhone gross margin is near to 48% []
  • Will

    There is no way to measure the “profit” in this endeavour.

    How convenient. So, even if it is a flop, we would never know?

    • http://www.asymco.com Horace Dediu
      • Will

        Those are mostly speculations and/or questions

      • pk_de_cville

        Gee Will,

        These speculations and questions aren’t the ones you’re looking for.

        You must have a great and enlightening view on the source of Apple’s profit.

        Can you give us a link?

      • art hackett

        Looks like Kenny’s been brushing up on his English.

    • iObserver

      Likewise, if it’s currently a raging success improving test scores and IQ we may not already know.

  • Martin

    It would appear that in 2017 the iPhone and top of the line Intel PCs will be fabbed on relatively comparable 10nm processes. I wonder if Intel will be the next casualty here, not because x86 is going away any time soon, but because ARM hardware is commoditized to a level that is driving fab margins toward zero. I can see why Apple might be porting OS X to their Ax hardware for when that day comes.

    That is, ARM brings modularity to the CPU space allowing volume thereby undercutting Intel margins, with Apple plowing the process road with their own operating margin advantage. I don’t see how this trend reverses for Intel, and I don’t see how that day of reckoning can be avoided.

    • Eric Matthews

      I keep thinking about this too. Apple has navigated major processor architecture changes better than anyone. Apple’s iPhone and iPad are now supported by developers using the same tools and API’s they would use to build OS X apps. My guess is that porting a modern Mac app to the Arm64 would be an easy task. If Apple can find a way to deploy A-Series processors in MacBooks to a cost advantage retaining identical performance to Intel’s M, then Apple can quickly move past the massively fragmented Intel/Windows/PC competition. Dominating laptop sales, much the same way they dominate Smart Phone and Tablet sales today.

  • Martin

    Regarding the education market (where I work), universities are looking to shift textbooks from a physical purchase market to an electronic subscription (of sorts) one. Publishers are losing most of their potential market to textbook rentals and used books. That drives up prices of new textbooks which simply results in more defections from the new market.

    The subscription market would look like an opt-out process for students. They would automatically be subscribed when they enroll in a course and have an e-textbook put in their account. The subscription would cost about the same as a used textbook rental or about 30% the price of a new book, which is roughly their market penetration now.

    The end result of this is that college student that bought 50% new textbooks and 50% rentals will still save enough money to afford a new iPad to view those textbooks on. My guess is this transition takes no more than 5 years.

    • bloftus

      At least at some schools – like Rice where I went – they are moving to free open source peer reviewed textbooks. https://openstaxcollege.org/books Not sure what percentage of books will eventually get replaced but I suspect it will be the majority over the next 5 years or so.

  • http://bigapplecontest2015.blogspot.com/ Laham Stacy

    That is good for me. Apple is best firm at this planet, they never dissapint me so im okey with that :).
    http://bigapplecontest2015.blogspot.com/

  • katherine anderson

    If App developers are among the artists of our time, iPad is the new canvas. When artists first began to use canvas as a painting surface (somewhere in Italy during the Renaissance), and began to harness the “profit” from the portability of the canvas, that too opened up entire new processes of experience and learning … much like how, as Horace points out, the iPad is enabling new processes in education today.

    So how did the early painting on canvas open up new processes? Previously artists were commissioned by the church fathers and royal patrons to produce work in situ (and churches and palaces were the sites where the work was expected to permanently remain); whereas painting on canvas could be detached from its physical context (removed from the wooden frame), rolled-up, easily shipped, handled and stored; it was also lighter than gold.

    Defined by its portability, the painted canvas became a traded product, allowing many more artists to create and trade in it. This was a new process that placed a profit value on meaning and visual pleasure: the market in Fine Art (as we still know it today) was born.

    Yet some 500 years later it’s still the same Fine Art world … things appear radically different and there’s a lot more money at stake, but I wager that Apple has done more than the art world to open up new processes of aesthetic experience, knowledge and learning. Where Art has failed, Apple is leading the way, showing how meaning is embodied in an object and in a process, overcoming the gap between Art and Life.

    • berult

      The iPad, UI/UX-wise, needs to make a complete millennium-canvas out of itself. It’s in a state of emergence…still. It makes sense, whereas it should…and will soon… make omni-sense.

      Indeed, Life as a composite art form. Tools of the trade…time-stamped routines, time-warped ideals, and a du-jour canvas…pitch the Human Story to the cacophonous rationale of an Amazon-like diapason. berult.

  • Sacto_Joe

    I don’t think there’s any question about the iPad being a “PC equivalent” computer. Consider that a “PC” can be a pretty dumbed down article and still be included in these survsys. Also, as memory serves, tablets that have a detachable keyboard are being counted as PC’s. Since I own an iPad with a detachable computer….
    BTW, Horace, it would have been nice to see a chart that shows the iPad grouped in with the other PC’s. I don’t know how much trouble that would be, though.
    One interesting aspect of iPads that’s similar to PC’s is that they seem to “last” longer before needing replacement. I’m not sure if that’s true for all tablets, but in my experience it’s definitely true. In fact, my iPad reminds me of our Volvo….