In the U.S. at least, a monopoly is not illegal, but abusing monopoly power often is illegal, and one could argue that Apple’s monopoly of an industry’s profits borders on illegal. Google ‘monopoly business wiki‘ and you’ll get plenty of detail on the various definitions of the term monopoly but this one on a natural monopoly works best in this scenario.
A natural monopoly is a monopoly in an industry in which it is most efficient (involving the lowest long-run average cost) for production to be permanently concentrated in a single firm rather than contested competitively. This market situation gives the largest supplier in an industry, often the first supplier in a market, an overwhelming cost advantage over other actual and potential competitors, so a natural monopoly situation generally leads to an actual monopoly.
What is unusual about Apple’s natural monopoly in the smartphone industry (and it could be in the PC industry, tablet industry, and nascent smartphone industry segments) is that Apple owns a monopoly– not on market share, or units of iPhone sold– but in profits. Industry guesstimators guesstimate that Apple takes about 94-percent of the smartphone industry’s available profits (on less than 20-percent of the industry’s market share). The rest of the profits went to Samsung with nearly every other smartphone maker reporting losses, or, guesstimates reporting losses.
Total smartphone market domination of profits.
How is that a bad thing? It could be bad both for Apple and competitors in a number of ways. First, competitors who are losing money become desperate to get back in the ball game or risk being marginalized into oblivion by Apple’s financial dominance (which allows the company to get components at the lowest possible prices, which further extends gross margins to, well, gross levels), and that desperation could force a company to release a game changing product– just as Apple did in 2007.
Way back then Apple was a profitable niche player in technology with the Mac, iPod, and iTunes Music Store. That was it, and the Mac’s market share was negligible and the iPod was increasingly becoming marginalized by smartphones which began to absorb the music playing capability long enjoyed by Apple’s music player. Apple was desperate and had to do something to protect or replace the iPod’s revenue and profit streams.
That desperation begat the iPhone which turned Apple into the world’s largest and most profitable technology gadget maker.
Another danger which could impact Apple is complacence, which seems to affect most monopoly players. Apple sells a limited smartphone line but in such large quantities that the company has difficulty buying the latest and greatest components. Competitors, who do not have to manufacture in the same volumes as Apple, have access to better batteries, easier charging mechanisms, screens with higher resolutions. Apple’s need for massive quantities of components force the company to wait for manufacturing capability and capacity to catch up to sales demands.
It’s been said many times that differentiation is a key component of successful product marketing. Apple differentiates its products from Android and Windows devices by integrating hardware and software into a dependable and secure ecosystem. That ecosystem is not immune to change but requires a competitor to build a better mousetrap, and not with just a few improved components. The whole mousetrap must be better than an iPhone is now, and to a degree that the iPhone improved upon smartphones circa 2007.
Apple’s monopolies on industry profits is not illegal but presents the company with certain challenges (challenges all of the company’s competitors would love to have).