The quote below from a great article by Eugene Wei at Remains of the Day has been floating around the Internet describing Amazon’s low margin strategy as superior to Apple’s high margin strategy.
An incumbent with high margins, especially in technology, is like a deer that wears a bullseye on its flank. Assuming a company doesn’t have a monopoly, its high margin structure screams for a competitor to come in and compete on price, if nothing else, and it also hints at potential complacency. If the company is public, how willing will they be to lower their own margins and take a beating on their public valuation?
My concern is that folks are taking this quote, and the article as a whole as a denouncement of Apple’s strategy.
My initial thought is that both strategies are valuable and not necessarily contradictory.
For example, nobody looks at Mercedes Benz as having a bullseye on their flank as Chevy and Ford chip away at their customers on price. Porsche isn’t setting themselves up for failure against the likes of Fiat.
Apple has established themselves as a premium brand in consumer electronics. The aren’t in competition with cheap low end producers. They are in competition with other premium electronics makers…of which there really are none, leaving the low end producers as the only other option for consumers, thus making it look like direct competition.
There are plenty of folks who want a Chevy or can only afford a Chevy. Mercedes Benz is not targeting those consumers. And Apple is clearly not targeting $199 tablet consumers or $499 laptop buyers.