Apple a profit making machine!

Scott Galloway was asked how the cult of Apple developed. This is what he had to say:

So if we have our religion, Steve Jobs is our god. We no longer worship at the altar of kindness or character, but we worship the altar of innovation and shareholder value. This is the individual who's vision and genius created more shareholder value than any company in history. Which is effectively how we decide who our Jesus Christ is in a capitalist society.

The iPhone has become the new object of power. They shouldn't call it the iPhone X they should call it the iPhone Cross. It has a special place in our lives because we deem it holier than any other object in the world at this point. We take it everywhere we go. When it flashes we jump frantically to see what is going on.

Apple is a company that decided "we no longer wanna be the best house in the worst neighbourhood. Computer hardware appeals to a rational organ which is the brain; when the brain is a terrible competitor and startles all the margins. We wanna appeal to the reproductive organs which are irrational decision making organs." And as a result people will decide they wanna look cool, they wanna communicate success and innovation, and that they have good genes to mate. You end up with a business with margins somewhere between Hermes and Ferrari!

Today, the iPhone accounts for just under 20% of all the smartphones shipped globally, but it accounts for approximately 92% of the smartphone industry's profits. I am sure you're asking yourself how is this kind of dominance is possible.

Apple has pulled off the impossible in business, through a focus on appealing to our desire to be attractive to others and becoming a luxury brand. They are the first technology company to become a luxury brand that is a low-cost producer, the most popular phone in the world, outstanding supply chain since they can secure their components at the lowest price, and at the same time sell a premium priced product. No company has been able to pull this off in history. The motor vehicle equivalent would be a motor vehicle company with the margins of Ferrari and production volume of Toyota.

As a result, this quarter Apple has made double the profits that Amazon has made in its entire history. Apple will make more than the profits of the other three competitors namely Samsung, Xiomi, and Huawei combined. You'd need to get Toyota, Daimler, Unilever and P&G wrapped up in the mix before we begin talking about the profits of Apple. We really do not have the sense of the scale of what an unbelievable profit machine Apple is.

The components of a luxury brands company, is literally play for play what Apple has done. The board sat down in some room at some point and said we are a luxury brand. What do luxury brands have in common? They have an iconic founder, we have that. They have a sharp focus on artisanship and design, and we have that. They have a focus on vertical retail. Apple is much more like a Louis Vuitton store than it is a Best Buy.

And here is the genius move, the crazy irrational decision of forward integrating the stores which I think is the one decision that created more shareholder value than any other decision in the history of the business. Can you imagine Steve Jobs going to his board in the early 2000s and saying "you know I have an idea…we are doing ok but not great…I have an idea... STORES!!!" This is a time when stores were beginning their march downwards. Fast forward to today, Apple spends around $5 Billion to $6 Billion in leases on stores per annum.

Why Samsung is always behind Apple when it comes to brand equity and as a result, not generated as much in shareholder value? It is not because of their technology. Samsung has more engineers than Microsoft. Fanatics would argue that the Samsung galaxy is a better phone. It's because they do not have vertical distribution! Apple has decided to control the full experience and become a luxury brand like a Vuitton, a Bottega Veneta, or Gucci; you have to control the moment of contact with distribution.

During their product launch, Apple puts super models on stage, they put Christy Turlington! It's not a product launch, its a fashion show. They buy pages in Vogue magazine, they have literally stolen the luxury playbook and it has been the most enormously value creating decision in history. Low cost producer, premium priced product, no other business in the history of business has been able to pull this off.