It’s all about how you spend that sweet R&D dollar
Despite spending a far lower proportion of its income on R&D* than Google, Apple’s approach is paying off in one area in particular. The huge investment in proprietary, homegrown silicon is giving it real-world dividends in phone performance.
Last week the YouTube channel Everything Apple put Samsung’s new S8 in a face-off against the iPhone – and premium contenders from LG and Google – and the iPhone won handsomely. Apple’s flagship bested the competition in a sequence of actions including Minecraft and Photoshop Express. The extent of victory was quite striking.
This is significant since it allows Apple to maintain a margin advantage over the Android competition. The rival flagships are handicapped on the cost side in two ways:
- They need to pack in much more memory to compensate, and memory is expensive.
- They must source their silicon from Qualcomm, ceding more margin to a supplier.
Samsung Electronics and Huawei do have the luxury of using their own silicon, but for the others, it’s an unavoidable expense.
Apple has been able to maintain an impressive margin (or “Apple Tax”) while maintaining eye-watering prices. Recently Apple’s rivals have sought to increase the RRP (recommended retail price) of their flagships, with Google, LG and Samsung all introducing models at over £700, some £150 more than a year or two ago. In other words, matching Apple’s premium prices.
But it’s questionable just how sustainable this strategy is if performance is lacklustre (the Google Pixel came out particularly poorly in the head-to-head). If it can’t match Apple for performance, a rival is obliged to focus on brand and fashion, traditionally Apple’s strengths.
The tests also suggest that Apple should be able to prosper if it’s chased into price competition in the mid market, something it’s reluctant to do. (Apple’s current “low-cost” model is still upper mid market for the Android world, the £379 iPhone SE priced not far away from the OnePlus 3T flagship.) ®
*Intriguingly, Apple also spends far less on marketing than Google.