How Apple Segments the Market
Apple has done a fabulous job in recent years of asserting itself as a major player in the computer industry. One of their tools for accomplishing this has been a fanatical commitment to high-quality products. They strive to make every product they offer to be the best in its class, and they’ve largely succeeded at doing this. (And have used some very clever strategies to maintain this appearance when their products weren’t quite measuring up.) This has given them an incredibly strong brand. But it also allows them to position themselves in an enviable place in terms of market positioning.
Apple products are expensive. Apple gets high margins on its hardware, allowing it to recoup large investments in NRE (non-recurring engineering) to design the hardware and its accompanying software. This is a great place to be from a competitive standpoint, because as a company they don’t need to squabble over the cheapest parts to try to deliver the best prices to consumers. So long as they can maintain a sufficiently large customer base to support the practice, it is an easy place to defend against competition from. Certainly a lot easier than being Dell or HP, who struggle with operational efficiency to compete on price, and try to innovate within a very narrow window defined by their platform.
Apple’s success at selling high-end products has secondary benefits for the rest of the ecosystem. Because the products are expensive, they tend to be purchased by people with more disposable income. So the segment of the computer market which buys Apple products self-selects to be very attractive demographic for many other reasons. Advertisers love to get their products in front of people who are more-willing-than-most to buy something expensive / unnecessary / fun.
Similarly, app developers know that if they write an app for iPhone / iPad, the people who are able to buy it are much more likely to be willing to pay a couple bucks for something silly than, say, somebody who bought the cheapest smartphone they could afford because they felt they really need that functionality. I had previously speculated that Apple’s platform play required a very large distribution base to attract developers, which is not quite correct. The strategy is successful even with a relatively small market, provided that the market is segmented properly. Which in this case it clearly is.