It costs Apple $501 to make an iPhone 14 Pro Max, and the company sells it at a base price of $1099. This makes Apple’s base markup on the latest iPhone model at 119% Apple is the only tech company able to sell its tech products at such a premium, thanks to a combination of hardware, software, and marketplace.
The economics of Apple’s business model
In 2022, the iPhone generated over $205 billion for Apple, making up over 52% of the company’s revenues. Apple employs a strategy called reverse razor and blade:
Where in a razor and blade strategy, a company sells the main product at cost while making money on ancillary, consumable products, which generates a continuous stream of revenues.
Apple deploys the opposite strategy.
The iPhone is enhanced by an unlimited number of apps available on the App Store, which are mostly free and make the whole smartphone way more valuable.
Thus, enabling the company to place a premium on its iPhone.
This is the key!
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