Why Apple Owns the High-End: First Mover Advantage

CIO — Apple's stock has been on a tear this year, starting at around $85 per share and rising steadily to $165. Sure, the new iPhone 3GS and the ever-popular MacBook Pro line are big reasons for the lift.

But how does a company that owns only 8 percent of the handset industry revenue, according to Bernstein Research, kick so much butt?

Apple plays almost exclusively in the high end of the handset and computer markets, which translates into mighty profits. In the handset industry, for instance, Apple commands nearly a third of all profits while being only the fifth largest vendor.

Bernstein Research analyst Toni Sacconaghi, quoted in an AllThingsD post, said: "Even if we exclude the operating losses generated by Motorola and Sony Ericsson, Apple still accounted for 25 percent of industry profits. iPhone's success is akin to Apple's position in the PC industry—where the company enjoys an estimated 25 percent of industry profits, despite capturing only 6 percent of industry revenues."

Apple, of course, is known for delivering stylish high-end products. Its MacBook Pro line consistently ranks among the highest performing laptops, according to the InfoWorld Test Center, a sister Web site to CIO.com.

Oppenheimer analyst Yair Reiner contends that Apple delivers good bang for the buck. He says iMacs, for instance, match up favorably against Dell and HP's All-in-One's on a price-to-performance basis. "Apple's pricing has been perpetually misrepresented and misunderstood over the years," he told me earlier this year. "With a few notable exceptions, such as the MacBook Pro, Apple has typically offered more hardware for the money than competitors."

Although Apple slashed the cost of MacBook Pro computers earlier this year, MacBook Pros are still some of the most expensive on the market—as are Macs, which has stymied Mac's numbers in the enterprise. "You can buy a PC for $400, while the cheapest Mac is over a thousand," Jon Graff, director of IT operations at A&E Television Networks, told me earlier this year.

So why is Apple successful on the high-end, high-margins of the market? Good technology is one reason, for sure. Another reason: it's much easier to capture the highpoint in a market you've reinvented. Put another way, Sacconaghi credits Apple's first mover advantage to its success.

"With the iPhone and its Apps Store, Apple has established a formidable smartphone ecosystem, which history suggests is very difficult to overcome," said Sacconaghi in the AllThingsD post. "In fact, Apple has the potential to become a de-facto standard of sorts in the consumer smartphone market ... due in large part to its first mover advantage and tight software and hardware integration."

Tom Kaneshige is a senior writer at CIO.com. Send him an email at tkaneshige@cio.com. Or follow him on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline.