Yes, with commodity product that has a low bar to entry, it becomes all about thin margins. In fact, talking with a person who was rather high-placed at Dell for a long time, he claimed Dell made 0% on their hardware sales - just covered costs. But they did have 180-270 day terms on product, meaning they made a good amount of cash on the float of $15 billion...
So, in a commodity business, what can then help you? Certainly the answer is NOT buying every SINGLE part of your product from a bulk commodity manufacturer.
You can offer better service, more choices in packaging (colors), features, customization, warranties. NONE of the US brands makes their own stuff - Dell, HP, or Apple. They ALL buy commodity products from Asian sources. It's the packaging and branding around them that is different.
Really, Apple isn't any different than Dell or HP; they all do a certain amount of design in-house (mainly industrial design and system-level specifications), most of the design is handled at the CM. And almost all the production is also handled at CMs.
How does Apple charge so much more? Brand, loyalty, perceived value. Ten years ago they weren't making the margins and sales on their laptops like they are now. Of course, 10 years ago having an Apple laptop wasn't so trendy, either...
In an era where a PC sells for $500, $100 is life and death.
Yep. Which is why they squeeze those CMs to get their terms; it's not so much an extra $5 in profit on the hardware, as it is 270 day payment terms. You can now leverage and float that full $500 for 270 days; turn a 6% annual return on it and you make $22 over that 270 days. More than you'd squeeze your CM for.
Secondly, they could then start building exclusive features to their MB (like on board flash memory) that do NOT have to be shared with other competitors.
For counter-proof, I give you: Apple. They have nothing that is not available to all other vendors. Most of their design is done on contract, and at the CM. They build at CMs, who also build for Dell and HP and Sony.
What Apple has is commodity product - nothing in an Apple laptop is exclusive to Apple. The concepts aren't new, either. What Apple has done with things like soldered-on SSD drives is eliminate configurability and choice from the consumer in a drive towards fewer SKUs and simpler pricing and sourcing. And then they dump a lot more money into the raw parts to build even more expensive systems.
The result are high end laptops that sell well, and give them 3% of the worldwide market. But when Sony, Toshiba, Dell, or HP push to the same high end, the costs are about the same, as are the margins.
They all do the same stuff - it's how it's marketed and branded and supported that becomes the differentiator.
Consider that PCs are, by virtue of being commodity products, the same as groceries. Why do you go to the grocery store that you use? Is it brand loyalty, mix of products, pricing, convenience? There's something that drives you to your main store over and over. It's not the fact that they have canned corn or brisket - everyone has that. It's something else.
That's Dell, that's HP, and that is Apple. Dell and HP are the Safeway and Albertson of the computer market. Apple is the Whole Foods. Smaller selection, higher prices, better marketing/environment. And they charge you for it.
It really is similar to the grocery market... In some ways, Apple will maintain their position as long as they maintain their mystique of their brand; when they start to grow bigger - meaning addressing and selling to the cast bulk of the market at the lower end of the pricing structure - they'll lose their mystique and fall into the same issue as Dell and HP.
Mark my words, Dell will get out of the PC business in less than 3 years. They have no other choice.
Marked in my Google calendar...;)
What is a CM. Asian designer and manufacturers? How about Jonathon Ives and his designers at Apple? You are saying most of Apple’s research and design is done by its Asian (Taiwanese) partners?
A4 chip, A5 chip, CNC aluminum bodies, and Intel sometimes gives Apple a period of exclusivity on new chips. Also, Apple is known to secure exclusive supplies of a technology for the short-term. A nice display technology might come out, but because Apple paid $$$ to have the factory for it ramped up, they are the only ones in the industry with a high-volume steady supply of the technology for their period of exclusivity. Apple has actually been described as a budding monopsony -- the one buyer that can control the market of sellers.
But aside from that is the will to use what Apple leverages. Do you see anyone else going to EFI? It's been around for years, supported by Windows since Vista SP2, and almost all PCs are still on 1980s dinosaur BIOS. Only Sony is also offering Thunderbolt on one specific laptop, and with a non-standard implementation at that. Too many other companies just don't have the balls to make the leaps that Apple does.