I'm going to take your paragraphs out of order, hope that doesn't distort your intent...
I am not making any assumptions; I'm looking at the facts and asking questions:
-Apple does have a monopoly on iPhones, a unique device in the market.
-There are devices that meet and/or exceed the iPhone's capabilities both in hardware and software.
-Apple sells a fourth of the devices in the entire market.
-Apple makes the most profits when compared all smartphone sales.
Saying Apple has a monopoly on iPhones is like saying Ford has a monopoly on Mustangs. Every maker has a monopoly on their brand-- the question is whether they are a sole provider of a product without viable substitutes. There are plenty of phone makers, as evidenced by Apple's relatively low market share. The products are substitutable as evidenced by the number of people who switch back and forth (or carry both). So monopoly isn't really a relevant idea here from a business or economic perspective.
When you say that there are devices that meet or exceed the iPhone's capabilities, I suspect you're looking at it from a spec sheet perspective. RAM, CPU cores, pixels, etc. As you allude to later, this is the tangible part of the phone and, in iPhone's case, almost entirely attributable to other suppliers. Apple designs a few of the chips inside, but most parts are sourced entirely by 3rd parties, and the cost of those parts don't contribute to Apple's profit.
What this seems to say is that Apple can charge far above the actual cost of the product because somehow Apple has convinced the market that the iPhone is worth more. Thus, people are paying more for an intangible item, like the name or reputation. And they are paying so much more that Apple's margins far exceed that of other manufacturers. That is the bit that I don't understand. How Apple did this (convincing).
Right. And again, the question is how they get people to choose the iPhone over equally (or more) capable devices. I doubt that most people that buy iPhones have Macs too, so the real, tangible advantages that iPhone has over the competition don't apply there. But I could be mistaken.
Indeed. The iPhone is the single best-selling device when comparing manufacturers. Seems to me that 18% is paying more than everyone else, and happy to do so because either the "intangibles" are worth more or the unique iPhone tangibles (integration, Apple's Customer Service) are worth that much. Enough to completely make the market share irrelevant. So the real question is how Apple was able to convince that 18% to pay that much more.
This is really the meat of the discussion.
First, remember that certain "tangible" specs aren't apple's to apple's so to speak. Android takes much more RAM to operate as efficiently as iOS because of how Java handles garbage collection. Different devices have different battery requirements because of how much power the draw, etc.
You're right though-- the main reason people are willing to pay more is because of the intangibles. I disagree that it is the result of "convincing".
I think the simplest way to say it is if you give Apple a bag of parts, they make an iPod. If you give Microsoft essentially the same bag, you get a Zune. The market looked at the two and was willing to pay much more for the bag of parts when they were fashioned into an iPod. It's the same "tangibles" going in, but very different intangibles being added by each company.
In many contexts, these intangibles are referred to as "Value Added" which is the first two letters of the Value Added Tax that many countries use in place of a sales tax. A VAT recognizes that each company in a chain of suppliers leading to a final consumption sale add value beyond the value provided by the components they acquired and each company only gets taxed on that part.
In practice these intangibles are generally in the form of IP and design. You could probably calculate how much value Microsoft destroyed by coloring the thing babysh*t brown.
For some reason people seem to look at marketing like it's a form of hypnotism and it makes people do things that are against their personal interests. Sure Apple has a marketing department, and they try to create a feeling around their brand, but if they were really getting people to go against their own interests that would only really work once and iPhone has been dominating profit share for as long as it's existed. So I think it's less about convincing and more about that 18% of customers really valuing the intangibles that Apple provides-- and being intangible makes it hard for me to be to specific about what they are exactly.
It's probably different for different people, but I think most people would tell you design, ease of use, and reliability are the main driving factors.
The spec sheet means less to me, for example, than the overall device. So the efforts of other manufacturers to put more stuff into their phone at the same price isn't going to work on me. I'm happy with what I have and don't assign much value to the other stuff. More RAM, micro SD slots, more pixels than my eye can comfortably resolve... Doesn't do it for me. Sure more is better than less, but I'd have to sacrifice whatever intangibles I enjoy to get it. So they're adding all that stuff, cutting into their margins on all of their sales, but they're not gaining me as a customer. That's not a path to profitability. Profitability come from finding the combination that the most people find most valuable.
For every extra $100, you're only paying something like $0.15 a day if you replace your phone every two years (I do it less often than that). Given how much time people spend using their phones, for many people that's not a lot of money to expend on what they individually consider a better experience.
