Why “Sell The Blades, Give Away The Razor” isn’t always a Great Tech Business Model

Chamillionaire and Michael Arrington. (CC) Bri...

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John Gruber, responding to Michael Arrington‘s ideas about what HP should do next:

Note: that’s $1.4 billion in revenues, not profits. And that includes the music side, which is over 10 years old. And further note that Apple doesn’t mention profits from the iTunes Store at all. If they were making big bank, Apple would brag about it. I’m pretty sure the iTunes Store is profitable, but it’s insignificant in the grand scheme of Apple’s income. And yet that’s the business Mike Arrington thinks HP should focus on while selling piece of crap $200 tablets.

It’s worth noting that Apple, which is one of the most profitable companies in tech, is also one of the clearest examples of focus when it comes to business model. For Apple, every product has to be profitable: it doesn’t give away hardware in order to sell you software or music or apps. That’s simply not where it makes the big bucks. As I pointed out in the comments on Arrington’s TechCrunch piece, Apple makes about double the profit on iPad alone as it makes in revenue on iTunes, including music, apps, and everything else.

The obvious rejoinder to this is Google, which does give away a whole of lot stuff. But Google isn’t in the same business: it sells ads, not hardware or software, and most of its products are designed either to create inventory to sell more ads, or gather data which helps it sell better and more effective ads.

Those people speculating that Google will use its new-found mobile hardware division to produce super-cheap Android phones, subsidised by advertising, understand neither the ad market nor Google’s business model.

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