This little piece, this case of who makes the money, Apple or AT&T, is illustrative of a much larger point about business.
That's because every time a new iPhone model comes out, it's the carriers—not consumers—that shell out the biggest bucks. Analysts estimate that carriers pay Apple a subsidy of about $400 each time a consumer buys an iPhone with a two-year contract.
AT&T and other wireless carriers say that subsidizing the iPhone heavily amounts to an investment that will make their customers more likely to stay and increase the amount of money they're willing to spend for the carrier's services. But some analysts say those benefits have yet to materialize.
At AT&T, Nomura Securities analyst Michael McCormack says, the profit margins on wireless service haven't meaningfully improved since the company started carrying the iPhone in 2007.
"For the most part, it's really been a wealth transfer from AT&T shareholders to Apple shareholders," said Mr. McCormack, who predicts AT&T's fourth-quarter profit margin will fall to 30% from 44% in the third quarter.
The important point being that whoever controls the scarce or rare item is going to be the one who makes the money.
Now no, this does not mean that someone who controls any scarce resource is going to make lots of money. That's not what I mean at all. I control the world's supply of
Tim Worstall and no, sadly I'm not rich. For the world's supply of Tim Worstall is rather larger than what people are prepared to pay large amounts of money for. What I mean is that in any particular system or subsystem, the money that's in that system will flow to whoever it is that controls the scarce resource necessary for that system.
Between AT&T and Apple over the iPhone it's Apple that has the control. So they are the people who make most of the money out of that scarce resource. Sure, there are other phones out there but some very large number of people want an iPhone and only an iPhone. There are several networks the phone could have been made available through and thus Apple could play off Verizon, Sprint, AT&T and so on and make sure that Apple got the bulk of the profits.
The same was true back in the day when Windows (or even more, MS-DOS) was the must have part of a computer system.
Microsoft got more, often enough, as a licence fee for allowing the use of the software than the machine maker did for doing everything else. For there were many machine makers and only one Microsoft which controlled that scarce resource.
It has much wider application as well: There are many farmers, many sources of butter, orange juice or kosher pickles. But there's only one WalMart, so given that they control the scarce resource, the distribution system, they make most of the available profit. It's difficult to think that
Tom Cruise is actually worth $25 million for anything. Yet a Tom Cruise movie does (usually) make big profits just because it's a Tom Cruise movie. As Tom controls the world supply of Tom then a goodly chunk of the money made by such a movie flows to Tom.
It's just one of the basic facts about this flavour of the universe that we inhabit: profits flow to those who have or control the scarce resource.
