The 'Apple Squeeze' Business Model

Key Insight

Apple's business model, termed the 'Apple Squeeze,' enabled it to command over 80% of smartphone industry profits despite having less than 20% global market share. This dominance, contradicting basic economic principles as iPhone prices rose, was achieved by maintaining a radically simplified product portfolio and working intimately with suppliers to achieve unparalleled quality and mass-market scale, akin to making 10 million Ferraris annually.

Apple exerted extraordinary control over its suppliers. It demanded access to detailed operational costs, from wages to materials, often possessing a clearer picture than the suppliers themselves. Around 2010, Apple began procuring raw materials directly for its suppliers, a 'power move' that obscured true prices and ensured material availability for its immense production volumes. This direct involvement, facilitated by a team of up to 1,300 people reporting to Tony Blevins, gave Apple immense leverage.

The 'Apple Squeeze' operated on an explicit deal: Apple's engineering and operations teams would rigorously train local partners, imparting manufacturing knowledge on efficient scaling and quality standards. In exchange, suppliers worked for 'soul-crushingly low margins' but gained invaluable experience and advanced skills, which they could then leverage for other clients. Apple also built redundancy into its supply chain, training multiple vendors to perform the same task, thereby preventing overdependence and keeping prices low.