The exponential benefits of differential value

I wrote a couple weeks ago about Value, Scarcity and Pricing in the Age of Superabundance. Now there’s a timely report about the concentration of profits among cell phone makers from Bernstein Research analyst Toni Sacconaghi. Sacconaghi estimated that while Apple only accounts for 8% of the revenue among handset makers, it gobbles up an astounding 32% of the profit in the industry. (If you exclude losses at Sony Ericsson and Motorola, the number drops to only 25%.)

This is a great example of how diffential value has a huge impact on profit. By creating and sharing a value surplus between buyers and your company, you can dramatically increase profit. The flip side of this is that if you can’t differentiate, you end up in the commodity trap and you have a good chance of having negative profit. (Motorola made a ton of money in the cell phone business when a phone that made calls and was really slim was differentiated.) If you’re in the commodity business, you have to find a nice in your market where you’re actually differentiated.