Companies that make their own complimentary services can shift profits from one product to another.
Gillette gives away its “”core product,”” the razor, in return for substantial margins on the complementary product blades.
Apple kept the price of music and apps low to generate exceptional margins on the sale of iPods, iPads and iPhones. Over time, Apple’s gross margins on the iPhone fell from an estimated 62% to 38% between 2009 and 2018 due to intense competition from Android Phones.
However, Apple grew its gross profit from an average app by four times in the same period. In a dramatic strategic move, Apple shifted its profit pool away from hardware to software.