Apple is considered by many, to be the dominant force in IT. Indeed, it is often cited as a driving force for much of the innovation in the technology world. But, comparatively few people consider how it is stifling innovation, overcharging customers and has a business model that is unsustainable.
In its 21st century existence, Apple has consistently shown the ability to launch attractively designed products just as the introduction stage of the product life cycle is about to enter the growth stage. Apple has shown the ability to launch products just as they are ‘crossing the chasm’ and to drive demand in the early growth stage. Apple did not invent digital music players. MP3 players had been around for some time before the launch of the iPod. Similarly it did not invent smartphones or tablets. In hindsight, it timed its product launches superbly.
Apple has also created a proprietary ecosystem around its devices. Customers buy music and video content as well as apps from iTunes. All have been vetted by Apple. This tethers the customer to Apple’s ecosystem and, in many ways, stifles innovation. No application or media content can reside on an Apple device without Apple’s approval. In such an environment, it is difficult for innovation to flourish beyond boundaries set by Apple. It decides what will be designed and produced for Apple devices.
Android, Google’s operating system, is not a ‘walled garden’. Anyone can develop any app for Android. This is now the leading smartphone operating system and it will continue to increase its market share. In the world’s largest smartphone market, China, the Android model will dominate. Apps need to be customized rapidly for local contexts and in many markets, most notably China, paying for digital assets is not likely to become mainstream. Apple does well in China today, because its products are viewed as status symbols, much like BMWs, among the nouveau riche in the world’s emerging markets. But, ominously, many Apple users in China jailbreak the devices and run Android on them, quite simply because there are more suitable Chinese-oriented apps available in alternative ecosystems. As smartphones become mainstream devices, ecosystems with limited local content and that charge for discrete digital assets will struggle.
Furthermore, ecosystems that offer devices at multiple price points will succeed. There aremultiple Android devices available at multiple price points and produced by multiple handset manufacturers. This gives Android and its handset makers a further competitive differentiator. Apple charges a premium on one or two models and arguably does not offer good value for money to customers outside the world’s highest income brackets, whereas in emerging markets, Android is set to rule.
In the 1980s and 1990s, Microsoft was able to benefit from Apple’s walled garden approach. It licensed its operating system and other software products to multiple PC manufacturers. Apple, on the other hand, chose to run Apple software only on Apple products. It seems that Apple is, once again, giving Microsoft a helping hand. Microsoft has been late to the smartphone and tablet party. Many believe that it will struggle to make an impact in the mobile world. Apple’s approach together with Google’s Motorola acquisition, are leading handset manufacturers to seek out additional partners. Will Samsung offer Microsoft phones in addition to its Android devices? Will most handset manufacturers do this as a hedge against over dependence on Google and an additional differentiator against Apple? Have Apple and Google given Microsoft a fighting chance of success in the smartphone and tablet markets?
Apple also uses an ‘old world’ pricing model for access to content. Although the purchased content of Apple customers will increasingly reside in the iCloud, Apple prices content in the same way as DVDs and CDs were priced. Its customers purchase ownership of discrete pieces of content except that they lose some of the ‘old world’ benefits of this pricing model. For example, once a track or an album is purchased from iTunes, it cannot be resold to a second hand record shop or to a friend. It cannot easily be lent to a friend. These benefits are lost in the new model. Netflix, Spotify and Rhapsody, on the other hand, charge a subscription fee for access to a library of content. Access to such a large library compensates for the loss of certain benefits associated with ownership. In today’s world, the customer doesn’ t really own a piece of content. They can’t touch it or feel it and there are restrictions on what they can do with it. The supplier of content can make enormous savings in terms of production and marketing costs if customers simply access content that is shared with other users, in a cloud. Can’t these savings be passed on to consumers? In Apple’s model, it does not seem to be the case. This is one of the reasons why Apple is so profitable.
In summary, we are likely to see much more innovation in the Android ecosystem and possibly the Microsoft ecosystem, than we will see in Apple’s closed environment. An open approach will allow Android and possibly Microsoft to thrive in new emerging markets. The innovative pricing and delivery of content from the cloud is being driven by Apple’s competitors. In other words, Apple must urgently re-think its strategy or risk finding itself in the same position as it was in in the mid 1990s.