Whilst working on the thinking behind my post on 2011 predictions I gave a lot of thought to Apple Inc. primarily because where they go today lots of other people head in the same direction later on. This merited a post on its own mainly because there are a number of unknowns which are worth considering.
Over the past number of years, Apple has completely re-engineered itself as a business. It hasn’t been afraid to let go of businesses that weren’t going in the right direction:
- Digital cameras
- Newton PDAs and personal computing devices
- X-series of servers and storage
It is prepared to disrupt its existing businesses, for instance the iPod Touch and iPhone cannibalise some iPod sales and the iPad is likely to hit low-end MacBook sales. All this change has put Apple at the nexus of a number of worlds:
- Enterprise computing
- Telecoms providers
I looked at stakeholders in each of these areas to try and make sense of things.
The one thing that you need to remember about the enterprise computing space is the power of the system administrator. In the enterprise space, Microsoft’s monopolistic position is enforced partly through habit, but largely through the Microsoft Certification courses. From a developer point-of-view free tools and open source software made sense but for the system administrator it was killing his skill-set overnight.
So Apple’s recent approach to the enterprise market has been very interesting. Apple gave up on competing in the enterprise space with the X-series of storage and servers; the open source advocates would use Linux boxes and the MS certified people will do what they are told. Then, Apple’s Mac, iPad and iPhone product lines were designed to play nicely with Microsoft Exchange. One of the key advantages of the iPhone in particular is that if a consumer goes out and buys one, their work email account can be easily added alongside their personal mail, meaning that the system administrator doesn’t need to waste his budget getting these people a Blackberry or Windows Mobile handset (which the company would pick up the tab on both the rental and the device cost).
The media industry has been in a quandary for a while and the internet has thrown a spotlight on it. In reality the disruption that the media industry has faced was a long train runnin’: newspaper sales have been going downhill in the US since television became popular. The thing that saved newspapers for a long time was unique advertising niches: records of key moments:
Regulatory advertising in more financially orientated newspapers:
- Invitations to tender
and record labels artificially inflated its revenues by flipping established catalogue artists (The Beatles, The Rolling Stones etc) works across new formats: vinyl —> cassette —> compact disc. Unfortunately there wasn’t a corresponding investment in new content, instead the companies concentrated on blockbuster talent.
They failed to give customers in the digital formats that they wanted and ‘piracy’ exploded. Apple came along and gave customers the music downloads they were looking for, but the record companies still weren’t happy that Apple has become so powerful in their industry.
We are similar kinds of moves in other aspects of the media with News Corporation hoping that tablets will help arrest the online fortunes of the newspaper industry. Apple’s relationship with the media sector is one of constant tension between their desire to have a partner that gets the new digital world and their own paranoia and greed to keep control of their content rights.
The telecoms industry is tough. It has over a century of expertise and culture protecting monopolies into its DNA. It has an immense amount of financial clout being a cash-rich business and political clout from employees being reasonably well distributed around the country of operation – so every elected politician has some skin in the telecoms game.
The industry has seen its old business model threatened by the internet and by media companies trying to claw back revenue from anybody they can. The internet has strengthened the position of telecoms as part of a country’s key infrastructure that brings government interference.
Along comes Apple who has great products that engage users, no understanding of some of the more arcane aspects of working with telecoms technology and what telecoms companies would perceive as an inflated sense of their own importance. The telecoms carriers were used to being the apex predator in their eco-system so Apple was bound to bring friction.
Apple managed to prove itself by partnering with a challenger in the wireless carrier space and scaring the bejesus out fo the industry. However it is not all sweetness and light: Apple’s devices are responsible for customer carrier dissatisfaction for everything from dropped calls to slow data transfer whilst little mud sticks to the iPhone hardware.
The relationship that Apple has with its developers can be most positively viewed as a benign dictatorship, however if you are a more independently-minded developer or a rival then it looks much more sinister. There is a combination of factors at play:
- Apple has always tightly governed the user experience of its devices to try and make sure that they just work
- Where the business model, functionality or mode of operation of the application threatens what Apple is trying to do with the platform as part of the bigger picture
- Where the developers are producing content or functionality that would prove difficult to get past carriers such as adult content or voice-over-Internet Protocol telephony
- Needing to reign in a multitude of developers into a process that is manageable
Apple is also ruthless at dropping technologies which doesn’t fit into their future roadmap. Apple was the first to embrace USB and the first to get rid of 3.5″ floppy disks back in the late 1990s. At the time these decisions were pointed out as failings, but the Apple iMac went on to be the best-selling computer that dug the company out of a hole. Apple bets that they are the smartest people in the room which breeds a certain arrogance, given that developers are quite libertarian in their own outlook it would be easy for the two to fall out.
Apple also needs developers because a device without third-party software is no use to man or beast as Sony learned to its cost with the Betamax system in the 1980s. Developer relations are a point of weakness for Apple, but then its hard for any organisation to hug a proverbial porcupine.
Since Apple launched the iPhone in 2008 it has become the most sued technology company in the US. The reason for this is that Apple’s products sit at the point of inflection in the road-map of technology and lots of people want to get on board or defend that they previously had. The iPhone and iPad have disrupted markets and the way people think about technology. This change is much bigger than Apple’s current market share in the smart-phone and tablet computing sectors.
Unlike most intellectual property battles all the parties have deep pockets for legal fees and at the present time a settlement is likely to be a zero sum game. Apple licencing its smarts to Nokia would be cutting its own throat in the mobile device marketplace. Similarly Nokia cannot affort to lose as its handset business is currently losing high-end market share and profit margin to more sophisticated competitor devices.
Motorola has just managed to come back from a loss-making handset business and Apple presents a real and direct threat. HTC has grown from being a white-label manufacturer of Microsoft-powered phones to being a respected brand in its own right, Apple threatens its future growth. Microsoft wants to hedge its bets against a post-PC age by keeping its hand in the mobile marketplace. It also wants to assert its IP rights and ‘tax’ other mobile handset providers.
The legal process is a massive wild-card that in a worst case scenario could see Apple leave both the tablet and smartphone markets.
Consumers are easiest group to discuss as we can see from the sales figures that once a person buys one Apple product they’ll buy another one. This has developed a virtuous path of consumer adoption. This is further reinforced by it becoming increasingly successful for other contacts in their network to have Apple equipment. I have three friends at the moment who resisted buying Macs for the past 12 years and yet purchased a new Apple computer this year.