Monday, June 7, 2010

Apple will be hugely profitable, but not dominant

There is a popular meme that Apple will dominate media markets as well as the smart phone market. Certainly Apple is currently the largest digital music vendor and Apple has made incredible gains against RIM that would scare the crap out of me if I were them.

But the most interesting question to me is where all of this leads. And at the end of the day, I see Apple remaining the largest and most profitable vendor in these markets, but not the dominant technology. The reason for this is simple. One vendor cannot provide sufficiently diverse distribution channels, form factors, feature sets, and designs.

Currently Apple's biggest distribution challenge is the fact that iPhones are only avaliable on AT&T. But even when Apple eventually cuts a deal with Verizon, I think it will be at a distribution disadvantage. While Apple's phones today are in my estimation somewhat better than the best Android phones, markets don't collectively assess products that way. Imagine what the average consumer will do when going to a phone store and being confronted with ten phones that seem very similar, where one is an iPhone and the other nine are Androids. Odds are they will buy one of the Android models.

None of this means that Apple will be in any trouble. Apple will continue to be a wildly successful company because they will by far be the most profitable company in the mobile market. I don't think Apple is trying to maximize market share at all. That is a nice bonus, but what Apple wants is to be optimized for making the maximum amount of money possible.

By the way, in my example above where the consumer is presented with one iPhone and nine androids, I didnt include RIM. Why is that? Because its fairly clear that RIM cannot survive as a market leader. They are destined to become the next Palm. Not next week, or next month, but within 18 months their current 35% of the smart phone market will be below 20%. There is no magic in what RIM can do around delivering mail, but replicating the sexiness of the iPhone OS (just renamed iOS) and Android is not in their organizational DNA. They can't do it, and the gap between RIM and everyone else is going to become increasingly obvious. They may get bought, perhaps by a desperate Microsoft, or they may just whither, but there will be no competitive RIM OS, and so there will be no competitive RIM.

11 comments:

  1. This comment has been removed by the author.

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  2. I can't recall how I came across your blog but you are absolutely on point. While your stance on everything appears very objective, I have an aversion to Apple's iPhone.

    I strongly feel while their iPhone is indeed high quality, the annual "limited" upgrades they introduce every June are sickening. While everyone is giddy over this new iPhone, I'm wondering why they don't ask Apple about the lack of LTE / WiMax capabilities in this phone. Why isn't their cloud based service free yet when Google's is free to all.​

    I think we both know it is because Apples just wants to maximize their profits...strike while the iron is hot. So the true question appears to be is Apple just too business savvy or are consumers just ignorant of their options?

    I'd say the latter when taking in account the number of my peers who repeatedly bought new Xbox 360 consoles after the first, second, third, and fourth one broke. The same ones are buying these annual upgrades without even considering comparable options! Of course, being limited on one carrier severely lessens one's exposure to other devices but would anyone spend $200 without doing a little research? Because they are stuck with AT&T or they just like the iPhone too much to consider anything else.

    I've had a 2 Blackberry devices, an iPhone, a T-Mobile G1, HTC Touch Pro 2, and now the HTC Evo 4G. I can say that Apple's synergy at beginning was indeed the best solution but with the limitations Apple imposes on the community and developers, it seems very counterproductive to notions of market dominance especially when Android OS is so open.

    I can clearly see that Apple just wants to make money and that's not a crime. Like a friend told me, the market will correct itself. The cream of the crop always rises and if that was indeed Apple, Android's growth wouldn't be accelerating so fast now.

    I could definitely see Microsoft buying RIM and tweaking it to operate as their mobile business platform while they focus Windows Mobile 7 on individual consumers.

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  3. I essentially agree with your assessment, but there is a glimmer of hope for RIM (not that I care for there to be) in having bought QNX. QNX, by the way, already runs on the Tegra2, which will probably be this holiday-season's big winner, in terms of chips. I believe RIM does have the ingredients to compete; the question is whether they'll mix them up properly and get the results to our plates while they're still hot.

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  4. http://bit.ly/cAErQX

    Couple months ago I wrote a short blurb about this kind of thing, linked above. I would say with the introduction of the Droid/Nexus class devices in the last few months do we even have a platform capable of spawning that the Killer App, what I call the modern day DOOM or phones(though not necessarily a game).

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  5. It was amusing to note that during one of Jobs's recent Apple event speeches he grandly stated that Apple is the largest mobile device company "by revenue." Since their units shipped are dwarfed by other mobile device companies, this statement was synonymous with saying exclaiming, "Apple is the most expensive mobile company!"

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  6. "While everyone is giddy over this new iPhone, I'm wondering why they don't ask Apple about the lack of LTE / WiMax capabilities in this phone. Why isn't their cloud based service free yet when Google's is free to all.​"

    Oh please. Because apple doesn't throw the sink in with every new release those that buy it are ignorant? I could give you ten reasons I prefer the iphone over android, but you'd never believe me because you can't believe anyone could possible choose an iphone over android.

    I love whats coming in the iphone 4. Everything I wanted is there. The fact that they don't have every feature android has means nothing to me. I could care less about 'wimax'.

    If you're into features, have fun with android. If you're into the number of slots and ports, have fun with windows computers.

    Finally, android is gaining, and will pass iphone, because there's many phones running android.. some being given away. Apple doesn't care. And if you actually read the article and agree with it, you'd understand.

    You're completely ignorant about the iphone and apple in general. Just go play with your android and I'll be very happy with my iphone 4.

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  7. "Since their units shipped are dwarfed by other mobile device companies, this statement was synonymous with saying exclaiming, "Apple is the most expensive mobile company!""

    It's the same way with apple computers. Expensive, low market share, the most profit. Same way with mercedes. They sell less cars, make more money.

    Again and again people that picked up iphone 4 said it felt more solid and better quality than anything they'd held before.

    Android phones, for the most part, feel plastic and cheap.

    From the comments on this blog I wonder if anyone actually understand apple, the market, and their business model.

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  8. Wondering if you've seen this:

    http://www.cbc.ca/technology/story/2010/06/15/apple-unlocked-iphone-canada.html

    Apple may be on to something here...

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  9. Gaffi,

    Yes, I saw it this morning. It will be interesting to see if Apple can make this spread. Google couldnt, but they are not exactly major players in terms of directly selling phones.

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  10. ...and people salivate over any iP* like a dog to a bell. I really think this will churn up some new profits for Apple.

    Side note: sorry to hijack your post for a somewhat tangential conversation. ;-)

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