Skip to comments.The Apple Walled Garden is Grounded in Old Fashioned Product Superiority
Posted on 03/05/2013 1:01:54 AM PST by Swordmaker
The value attributed to ecosystem lock in, such as the value Apple derives through tightly integrating its devices with its proprietary AirPlay, and the iTunes and App Store platforms, for example, is overstated both by industry analysts and by Apples competition. Counter-intuitively, I believe this is a win for Apple, as its competitors focus their efforts on a false equation. Even if switching costs were reduced to zero, few would leave Apples walled garden.
iTunes, App Store and accessories are a significant business for Apple. Recently, Horace Dediu of Asymco noted that these revenues are greater even than the Mac business line. Equally surprising, Apples content, software and accessories business generates more revenues than any mobile phone vendor is generating in total, excepting Samsung:
Users have clearly invested a great deal in Apple-backed apps, content and accessories. I am just not convinced, however, that their intent or effect is to appreciably increase user switching costs. The real switching costs are more elusive to define but of far greater value. Competitors, such as Amazon and Google, appear convinced that app freebies, lower-priced music, below-cost streaming video and near-zero margin hardware will enable them to snare current and potential Apple customers away, hopefully forever. This is a strategy that I believe is doomed to failure.
The fundamental difference between Apple and its competitors lies not at the margins but in the totality of sterling hardware, comprehensive and ongoing support, usability assurances, unequaled product integration and unmatched reliability. To effectively compete with Apple, companies must tackle all of these. Be forewarned: these are costly, take years to achieve, demand a relentless focus and are hard to sustain.
Ready to Switch
Googles Android platform has rapidly overtaken Apple to capture the lions share of the smartphone market. Numerous vendors offer Android phones at a variety of price points and form factors. Android the OS and Android the line of smartphones, has no doubt steadily improved over the past three years. In the mind of many analysts these improvements, when combined with relentless, price-sensitive competition will deeply cut into Apple sales and/or margins. Except, this continues to be proven false. The view which perpetuates the industry is that marketing and high switching costs are preventing many from leaving Apples ecosystem. This is false.
Consider some of the mission-critical and more commonly used smartphone applications across all major platforms. Phone, email, text, mapping and GPS. Skype, web browser and search. Facebook. Instagram. Twitter. Angry Birds. Words with Friends. Are all these or any of these truly so much better on iPhone than on any competitive Android product?
The fact is, for most users and for most user activities, the bulk of their interactions with their smartphone and tablet has a negligible switching cost.
There are numerous other examples. Your Kindle account can easily transfer to a different device. Same with your Netflix and Hulu+ services. YouTube plays just as well on Android as iPhone, maybe better. Yet in their last quarter, Apple sold a record number of iPhones and iPads. Their rather conservative guidance for the following quarter included gross margins between 37.5% and 38.5%.
Apples success is not due to switching costs. Rather, Apple products, systems and service is simply superior.
I do not want to suggest there is no financial cost whatsoever to switching. Your apps and accessories, for example, may become worthless if you move from iPad, say, to the Nexus 7. Plus, there are costs borne through the often tedious process of switching to something new. Additionally, moving your music collection from one platform to the next, for example, or across multiple machines, takes time and patience. These cost. Such costs are real. But, most analysts appear to be overestimating such costs. They operate under the assumption that if only Google or Samsung, for example, can offer viable alternatives to iTunes, then Apple can be beat. This strikes me as a strategic misstep. Instead, these companies need to undertake the long, hard, costly effort of building a truly better product; one that is reliably serviced, simple to operate and fully supported for years to come. To date, who else is doing this?
We can get nearly anything we want, from anywhere, at any time. This has led to reduced prices, more competition and often to greater innovation. It has also created massive uncertainty. Where, exactly, do I go to service my Google Android Nexus LG phone? From my carrier? Who will guarantee it is updated regularly? How well will the newest HTC Android phone work with my Samsung Google Chromebook? What of the content I purchased from the Android Market, which was fully revamped as Google Play?
The real switching cost is manifested through the massive uncertainty that other users face on a regular basis, which Apple users do not.
Anyone remember Google Television? Why are there several Android phones by Googles Motorola division yet for the true Google experience I should purchase a Nexus phone made, this year, by LG? Or a Nexus 7 tablet by Asus. Or a Nexus 10 tablet by Samsung.
The Apple premium is earned not through high switching costs but by the assurances Apple delivers, day after day, and across the millions of customers it sells to and services. Moving me off Paypal and iTunes, for example, and over to Google Play and Google Checkout, is a minor hassle, nothing more. Kill off any iTunes and App Store advantage. Wait for Google, or Amazon or Samsung to have as many active credit cards on file. Assume Apples accessories products become universal standards including for Windows Phone, Blackberry, Nexus tablets, even competitor notebooks. Reduce switching costs to nearly zero. How many will leave the Apple fold? I suspect very few.
The User is the Buyer
One of the revolutionary aspects of this new age of personal computing, where we have rapidly transitioned from PCs and laptops to smartphones and tablets is not only the rise of mobility, nor the rise of the touchscreen nor even the slow, inexorable rise of the voice UI. Rather, this new age of computing has aligned the actual product user with the actual product buyer. This is a clear advantage for Apple. As Steve Jobs noted in 2010:
What I love about the consumer market, that I always hated about the enterprise market, is that we come up with a product, we try to tell everybody about it, and every person votes for themselves. They go yes or no, and if enough of them say yes, we get to come to work tomorrow. Thats how it works. Its really simple. With the enterprise market, its not so simple. The people that use the products dont decide for themselves, and the people that make those decisions sometimes are confused. We love just trying to make the best products in the world for people and having them tell us by how they vote with their wallets whether were on track or not.
I am the buyer. I am the user. I am prepared to switch. Neither my apps, my downloads, nor my music collection is holding me back. Apples competitors have simply failed to offer me equivalent or better value.
Apple competitors are actively copying the parts of Apple that are easiest to copy. Instead, they need to do the hard work of building a superior product, offering superior customer service, committing their company to improving its product, bit by bit, year after year. Like Apple, they need to do everything they can to assure their customers that everything will be exactly the same next year only better. This is hard. This is why Apple is rewarded. This is why so few switch.
If you want on or off the Mac Ping List, Freepmail me.
Apple smells of liberal mental superiority issues.
But I’m just a dumb redneck smuck who refuses twitter, Facebook and texting.
I guess I’m running counter to the market.
I used to have a Droid phone. I finally got tired enough of the way Verizon and Motorola treated me (ie, hanging me out in limbo with no s/w updates, no information as to future s/w updates, and I had to figure out that my phone was EOL’ed myself - neither VZ nor MOT told me) and I got tired of the eternal memory leaks in Android that I switched to an iPhone 5.
I did so with reservations, because I’d built up a suite of apps on the Droid that were fairly useful. In the end, the lack of a reliable OS on the Droid X caused me to bail. The other thing that caused me to bail was the “hot phone” problem. Every now and again, the Droid X would burn up it’s battery charge in 10 minutes - and the phone would become very hot to handle. Again, because my phone had been EOL’ed on software updates, there was no fix that was going to be forthcoming.
The Siri feature of the iPhone 4S and 5 have been intriguing - mostly because they would be of real value while I’m on the road, driving. I could get information or set the phone/system off doing something for me, without having to look at the phone or deal with the UI at all. Just hold down the one button on the iPhone and start asking inane questions. There’s nothing as simple in UI as that out there.
Well, after having been treated like crap by Moto, I didn’t buy their new phone... nor was I going to buy anyone else’s Droid phone, because the slowness of OS updates to Android phones is a function not only of the phone vendor, but also of the carrier. With the iPhone, the s/w updates are a function of Apple alone.
Then, quite frankly, some of the recent cavalier behavior of Google with people’s personal data finished the case for me - I’d rather deal with Apple than Google’s quiet, but pervasive, intrusion into people’s lives.
The one feature of the iPhone 5 that finished the sale was that I could not only encrypt my phone, but the phone could effectively ‘erase’ itself if someone bungled the password X times trying to log in. In today’s police state environment, that was a real feature for me. I’m working on a way to set the number of bungled attempts to something rather low. The factory default is 10 attempts, which I think is too high by at least half.
The nasty truth today with smartphones is that we’re all serfs of some lord and master. You get to choose your lord and master - it could be Google (Android phones), Apple (the iPhone/iPad), RIMM (Blackberry), or Microsoft (the Windows phones), but all of these phones/vendors mean:
1. Someone is going to have access to your data - basically all of your data.
2. Someone is going to control how you move your data around. Sometimes they’re going to charge for it, other times they’re going to add advertising or nonsense to your data.
The best alternative I see so far in this regard is, again, Apple. Google wants all my data “out there, in the cloud,” and with the iPhone, I was happy to learn that I can back up my phone to my local Mac, *and* that I can encrypt the data on the Mac as well. Win/win, as far as I’m concerned. I want less and less of my data “out there” as possible, and it appears that only Apple is lagging in this regard. I see that they have this iCloud product, and it looks a tad better in some aspects, a tad worse than some of Google’s ideas in this regard, but the single biggest win for me is that I get more control over where my data goes in the iCloud/OS X model.
For all those reasons, I’m now on an iPhone. I’m not exactly turning cartwheels, but I’m more confident I know where my data is going...
And Google doesn’t?
You do know that Google played a very real and direct role in getting Obama elected, right?
Is that why Apple is at 20% of the cellphone market, because it is superior, whereas inferior Android has about 70% of the market?
Ditto. Made the same decision last fall for many of the same reasons.
Yes, and just as in the desktop computer market, Apple is more profitable (and still here), whereas one hardware vendor after another has dropped dead of margin compression in the cutthroat “open” PC hardware market.
Dell was just taken private, BTW. That’s a symbol of the problems of the PC market and commodity tech devices. Market share at the expense of profit margins isn’t a sustainable business model.
I expect to see the same thing that’s happened in PC hardware happen all over again in smartphones. It will take another couple years, but the first two to fall dead will likely be Nokia and RIMM. After that, I expect Google’s investment in Motorola to largely go forward and down, as they downshift into low-cost, mediocre devices:
There’s a reason why IBM is still around after all these years: The people at IBM understand that you have to make a profit to stick around. Everyone else that has gone up against IBM has repeated the mistakes the public saw in the PC industry (which were also done in the minicomputer industry, and then the Unix workstation sector) and we’re now starting to see in the smartphone sector.
How many mainframes does IBM ship? Not many. What’s their share of the computing market? Tiny.
What’s their profit margin on mainframe sales? Freakin’ huge, that’s what.
Same deal for Apple. As long as they keep making products which people will buy, even at a supposed ‘premium’ to the commodity market, and they maintain an actual profit margin, they’ll be around.
BTW, I’ve seen the “Google buys Moto, promises to not compete with hardware partners” BS before. It ain’t gonna fly with the other smartphone hardware companies. Their natural response will be to start rolling their own s/w and eventually leave “official” Android behind and become their own s/w vendors as well. I’d wager the first hardware company to leave Google’s official Android s/w behind will be Samsung. We can already see the signs in the latest Samsung offerings. If Google wanted to keep the whip hand on the software, they had to do only *one* thing: not compete with their partners. That’s it.
That’s all they had to do... but they screwed that up. T
The whole smartphone industry is like the computer industry of the last 40 years... on steroids for size and meth for speed. But even for all that, it’s looking just like what I’ve seen (and lived) in the computer industry ‘n’ times before.
Giving away an OS that has portions of it that were lifted from the hard work of other people, numerous buy one, get one, two, and occasionally, even three free offers, and paying sales people to push your productsSamsung spent $9 BILLION in advertising their smartphones including sales spiffs in 2012goes a long way to buying market share. However, Apple owns 80% of the worldwide PROFIT SHARE of all phone profits, not just smart phones! In fact Apple and Samsung split 103% of the profits! That percentage is correct.
It’s very simple, hubby has gone through three droid phones that keep performing poorly after a year. I am still using my iphone4. Same thing with computers... he is on the third or fourth windows crap, while my four year old macbook runs like a new computer. I just laugh while his “trendy” droids go on the blink. Why he continues to buy them, I will never know. I just hand him my Apple when he is in a tough spot. Hmm.. I think I read a story about that a long time ago... LOL
Where I work we just dumped android phones for the techs and went with iPhones. That’s 40 + phones.
I’m using an Android because of my provider but the iPhone is waaay more reliable and intuitive to use.
OTOH the new beautiful iMacs come sans an optical drive. ??? You have to buy a DVD box, sit it on the desk.
The iMac display panel looks like a piece of plate glass, very thin.
Apparently they’ve gone with esthetics over function.
I guess next upgrade will put the motherboard and accessories in a box to keep the display even thinner.
The box will be called the ...iTower.
“Giving away an OS that has portions of it that were lifted from the hard work of other people”
Same with Apple. Or do you think they invented bigger screens and the notification bar?
“numerous buy one, get one, two, and occasionally, even three free offers”
You can get iPhones for free too. But that weird notion that people want a deal and value for their money must be a negative only to Apple worshipers on FR.
” and paying sales people to push your productsSamsung spent $9 BILLION in advertising their smartphones including sales spiffs in 2012”
Of course Apple pays nothing for advertising...Not one dime... No glossy ads, huge billboards, fancy setups in electronic stores, and no dedicated fanatics that pass around Apple propaganda pieces for free. Never seen it.
“However, Apple owns 80% of the worldwide PROFIT SHARE”
Apple makes more money off of me when I buy their stuff! Weeeeeeeeeeee!
Also Apple’s stock continues to plunge. Apple Superiority, baby!!!!!
I honestly think Amazon will be the first to try to break Android.
Still, I don’t like Apple. Just never really liked the interface and controls. To each his own.
Remember, people said much the same when the 3.5" floppy went away. Apple's long-term view is that optical media is dying area, and that direct download, USB storage, and/or SD cards will be sufficient for all of those needs in the near future, if not already in the present. In the meantime, if you still need an optical drive, you can add one (or better yet, use one USB drive between multiple computers, hooked up only when needed).
The iMac display panel looks like a piece of plate glass, very thin.
They're applying the manufacturing progress made with the mobile devices to the laptop and desktop screens as well. These lead to thinner and lighter, yet better devices over time (much like upgrading from a CRT display to an LED set for your living room television).
In all fairness, they give Droids away -- that's a real market-builder. You have to pay a couple hundred bucks to get an iPhone.
I paid $400 for mine so I wouldn't have to get a contract. For me, it's a vastly superior product and it's the only piece of Apple equipment I've ever owned.
I've had mine for six months and I'm still impressed by it.
Again, in fairness, who cares?
If they didnt work, people would not use them. You can get iPhones for free on contract too. Those “free” droids arent literally given away for free, you have to sign up for a contract just like with the iPhone.
And this isnt even considering the high-end Android phones, like the S3 that are not “free”, yet people buy them as much and more than iPhones.
Apple made a HUGE mistake with the Iphone 5 when it changed to the lightning connector.
That connector rendered ALL of my various docks and such obsolete overnight and it the process destroyed much of the reason for my loyalty to Apple products, since I am no longer as invested in their “walled garden”
I have no intention of replacing a single one of those devices and I will actually take a long look at the competition during the next upgrade cycle.
“I paid $400 for mine so I wouldn’t have to get a contract. “
How does that work? How do you get a phone number and what carrier do you use?
I just checked the iPhone5 and the price is quite high but when I checked the carrier prices the lowest was 85.00 per month. I don’t want to do that either.
Currently I use a Tracfone, it’s cheap for the use I give it but the phone does suck. (It’s a Samsung)
An iPhone on the other hand is something I would probably use much more.
Given the amount of money that Bill Gates gives to leftist causes all over the world, the argument that “Apple is a lefty company” appears to be shaky.
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