Revisiting Apple's iPhone strategy

In the post I wrote about Rich Miner of Google saying that the Android mobile software stack will gain more users than the iPhone, several people commented. The general consensus is that Apple is the BMW of the personal computer industry and is the standard for innovation that its competitors, with far more market share, follow. Android is a non-factor.

The challenge for Apple is to keep coming up with proprietary products that fuel its business model, which is based on innovation and R&D around both hardware and software. Since Steve Jobs returned to Apple, the company has had a series of hit products that don't dominate markets (with the exception of the iPod) but appeal to an elite and influential minority. Even Apple's advertising makes the marketing from competitors look tedious and uninspired.

Apple's tightly bound software and hardware provides unique differentiation in a world of mostly undifferentiated PCs and mobile devices. RIM's Blackberry also has had success by controlling its entire product.

Microsoft has made progress with its Windows Vista operating system, and its OEMs (original equipment manufacturers) have created slicker PCs and laptops to run the software, but the Macintosh is still considered a superior product overall.

Jobs is clearly making the right choice for now not to license the Mac, iPhone, or iTunes software to hardware makers. Getting into a battle for OEMs with Microsoft, Google, Symbian, RIM, and Palm, etc. is a losing strategy at this juncture. The best mobile operating system and user experience doesn't necessarily win the deals, even with Steve Jobs as the chief negotiator. Microsoft is extremely capable in working with OEMs and developers, which is a key factor in building out a platform.

On other hand, it would be interesting to see what developers could do if Apple open sourced the iPhone software. The mobile Web experience is the new center of attention and R&D spending in the tech industry. Google's Android will be a good test case. If Android were to become successful, due to its openness and developer community, Apple would feel the heat. An army of smart developers with Google behind it could create a next-generation mobile Web operating system and application platform that challenges Apple far more than the current set of incumbents.

But Jobs is uniquely talented and a master of total product design. Handset manufacturers come up with dozens of phone designs per year, but haven't been able to duplicate the user experience of the iPhone. You could say the Nokia N95, the HTC Touch, and other smartphones have similar capabilities, but they don't match the slickness, pinching, and other capabilities of the Apple device despite its flaws (no 3G network and inaccessible battery, for example). The iPhone is also part of a family of personal devices that will become even more integrated.

Throwing open-source Android into the mix could give mobile device makers a better platform to take on the iPhone, but they will be mostly competing with each other for market share.

The iPhone will continue to be the BMW or Lexus of mobile devices, with modest share and lots of profit and envy from other mobile device makers. However, Apple could stumble, failing to keep up the rapid pace of innovation, but I wouldn't count on it as long as Jobs is in the house.

[dcmosqueda]

Dan,

I agree. I used to think Apple should open up, but in reality they do a much better job of ensuring smart integration. You also can't beat their in-store experience. I personally am willing to drive to Denver vs going to a Best Buy (big mistake on Apple's part because BestBuy is an abomination of a retailer) because Apple store employees are truly empowered to take care of the customer, right now. Try that at a any big box. That's why PCs will continue their downward slope.

By the way, my next car: BMW

[AppleSuxLeo]

Downward slope ? Windows has 98% worldwide market share. Windows is akin to an open system since you can build your own PC and customize it as you wish. Apple will never have big market share due to their restrictive , closed system.As an example, iTunes is already losing market share very quickly to AmazonMP3 , due to Amazon NOT having DRM and giving you a much higher bitrate at a lower cost.
And guess what ? Amazon`s MP3`s will play on ANY device ! Hence you have CHOICE.
Example #2: HULU is hurting Apple`s video downloads already. Why ? Because it is free , high-quality , and works on ANY platform. So one need not buy into the overpriced , propritary , Apple/Jobs ecosystem ;)

[knute6]

APPLE has hit the right chord. A computer in your hand. I visit Las Vegas at least 5 times a year (not to gamble) for product research at trade shows ie... the Shot Show, Bicycle Show, Shoe Show, ASD Merchandizing Show. The biggest confounding problem in years past has been vendors representing themselves as Wholesale distributors when in fact they're not. Several times in the past (pre-iPhone) I have been hordswaggled into buying products not at actual wholesale but above wholesale. Now I can immediately check pricing on my iPhone as I speak to the wholesale vendors and make certain the price is right. Computers for the rest of us!!!!!

[gmon750]

Fully supported. Too many players involved just leads to different opinions about how to build something which results in just another failed attempt. Apple builds great hardware and software. It's like buying a new car and just putting the key in the ignition. It all works. It's what the open-source community and a lot of big corporate players just refuse to understand. You can create the greatest piece of hardware in the world but it's also the software that makes it or breaks it. Most folks just haven't gotten it or just refuse to accept it.

[artpease]

How do I read this article. I get:
Tag parser: Expected start tag before '</cnet:blog>'
in both Safari and Firefox

[rajeshmail201]

It works fine for me using firefox. Safari sucks anyway.

[jameskatt]

Apple's challenge is not to keep creating proprietary products - thus I think you are wrong. As Steve Jobs said, Apple's challenge - which is built into its genes as a company - is to keep building the best products it can of any category. As long as it does this, its customers will come. As long as it does this, Apple will be profitable. Apple does not have to lead in marketshare. Apple only needs to be profitable. And they are a money making machine - far more profitable for marketshare than Microsoft.

Apple uniquely also makes the entire widget. This is an enormous competitive edge which competitors cannot match. Android may have a hoard of developers, but just like Linux, it won't ultimately be competitive or as good as an Apple product - where the software can be tightly integrated with the hardware, creating a better user experience.

Apple has their own stores and has created a third party ecosystem. This is another huge advantage over other competitors. There is not only the iPhone, but all the accessories that can be purchased for it that make it a more compelling product for the consumer. Just having a variety of cases from many manufacturers allows users to personalize their iPhones - what other smart phone users can't do. Apple's stores also allow users to entire the Apple family of products, which creates a huge momentum for future purchases and creates brand loyalty stronger than competitors such as Sony - whose own stores are pathetic in comparison.

Apple is a world onto itself with iPhone as just one door.

[rajeshmail201]

I bet you ejaculated after writing the last line fantasizing about Steve.

[ArtInvent]

If Apple appealed as much to everyone as it does to their core fans, I guess I could agree. But Apple's singular vision of computing tightly orchestrated and controlled is a two edged sword. Apple is indeed very much like BMW. A car brand that probably everyone admires but that simply doesn't appeal to everyone or fit in with their needs, and for whatever reason has a consistently minor market share. Whether it's profitable to APPLE or not isn't what concerns Google, the major handset manufacturers, and the billions of customers who could use Internet In Your Pocket but will likely not ever buy anything from Apple.

So this article isn't really about Apples acknowledged superior design or whether everyone holds at least some grudging admiration for Apple's products and innovation. It's about Google's recognition that the iPhone very likely won't penetrate the whole market; how Apple shows no intention of licensing any of their magic juju at all to those manufacturers who are likely to sell by far the most handsets; and that Google's entire business and intention is to serve the internet to the masses, not just those for whom Apple fits to a tee. Google is not at all a boutique purveyor of fine computing experience for the discerning few as Apple clearly thrives on being.

Google would be idiotic to bet the farm on Apple becoming the major purveyor of Internet In Your Pocket. Others will probably assume that mantle and Android is a big tool to help them along. Google sees a billion eyes running through their search and ads, not a few million.

[dfarber]

Agree with your points...Google is about creating a platform for its applications, services and ad sales....and the competition isn't Apple...but MS and others. It's also interesting the Google CEO Eric Schmidt is on Apple's board. How might that play out? Apple could adopt some aspects of Android or find a way for the apps to work on its platform...

[maxgladius]

I don't agree with the article. I own an IT consulting firm. I believe that if apple would let people run its OS on any hardware they would find much more customers. (talking about MAC, not Iphone) Comparing to other hardware manufacturers, Apple's hardware is much more expensive, its missing 3rd part enterprise options, and its not as flexible and adjustable like Dell for example. Speaking of quality and components - Apple uses Intel components inside, just like Dell. I believe motherboards, videocards and other parts are very similar and Leopard woud work great on Dell equipment, and it would be so much easier to sell right server equpment to a customer. Apple only has 2 server options.
On Iphone - great product. But I refuse to switch my company to Iphone because I don't want to deal with ATT. Nothing wrong with ATT itself, its just I don't like to be forced to deal with one company only, and by the way they are more expensive then T-mobile lets say. Businesses look at operating cost, and I don't see why I have to pay $60 month exta per cell phone per month just because its Iphone.

Customer service - maybe their Apple store has good support, but common. Today business expects 4 hour responce, onsite support. And by the way, Apple's phone support is not that great + you can not extend warranties as long as you can do that with other manufacturers.

[Lee in San Diego]

" I own an IT consulting firm. I believe that if apple would let people run its OS on any hardware they would find much more customers. (talking about MAC, not Iphone)"

I will forgive you for referring the Mac as a MAC, maybe it was just an IT person's habit and all your experience with computers on networks.

[Justin_McGroin]

Yeah, and your "consulting" firm can't consult on Macs because:

1. You don't even know how to spell it. It is not spelled with ALL CAPS, Einstein.


2. You repeat the nonsense that Apple should sell the OS for @129 rather than the whole computer at $1299. And you consider this good business.

3. If they sold it to run on Dells, would you buy it? Since you can't spell it, I doubt it. Apple would lose their ass and you'd still be buying Windows.

4. As others have said, Macs are NOT more expensive. But since most likely what you consider a "computer" is a cheap plastic tower with a generic off-brand motherboard, cheapest Intel CPU (probably a Pentium not a Core 2 Duo), and you INSIST on having a floppy drive, "spare drive bays", and "at least one spare PCIe slot", and oh, - a "decent" video card, then of course you aren't going to find a Mac that is a piece of junk like that. If all you want is a $399 tower special, have at it. after you finish struggling to set it up and type in registration codes, clean off the trialware, install your ad-Aware crap, and finding the right drivers, make a note to check Dell's market cap versus Apple's.

5. "Flexibility." Apple's not going to make 216 different models just so you can flip though the pages of the catalog and then still go buy a Dell. Screw that. They have a full range of computers that can do anything you want, unless of course you insist that they work with your proprietary nonstandard Microsoft crap. Even then, you can run Windows on the Mac if you want, but you won't because you want the $299 Dell special with 6 empty PCIe slots and 18 spare drive bays, along with 47 USB ports.

[r8ix]

"On Iphone - great product. But I refuse to switch my company to Iphone because I don't want to deal with ATT. Nothing wrong with ATT itself, its just I don't like to be forced to deal with one company only, and by the way they are more expensive then T-mobile lets say. Businesses look at operating cost, and I don't see why I have to pay $60 month exta per cell phone per month just because its Iphone."

Hmm?
T-Mobile: 1000 minutes, unlimited data & email: $79.97 (blackberry)
ATT: 900 minutes (+rollover), unlimited data &email: $79.99 (iPhone)

How is that $60 per month more expensive? looks like $.03 to me.
(yeah, more options might be nice, but let's be fair here.)

[r8ix]

Also:
T-mobile: unlimited voice, data, email: $129.97 ($99.99 + $29.98)
iPhone: unlimited voice, data, email: $119.99 ($99.99 + $20.00)

in this case, ATT/iPhone is cheaper.

[blrhead]

hey there, although I do respect your position, I disagree with your comment. I also do IT and I switched over to MAC because I got tired of the same old problems. It didnt matter if I bought a new machine from Dell or made my own PC. I want to work on something or buy a machine that is going to work. Apple is an industry leader and it will be, just like BMW...

[gmon750]

On the contrary... I too own an IT consulting firm with employees. Working on Wintel machines and their networks are a constant hand-holding effort. Especially on the desktop clients. If you prefer babysitting (and charging) to maintain disparate components, all constantly unstable due to driver issues, viruses then in that case, you have job security.

Licensing Mac OSX to the Dells, HP, and beige-boxes would be the worst mistake. That is why Apple's OS works so well. They control every apsect of its design. Tight integration between hardware/software mean users (and consultants) can work on valid business issues instead of the constant maintenance that a windows solution creates. Having other players trying to make their hardware work with OSX may be nice, but Apple rightfully should refuse to deal with the headaches of supporting hardware and badly-designed drivers. Your recommendation is just naive or serves to continue your job-security.

My core business is WinTel. But at least on the desktop, I have been slowly converting many of my business clients (and friends) to go the way of Mac. We may not be making as much revenue from them since the platforms are more stable, but the reduction of headaches and middle-of-night service calls certain contains value to us.

[driven01]

Oh good. Someone who still believes Apple is more expensive. When comparing similar hardware, it's not. It hasn't been for quite a long time.

[john55440]

"...Macintosh is still considered a superior product overall..."

97% of the world's personal computer users disagree, and buy something else.

HP is the market leader, with the world's best selling personal computers, and superior products.

[jackmcknife]

You seem to have missed the point.

Best & best-selling are not synonymous.

[laird666]

"97% of the world's personal computer users disagree, and buy something else."

This is a flawed argument. This is like arguing that GM is considered superior to BMW, because they sell more. In reality, everyone knows that BMW makes better cars, even if they end up buying GM because its' cheaper. Apple sells to the "willing to pay more for something better" market, as does BMW.

While on the topic of market share, your 97% is a bit dated = it appears that with Microsoft's missteps with Vista, being better appears to be getting popular - Apple's market share has grown to 8% of US computer sales (and 15% for home computers), while Dell, HP, etc., have all lost market share relative to Apple.

[Kontracnet]

I examined 10 factors that put Apple in an unassailable position in the mobile platform wars and reviewed the weaknesses of iPhone competitors in:

Who can beat iPhone 2.0?
http://counternotions.com/2008/03/10/iphone2-competitors/

[lemieuxd]

WOW! HP has less than 17% market share, no. 1 yes, but that means that 83% of consumers disagree with HP as best choice. The bugger with this market share business is that is does not show long term loyalty to a brand. Someone comes up with a great solution for inkjets and watch HP take a major dive. It's profits will be seriously hurt and therefore so shall it's ability to continue paying for it's R&D. Mind you, I feel on that front it is much better than DELL but it is still fragile simply because the consumer market has surpassed the business market in importance. How much more power do you really need to run a browser, MS Office or a SAP client? Whereas a more pleasant experience with movies, pictures or games does justify upgrading a computer and statistics have shown that most PCs never get opened by the average consumer. They change to a whole new computer and that is why Apple is so well placed. There market share can change dramatically almost overnight.

[mister_moon]

Apple works because it is a closed system with products that are reliable, stable and fun to use. Did I mention easy?

Compare that to the plethora of phones, pc's and third party software on other vendors platforms. Do they work well together? Are they reliable? Are they secure? Are they fun and easy to use?

If open source is so good why are we not running Linux on our home computers? I predict that android will become the number one platform for cybercrime as a result of it's open system.

We should not pander to hackers and geeks when it comes to technology. Our focus should be on the consumer who wants something that is fun, relaible and easy to use. Choice is a bad thing for people who are technically illiterate. I would go as far as saying that restricting what consumers can do is only right and proper. They need to be protected from their own stupidity. The internet is a dangerous place for the unwary.

[enterpriseme]

Best hardware design and best user interface software are Apple's strengths. By choosing not to license software to the hardware manufacturers, they clearly want to keep their vision as a hardware and software company. The question is how long they can keep that vision going. I like the argument that compares Iphone/Mac as a BMW. A BMW is the best choice for some people, but not for a lot of others. Honda and Toyota get biggest market share for automobile in the US but they can not compare to BMW. So as long as Apple sticks with their vision and strategy and not worried much about market share, they will continue to be successful.

[ripragged]

Apple doesn't care about "market share."
Apple doesn't care about "dominating."

Apple's business model is to sell the "whole widget." Apple wants to ensure that anything with the Apple logo runs well every time. In order to accomplish that, Apple must control the hardware and the software. Licensing the software is different from, and would undermine, that business model.

[nonprofit]

Apple doesn't just control because it makes the best product, it does it because it is able to control profit on all aspects of its product, whether it is good or bad for the consumer. Their innovation, which has me writing this comment on a mac, is an excellent response to the failure of the vista. However, I don't see the real benefit to the consumer, and as soon as many of us find another option we will take it.

If the integration of hardware and software is so wonderful, they would open it up to competition, but they don't. This is how they can charge about $500 for a new superdrive for a macbook pro -thank goodness i paid the $349 for an extended warranty ( I guess). Or an imac I bought for my job that was barley used but needed a new board. How much do you ask? $900 -it only cost $1,100. Take for example the ram from there site as compared to other sites on the net. Apple products are made for people with a lot of play money, but my computer lab i built for the kids I work with, has to be stocked by win xp pro machines that I paid $400 dollars for several years ago and still run well. And for the price of repairing one imac, I can upgrade several of the machines. Is there really a need to charge so much for their pc's. I don't think so.

[escape5013]

I'm sorry that you seem to have been incapable of finding alternate sources for RAM and drives etc. , but that must be because you went to Apple instead of shopped around. When I go to the automobile manufacturer for air filter, tires, spark plugs I pay a premium...thats why I shop for these items elsewhere... try it, you'll like it.

[l39driver]

Let's see. My dell gets the control/alt/delete salute about every 45 minutes. My iMac requires control/option/escape maybe once a week, and always with shareware apps. My Siemens Windows based smartphone hangs constantly, the telephone itself sucks, and my iPhone has never hung, and the phone works great. The Apple devices have all the software I need preloaded. Open systems might be wonderful for narrowly based specialty software, but for the majority of users they result in frequent failures. The predominance of Windows has to do with the timing and evolution of the PC. Ironically the lack of OS choice inherent in the Apple software/hardware marriage lets things "just work", while in the Windows world things just don't work, and there is no real choice. (i.e. every Dell, HP etc comes with Windows)

[Timothy Bandy]

The cellphone market will NOT be like the computer market. Apple failed to capture more market share in the computer market because of complete, total and utter mismanagement from about 1985 to 1997 and because big business decided that IBM/Microsoft was the only solution. Also the great success Apple had with the Apple II had no effect on the Mac?they were totally incompatible.
The iPhone is different. It will attack the corporate market with it's new business features and it will completely take over the handheld gaming space?the very two markets Apple has ignored in the past.
Sure there are a lot of BIG players who were in the Smart Phone first but the same was true with the iPod. MS and Sony have poured gobs of money into the mp3 player market and have been so "open" with other partners. What good has it done them?
Now in the smart phone market Sony is so excited about it's Symbian (Nokia) OS that it is doing what? Licensing WinCE? And Symbian is in all those billions of phones Nokia sells. Neither WinCE nor Symbian nor Android will have anything to compete with the new Apple SDK.

[Dorian Mattar]

All the nay sayers, will be proven wrong. In a couple of years from now, the iPhone will be like the iPod... Everywhere!

The Mac will continue to gain market share and Apple will continue to outpace all other PC manufactures.

Everyone keeps thinking of Apple as the Apple of 1998, this is post 1999 and a completely new Apple.

Those still thinking of Apple's market share need, to look at the speed in which Apple is gaining and then calculate how long will it take Apple to hit 30% of the market. If Apple continues it's stride, in 10 years, Apple will be responsible for a Tectonic shift in computing that will open every blind PC user to the fact that there is a choice.

When Linux becomes easy enough to install, it will also erode Windows share.

Watch it happen...

Buckle up and enjoy the ride...

[g15host]

An army of open source developers has not made Linux the predominant desktop OS, and being free has not made PHP the de facto web programming standard. The argument that Android will do for the mobile what Micrososft did for the PC despite the existence of Windows Mobile for years makes no sense, not to mention the fallacy of equating personal devices to the general desktop PC. The failure by MS/Palm/RIM to create one appealing OS platform tthat dominate the mobile space so far is proof enough that people are still looking for something better. Will Android fair better? Maybe, but so far the only advantages pointed out even by its supporters have been its free software lineage and similar operating system capabilities to existing BB/PalmOS/WinMo, with the unstated assumption that OEMs and carriers will jump on it and market it as the agreed upon common standard, flying in the face of other existing mobile OS.

[JadedGamer]

Apple DID license out manufacture of Mac clones, and it almost killed them (Power Computing); one of the first things Jobs did when he returned was to cancel ALL such deals because, unlike the Excel-gazing short-term-focused bean counters in suits, he thinks far ahead. Yes, Apple made money from the licensing deals when the license fees were paid, but lost much more in revenue six months later because people bought the clones instead of Apple hardware (as far as I recall).

Apple are unlikely to make the same mistake again.