Is Apple on the brink of "repeating the mistakes of the Mac era"?

Is Apple on the brink of
We have made no bones about it, we're a little soured on the notion of analysts, because they tend to just tell us stuff that we already know. But, this time around, we're kind of interested, because this prediction, while something we've heard (and said ourselves), is very detailed as to why Apple may be heading for a repeat of "the mistakes of the Mac era". As we said, this is a concern that we have heard before, because many things about the current iOS vs Android fight are quite a bit like the Mac vs Windows fight that we saw so long ago. 

This time around, the questions come from Sector & Sovereign Research (S&SR), which has put together some pretty compelling info, and some dire warnings for Apple to consider. We'll tackle each in turn, starting with: 

"Apple caused a paradigm shift and reaped a windfall, but now faces strategic challenges that will require changing the company DNA"

The idea here is that while Apple started the smartphone revolution with the iPhone in 2007, and changed how mobile users can engage with the Internet, the current trend is moving to cloud-based services. In other words, we're moving from a hardware-centric market (Apple's strength), to a cloud software based market (Google/Microsoft/Amazon's strengths). 

We do agree that the market is shifting towards cloud platforms, but we're not totally sold on the idea that will require Apple to "[change] the company DNA". We'll come back to this point in a minute though, because another of the positions laid out by S&SR is very closely tied to this one: 

"Platforms are integrating cloud services as critical elements of the user experience, but Apple is far behind in the skills and infrastructure necessary"

The idea here is an extension of the last in that the rise of cloud-based services is "tying users to a broader architecture, with significant revenue opportunities from advertising, e-commerce, subscriptions, and services." The trouble we have here is with the idea that Apple is "far behind in the skills and infrastructure necessary" for this kind of shift. Apple has the skills and infrastructure built from iTunes to be able to compete in this space, the issue for Apple is that its business model is the opposite of Google, Microsoft, and Amazon when it comes to this type of integration. 

Where Apple uses its cloud-services as a way to sell hardware, the other companies use hardware to bring customers to other sources of revenue like advertising (Google), e-commerce (Amazon), and services (Microsoft). The similarity to Mac vs Windows comes in especially clear here because as before, it doesn't matter what platform a user chooses if they still see Google ads and buy products from Amazon, but it certainly helps those companies to offer an integrated system. 

Apple is definitely at a disadvantage in this regard, but we think it may be a bit hyperbolic to say that Apple needs to "[change] the company DNA" in order to compete. Apple has already entered the mobile ad business, and is competing with Google there. Apple has a quality business in iTunes, and has begun work on moving its other software to the cloud. Apple's business model may be aimed at selling hardware, but it is still a company with software experience, so this shift may not be as difficult as one would think. 

That said, even if Apple were to "[change] the company DNA" that would cause more problems, including those related to S&SR's next two points: 

"Android smartphones outsell iPhone 5 to 1 worldwide, while aggressive subsidies on new Android tablets threaten the iPad hegemony"
"Apple is accelerating its refresh cycles and broadening its product line, but can only slow its market share losses while accelerating margin erosion"

We've watched it happening for the past couple years, and there is no arguing the fact that Apple is losing its market share. Android hardware can be far less expensive, especially when backed by a company with little interest in hardware profit margins, like Google and Amazon. There are many different companies in the Android ecosystem and all are working hard to push hardware and software faster than Apple can keep up with its once-a-year update cycle. 

The interesting idea is the second one. Apple is slowing down its market share losses by adding products like the iPad mini, and selling discounted older models of iPhone and iPad, and possibly beginning a 6-month cycle with the newest iPad. But, it could be killing its profit margins in the process, because more frequent updates cuts off sales of a product before the most profitable part of the life cycle. Apple's margins are so good because while the company is making upwards of $400 profit on an iPhone at launch, that hardware only gets cheaper to build, so iPhones sold in the leadup to the next launch make even more profit. 

This is the really dangerous part of the equation for Apple because as we've noted before, Apple's business isn't really concerned with dominating the market share, it's based on dominating profit margins. As we've seen Apple's operating profit dwarfs other companies in the mobile space, and only Samsung is even in the conversation with Apple. 

It's still too early to say whether Apple really is ditching the yearly device cycle, but there are other issues to consider as well:

"The slowly emerging opportunity for mobile platforms in the enterprise is huge, but Apple is poorly positioned to exploit it"

The basis of this argument is pretty simple: enterprise is big business, and with the decline of BlackBerry, there is an opportunity there. However, S&SR isn't too high on Apple's potential. Right now, Apple is seeing some success because many businesses have implemented a "bring-your-own-device" policy, but S&SR doesn't think that model can continue. 

Once you get down to it, Apple products are more expensive, and cannot be as easily customized for proprietary enterprise software as other devices. This is a big reason why Windows ended up winning against Mac, because Mac couldn't break the enterprise market, and had to settle for the education market. We have to agree on this point, because Apple would have to make major changes and concessions to make this work. 

The last point is one that we've all been annoyed with for some time now: 

"Apple’s Thermonuclear War” is a costly, and ineffective distraction – broad cross-licensing agreements are inevitable and beneficial to shareholders"

No argument at all. Aside from the perpetual annoyance of the news behind these lawsuits, and the ridiculous claims levied, the end result is just a waste. S&SR points out that Apple is pursuing "50 different legal actions in 10 different countries, spending hundreds of millions of dollars annually, and distracting its own management in the process". That is a lot of time, money, and resources in pursuit of vengeance. 

Tim Cook has expressed interest in licensing deals instead of lawsuits, but with a new round of lawsuits starting up between Apple and Samsung, we certainly haven't seen any actions to support this interest in deals. 


As we said, a complete rewrite of Apple's DNA may not be in order as S&SR claims, but there are pivots that are necessary. If Apple is to keep its identity, it will have to find ways to keep its profit margins up, and find other sources of revenue. iTunes may have to change from a self-sustaining system, to a store that adds to Apple's profits, and Apple will need to keep pushing forward in efforts in the cloud. 

It's hard to imagine a way that Apple could avoid being the minority platform in the mobile market. Android is everywhere, and Apple can't slow it down. Even Microsoft is showing interesting potential with Windows 8. But, as Apple showed with its recent resurgence in the PC market, having a small market share doesn't matter so much if the profits are there. So, we can't predict the doom of Apple as S&SR has done, but the company is certainly facing quite a lot of threats and will need to change some practices if it is to avoid a repeat of its fate during the Mac era. 



1. zeli007

Posts: 7; Member since: Nov 03, 2012

Apple is boring now. Sorry, iphone is boring !

13. CellularNinja

Posts: 306; Member since: Sep 27, 2011

It all boils down to Apple's stubborn ways, their unwillingness to change.

44. MeoCao unregistered

I think Apple's trouble is not about integrated services but about their ambition to monopolize mobile hardware with too few choices. They should have offered as many choices as possible like sizes, colors, design styles, carriers... Instead they offered just 1 model of iPhones and 1 model (now 2) of iPads and 1 carrier in 4 or 5 years. This can maximize their profits but they have put themselves on a losing course. Android with its huge number of options finally overwhelmed iPhone, iPad will follow suit. Another oppotunity missed for Apple, and this may be their final chance.

66. Nadr1212

Posts: 741; Member since: Sep 22, 2012

Apple, I only say this because I care, YOU'VE GOT TO KEEP UP!!!!!!!!!

77. Nathan_ingx

Posts: 4769; Member since: Mar 07, 2012

You replied to comment 44...I'm sorry but you dialed the wrong number. He's not Apple... Killer thumbnail it!! :D

73. anywherehome

Posts: 971; Member since: Dec 13, 2011

Arrogance, lying, stealing, .... That's Apple Like no antenna gate No ebooks trust No stolen patents, .... Sole deserves just to be hated for this immoral behaviour and punished...

25. _Bone_

Posts: 2155; Member since: Oct 29, 2012

I'd like Apple to remain Android's strong little brother, because competition does great things to consumers, such as the release of the great Nexus 10, or the iPad4 for that matter, which may be the least profitable Apple mobile device, meaning you get great bang for your buck. The problem Apple is facing is that it depends on it's elitist status, but with scratch-gate and Android, Windows improvements, do you still get the best device for that crazy price tag? That's the billion dollar question, as the dream scenario of having hard core fanatics can turn into a nightmare if they take the whole bunch to a different "best" company. At the end of the day, the iPad may see Apple through even if iPhone falls behind, but serious profit cut must come because frankly, their most recent products don't look all that fancy with the aggressively priced Nexuses and Lumias making noise.

53. -box-

Posts: 3991; Member since: Jan 04, 2012

I'd rather see Windows Phone take ios' place, and if apple continues in its ways, that'll happen.

59. Aeires unregistered

Personally, I'd rather see RIM take that spot. MS can keep the PC dominance, let RIM come back like they used to. RIM offered more to the mobile world than MS has.

65. JGuinan007

Posts: 699; Member since: May 19, 2011

PC, Tablet, and smart phone are all merging the companies that releaize this will be the ones who succeed Google gets it, MS gets it and is making strides to get on top of it, Apple is getting pushed off the hill but hasn't fallen yet, Rim fell off the hill and still doesn't get it, Nokia fell of the hill and MS picked them up to buy them or throw them off the cliff, Samsung rides with who ever is on top, Sony is dusting themselves off and starting up the hill again, HTC is trying to be more like Apple and is slipping down the hill all for lack of removable battery and expandable micro sd card slot, LG is leaping over HTC as they slip, Motorola is quiety creeping up the hill, ect ect


Posts: 1; Member since: Nov 29, 2012

Hey guys, believe me or not, I was and android fan the last 2 years( HTC HD, Google NExus, GAlaxy note I, HTC One S), and finally now I've adopted BB 9900, which for me is an awesome smart machine. Ok, some of us need more of business features, and less media function. But as an customer I'm sick of the all expectation that we permanently have from the soft, the screen, the new features of every piece of hardware they are issuing every year. We need a extended tool for communicating with our friends and partners, sharing information and finally have all the information we really need, NOT THE THINGS THEY WANT TO HAVE. So, as I said I'm happy with my new BB and hope new OS 10 and the new premium handset to be a hit for RIM. Respect !

55. webOSlove unregistered

If you care so much about competition then Android shouldn't even be the most popular.

28. AnTuTu

Posts: 1602; Member since: Oct 14, 2012

End of an era coming soon.

79. darkkjedii

Posts: 30969; Member since: Feb 05, 2011

Yeah according to u

80. AnTuTu

Posts: 1602; Member since: Oct 14, 2012

Listen kid, the above mentioned comment "End of an era coming soon" includes the strength of millions of people. So it means according to millions of people "End of an era coming soon"...!! Now bugger off :p

29. InspectorGadget80 unregistered

imacs are boring too.

32. JeffdaBeat unregistered

Nintendo Wii's are boring!

52. protozeloz

Posts: 5396; Member since: Sep 16, 2010

I like my Wii :

2. nak1017

Posts: 328; Member since: Jan 08, 2010

I've been saying this for monthes! They're great at marketing and everything, but if they lose they're trendy status, they'll plateau... and now that they've become "The Man", they're making all the same mistakes they did in the 80's/90's. Cut margins, lower costs, open up development, treat consumers like intelligent people, and for god sake, stop trying to stiffle other people's innovation and get back to having some of your own.

49. redmd

Posts: 1926; Member since: Oct 26, 2011

what's a monthes?

63. nak1017

Posts: 328; Member since: Jan 08, 2010

The result of my typing distracted...

3. AppleConspiracy

Posts: 637; Member since: Oct 18, 2011

Android is the cancer of Apple's dominance in its self-engineered paradigm. It's ever stronger end bigger everytime Apple tries to keep the pace that is doing now with breaking its own rules. Apple created Android and therefore there is little chance that they will keep high profit margins, because, software aside, hardware is shifting its center from iDevices to Android/Win8 concept, which is basically again on the road to the convergence with PC world - something Apple is trying to avoid all the time. So, I think they should change their DNA (like they did last time with mobile revolution). Because it's precisely its current DNA that's causing Android metastasis.

12. CellularNinja

Posts: 306; Member since: Sep 27, 2011

Apple created Android? Sorry I'm having trouble getting past this. This has to be one of the most ridiculous statements I've ever heard.

19. AppleConspiracy

Posts: 637; Member since: Oct 18, 2011

I'm speaking metaphorically, but this way I say more truth than to say Google created it. The paradigm of mobile IT that revolutionized the industry is created by Apple, and everything Android accomplished in past couple of years thru its development is guided by the laws (competing and surpassing them) created by Apple. So, in a way, Android is the effect of Apple that is destined to destroy it. My comparison with cancer metastasis is not a coincidence - its exactly the same mechanism of domino effect and multiplicity.

21. joey_sfb

Posts: 6794; Member since: Mar 29, 2012

Apple walled garden create a need for google to create Android, apple wants everything including google's Ad revenue source. Now even microsoft windows 8 follow that path. Android existence is for Google long tern survival.

45. CellularNinja

Posts: 306; Member since: Sep 27, 2011

@AppleConspiracy Oh okay I see what you're saying.

60. webOSlove unregistered

Judging by your picture and statement of "Apple is destined to destroy Android", I'm not even going to take you seriously.

68. jroc74

Posts: 6023; Member since: Dec 30, 2010

When I saw your post on my phone, I knew ppl were gonna take that literally, hence all the red I got it when I first read it. Thats also why I say MS should have never allowed Android to do what it did. Android filled a void that was missing.

23. Jobes

Posts: 364; Member since: Oct 27, 2011

I don't think AppleConspiracy was being literal.. I think he means Android is a byproduct of Apples existence in mobile. There cant be light without dark ;) yin yang lol

71. AppleConspiracy

Posts: 637; Member since: Oct 18, 2011

Something like that. Every oppressive system generates its counter-movement through subversive signs. Android has clearly emerged from Apple's system by striking it where system was oppressed - for instance, openess, multiple choices etc. - but still in the same mobile paradigm. Without Apple, Android would perhaps exist but would be in a completely different form... like old BlackBerry perhaps...

* Some comments have been hidden, because they don't meet the discussions rules.

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