x PhoneArena is hiring! Reviewer in the USA

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

Posted: , posted by Michael H.

Tags :

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"
and
"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. 

Conclusion

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. 

78 Comments
  • Options
    Close





Want to comment? Please login or register.

Latest stories