Apple's profits fetish could spell its DOOM
Mobile world will soon be like PCs
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Open ... and Shut The other shoe is about to drop in the mobile market. For years Apple has dominated mobile, both in terms of market share and in terms of profits. It was an enviable position, and a unique one, borne of Apple's commitment to out-innovating the industry, allowing it to consistently charge a premium for its products. But as the industry has matured, Apple has haemorrhaged market share to low-cost Android.
In turn, it is now also losing its hold on industry profits. Given Apple's fetish for profits over market share, it is consigning itself to a repeat of its battle with Microsoft, wherein it ends up as a profitable, but niche, market player.
It was supposed to be different this time. Apple had supposedly learned from its Microsoft mistakes. Hence, even as Android and other new entrants joined the smartphone and tablet markets, Apple lowered prices on older models to fend off threats. Some have praised Apple's pricing strategy, arguing: "Apple's ability to enjoy its impressive margins while offering such a wide range of pricing is evidence of great success at Apple and does not evidence deterioration of Apple as a competitor in the electronics industry."
Yes, it has worked. For a time. But Apple's hold on industry profits is starting to slip, even as its market share plummets. The writing has long been on the wall, even if some refused to see it.
For years, Apple fanbois have pooh-poohed Apple's loss of market share, crowing that it still controlled industry profits. MG Siegler, for example, gushed about all the different ways that Apple is amazingly, shockingly profitable. And it was. Is. But won't be for long. Not to the same extent, anyway.
After all, earlier in 2012, Apple controlled 77 per cent of mobile industry profits. Now that's down to 59 per cent, and this number will continue to fall, no matter what Apple does to boost profitability through chip-making or other means. Why?
Because market share matters.
Henry Blodget captures this nicely over on Business Insider:
The reason market share is important is that mobile is a "platform market." In platform markets, third-party companies build products and services on top of other companies' platforms. As they do, the underlying platforms become more valuable and have greater customer lock-in.Building products and services for multiple platforms is expensive, so platform markets tend to standardize around a single leading platform. As they do so, the power and value of the leading platform increases, and the value of the smaller platforms collapses.
The PC software market is (or was) a platform market, and we saw how powerful that eventually made Microsoft back in the 1990s.
Not only is Apple losing market share in established markets like North America and Western Europe, but it's practically an afterthought in the world's most critical market: China. An Analysys International report, as detailed on BGR.com, shows Android with more than 90 per cent of the China market:
That's up from 58.2 per cent in 2011, and is even more interesting when you see Apple declining in China to 4.2 per cent (from 6 per cent in 2011). In a market with more than one billion subscribers, that's market share Apple can ill-afford to lose.
None of which is good for Apple but all of which is, as I've argued, very good for the industry. Apple has dominated the mobile industry in unhealthy ways. I love the products, but I can't love how the company has hoarded profits for itself. In Microsoft's desktop heyday, its partners made a lot more money than it did. In Apple's mobile dominance, it has captured most of the industry value for itself, even despite one million apps submitted to its App Store, roughly half of which are paid apps.
Apple is a great company, consistently building products that I've been very happy to buy. But its manic desire to control its ecosystem, coupled with its insistence on sky-high margins at the expense of market share, all but ensure that it will soon be an important, but niche, mobile vendor. A few years ago, this seemed impossible, at least, to those who had no memory of the desktop market. But for those of us who lived through Apple vs Microsoft, it's very, very familiar.
What's surprising is that Apple doesn't seem to have learned from its mistakes. It's not enough to be a profitable niche company in a platform market, as Blodget argues. Even profits suffer if a company can't deliver the market share to justify developers focusing on its platform. Apple, so incredibly dominant and profitable just a few years ago, stands to lose both attributes. ®
Matt Asay is vice president of corporate strategy at 10gen, the MongoDB company. Previously he was SVP of business development at Nodeable, which was acquired in October 2012. He was formerly SVP of biz dev at HTML5 start-up Strobe (now part of Facebook) and chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears three times a week on The Register. You can follow him on Twitter @mjasay.
COMMENTS
Huh? To see what Apple are innovating right now, just look at any Android handset. NFC, multi user accounts, widgets, proper notifications, proper multitasking, a framework for apps which actually do scale properly to different form factors rather than fobbing off with letterboxing and err, oh yes, maps. Followed a year later by them suing everyone who dared innovate their innovation first, natch.
Surprise us all
Come on Apple, come up with something pervasive - like a small headset that can be a voice-op phone, or activate voice control on a nearby computer, or pick up timetables from intelligent bus stops, or buzz gently when someone we know is nearby.
How about family photo sharing - all pictures taken by all family members available to all with location and timestamps?
What about a many-sim iphone? or paired iphones, where one number rings more than one phone, like a 1930s plan 1 extension system?
Parked bluetooth (or better wireless method) headsets that charge from the ipad while parked inside it?
Remember 'beaming' your business card from one palm pilot to another. What about tap-to-share-contact-details?
An Identifcation system other than passwords? something like PKI cards, but as a tiny rfid thing in jewellry or watches or phones or badges or spectacles? I would buy a terminal/programming adaptor/app for home, and blank rfid dust. I would then programme/refresh the individual rfid items to identify me for a day, week, month - after which they would die and need replacing. And the terminal could cancel them on request, perhaps by telephoning it. Maybe I would have to be carrying at least 4 to complete succesful ID, so that any one lost/stolen item could not impersonate me. The vendor could sell the terminal; charge a subscription for identifying me; and sell the rfid dust too. Up-front and continuing revenue. Perfect.
Health monitoring and telemetry.
Child tracking.
Panic communities: phones with a panic button, and volunteer responders as well as national ones. (see our community defibrilators in vilages in Lincolnshire for how people are keen to help each other)
How about a version of an LCD photo frame with a sim in it? So that I can take pictures of the kids and send them by MMS to their grandma without her having to to do anything?
How about a 'family status' mirror, for the hallway? Nice big mirror, little individual cells showing where we are, the last message we sent, lat photo we took, happy/busy/bored/need a hug icons? Touch two of them and the mirror duplicates each other's status to each other - "Mum said you need to talk to me" sort of thing.
A bigger, better Siri that can be your friend, learn about you, start to suggest things spontaneously?
Things for the disabled? Pick up the state of pedestrian controlled lights for blind people - "West street, crossing outside No. 8, from North to South pavement, Stop. Go in 15 seconds. 14, 13...". "Cooker turned on but not lit". "Saucepan has been boiling for 8 minutes"
Re: Apple don't have 5 years - @loan 09:52 GMT
"Because that money sitting in the bank will explode?"
Actually, it will. Investors allow Apple to sit on the cash whilst the share price rockets, or when investors believe you are using or will use that cash in a good way. At the moment Apple pay for R&D out of revenues and still add to the cash pile, so they don't really need it. Corporate investors aren't fanbois, and they'll be pushing the board to hand the money back before long, particularly now the share price has topped out.
As one of, or the world's most valuable company by market capitalisation, they can't continue the meteoric rise in share price. So investors will let them bide their time for a while. But Cook is no Jobs, and unless Apple start to show a use for the cash, then the investors will want it back. My guess is that Apple's management will eventually start splashing out buying companies because they've no better idea of what to do with the money (and they'll be in no hurry to give money to the shareholders, even if they do own the company). And ARM are currently the obvious number one target. The only reason that ARM haven't been hoovered up by a cash rich US firm yet is because of the fear that the first mover will trigger a nuclear bidding war, with Google, Apple and Microsoft slugging it out, possibly with some incoming from the likes of Samsung or Qualcomm. Intel would probably be barred by market share reasons, although if Apple owned ARM then suddenly Intel have the custom of every other phone and tablet maker.
Doesn't really bear thinking about, with Apple's twatty management, and their childish approach to patents and litigation.
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