Apple recently posted it’s quarterly earnings reports. $46 billion in Revenue. $14 in pure profit. They now have $97 in cash… cold hard cash. They sold 37 smartphones. They are now the number one smartphone maker by themselves. This quarter puts them #4 all time in the world for earnings in a quarter. All because of a little piece of metal, plastic and glass that you put your ear up to.
Right now, the blogosphere is going nuts. Apple fans are ringing the bells from on high about their favorite company. Apple’s success is so strong it blew the socks off a lot of naysayers. John Gruber over at Daring Fireball has been firing off claim chowder like Rambo in the jungle. People have been saying that Apple can’t keep this up, and yet it continues to do so. So what’s the problem? I personally see a cloud near this silver (hell… platinum) lining.
First, allow me to establish my Apple Hipster cred. I’m an Apple fan since the 80s. My elementary school teacher taught me basic on an apple IIe and my parents got me an Apple IIc a few years later. I was a little late to the Mac but I got my first Centris 650 in College and never looked back. My house is an Apple house, with an iMac, Time Capsule, and two iPhones. I have a plan of getting a replacement iMac, plus a mac mini to set up a media server, as well as an iPad and maybe an Apple TV, depending on what comes out in the next couple of months. So yes I’m very pro Apple here, this is not going to be an Apple bashing article.
Now, why do I see a problem here? Apple is doing great, why should I be bothered? It’s not Apple that I’m really worried about, per se. It’s us. You and me. Mr. and Mrs. consumer. We are consuming these delightful little devices because they do what we want and they entertain us. Before Apple, the market for these devices was weak. Why? Because no one had the right total experience to make the market go nuts. Smartphones once were only for ubergeeks, now they are for everyone who has the money for a cell phone plan. We demanded better, and Apple delivered.
Now why did Apple deliver? Because Steve Jobs had a vision to deliver better. He wanted to make something that he thought was cool and thought a lot of people would agree with him on. He did it because he thought he could do better than what came before. And there’s the problem. Apple is arguably the best at what it’s doing, so good, the competition is having problems. If Apple has no one to be better than, how does Apple improve?
The iPhone in 2007 was lightyears ahead of competition. Blackberry was the big phone at that time, mostly because of their messaging software and strategy to go after corporate customers in large deals. Blackberry is now on the ropes, bleeding cash, can’t release new software on time, and it’s Co-CEOs just stepped down. Palm, a company that created the first digital assistant in the 90s, was bought by HP and eventually spun down and anything based on Palm’s technology was sold in a firesale.
The current competition is Android, a phone OS that runs on multiple handsets. If you have a phone from HTC, Motorola, or Samsung, you are probably running Android. Android is a pretty cool OS with a lot of nice features. In fact, Android has a notification system which Apple partially copied to improve it’s own notification system. Android is also known for being popular with nerds who like to tinker and configure their phone on a very detailed level. Some Android models were very cheap or free with new contract, and are on just about all cell phone carriers worldwide. Android expanded rapidly thanks to Google laying the groundwork, and by licensing the OS for free, farming out the manufacturing to other companies. Really the Android effort is a partnership of multiple companies worldwide, so with so many resources available, it’s not surprising it’s rapid growth.
However, Apple has stayed the course, making adjustments as needed, cautiously but cleverly branching out into new areas so that they did their best to offer a good experience to those involved. Where Android expanded everywhere rapidly, Apple took things one step at a time. Android had the advantage of networks, numbers, price, and incentives. But then what happened to Android?
First, in the US, the iPhone was only on AT&T, but then expanded to Verizon, and recently to Sprint. In other countries, they had already expanded to the best networks, unlike in the US, where they had to use AT&T as a leg up. Android still has the super cheap market, but recently a local carrier in Alabama got the iPhone 4S. And to compound things, Verizon, the largest carrier in the US, said that 55% of the smartphones they sold last quarter were iPhones. They outsold HTC, motorola, Samsung and every other Android manufacturer combined.
Second, Android’s numbers advantage dwindled. They had multiple manufacturers, but HTC is recording losses, Motorola Mobility got bought by Google, and Samsung just got eclipsed as the #1 smartphone maker in the world… by Apple.
Third, Android was cheap or free with new contract, as I said, but the iPhone 3GS price was lowered to $0, and suddenly a whole bunch of people can now get into the iPhone experience just by paying for the service. And this will probably continue, as Apple’s price structures have been pretty predictable.
The only advantage Android has left is incentives. Salesreps at cell phone stores are paid incentives to push certain phones onto customers. While this works at the fringes for someone on the fence, a lot of people don’t like pushy sales reps. They know what they want, they’ve made up their mind. The Apple store gives people the opportunity to relax and experience the technology with or without a rep, and the reps are trained to know what they are showing you. I visit frequently, and the stores are always packed with people. Incentives were never a very great advantage to begin with, and the Verizon figure helps prove that.
Okay that took a long time to set up. Back to the point, why am I worried? Well, Android for a few years was providing competition, but Apple systematically picked that competition apart. Android is far from done, and it might rebound. If it doesn’t, Apple will have no competition. It will be king of the hill, the best of breed. And it will have no one else to compete against in this market. Competing against other choices is what got Apple to where it is now, and without it, even Apple could slow down it’s level of creation.
I like Apple, but I like choice above all else. I like when companies are competing for my dollars, and the more companies generally the better. In the computing industry, we generally like standards so that all our techie devices work together simply, and business managers like to use a small set of technology in order to lower costs, but economists like choices so that one player doesn’t control everything. I personally also like more than one player because those players can “steal” each others best ideas and get better. The race to the top of the economic heap is unending and should never end. When one company dominates all, they have a tendency to fix prices and sit on their laurels, or worse, use that power to get into another market and dominate that.
Now, I do want to clarify that I don’t yet think Apple is a Monopoly, legally speaking, and I don’t think Apple will start acting like an evil monopoly. If you do, not only do you not understand what a Monopoly is, but that’s also another debate. If you think Apple is too controlling and “evil” because of certain things an ubergeek can’t do with an iPhone, I don’t want to talk to you, that’s not what this is about. What I am saying is I want Apple to always get better, and one way to get better is to have a measure of how much better you have to be over the competition. If your behind, you know where you have to get to. If you are ahead, you want to know how far you have to get to stay ahead. If you are so far ahead, or there’s no one in the race, you relax too much. And let’s face it, Apple’s products are not for everyone, as much as some people would say. Android is a great alternative for some people who need to do certain things that the Apple ecosystem won’t let you do without lots of tinkering and voiding of the Apple warranty.
The last thing to say on the point is to address people who will say “well Apple will never do that!” Really? Never? Probably not in the next few years, but what about the next 5? 10? 25? I want the Apple that’s been around for the past decade to be around for much longer, and continue to push things. I want other players to provide healthy competition. I want Apple to be great, and I want the market to drive Apple to be great. I don’t want Apple to be the next Microsoft. I don’t want Apple to crush Samsung or Google. I want to continue to have debates with an Android fans about why I like iOS over Android, and exchange ideas and make the whole world of technology better. I refuse to simply give over my trust to any company, even Apple, without good old fashioned healthy competition.
I’m probably the only Apple fan who looked at Apple’s recent quarterly earnings announcement with a twinge of trepidation.