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Carriggxcy · Posted: Mon 5:42, 30 Sep 2013 Post subject: not in the hardware&quot

Apple's Massive Ecosystem Blunder
In reaction to my post about "Apple's Loser Technique" fairly a few readers criticized me for supposedly "failing to comprehend" that the value of the Iphone is "not in the hardware" (where numerous rivals have arguably equaled the Apple iphone in quality), but in the "software" and Apple's unique "ecosystem."
In this article, I will show that it is the supporters of Apple's (AAPL) ultrapremium pricing technique that evidently do not understand the true worth of Apple's software program and ecosystem. If they did really understand the value of Apple's ecosystem, they would be creating the exact reverse arguments in terms of the tradeoff between margins and market share.
Software ecosystems derive their worth from volume and marketplace share,[url=http://www.texashiking.com/chanelbags.aspx]replica chanel bags[/url], first and foremost. In the longrun, sustainably higher revenue margins are simply a byproduct of mass adoption of the ecosystem.
The International Cellular Ecosystem War
First of all, let's get one thing straight: Apple is not the only cellular gadget company that is in the business of making sticky softwarebased "ecosystems." Apple's rivals this kind of as Google (GOOG), Microsoft (MSFT) and BlackBerry (BBRY) are rapidly catching up in that regard. Whether it be new variations of iTunes, games, application stores or the integration of numerous productivity tools, Apple's ecosystem is rapidly and constantly becoming much less unique as competitors build out their personal ecosystems.
But this is truly the important stage, so spend attention: If the worth of Apple's cellular products is really all about the worth of its "ecosystem," then Apple should be doing every thing it can to improve marketplace share rather than to overprotect ultimately unsustainable profit margins.
Ecosystems only have worth if sufficient people are participating in them. Failure to recognize this was the deadly error of Apple's Mac technique in the 1980s and 1990s and it was the magic formula of Microsoft's success throughout this time period. The success of a software program ecosystem in the end is dependent initial and foremost on the quantity of individuals that adopt it. Sustainable revenue margins are a direct byproduct of marketplace share, not top quality quality per se.
Microsoft figured out that it was much much more essential to get people all about the world hooked to their extremely sticky Windows and Workplace "ecosystems" than it was to maximize a fleeting picture as a top quality item. Therefore, they permitted and even encouraged cheap computers to run their software. Furthermore,[url=http://www.texashiking.com/chanelbags.aspx]replica chanel handbags[/url], Microsoft never vigorously fought software program piracy in rising markets as a lot as it could have because it was making Microsoft ecosystem addicts out of individuals that could not afford their fullpriced software program today, but that would be able to afford it tomorrow. Microsoft's technique labored Apple's failed.
So, if it is truly accurate that Apple is mainly in the software "ecosystem" company these days (as opposed to the hardware company), then it ought to be adopting a Microsofttype strategy of marketshare gain and mass adoption, rather than a "Louis Vuitton" strategy.
Apple Is Combating Old Wars and Losing Once more
Correct now, Apple is obviously losing the globally "ecosystem" war to Google's Android. Certainly,[url=http://www.texashiking.com/chanelbags.aspx]cheap chanel replica[/url], Apple is currently in the procedure of merely surrendering the vast majority of the world's territory with out even a fight. And with its recent choice to offer its 5C phone in China at over $700, Apple is committing a colossal mistake, relegating its company to provide a fairly little international niche.
Apple produced a comparable mistake in the eighties and 1990s, and the company nearly went bankrupt as a result. The previously dominant Mac rapidly misplaced marketplace share to inferior but rapidly improving Windowsbased products till Mac ultimately grew to become a marginal highpriced player in the marketplace. The worth of Mac's formerly vaunted ecosystem collapsed in part because software program developers stopped creating software for the system (due to relatively low volumes) and in component because consumers did not want or need an expensive pc with an ecosystem that was not compatible with the nowdominant Home windows ecosystem.
Some Apple supporters seem to believe Apple's comeback was by some means a vindication of its previous Mac technique originally laid out by Steve Work. That is a complete misreading of background. The real lesson of Apple's comeback is this: When it arrives to software ecosystems, if you lose the fight for market share, you lose the war, and you might as nicely get your company to make some other kind of item. That in fact, was what Apple was ultimately pressured to do in order to survive: Go out and make totally different products, because their Mac technique was a total failure.
Incredibly, Apple appears not to have discovered its lesson and is now stubbornly reapplying the unsuccessful Mac strategy to its more recent line of goods. And the result will be much the exact same if they persist: Marketshare loss, relegation as a market participant and eventual remarkable margin erosion.
Bodily Proportions of Experiential Goods
Some individuals believe that Apple can carry on to grow a $500 billion marketplace cap by becoming a niche luxurious supplier of consumer electronics. It cannot.
First, we should comprehend that Apple's value cannot be sustained by the physical aesthetics of its goods, this kind of as with a Louis Vuitton purse. In contrast to a Louis Vuitton handbag, Apple consumer electronics products should in the end be successful or fail primarily based on the differentiated functionality they offer to their users.
2nd, Apple cannot sustain a $500 billion market cap and its consequent status as the largest company in the S 500 (SPY) by producing luxury hardware. A $500 billion market cap depends on a massive volume of revenue. This necessarily involves mass production. Nearly by definition, luxury components cannot be massproduced. In a massproduced item, the high quality of craftsmanship and materials cannot offer the main foundation for a sustainable aggressive advantage simply because it is merely as well easy to imitate massproduced hardware.
Luxury components this kind of as a Rolex view can sustain their "luxurious" designation in component by way of genuine physical differences produced by differentiated costly inputs and artisan labor (craftsmanship). By its very nature, the artisanal (as opposed to massproduced) development and provide of Rolex watches is made scarce by physical (material and human) limitations and costs.
By distinction, the differentiation of Apple's consumer electronics products should ultimately depend on differentiated performance, and most of this performance is a make a difference of a software program "ecosystem."
Software ecosystems cannot be sustained as luxury goods for two factors: First, the experiential worth of any software ecosystem has no real bodily provide constraint. 2nd, softwarebased experiences are relatively effortlessly commoditized and sent to consumers at close to zero marginal price.
Let us take an instance. A business plan primarily based on promoting Rolex watches to middle class people in India is unlikely to succeed simply because the parts and specialized craftsmanship required to produce Rolex watches costs much more than typical middle course people in India can pay for. With Rolex watches, higher prices are largely a perform of physical limitations.
Consider another kind of premium experiential product: Upscale vacation resort vacations. Encounters such as those supplied by luxurious holiday resorts cannot be replicated or dispersed cheaply because there is a very costly physical dimension involved with hotel building, seaside front home, swarms of serviceproviding workers, etc. high ROIC) sell even the most sophisticated software program "ecosystem" in the world at a extremely low cost to consumers. In other words, the marginal cost of creating and distributing an extra unit of a massively adopted premiumquality software item, particularly via the web, is close to zero.
As a outcome, even poor individuals in Africa can afford to accessibility the encounter of the very best softwarebased ecosystem, even if they don't actually own a computer or any other electronic gadget (they go to web cafes). In specific, you don't require to personal an Apple iphone to obtain songs, play video clip games or purchase and use various types of applications. You can do all of that with cheap and/or rented hardware. Certainly, at the price Android is heading, there is virtually absolutely nothing that can be skilled on an costly Apple iphone that individuals around the world can't encounter on inexpensive cellular phones within the Android ecosystem.
In this feeling, software program ecosystems are mass democracies by character not unique golf equipment. And businesses that attempt to flip software program ecosystems into exclusive golf equipment will fail.
Not only can any formerly "unique" ecosystem be copied, the lesson of background is that an general superior ecosystem will ultimately emerge from a massively adopted system since software builders will make the most and the best apps for the ecosystem with the most marketplace share because that is where they can obtain the best quantity of possible clients for their software program. This was the dynamic that determined the end result of the Pc ecosystem war (which was misplaced by Apple) and it is presently becoming replicated on an even larger scale with cellular ecosystems.
People require to remember that the attributes of any software ecosystem can be relatively effortlessly copied. And because the same experience provided by any software program function can be fairly easily replicated, it gets to be commoditized over time. Consequently, the top quality worth of the code that supports the ecosystem is only temporary. The more enduring value is created by mass adoption of the ecosystem. Therefore, the genuine important to creating enduring value with an ecosystem is to achieve as a lot mass adoption as feasible.
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