Apple’s Approach Works

I’ve seen a couple of articles over the last day or two about Apple.  One, over at the NY Times, was rather positive, the other, from the Sydney Morning Herald, quoting Netgear CEO Patrick Lo, was decidedly not.  They both raise the notion that Apple’s closed platform is at risk of being overtaken by more open platforms in the same way Windows won the desktop war and that it means Apple will fail.

Lo seems to be of the opinion that if Apple don’t open up once they lose ‘thought leader’ Steve Jobs they will suffer.  Now, I’m no fan of Apple, and not of their walled-garden approach, but I still have an iPod, I still use iTunes and I’ve still considered an iPad.  Hell, I even bought a Mac, although I ran Windows on it.  Does their approach limit choice?  Yes.  Is it good business?  Absolutely.

What Lo fails to realise is that unlike any other tech company, Apple has managed to do a Gillette.  They sell us the razors and the blades.  They make money on the hardware and all the content to use on it.  Now they’re even trying to make money from the apps on your desktop, never mind your phone.  That’s why their sales jumped 71% last quarter.  They only have a 4% share of the PC market (but it’s growing) and less than 20% of the smartphone market (that’s smartphone, they have a tiny sliver of the total mobile phone market), but they still make more money than practically all of their competitors who can’t compete with them in all areas.  They don’t want or need to be the market leaders, they don’t want to go the “stack ‘em high, sell ‘em cheap” route.  They make products people lust over and, in most cases, define the market they’re in (the iPod has replaced ‘MP3 player’ to describe all such devices and the iPhone is largely interchangeable with the word smartphone).

Will the iPhone be overtaken by Android handsets?  Yes.  No doubt about it.  Will Android handset makers make as much money as Apple does?  No.  They’ll be forced to sell their handsets cheaper and none of them have the integration of the Apple platform, so they don’t make money from content.  App stores seem to be springing up all over the place, instead of one consolidated one.  The only company I can see able to compete with Apple for content and apps is Amazon.  Which means the phone makers will only ever make a (decreasing) margin on the hardware.

You could argue that the Windows way is running out of time.  Most tech analysts believe it will be replaced by cloud computing very soon.  Who wants to pay for Windows when you’ll be able to get Linux, Chrome OS and who-knows-what else for free?  Besides, you have to support a vast array of hardware.  Apple’s limited range of hardware is a benefit for them, it means their platform can be stable.  People may have learnt to live with crashes, freezing and hangs on the desktop (thanks Microsoft) but do not want their phone to blue screen mid-call.

So, do I like Apple’s approach?  No.  Do I think it makes business sense?  Yes.  Do I think they fear the rise of Android?  No.  Unless they massively drop the ball, they’ll maintain a small market share and still coin in a truckload of money.  Netgear, on the other hand, with this year’s focus on “IPTV and connecting people's home entertainment devices, such as their TVs and Blu-ray players, to the internet,” need to have a bit of a think, because as yet, I haven’t seen any reason to connect my TV to the internet (and I have a media centre PC).  There needs to be high-speed broadband and content service providers first and they don’t yet exist.  So don’t hold your breath on massive profits at Netgear.  Maybe Lo needs to look to his own future first, because Apple clearly know where they’re going, with or without Jobs.