How Apple Can Still Beat Android

Last week – what most predicted – has finally happened: Android passed Apple iPhone in global units sold. This was no surprise. Google’s Android has a much more effective distribution mechanism than Apple’s iPhone. Apple’s iPhone is made by one manufacturer, Apple, and in the US, is only distributed by one service provider – AT&T. On the other hand, Google’s mobile operating system, Android, runs on many hardware manufacturers’ devices (HTC, Motorola, Samsung and others) and is distributed by many service providers in almost every region. It was just a matter of time until this strategy paid off for Google.

This raises the question: Will Android do to the iPhone what Windows has done to the Macintosh? More specifically, will Android make iPhone a niche solution? Even though the Mac was the first successful computer to have a graphical user interface and a mouse, Microsoft came from behind with Windows and reduced the Apple Macintosh computer to about 4% market share. It did so by making Windows practically ubiquitous – distributed by practically all other PC manufacturers.

Is Google Android going to do the same to the iPhone? All early indications are that it will.

So what might Apple do in order to prevent history from repeating itself?

I have a somewhat radical idea that Apple might explore to beat Android. Here are the two clues leading up to it:

Clue #1: The iPod

In the iPod days, Apple effectively maintained close to 70% market share, which appeared to many as a miracle. Especially given that most would agree that the iPod was often not the best portable music player – from a feature/function perspective. When other portable music players were smaller, lighter, had recording capabilities, more memory, more interfaces, and were cheaper, iPod still remained the leader in this sector. How did Apple accomplish this? Apple focused on the experience, innovated rapidly, consistently reduced the price of the product, and went down-market. I’ll relate to each factor in brief:

  • Focused on the experience: The iPod was more of an experience innovation than anything else. Everything from the white earphones to the navigation wheel, the seamless integration with the iTunes software and iTunes online store – were geared to providing the user with a consistent experience which delighted the user. Most competing devices had only part of the solution and did not focus on the entire experience.
  • Innovated rapidly: Every 6-12 months, Apple added capabilities that were often introduced by their competitors, in addition, to something unique and appealing from Apple. In this way, Apple neutralized most competitive advantages brought in by their competitors and added more differentiators. This made it good enough for most of the skeptics and great for anybody that was after this new differentiator. Obviously, the whole iTunes store concept was a huge business model innovation that structurally changed the recorded music industry.
  • Consistently reduced price: With every new product introduction, at least once a year, the price went down by either $50 or $100 per unit. This brought significant pressure for all other competitors who were also forced to drop their prices – even for competitors that had just released their “new product”. This made it unprofitable for these competitors to continue to play the game, and many of these players had to fold their cards and leave the game, each time Apple came out with a new version.
  • Going down market: The iPod classic was too big and expensive for many users. Apple introduced a cheaper music player called the iPod Shuffle to compete with low-end portable music players. It was diminutive and had very few capabilities. No display, for one. But it competed with all the music players in that price range. Then Apple introduced the iPod Nano, a music player which competes with the mid-market music players. So Apple, effectively, has released products which cover the entire music player market, except for the very low-end and niche solutions. Today, only the market for portable music players below $50 is not covered by Apple. But at that price range, the profit margin is so small that any competitor would need to sell great numbers of devices in order to be profitable. Apple is still exposed there – and if someone manages to create a brand which will drive volumes and will be able to make a profit at say $20 retail price per unit, they might come out on top. But that’s not easy.

All in all, Apple continuously cannibalized its own products and made it harder and harder for others to “sneak up on it”.

Clue #2: A key quote

Not long ago, a good friend of mine was in a meeting with the CEO of a Tier-1 global service provider. This was one of the top 5 multi-national carriers in the world. Thoughtfully, the CEO said this in that meeting: “If the iPhone will have an “operator cost” of $200 or less, we will sell nothing but iPhones”. The “operator cost” is the unsubsidized wholesale cost of the phone to the operator. The operator then often marks up the phone to create additional margins, subsidizes it with a long term commitment and a usage plan. Indeed, the bill-of-materials (BOM) of an iPhone 3GS today is below $200. So we’ve reached that point in which such a price could be possible. The concept behind this is that the iPhone offers a better overall value for the overwhelming majority of consumers than any other phone while also being cheaper than most of its closest competitors which have a much higher “operator cost”.

The idea: A $200 unsubsidized and unlocked iPhone

So, what if Apple “suddenly” decides to sell the iPhone for $200 (or less) unsubsidized and unlocked (to a specific service provider)? Perhaps the current iPhone 3GS. Recall, they’ve done similar things before in the iPod era (brought down the price considerably every year, and surprised the market players). This would also meet the criteria in the second clue, above. This would make the iPhone considerably cheaper than its Android competitors.

Can Apple do it?

I think they can. The only question is whether they wish to do so and will they do so. Apple might be pushing off this sort of decision until they see it is required or the time is right. Doing this reduces their margins considerably – right now Apple makes more money on these devices. Also, it is somewhat cannibalistic to their higher-end device sales of the iPhone 4 (and its successors). An unlocked version also is undesired by the channels in many countries – service providers want to be able to retain the customers and phone locking is one mechanism they employ despite the consumer benefit in having an unlocked phone. Service providers might try to put hurdles to unlocking – but I believe Apple would be able to push it through. Whatever is good for the consumer is actually good for Apple in this case – making the iPhone even more attractive to consumers.

What would happen?

For one, this would immediately put considerable pressure on all Android handset manufacturers. Some might be squeezed out of the market entirely. Others will frantically lose margins and profitability – since many may not have the volume of units to make this a good business to be in. Many more consumers will join the “Apple party”. Many folks who are not considering the iPhone because it is either more expensive, or comparable in price, to other handsets, may opt to get one – should consumers become convinced it offers them better value. Apple could, quite easily, return to being the dominant player in smart phones. And with this position secured, continue to earn the most in this enormous and rapidly growing market. The gorilla position it enjoyed in the iPod days could last much longer and could affect a much bigger market.

Why we might not see this happen so soon

  • Apple might think that it’s not too late for the market to change: Even though Android adoption curve is very steep, it still has a lot of challenges ahead. It is very fragmented with many versions and form factors. Android’s marketplace for applications is still not as effective as Apple’s App Store and it is still dealing with many quality and security issues. Applications are more likely to be affected by malware due to the relaxed management of the application landscape. The new users are no longer the tech-savvy early adopters, and the jury is out as to whether these users will grow as passionate about their device as the iPhone users have. So far, iPhone users are much more loyal than Android users. So Apple might think that the time is not yet right to reduce the margins.
  • Apple might wish to remain only in the higher tier: Until now, Apple has never made low-end PCs (I’m not considering the iPad a PC). They chose to remain at the high end. They might choose to do the same in this case.
  • It might still cost too much: While the BOM of an iPhone might be less than $200, it might still cost much more over its entire life-cycle, including the support and maintenance costs, to sell an iPhone at this price.
  • Perceived act of desperation: Apple has never been more successful and has recently become the #1 valued technology company, replacing Microsoft in this enviable position. This move might appear an act of desperation and shareholder reaction might negatively affect its stock, hence shareholder value.
  • An unlocked iPhone might suffer in some geographies: In many geographies, locking the iPhone by Apple was a business decision to get service providers on board – the service providers wanted exclusivity first, and if not exclusivity, at least the ability to lock the customers in through technical and business constraints. Some service providers might discontinue selling or promoting the iPhone to pressure Apple again. Apple might consider this a significant risk and therefore avoid doing it.
  • Apple might lose in a price war: Price wars are dangerous. Apple might start it, but a leading manufacturer might match their price reduction, and an all-on price war might begin where everybody loses as value declines. Consumers pay less, but the margins continuously shrink. Apple too, could ultimately lose in this war.
  • There might be better ways to beat Android: Some think that a Verizon iPhone would be a killer. I’m not sure Apple will produce a CDMA flavor of an iPhone, but they just may.

Will it work?

It just might! Android is open, sold by dozens of equipment manufactures and has several very successful phone models, such as HTC EVO 4G, Samsung Galaxy S, and Motorola Droid. It’s sold and promoted by practically all service providers. It will soon appear on other devices besides phones ranging from TV set top boxes to tablets to healthcare products. Yet, if Apple closes the “low-end” and undercuts most of Android phones, the ripple effect described above, could pay off. Consumers and businesses will chose their phone, and at this price, it would be extremely compelling for most potential buyers, hence arresting the ascent of Android – and any other competitive threat from RIM, Nokia, or Microsoft’s mobile operating systems.

So, I’ve made a case that Apple has at least one trick up its sleeve against Android. I think it has a few more.

Do you think Apple would do this? If so, when and why?

22 thoughts on “How Apple Can Still Beat Android”

  1. I don’t think Apple will do it, at least not in near future.
    They won’t try to compete using their older models. They want new users of apple to see and experience their latest innovations (like retina display – by the way i love the retina display on my new iPhone) and not try to win them using lower price but older model.

  2. I just can’t see this happening. Apple has these “values” that they hold close to their heart even if it means lost revenues.

    Here’s a good example: They just pulled off an app from the App Store called “Camera+”, because the developer (taptaptap) added an “easter egg” that enabled taking a picture by pressing the volume button, which apple didn’t like. So the pulled the app from the store. This app sold more than 500,000$ in revenue, meaning a profit of around 150,000$ for Apple, that they chose to give up on.

    Second reason: Steve Jobs constantly says that “we don’t want to make just any phone or any computer, we want to make the BEST phone and the best computer. We never really cared about having 90% market share”. It might be a silly excuse, but that was the spirit of what he said.

    Third reason: I think that Apple can’t sell more iPhones even if they wanted to. As you stated – they are just one manufacturer. They just don’t have the capacity.

    The change in the sales figures can easily be attributed to the fact that many people waited for the iPhone 4 once it’s been leaked on Engadget (If I’m not mistaken, the sales figures you stated do not reflect iPhone 4 sales) . Once the iPhone 4 was released, I think that Apple sold them at the highest capacity possible, they simply can’t make them fast enough. They had 10-times more pre-orders for the iPhone 4 compared to the iPhone 3GS. So, perhaps a better question would be: why WOULD they want to expand any further?

    I think that the regular average Joe doesn’t understand and doesn’t even care about the benefits of an unlocked phone. He goes to a CARRIER’s store and chooses a phone to buy, knowing that he will use it ONLY with that carrier. Unlocked phones are still for techies and geeks. Just look at Google’s Nexus One – it was the best unlocked phone on the market, no doubt. Yet Google sold only a few tens of thousands of them, simply because most people didn’t give a damn about it being unlocked and “open”. So – Google stopped selling it. The Droid, HTC Evo, Droid X and Droid 2, however, are selling like crazy, but they are locked down to their carriers and even the OS is modified by the carrier. So I think the market proved the exact opposite of your suggestion (which is a very tempting suggestion for geeks like myself).

    I think the way for Apple to get an even better market share is:

    1. App Store – loosen up its tight control a little bit. They are driving away developers. I am a developer, and got an app rejected recently. However, I did get a call from an Apple PR person explaining to me the issue, and giving me ideas on how to improve my app. So I think they are making good progress there.
    2. Continue to push HTML5 apps as a free and open alternative to the app store. Also – make it easier to use – a new HTML5 store perhaps, like Google’s new “Web store”.
    3. Begin to iterate faster than just once a year. There were times when the 3GS seems very outdated in 2010.
    4. Expand to more carriers.

    On that last note – a CDMA iPhone actually seems like a done deal if the latest rumors are correct:

    http://www.macrumors.com/2010/08/08/apple-reportedly-orders-cdma-chips-for-december-production-run-of-verizon-iphone/

    http://www.macrumors.com/2010/08/09/cortex-a9-based-ipads-verizon-iphone-ios-based-apple-tv-set-for-1q-2011-launch/

  3. I have a slightly different opinion.
    I don’t think that Apple can beat the Android but yes Apple can manage to compete with Android by doing price reduction and innovations.
    This is same as other freeware we have today; e.g. LAMP combination (Linux, Apache, My-SQL and PHP), which is completely free and taking edge on other web technoligies.

  4. Although Apple has overtaken Microsoft, it still makes less profit. So will a lower priced iPhone sell in large enough quantities to increase or at least maintain that profit margin. That’s a big gamble in my opinion that the stock holders will not willingly take.

    There also seems to be a certain ‘bling’ factor associated it iPhones, and may account for some of it’s popularity with non-techies, and every up market brand manufacturer knows that ‘bling’ will be a premium people are willing to pay extra for.

  5. “Android had me at hello” 🙂 The first paragraph explains why. Google today (vs. Apple) sends out similar message to the one sent by Sun Microsystem (vs. Microsoft) in its early days. IMHO. there are some principals which are beyond slick user experience – openness (platform) is one. Linux/Android FTW! 🙂

  6. Nice article!
    There are other considerations for smartphone buyers, that are not affected directly from price.
    Android has won the geek slot in the phone market, same as RIM has won the enterprise slot.
    While Apple maintains its “Appleness”, and a loyal group of Mac and iPhone fans, geeks will prefer an Adnroid phone for its openness both in term of platform-independence and license, even if price is slightly higher.
    Note also, that the iPhone is notorious for poor voice quality, whereas some of the Androids have a superior plain old phone capabilities.
    IMHO while Apple will maintain it’s dominance in the media player scene, in the phone arena it will become a fan club, rather than mainstream.

  7. I think there is a major factor not mentioned here: Android is not for phones only. That could play quite a big role for mass consumption.
    Also, I think the days of tightly closed systems, being them HW or SW, are numbered. Apple should learn from the Microsoft lesson, the world is just too connected to allow islands.

  8. It depends on how you define “beat”, but if you’re talking about sales or market share, I don’t think Apple can beat Android for one simple reason — Apple can’t produce enough devices.

    Apple builds high-end “magical” devices, which is not easy. But they get a great return on these devices, and if Apple produced enough volume to beat Android, quality would go down and iPods/iPads/iPhones wouldn’t feel as magical, and consumer demand would wane.

    So as long as Apple is growing and making bank for their employees and shareholders (and developers), why should beating Android even be a concern?

    1. Thanks for all the comments!

      Ora, while the patent dispute might cost Google and other handset manufacturers money, I doubt it will change the outcome of this war.

      Gurvinder and Oded, I agree they will very unlikely do it. It would be extremely “out of character” for Apple and Steve Jobs, and there are other reasons that I’ve touched on. The point I was making is that they CAN do it, and if they would, it may have a radical impact on the marketplace.

      Kirschi, while it might appear this way, I do not believe the iPhone will be reduced to a “fan club” that has been the position of the Macs for many years. Now, iPhone is mainstream. The question is, will it gain or drop in market share, and whether it can enjoy a dominant position – that of the “gorilla”. This is just one simple, yet somewhat radical, idea in order to do so.

      Radu, you are right. This war is not just about phones, it is about iOS vs. Android. That said, Apple actually has a huge head start in the next OS war – the tablets. While the iPad sold nearly 4M units, no viable competitor is yet in the market. While it took about 2 years for a viable competitor to emerge for the iPhone, it will take much less for iPad competitors to emerge – thanks to Android. This huge advantage Apple has in this space is also at risk for the same reasons. So a win in smart phones will have ramifications across the tablet space as well. Next battle is the TV. Here again we have Apple TV being replaced soon by something else up against Google TV running Android. The implications of the iOS/iPhone-Android war in smartphones will play out here as well. Therefore, any idea to dominate the smartphone scene by Apple or to arrest the meteoric ascent of Android, would be worth considering by Apple.

      Matt, I think Apple could scale up the supply to meet the demand, if it needed to – even maintaining the high quality product. After all, even the iPhone is “mass produced”. But there is certainly no benefit in producing much more than the demand (unless they expect demand to grow). I’ll tell you why it matters that they not lose market share – Apple wants to be the “gorilla”. Why? Geoffrey Moore described it well in his book Inside the Tornado, the gorilla enjoys a unique position, making it the “default” choice for customers. Therefore, it costs the gorilla less to sell, it can command a higher price, and therefore, make the most profit in the process. We are now in the tornado of smartphones. The key challenge during this time is scaling and supplying the demand. But losing market share at this critical time has significant implications for the long term profit from the innovation. That’s why Apple should worry about this.

      One more thing, I stumbled upon another good blog by Joe Wilcox about the topic that discusses Apple’s opportunities. It should be interesting read for anybody interested in this topic. He argues that Apple is expected to lose ground in the smartphone war and thinks the mobile platform wars is a broader battleground yet to play out. I believe that it would be far easier for Apple to win that overall mobile platform war by first arresting the Android trend and dominating the smartphones.

      Thanks for all the comments and feedback!

  9. As always I enjoyed your topic and the conversations. Not a technical person – I’m just the average Joe – so user experience is most important for me. I bought my first iPhone 4 last week and I love it (had a Blackberry previously). I tend to agree with what Oded Shopen commented about (comment #3 above) and his ideas for Apple gaining more market share. As long as there are still consumers around like me, Apple won’t be hurting anytime soon.

    Buying an Android only crossed my mind but I never actually tested it and knew that the iPhone was best for me.

  10. [quote]
    The concept behind this is that the iPhone offers a better overall value for the overwhelming majority of consumers than any other phone while also being cheaper than most of its closest competitors which have a much higher “operator cost”[/quote]

    Who’s concept is this? This position seems to be positioned as a fact with a veil of opinion.

    My issues in the past with the iPhone are more around the limitations is presents from having to use a specific and particular software for updating media to not being able to change my battery (they sometimes go bad, right?)

    Nice article. I don’t agree with much of it but the articulation of the position is delivered very well. Good read.

  11. Nice Read!!
    about the idea itself, I disagree. I unlocked my iPhone when I bought it the first time. In countries like Canada, you do get an unlocked iPhone. Also college student buy 2 iPhones in the states and sell the second one on craigslist.com (wil find an iPhone 4 unlocked for 300$ on craigslist ), at ‘subsidized’ price. Apple has – not guilty until proven – kept the iPhone difficult but not impossible to be unlocked.
    And I never think price will be an issue for person buying an Mac product.

    Also if I think as a consumer not as an apple fan (difficult but meditation helps 🙂 ), I would never buy a phone for its OS, I would buy for the whole deal – including the device. So even if android captures a highest market share, would it eat into iPhone’s share? I surely don’t think so.

    However I do agree that Mac should be worried about loosing the mobile-OS battle (yes the battle not the ‘war’ will be when someone brings out a phone which is equally fast and ‘usable’ on an android platform – Give me a better(battery, brand name, exclusivity) HTC desire and I might think, but till then…the iPhone is going to remain My-Phone.)

    So my 2 cents is head over heels of this article..
    there have been many ‘Top 10 reasons why an Android is better than….’,, but the one that really stands out for me is that ‘Android Lets You Choose Your Hardware ‘…so why not make the OS platform independent (yes it will make it as slow as other)but a light version will surely attract many takers….and will also prove further then you need to have an iPhone4.0 – the WHOLE DEAL :)….as I put it – ‘ A HAPPY MEAL’

  12. Apple can simply permit the iOS (iPhone OS) to run on third-party hardware, and then android will be beaten easily. Apple does not feel beat by Android. In fact comparing iPhone to Android is not right in the first place. Android is an OS and iPhone is a cell phone enabled with iOS. The right comparison can happen between iOS enabled devices i.e. iPhone, iPod Touch and iPad to Android.

  13. I think people are forgetting the elephant in the room. Microsoft’s Windows Phone 7 will be out soon, and I think it has a serious potential to steal a lot of market share from both Apple and Google. Remember, even today, Windows Mobile has a very large market share, mainly due to their business customers. Windows Phone 7 will be a revolution in Microsoft’s approach to its mobile OS – it is a completely different, non-backwards compatible OS that looks very promising.

    And I haven’t even began to talking about HP buying palm for their WebOS… I think for the first time in a long time we’ll have a 3-way, 4-way or even 5-way OS war on our hands. Gives me fond memories of Atari and Amiga :).

  14. Nice blog entry.
    I am not sure why Steve Jobs is not learning from the past and still using the same strategy as it used for MAC.
    The problem with Apple is the restictions. You have to use itunes, you have to have at&t as service provider, you have no other choice in hardware but Iphone.
    While with android, you have various phones available. Its open, which will lead to more android applications in market and many flavours of android. Its easier to adopt by cell phone producers and hence the android phones will increase day by day.
    Android is not limited to only cellphones but also evolving as an OS for other handheld devices. Surely we will see many more android handheld devices in future. Here is the link to one of the recent innovation using android OS: –
    http://www.thedailytell.com/2010/07/indian-engineers-unveil-35-tablet-laptop/

  15. Looks like this has turned into quite a popular post so thought I would share a link sent to me today that looks at the whole apple vs android debate from a different perspective, who is making the profits in the handset market and hence what does that mean for android longer term?

    http://www.theregister.co.uk/2010/08/20/asymco_mobile_profits/

    So, will it come down to profits vs the open source innovation to see where the successful R&D pays off? From this list of posts it seems there are enough people interested in this most popular of consumer devices!!

    1. Keep’em coming. The discussion makes this interesting. I apologize it took me a while to respond – I was traveling and busy on other stuff.

      General comment: This week’s announcement of Apple TV dropping to $99 proves again that Apple and Steve Jobs have a keen sense of how price matters to consumers. Further reinforcing my case – if this is what consumers want, Apple might end up giving it to them!

      Kathleen, indeed – the fact that many people have still not been exposed to these Apple innovations despite their extremely effective marketing means that they have a lot of room for growth even without beating Android.

      Jason, what I have conceptualized is what a $199 iPhone (consumer price with no contract) would imply. At this price point, it would, in my opinion, provide better value than most other similar devices (at least for a time period of probably 12+ months). At that point, the iPhone price/performance is critical. The limitations you are talking about will still exist and will still cause some not to go for an iPhone, as I describe here, but most consumers will not care and would go for an iPhone if it were at $199 – this would effectively cut the market potential of Android and arrest its growth trajectory. What Apple did this week with the Apple TV at $99, for instance, will have dramatic effect on other dedicated OTT streaming devices. It already is causing some concern in OTT players such as Boxee and Roku, even though they both deny it. Also see my dialog with Boxee’s CEO, Avner Ronen’s blog post.

      Vishal, unlocking is not for everybody. Actually, it’s not for most. Most folks would like the convenience of a warranty and buying legitimately and the peace of mind that goes with that. iPhones have gone far beyond merely Mac fans – there are many more iPhones (and there will be) than Mac users. And for the overwhelming majority of people, price is a major issue. It is one of the most determining factors if something can succeed or not. You are absolutely right that most people don’t buy BECAUSE of an OS. But what they buy affects the OS landscape, and that has an impact on many businesses. If Android continues to grow faster than Apple, it will surely eat into Apple market share. Most people don’t wish to carry around two of a particular type of gadget (that gadget being a phone, tablet, watch, portable music player, etc.) – they carry one, if they can. So each Android device sold is one less device sold for Apple. It’s that simple. I wouldn’t really agree that “Android lets you choose your hardware”. Once you chosen a device, you are stuck with it. Do all your purchases and apps go with you when you switch from an HTC EVO 4G on Sprint to a Droid 2 on Verizon? No way! On the other hand, if you buy an app from the App Store and switch your phone or carrier, all your music and apps and most accessories go with you. Thx for the feedback!

      Khalil, they “can”, but they won’t. This is a strategic principal – they must have control over the end product and if they were to let the OS run on non-Apple hardware as some would like, it will not be as vertically integrated and the experience would not be consistent. They claim it, and you can see the result in the Android market and in the Windows market – in terms of end user experience. It’s inconsistent. I am comparing all iOS vs. Android. The first of several battles is taking place on the smart phone front, but it will have impact on the battles to come in the tablet space and others down the line.

      Oded, I think people will indeed forget Windows phone – that’s the subject of another blog post. I actually think HP is way-too-late as well. So I think the real contenders in mobile OS wars are Apple (iOS), Google (Android), Nokia (Symbian) and RIM (Blackberry). Way below them are Microsoft (Windows Mobile 7) and HP/Palm (WebOS).

      Vivek, indeed Android is not just for smart phones, nor is iOS for that matter. The battle will move to other platforms. Apple’s so-called “mistakes” are a strategic choice that has made it the #1 technology company in the world these days. As I indicated above, the closed nature of the platform is in order to regain tight control that leads to consistent user experience. However, as you and I have noted, this could lead to eventual decline. They wouldn’t like that to happen as it has happened to the Mac in its early days (not it is experiencing a revival, in no small part due to the iPhone).

      Ishwinder, thx for link. it has not “won”, it is now leading in terms of number of units sold. That certainly does not mean by revenue to Google vs. Apple in regards to these sales. I think a fork, as suggested by that blog post you referred to, would be not in the best interest of the Android proponents.

      Peter, thx for the great link. It is all about profits at the end of the day. However, I think some Android OEMs are going to invest quite a bit in making their devices competitive with Apple’s. Will they succeed or not is yet to be seen. Most of the recent Android phones are better in one way or another vs. the iPhone 4. But is that going to be enough? Btw, there is split responsibility between Google and the OEMs in the investment in R&D – so they do have some advantages. Overall, I’m quite sure that Google + OEMs will invest more R&D to come up with products (if only because of the redundancy of multiple OEMs developing phones). Apple makes a single concerted investment and rakes all the profits. Explains the EBIT chart quite well, I think.

      Thanks again for all the terrific comments!

  16. The initial success was one of marketing. Apple succeeeded in making the ipod cool in the way that microsoft and sony couldn’t manage. By making it’s control interface minimal it managed to look futuristic and we all rememeber the first time we were wowed by an ipon nano’s colour screen. They succeeded in making a relatively high cost solution a must-have mass-market commodity and got ipod in to the lexicon in the same way that to google means to search on the web.

    In reent times, Apple has lost that marketing genius. See the handling of the “iphone death grip” problems.

    Add that to the fact that the competition how have the same innovative touch screen processes (surprised there’s no IPR there, give the wrangles between microsoft in the past about look and feel) and much of the futuristic edge of the iphone is lost. Once people get in to a non-emotional decision on cost, features etc, why buy apple, the edge is lost.

  17. While it might be presumptuous to think that someone in Apple is reading my blog, there are now rumors, reported by Bloomberg, that Apple is indeed contemplating doing this. I think their timing might be just a bit too late, but still it can be effective. Check it out: http://bloom.bg/iiDmdL.

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