In the early 1980s, the Macintosh faced an onslaught of competition from an army of PC makers whose products ran Microsoft software. The fight did not end well for Apple. In a few years, Microsoft all but sidelined Apple, and the company almost went out of business. Can Apple, which insists on tight control of its devices, win in an intensely competitive market against rivals that are openly licensing their software to scores of companies? It faces that challenge not only in phones, but also in the market for tablet computers, where the iPad is about to take on a similar set of rivals.
For Apple which has lived the part of the bitter PC history, the stakes are huge, as the mobile computing market could prove to be larger than the PC market ever was. Having a tightly controlled ecosystem, which is what Apple has, is a large short-term advantage and a large long-term disadvantage. The competition this time is more formidable: Android, Windows Mobile, Blackberry and (even) Nokia. For now, the smart phone market is growing so rapidly that the rise of Android has not necessarily been at the expense of the iPhone. That will change as the market matures.
Apple’s stock has soared nearly 50 percent this year, and touched all-time high of $314.74. But the rise of Android has been both sudden and unexpected, and its ascent highlights some of the advantages of an open approach. There is much more rapid innovation taking place in an open environment. For every new version of the iPhone, Android has 20 odd smartphones ready to challenge Apple’s leadership mantle. That leaves little room for error at Apple. The company must continue to create hit products, as a single misstep could give Android and other rivals an opportunity to make inroads and steal market share.
Also, as the number of people with Android phones grows, Android will grow more attractive for app developers. For now, Apple’s App Store, with more than 250,000 applications, enjoys a large advantage over the Android Market, which has about 80,000. And those numbers don’t tell the whole story. Apps made for the iPhone tend to be of better quality, are more frequently downloaded and on average are more profitable for developers. But that edge may not last, especially as many developers fret about Apple’s tight control over the App Store.
While the naysayers stack up, the view isn’t as dooming as it seems for Apple. For starters, Apple is the richest company in the technology industry. With $45.8 billion in cash, it can afford to invest heavily in research and development. Apple’s large early lead in devices and developers puts it in a much stronger position than it ever had in the PC market. And because it is one of the largest purchasers of Flash memory, which is one of the most expensive components of a smart phone, it has enormous economies of scale,
What’s more, the iPhone isn’t really fighting alone. The two other devices that run Apple’s iOS mobile software, the iPad and the iPod Touch, further strengthen the iPhone, because consumers like being able to access the content and applications they bought on iTunes and the App Store on multiple devices. Apple has sold more than 120 million iOS devices.
And while Apple’s personal computers were by and large technically superior to Microsoft-based PCs, they were also far more expensive. In the smart phone market, carriers, who play a vital role in distribution, have been willing to subsidize the iPhone so that its cost to consumers is roughly the same as that of comparable Android phones.
Bottomline: Apple may lose its overall leadership, but maintain a share of the market that could easily be in the 25 percent to 30 percent range at a very profitable level. Even that is enough to sustain a very large and very profitable business.