Menu
Clone of Alibaba (BABA) IPO Shares Jump 36%

Alibaba (BABA) IPO Shares Jump 36%

The Sexiest Halloween Costumes of 2014

The Sexiest Halloween Costumes of 2014

Mazda Miata 2016 model revealed

Mazda Miata 2016 model revealed

Miley Cyrus New Butt Gets in Trouble with Law

Miley Cyrus New Butt Gets in Trouble with Law

Larry Ellison Steps Down as CEO of Oracle

Larry Ellison Steps Down as CEO of Oracle

Apple is An Ecosystem Company

Jun 3 2014, 2:16pm CDT | by , in News | Apple

Apple is An Ecosystem Company
 
 

YouTube Videos Tweets Comments

Full Story

Apple is An Ecosystem Company

There seems to be an ongoing debate among pundits on whether Apple is a hardware or a software company.

Apple critics like to portray it as a hardware company and how its competitive advantage is built on shaky ground, as there will always be a new gadget that a competitor develops which could be more desirable than what Apple’s currently got.

As the years have rolled on however, it’s clear that Apple’s competitive advantage isn’t built on its hardware or its software.  Apple’s greatest competitive advantage is its ecosystem.

In yesterday’s Wall Street Journal’s Heard on the Street column, Dan Gallagher says:

…for all the focus on software in Monday’s opening keynote, Apple remains a hardware firm, using software and content to push sales of high-end devices at high margins. And with new designs like a large-screen iPhone and maybe a smartwatch expected in coming months, the question is how to maintain those margins.

This is standard fodder for folks who are bearish about Apple.  They point out – correctly – that Apple pins 60% of its revenues and likely a far higher percentage of profits on its iPhone.  When iPhone sales slow down, as they did a year or so ago, Apple’s stock weakened.  When iPhone sales surprised to the upside, as they did in the recent April earnings report, Apple’s stock jumped.

The bears say that high margin hardware sales don’t last forever.  Indeed, virtually every single successful hardware company has eventually dropped the ball with a dud new product and they get lapped by their competitors and left in the dust.

How will Apple avoid this fate, they ask.

While it’s certainly true that Apple needs to continue to build exceptional products, the bearish argument overlooks Apple’s primary source of competitive advantage these days: its ecosystem.

Apple has been able to maintain consistent profitability in an industry where almost everyone else is unprofitable.  I think it’s more to do with the Apple ecosystem than anything else.

As time goes on, Apple continues to give more and more benefits to its users who choose to buy Apple accessories with their core iPhone (and, yes, your Mac has now become an accessory to your iPhone).

During yesterday’s Worldwide Developer Conference keynote, almost every new feature announcement discussed increasing value to users who used multiple Apple products:

- Family sharing makes it easier to share iTunes content among 6 family members sharing the same credit card across devices

- iCloud Drive allows for every photo to be shared across all your Apple devices

- When you edit one photo on an Apple device, it updates across all devices

- You can accept a call on your iPhone when working on your Mac

- You can start an email or text on your iPad or iPhone and then finish it on your Mac

- iMessage has increased its functionality to keep everyone on its platform instead of straying to another

The features go on and on.

While the critics might call it a walled garden approach, Apple looks at it as adding so much massive value to its users that there’s no reason to use any other products.

So when the Journal asks how will Apple be able to maintain its margins, it’s not through the next big hardware toy – whether that’s a smartwatch or a new iPhone – but through how much new value is Apple bringing to its ecosystem.

This change in perspective completely reframes how you look at the sustainability of Apple’s competitive advantage.

Yesterday’s keynote delivered a lot of value to the Apple faithful.  It’s not clear to me how pairing an Acer Android tablet with an HTC Android phone will enhance my life, but I can see how having an iPad and iPhone makes things easier for me.

Apple’s lead in the post-PC era is much stronger than most critics assume.

 

You Might Also Like

Updates


Sponsored Update

Update: 2

Tweets

 

Advertisement


More From the Web

Shopping Deals

 
 
 

<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

Comments

blog comments powered by Disqus

Latest stories

Sears Black Friday
Sears Black Friday
When it comes to department stores, there are very few companies that can compete with someone like Sears. They have home appliances, clothing, power tools, and everything in between. For people who are shopping for...
 
 
Facebook&#039;s out to copy Twitter news feeds
Facebook's out to copy Twitter news feeds
Facebook faced an oops when the site belatedly joined in the Ferguson coverage. Now the site's looking to compete with microblogging site Twitter.
 
 
Queen Latifah on community and domestic violence
Queen Latifah on community and domestic violence
Queen Latifah's active in community outreach and involvement. At the start of The Queen Latifah Show's second season, the host is opening up on how to be a better member of society.
 
 
Sophia Loren&#039;s stunning at 80
Sophia Loren's stunning at 80
Today, screen legend Sophia Loren turned 80 and she never looked more beautiful while putting her life on display in Mexico City.
 
 
 

About the Geek Mind

The “geek mind” is concerned with more than just the latest iPhone rumors, or which company will win the gaming console wars. I4U is concerned with more than just the latest photo shoot or other celebrity gossip.

The “geek mind” is concerned with life, in all its different forms and facets. The geek mind wants to know about societal and financial issues, both abroad and at home. If a Fortune 500 decides to raise their minimum wage, or any high priority news, the geek mind wants to know. The geek mind wants to know the top teams in the National Football League, or who’s likely to win the NBA Finals this coming year. The geek mind wants to know who the hottest new models are, or whether the newest blockbuster movie is worth seeing. The geek mind wants to know. The geek mind wants—needs—knowledge.

Read more about The Geek Mind.