Apple's Exceptionalism And What It Means For The Big IT Vendors (Hint -- It Isn't Good)

Posted: Dec 31 2013, 2:37pm CST | by , in News

Apple's Exceptionalism and What It Means for the Big IT Vendors (Hint -- It Isn't Good)
Photo Credit: Forbes

Okay, I’ll admit it—I bought another iPhone recently. The purchase set me thinking about how Apple manages to sustain the revenues and profits that help make it one of the world’s most valuable companies when the history of the technology industry is littered with hardware-focused companies that have fallen by the wayside – Atari, Flip Video, BlackBerry.

For years the world of technology hardware has been driven by a relentless march toward commoditization. New features or capabilities often start as specialized tech available to only a few at a premium price, but then move into the mainstream and finally become a commodity.

So how has Apple managed to stay ahead? Moore’s law has helped dramatically. Twenty years ago PCs were expensive and heavily compute bound. In that era the Windows model of decoupled software and commodity hardware really mattered. After 20 years of faster chips, today most people—including me—have no idea what speed their CPU is. So in the consumer realm, the dimensions of competition have shifted from price/performance to design and usability, where Apple has executed brilliantly. Consider:

  • Design. Consumer technology is no longer just a tool—it is an extension of us. Our phones, tablets, and laptops say as much about us to others as the clothes we wear or the car we drive. Apple realized that a strong market for beautifully designed technology would exist in this environment, and the company focused its business on providing it.
  • Brand. Great design isn’t enough on its own—it needs to be wrapped in an aspirational brand, and the numbers say that Apple has that piece of the equation right as well.
  • Software. While Apple continues to design unique hardware, it understands that its differentiation and value is defined as much by software as hardware—hence its constant OS upgrades and recent decision to bundle key applications for free.

So what about the big hardware companies on the other side of the technology industry? Does Apple’s success provide them with a path to a successful and highly valued future as well? Unfortunately I think the answer is probably not.

Increasing consensus is that the public cloud—huge pools of compute power that businesses can access on demand—is the future of the data center. That means Amazon, Google, and Facebook are the new engines that power enterprise computing and increasingly control the direction of enterprise hardware.

Look inside any of those data centers and it is a very scary world for big hardware brands. Functionality and low cost rule. Huge buildings full of stripped-down open source servers, built by the same ODMs that Apple uses, deliver the lowest possible cost per unit of computing power. And where are the brands? Nowhere to be seen. And by that I don’t mean they are hidden in a corner. They are simply not there.

Servers aren’t the only pieces of hardware affected by this move to the cloud. Storage and networking are also under attack from the same movement. If you can build what you need from advanced software running on generic commodity hardware, why pay more for a logo no one is ever going to see? Furthermore, in the data center price/performance and agility are now the name of the game and will be for the foreseeable future. Sophisticated software running on ever-cheaper pools of hardware is an unbeatable combination here.

Ultimately, that current reality is the heart of the problem. While many of the big data center box companies have followed a version of Apple’s playbook of tightly coupled hardware and software to market success over the last few years, their market is changing fast and what worked in the past won’t work in this new world. In the new data center, no one cares how pretty a box looks or what brand it is.

What about software? Software has real value. However, the hardware box companies have either viewed software as something that should be tightly bound to their hardware or seen it as an afterthought, not as an opportunity for differentiation and great user experience. The winds of change are blowing through their core markets, and if these hardware companies fail to re-invent themselves (not a small task), they are in serious danger of being blown away.

Source: Forbes

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