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BLOG: Apple: A force against innovation?

Andrew Milroy | June 25, 2012
We are likely to see much more innovation in the Android and possibly Microsoft ecosystem, than we will see in Apple’s closed environment.

In the 1980s and 1990s, Microsoft was able to benefit from Apple's walled garden approach. It licensed its operating system and other software products to multiple PC manufacturers. Apple, on the other hand, chose to run Apple software only on Apple products. It seems that Apple is, once again, giving Microsoft a helping hand. Microsoft has been late to the smartphone and tablet party. Many believe that it will struggle to make an impact in the mobile world. Apple's approach together with Google's Motorola acquisition, are leading handset manufacturers to seek out additional partners.

Will Samsung offer Microsoft phones in addition to its Android devices? Will most handset manufacturers do this as a hedge against over dependence on Google and an additional differentiator against Apple? Have Apple and Google given Microsoft a fighting chance of success in the smartphone and tablet markets?

'Old world' pricing model

Apple also uses an 'old world' pricing model for access to content. Although the purchased content of Apple customers will increasingly reside in the iCloud, Apple prices content in the same way as DVDs and CDs were priced. Its customers purchase ownership of discrete pieces of content except that they lose some of the 'old world' benefits of this pricing model. For example, once a track or an album is purchased from iTunes, it cannot be resold to a second hand record shop or to a friend. It cannot easily be lent to a friend. These benefits are lost in the new model.  Netflix, Spotify and Rhapsody, on the other hand, charge a subscription fee for access to a library of content. Access to such a large library compensates for the loss of certain benefits associated with ownership.

In today's world, the customer doesn't really own a piece of content. They can't touch it or feel it and there are restrictions on what they can do with it. The supplier of content can make enormous savings in terms of production and marketing costs if customers simply access content that is shared with other users, in a cloud. Can't these savings be passed on to consumers? In Apple's model, it does not seem to be the case. This is one of the reasons why Apple is so profitable.

In summary, we are likely to see much more innovation in the Android ecosystem and possibly the Microsoft ecosystem, than we will see in Apple's closed environment. An open approach will allow Android and possibly Microsoft to thrive in new emerging markets. The innovative pricing and delivery of content from the cloud is being driven by Apple's competitors. In other words, Apple must urgently re-think its strategy or risk finding itself in the same position as it was in in the mid-1990s.

Andrew Milroy is vice president, ICT practice, Asia Pacific Frost & Sullivan.



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