The history of Apple doesn’t bode well for its future

Let me start with an admission – I have never been an Apple fan.  My issues stem from my time working at my dad’s computer rentals business – we used to rent computers for as little as one day and were constantly moving them around the country, changing memory configurations, swapping out hard drives and installing and un-installing software – and the Macs used to break all the time.  The build quality was horrible.

At the same time I also started to take offence to their insistence on sticking with MacOS as a proprietary operating system when the rest of the computer industry was converging on DOS/Windows.  It was around this time that IBM effectively gave up on OS/2.

Being a Mac owner wasn’t enough to change my mind – the first computer I had when I went to Uni was an SE/30 (a device that I’m pleased to see was iconic enough to get it’s own Wikipedia page).

So, ten years or so later, I disliked the idea of being forced to use iTunes and have struggled along with generic MP3 players instead of buying iPods (although I’m happy now with my music on an SD card inside my Blackberry).

The arrival of the iPhone and before that the latest generation of Apple Laptops started to change the equation though.  On the laptop side the build quality problems were history and the reliability of the software is now what puts them ahead of the PC, and on the iPhone side here was a beautiful device that finally delivered on the promise of the mobile web.

It is worth dwelling a little on the astonishing success the iPhone has had since it’s launch in June 2007.  First there is unit sales, in the 21 months since then Apple has come from ground zero in the mobile phone market to the third largest player by revenues (behind Nokia and Samsung), having sold 13m units by October last year.

Then there is the app store – since the firmware update of July 2008 which effectively opened the App Store for business, third party developers have written 25,000 officially available applications with 800m accumulated downloads, as per wikipedia.  (It took Windows Mobile nine years to get to this number of applications.)

Yet despite all this I believe their current dominance of the Smartphone market (at least as defined by momentum and mindshare) will be fleeting.

History has taught us time and time again that open wins, and Apple just doesn’t get that.  It cost them dear before and I think it will do so again.  Worse, I doubt that Jobs will rescue them a second time.

The reasons for Microsoft’s success against IBM’s OS/2 are instructive here.  The following is from Wikipedia:

Much of its success was because Windows 3.0 (along with MS-DOS) was bundled with most new computers …. Microsoft favored the open hardware system approach that contributed to its success on the PC; IBM sought to use OS/2 to drive sales of its own hardware.

There were of course a number of other factors, but these are the most important.

In the phone market, as with PCs, the hardware over time will become commoditised and it will be the software that makes the difference (as noted above one of Apple’s USPs on the PC side is now the superiority of it’s software).  Right now the number of apps available in the App Store puts the iPhone way out in front on this measure but I doubt that will last.  Rather I think that Google’s Android will soon become more attractive to developers because of a) the number of devices they can reach and b) Apple’s track record in abusing it’s developer partners.

It is in fact this last point that prompted this post.  As you may have seen Apple yesterday announced a refund policy that is to say the least developer unfriendly.  From Techcrunch:

We reported yesterday about Apple’s alleged delay in payments to iPhone app developers, but there is more alarming news from iPhone developers about Apple’s refund policies. Apparently, if iPhone users decide that they want a refund for an app (users can get a refund within 90 days, according to Apple  policy), Apple requires that developers give back the money they received from the sale. But here’s the kicker—Apple will refund the full amount to the user and says that it has the right to keep its commission. So the developer not only has to return the money for the sale, but also has to reimburse Apple for its commission. Apple charges a 30% commission on all paid apps sold through the App Store.

And this comes on top of Apple blocking apps offer functionality they regard as their’s to deliver like  email or music, or which they determine to not be of requisite quality, and of having a track record of treating their developers like dirt.

Once other smartphones start to get close to the iPhone in terms of gadget appeal it is my contention they will start to win out in the market place because there will be more and better software available.

Further, I think the ‘closed’ mentality is so strong within Apple that they won’t respond well, instead clinging to the belief that by more fully controlling the user experience they will ultimately deliver a better service.  AOL anyone?

To finish it is worth noting that despite their great start, and being the third largest player in the mobile phone market by revenues they are still only a small part of the mobile market by devices sold – 1% of worldwide cellphone sales and 17% of smartphone sales.

These positions are not exactly unassailable.

  • Great post as always, Nic. I particularly like your argument that innovators start by thinking about the walled garden approach to control quality, and aren't always ready to go open.

    Of course, the iPhone is open (at least compared to the games devices I focus on, such as PSP and DS). So from that perspective, the AppStore is already much less “walled” than the games space.

    So the question for Apple is can they manage quality and a good user experience as their device is swamped with apps? Can they help the good stuff rise to the top? They can either a) seek to control it themselves or b) seek to empower their users to identify, publicise and elevate the good stuff.

    if they pick b), they can avoid the pitfalls they mention. I completely see your argument that history suggest they will pick a)

  • Thanks Nicholas. I hadn't thought of the comparison with the games world, where of course closed has so far been the winner. The best framework I have come across for thinking about this stuff is Clayton Chritensen's idea that it all hangs on the efficiency of interfaces between different layers in the value chain (collapsing the ideas of closed and vertical for a second) – e.g. if the interfaces are efficient between say developer and console then the advantages of tightly coupled development are less than the benefits of open innovation. I will think through these arguments again in this context.

  • Can you let me know where he made those arguments, Nic – I'm really focused on whether walled will survive in the games space at the moment, and some thoughts on what would need to change to make it change to open would be very welcome.

  • Hi Nic, interesting article.

    While not an Apple-basher, I'm no great Apple fan either and in the main this stems from my opposition to their use of proprietary technology – especially for music. I'm a big fan of open source technology generally and as far as music is concerned, it bugs me that a) Apple files can’t be played on other platforms and b) quality open source file formats/codecs such as FLAC and Ogg aren’t supported on Apple devices. You can’t even use an iPhone without having an iTunes account.

    No one could doubt the amazing and game-changing success of the iPhone and iPod, and of course opening the iPhone up to the development community has proven a masterstroke (you could even argue that it's breathed a whole new lease of life into the mobile content market). Not too many people are making money out of iPhone apps though (I also blogged about this at http://blacknote.co.uk/resources/2009/03/24/iph…) and even those that are doing well through the App Store may become disenfranchised by their treatment at Apple’s hands – delays to payment etc as you point out. I’m not into Apple-bashing by any means, but I agree that their ‘closed’ approach takes them ever further down a path fraught with peril. The question is; will the typical mass market consumer care enough about this issue to move away to competing brands in enough numbers to cause Apple to sit up and take notice?

  • Thanks Rob – I think the mass market will only start to care once there are significant apps they can get elsewhere that they can't get on the iPhone. That is probably a little way away, as the trend is the other way at the moment.

    Nic Brisbourne, Partner DFJ Esprit

  • I'm pretty sure it was in the Innovators Dilemma.

  • Yes, absolutely true at the moment re apps and iPhone. In terms of mass market I was thinking more from the music side i.e. iPod/Nano and iTunes.

  • Great post as always, Nic. I particularly like your argument that innovators start by thinking about the walled garden approach to control quality, and aren't always ready to go open.

    Of course, the iPhone is open (at least compared to the games devices I focus on, such as PSP and DS). So from that perspective, the AppStore is already much less “walled” than the games space.

    So the question for Apple is can they manage quality and a good user experience as their device is swamped with apps? Can they help the good stuff rise to the top? They can either a) seek to control it themselves or b) seek to empower their users to identify, publicise and elevate the good stuff.

    if they pick b), they can avoid the pitfalls they mention. I completely see your argument that history suggest they will pick a)

  • Thanks Nicholas. I hadn't thought of the comparison with the games world, where of course closed has so far been the winner. The best framework I have come across for thinking about this stuff is Clayton Chritensen's idea that it all hangs on the efficiency of interfaces between different layers in the value chain (collapsing the ideas of closed and vertical for a second) – e.g. if the interfaces are efficient between say developer and console then the advantages of tightly coupled development are less than the benefits of open innovation. I will think through these arguments again in this context.

  • Can you let me know where he made those arguments, Nic – I'm really focused on whether walled will survive in the games space at the moment, and some thoughts on what would need to change to make it change to open would be very welcome.

  • Hi Nic, interesting article.

    While not an Apple-basher, I'm no great Apple fan either and in the main this stems from my opposition to their use of proprietary technology – especially for music. I'm a big fan of open source technology generally and as far as music is concerned, it bugs me that a) Apple files can’t be played on other platforms and b) quality open source file formats/codecs such as FLAC and Ogg aren’t supported on Apple devices. You can’t even use an iPhone without having an iTunes account.

    No one could doubt the amazing and game-changing success of the iPhone and iPod, and of course opening the iPhone up to the development community has proven a masterstroke (you could even argue that it's breathed a whole new lease of life into the mobile content market). Not too many people are making money out of iPhone apps though (I also blogged about this at http://blacknote.co.uk/resources/2009/03/24/iph…) and even those that are doing well through the App Store may become disenfranchised by their treatment at Apple’s hands – delays to payment etc as you point out. I’m not into Apple-bashing by any means, but I agree that their ‘closed’ approach takes them ever further down a path fraught with peril. The question is; will the typical mass market consumer care enough about this issue to move away to competing brands in enough numbers to cause Apple to sit up and take notice?

  • Thanks Rob – I think the mass market will only start to care once there are significant apps they can get elsewhere that they can't get on the iPhone. That is probably a little way away, as the trend is the other way at the moment.

    Nic Brisbourne, Partner DFJ Esprit

  • I'm pretty sure it was in the Innovators Dilemma.

  • Yes, absolutely true at the moment re apps and iPhone. In terms of mass market I was thinking more from the music side i.e. iPod/Nano and iTunes.

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