Apple is wholly unoriginal … and that’s okay ? Here Comes Sam(sung)

Apple is set to announce a handful of new products next week that you’ve already seen elsewhere. But when it comes to Apple, that’s not a problem.

Whether it’s larger phones, a smartwatch or a new mobile payments system — all of which are rumored to be announced next week — Apple will be following the lead of other companies that already have products on the market. That’s prompting renewed criticism that the company has lost its ability to innovate following the death of former CEO and co-founder Steve Jobs.

But even if Apple isn’t the first company to make these products, its track record indicates that it still has the opportunity to reap gains by executing them better than the competition.
“Apple is not usually first to market — they typically make an existing product much better and more usable,” said Amit Daryanani, an analyst with RBC Capital Markets.

Apple is widely expected to unveil a pair of larger iPhones next week measuring 4.7 inches and 5.5 inches, up from four inches on the iPhone 5S.
Those larger phones will finally give Apple (AAPL, Tech30) some entries into the “phablet” market. That product category has been led in recent years by rival Samsung.
For Apple, the larger phones are low-hanging fruit. Customers spent over $10 billion in the company’s App Store last year, the bulk of that going to gaming apps. Bigger screens and faster processors on the new iPhones will make those games even more compelling.
As for smartwatches, Apple will be following on the heels of devices from companies like Samsung, LG and Motorola that sync with smartphones and offer features like directions and fitness tracking.
But the recent crop of smartwatches have underwhelmed reviewers and failed to present a compelling reason why they’re more convenient than simply taking your phone out of your pocket. If Apple can find a way to improve on those models — perhaps with more sophisticated health tracking or location awareness — consumers may finally have a reason to ditch their old Timexes en masse.
The opportunity is even bigger in mobile payments, where smartphone-based systems like Isis and Google (GOOGL, Tech30) Wallet have been around for years without catching on.

Apple has reportedly been working with major credit-card companies on an iPhone-based payment system. The company already has more than 800 million credit cards on file thanks to iTunes and App Store accounts, according to some estimates, giving it a massive ready customer base.
Add to that the security of the iPhone’s fingerprint identification system and Apple could finally push merchants and consumers to ditch plastic and move to smartphone-based transactions.
“To say that Apple is coming out with a product that already exists ignores the fact that there were MP3 players before the iPod and smartphones before the iPhone,” said Walter Piecyk, an analyst with BTIG. “Those products defined their categories

Having trouble with your iPhone 5 battery? You might be eligible for a free replacement.
Apple (AAPL, Tech30) said “a very small percentage” of iPhone 5 smartphones may “suddenly experience shorter battery life or need to be charged more frequently.”

Don’t get too excited just yet. After a year or two, everyone’s iPhone battery seems to carry less juice than it once did. But Apple’s repair program is limited to certain customers in the United States and China.
Only iPhone 5 smartphones sold between September 2012 and January 2013 are eligible, and only those that fall within a certain range of serial numbers. Apple has opened a website that allows people to determine whether their phones are eligible. (To access your serial number, tap Settings > General > About > Serial Number).

Investors curbed their bets on Apple on Wednesday.

One possible reason: They got a reminder that the company won’t have a free run at the market this fall even with the release of the hotly anticipated iPhone 6 and supposed iWatch.

Apple’s shares fell 4.2%, having hit an all-time closing high of $103.30 on Tuesday. The drop coincided with rival Samsung’s event at the IFA show in Germany, where it previewed new versions of its Galaxy

Apple Inc. (AAPL)-Nasdaq
Prev Close: 103.30
Open: 103.20
Bid: 98.79 x 100
Ask: 98.82 x 100
1y Target Est: 106.83
Beta: 0.83
Earnings Date: Oct 27 – Oct 31 (Est.)
Day’s Range: 98.58 – 103.20
52wk Range: 63.89 – 103.74
Volume: 125,424,577
Avg Vol (3m): 49,884,300
Market Cap: 592.44B
P/E (ttm): 16.60
EPS (ttm): 5.96
Div & Yield: 1.88 (2.00%

iShares SouthKorea ETF (EWY : NYSE : US$65.27), Net Change: -0.13, % Change: -0.20%, Volume: 1,332,424
Arms race?

Samsung unveiled new versions of its Galaxy Note smartphone on Wednesday, featuring a crisper, 5.7-inch display edition version of the Note with a curved edge screen on one of the phone’s sides, helping users to stay focused on their main screen without having to respond to calendar reminders or incoming emails.

It also demonstrated a Virtual Reality headset that on version of the Note with a curved edge screen on one of the phone’s sides, helping users to stay focused on their main screen without having to respond to calendar reminders or incoming emails.

. The launch comes just less than a week before Apple’s September 9 event where Apple is expected to roll out a 4.7- and 5.5-inch iPhone 6 as well as a possible iWatch device. Last week, Samsung said it would begin selling a stand-alone wristwatch, the Samsung Gear S, which will be able to make and receive calls without having to be tethered to a smartphone. Apple is also expected to join forces with credit card companies to provide a mobile payment option for the iPhone 6 and iOS 8.

Leaked : Next Version Of Windows Is Coming Soon

Microsoft Just Accidentally Revealed The Next Version Of Windows Is Coming Soon
Microsoft’s Chinese division may have accidentally revealed the next major update to Windows over social media, suggesting its launch is right around the corner.
Microsoft China may have outted the company’s plans in a post on Chinese social network Weibo by asking the following: “Microsoft’s latest OS Windows 9 is coming soon, do you think the Start menu at the left bottom will make a comeback?”

The company also posted an image with what appears to be Windows tiles arranged to form the number nine, along with the question. Microsoft later confirmed to The Verge that this image is simply a mockup, meaning it has nothing to do with what Windows 9 will look like.


The Weibo post was removed quickly, but Chinese website Cnbeta captured a screenshot before Microsoft took it down, as The Verge first spotted.

We expect to learn more about what the next iteration of Windows will entail later this month. Microsoft is said to be preparing a press event for Sept. 30, where it will presumably unveil a Technology Preview of the upcoming operating system. It’s unclear exactly what a Technology Preview includes, but it’ll likely provide a glimpse at upcoming Windows features such as the mini Start menu.

From what we’ve heard about Windows 9, it seems like Microsoft is making some significant design changes to make its mobile-friendly OS more palatable for traditional PC users.

Mary J. Foley of ZDNet, who has an excellent track record when it comes to reporting Microsoft news, reported that Microsoft will remove the Charms sidebar from Windows for its next release. Users may also be able to open “Metro”-style apps in separate windows on the desktop as well.

Nokia Sale To Microsoft

Image representing Nokia as depicted in CrunchBase

Image via CrunchBase

NOK : NYSE : US$3.90 HOLD 
Target: US$5.50 

Nokia Corporation designs, manufactures, and sells a full range of mobile devices as well as network infrastructure along with services and software on a global basis. The company offers mobile phones and devices based on common mobile phone standards and offers devices that range from entry level to high-end, multifunction smartphones.
All amounts in US$ unless otherwise noted

Technology — Communications Technology — Wireless Equipment
Investment recommendation: With our global surveys indicating gradually improving Windows Phone 8 smartphone sales due to strong sales of the Lumia 520 and other mid/low-tier Lumia smartphones, we believe the timing makes sense for Microsoft to purchase Nokia’s Devices & Services business in order to fund stronger long-term growth trends. We maintain our HOLD rating but increase our price target to $5.50 ahead of Nokia’s 8 AM EDT conference call.
Investment highlights
 Microsoft will pay €3.79 billion to purchase Nokia’s Devices & Services business and €1.65 billion to license Nokia’s patents for a total transaction price of €5.44 billion in cash. We believe the transaction should close in the first quarter of 2014.
 Our recent survey work indicated steadily improving sales of the Lumia 520 and other low/mid-tier Lumia smartphones. In fact, our surveys indicated solid Lumia 520 sales not only in emerging markets such as Russia and key APAC region countries, but also in developed markets such as the U.K. and the U.S.
 We believe Microsoft with its strong balance sheet and increased focus on hardware devices can help accelerate the growing WP8 smartphone momentum. We estimate Lumia sales now constitute over 85% of WP8 smartphone sales. We believe Microsoft has recently worked more in concert with Nokia to drive sales, as evidenced by Microsoft’s advertising campaign featuring Lumia features and by Nokia 1020’s ranking as a top 3 selling smartphone at AT&T.
Stephen Elop is stepping down as CEO, as Nokia focuses on its three businesses of NSN, HERE, and Advanced Technologies.
 Due to improving Lumia sales trends and prior to the acquisition closing , we slightly raise our 2H/C2013 and C2014 D&S handset sales estimates, resulting in our 2013 non-IFRS EPS estimate increasing from $0.04 to $0.06 and our 2014 estimate increasing from $0.07 to
Valuation: Our $5.50 price target (was $33.30) is based on our sum-of-parts analysis.


Windows 8 Is A Flop : New York Times

Microsoft’s attempt to regain relevance and defend its core franchise with Windows 8 is off to a “shaky,” “tepid” start, says the New York Times.


Emmanuel Fromont, president of the America’s division of Acer, the number four PC maker, tells Nick Wingfield at the Times sales of Windows 8 PCs are coming in worse than expected. “It’s a slow start, there’s no question,” says Fromont.

Fromont isn’t the only person telling this story. At the end of November, Asus CFO David Chang said, “Demand for Windows 8 is not that good right now.”

And in the Times’ story, NPD analyst Stephen Baker is quoted as saying, “I think everybody would have hoped for a better start.” (NPD previously issued a negative report on the state of Windows 8.)

There are two reasons Windows 8 sales are slower than expected.

  • Windows 8 is a new experience with a steep learning curve that is intimidating some consumers.
  • Consumers are buying iPads, and delaying upgrades of their Windows-based PCs.

We didn’t reach out to Microsoft for comment on this story, but we know what it would say.

Microsoft would say it’s still too early to judge. It would say NPD’s data set is incomplete. It would say that it announced 40 million Windows 8 upgrades, which is better than it did with Windows 7 over a comparable period of time.

All of those are legitimated rebuttals. This is an ongoing story for Microsoft. But at first glance, it’s just not looking great for Microsoft.

Nederlands: Logo van Microsoft Windows 1.0, 2....

Nederlands: Logo van Microsoft Windows 1.0, 2.xx,3.xx, 95, 98, Me en 2000. (Photo credit: Wikipedia)

Apple and Google Team Up On Kodak


English: (Photo credit: Wikipedia)

Apple (AAPL : NASDAQ : US$529.82)
Google (GOOG : NASDAQ : US$685.42
Apple and Google are teaming up to offer more than $500 million to
purchase Kodak‟s patents out of bankruptcy, according to sources close to the matter.

The rivals have partnered after leading two separate groups this summer to buy some of Kodak‟s 1,100 imaging patents. The Apple-led group included  Microsoft (MSFT) and Intellectual Ventures Management LLC while Google‟s team included RPX Corp. and Asian makers of its Android phones. The two offers were both below $500 million. The deal is important for Kodak, who obtained commitments for $830 million in exit financing last month, contingent on the sale of its digital-imaging patents for at least $500 million.
Apple, Google and Kodak all declined to comment on the potential purchase. In the past, Kodak has said tha the patents could

be worth as much as $2.57 billion and that they have generated more than $3 billion in licensing revenue. That said, one industry expert said that “the portfolio is actually worth much less because it has been widely licensed.”

Apple Innovating Away From iPhones

Apple Inc. new headquarters

Apple Inc. new headquarters (Photo credit: MarkGregory007)

the way back in February of this year, Apple’s iPhone business alone surpassed the size of Microsoft’s entire business, reaching nearly $25-billion in annual revenue versus Microsoft’s ~$20-billion.

Since February, Apple’s iPhone business has only grown, widening this gap.

Here’s what’s more remarkable yet: At this very moment, Apple is working on technology that, if successfully developed, will cannibalize and ultimately destroy that iPhone business.

We have two pieces of evidence.

The first is that Apple has established a pattern.

Unlike most companies, Apple has a remarkable ability to predict the kinds of gadgets that will undercut the gadgets it sells, and then build these new gadgets better than anyone else could.

The best example of this is the iPad, which is actively disrupting Apple’s own Mac business.

During Business Insider’s Ignition Conference last week, top Apple analyst Gene Munster of Piper Jaffray talked about Apple’s tendency to cannibalize its own businesses and predicted that it would continue to do so.

He speculated that Apple is working on consumer robotics, wearable computers, 3D printing, consumable computers, and automated technology.

He showed everyone this chart, which visualizes Apple’s pattern:

Munster on Apple



Here’s the other reason it’s safe to assume Apple is quietly working on the destruction of its most massive business, the iPhone.

Just like Google and Microsoft, Apple is working on computerized glasses.

Computerized glasses, are, at the moment, the technology that is most likely to bring the smartphone era to an end.

They fit into an obvious pattern, where computers have been getting smaller and closer to our faces since their very beginning.

First they were in big rooms, then they sat on desktops, then they sat on our laps, and now they’re in our palms. Next they’ll be on our faces.

We have the rough schematics of Apple’s project.

They’ve been  publicly available on the US Patent Office’s Web site since this summer, when they were noticed by several Apple-watching websites.

In the patent filing, Apple calls the gadget  a “head-mounted display” or “HMD.”

The filing is authored by Tony Fadell, designer of the iPod, and John Tang. Fadell is no longer at Apple, but Tang is.

Some highlights from the description:

  • An HMD is “a display device that a person wears on the head in order to have video information directly displayed in front of the eyes.”
  • “The optics are typically embedded in a helmet, glasses, or a visor, which a user can wear.”
  • “HMDs can be used to view a see-through image imposed upon a real world view, thereby creating what is typically referred to as an augmented reality.”
Apple says HMDs can be used…
  • To “display relevant tactical information, such as maps or thermal imaging data.”
  • To “provide stereoscopic views of CAD schematics, simulations or remote sensing applications.”
  • For “gaming and entertainment applications.”
A gadget that features applications for maps, games, and a million other uses? Sounds familiar.

Here’s an illustration from the patent filing:

Apple Patent

Tech Trends That Will Make Someone Billions Of Dollars Next Year

Big Data

Big Data (Photo credit: Kevin Krejci)

The world will spend a whopping $2.1 trillion on tech in 2013

The world will spend a whopping $2.1 trillion on tech in 2013


2013 will be a make-it-or-break-it year in mobile for some vendors

2013 will be a make-it-or-break-it year in mobile for some vendors

Steve Kovach, Business Insider

When it come to mobile, 2013 will bring us these three things:

  • Mini tablets with screens less than 8 inches in size will be the rage, accounting for 60% of tablets sold.
  • The market for smartphones and tablets combined will grow by 20%.
  • 2013 will be a make-or-break year for mobile platforms. Those that don’t attract interest from at least 50% of app developers won’t survive. Google and Apple are past that threshold. Microsoft now sits at 33%. RIM is at 9%.

Big IT companies will feast on smaller cloud players

Big IT companies will feast on smaller cloud players

The software-as-a-service phenomenon really grew up in the past 12 months, with big vendors like Oracle and SAP spending billions to buy their way into the market.

IDC thinks we haven’t seen anything yet.

“There will be over $25 billion in SaaS acquisitions over the next 20 months, up from $17 billion in the past 20 months,” it says.

Some companies are too highly valued to make for easy acquisitions, like the publicly traded, worth $22 billion, or the fast-growing, still-private Box at $1.2 billion. But a bunch of others could be ripe for deals: Okta, Zenoss, and ServiceMax come to mind

A lot of smaller, specialized clouds will sprout up

A lot of smaller, specialized clouds will sprout up

In 2012, a lot of new cloud tech came out that made it easier and more affordable for anyone to build a cloud.

That means that in 2013, a whole bunch of new clouds will crop up. These will serve specific industries, for instance hospitals, construction companies, banks.

Big data will get bigger

Just like 2012 was the year that mobile devices and cloud computing became the must-have things for every company, big data will be the thing everyone will use in 2013.

IDC says the big-data market will grow at an annual rate of 40%. It will hit about $5 billion in 2012, $10 billion by 2013, and $53 billion by 2017.

The data center as we know it is over

The data center as we know it is over

Meet Yellowstone, the super hero supercomputing fighting climate change


New data-center technologies that took root in 2012 will become the big thing in 2013.

These include “converged systems,” where companies buy machines that have computation, storage, networking, and software bundled together.

Another is software-defined networks, which is a new way to build networks.

These represent a tremendous opportunity for the established players like Cisco, Dell, HP, and Oracle. But they are also a big risk if they get it wrong. A whole class of startups are rising up to disrupt these guys.

Your work computer will be an ID you keep in your head

Your work computer will be an ID you keep in your head


The bring-your-own-device trend, also known as BYOD, will morph into BYID—bring-your-own-ID.

That is, your work computer will be available to you anywhere, on any device. All you have to do is properly log in.

This is the ultimate result of investments in new cloud, mobile, and data-center technologies

The Windows 8 Sales Data Is In, And It’s Horrible

Image representing Windows as depicted in Crun...

Image via CrunchBase

Nov. 30

Steve Ballmer facepalm


MSFTNov 30 12:31PM


% Change


NPD research published some horrible news for Microsoft yesterday.


  • Despite releasing an entirely new operating system on October 22 of this year, Windows PC sales shrank 21 percent between 10/21 and 11/17 versus the same period last year.
  • Windows 8 tablet sales during that period were “almost nonexistent” – just 1 percent of all Windows 8 sales.

“It hasn’t made the market any worse, but it hasn’t stimulated things either,” Stephen Baker, an analyst at NPD, told The New York Times. “It hasn’t provided the impetus to sales everybody hoped for.”

No kidding.

Yesterday, we reported other bad news:

  • Asus CFO David Chang’s comment that “demand for Windows 8 is not that good right now.”
  • Microsoft cut its order of Surface tablets for the year to two million units, down from four million.

This is a very scary time for Microsoft.

Apple- A Declining Share Of Mobile Market

Nov. 19

This Trend Is Very Worrisome For Apple

Over the past couple of years, we have written often about a major long-term risk for Apple, which is the gradual loss of mobile market share to the Android platform.

This trend has continued in recent months, to the point where Apple has now been reduced to a niche player in the global market.

The more market share Apple loses, the more worried Apple shareholders should become. And the more Apple should consider making a subtle but important shift to its product and pricing strategy.

Why Market Share Matters

The reason market share is important is that mobile is a “platform market.” In platform markets, third-party companies build products and services on top of other companies’ platforms. As they do, the underlying platforms become more valuable and have greater customer lock-in.

Building products and services for multiple platforms is expensive, so platform markets tend to standardize around a single leading platform. As they do so, the power and value of the leading platform increases, and the value of the smaller platforms collapses.

The PC software market is (or was) a platform market, and we saw how powerful that eventually made Microsoft back in the 1990s.

Facebook and Twitter are platforms, and we’re seeing how powerful those companies are becoming.


Wintel Monopoly

Horace Dediu, Asymco

This chart from Asymco shows how “Wintel‘s” market share has been eroded over the past 10 years. No wonder Microsoft’s stock has been flat.

Mobile is a platform market, and at least in these early days, this has helped make Apple the most profitable and valuable company in the world. 

Importantly, the reason market share is important in a platform market has nothing to do with “current profit share.”  When confronted with Apple’s declining market share, Apple fans often snort that Apple doesn’t care about market share–it cares about profit share–and obviously Apple is cleaning up on that score. What this conclusion misses is that, in a platform market, having dominant market share is critical to maintaining long-term profit share.

Right now, the smartphone and tablet markets are growing so quickly that relative market share isn’t an issue. But at least in some regions, the market is maturing more rapidly than most people realize. And as Apple’s market share shrinks, its power and value as a development platform also diminishes, at least relative to that of the market leader.

The risk is that, ultimately, the mobile market will see a repeat of the history of the PC market, in which Apple went from being the dominant innovator to a marginalized niche player.

Apple Continues To Lose (Relative) Market Share

Android and Apple continue to dominate the global mobile market, but Apple is losing (relative) share fast.

According to a recent IDC report, these two platforms now have a staggering 90% of global market share, while everyone else is down to 10%.

Both Android and Apple are also still gaining share, while every other platform is losing it. But Android is still gaining share faster than Apple.

In the third quarter, IDC reports, Android sales accounted for a staggering 75% of the smartphone market. Apple sales, meanwhile, accounted for only 15%. Android is still gaining share rapidly, so Apple’s share may shrink even further.


US Mobile Market Share September 2012


US mobile platform share, September 2012.

In the US, Apple’s market share is stronger. According to Comscore, Android had 53% of the market in September, as compared to Apple’s 34%. A third of the market is a plenty healthy share, but the underlying trends aren’t so encouraging: 

  • In the past two years, in the U.S., Apple’s market share has risen from 25% to 34% (good).
  • But Android’s market share has more than doubled, rising from 26% to 53% (great).

All of these gains have come from the collapse of other platforms, namely RIM, Microsoft, and Palm, which, collectively, have collapsed from 49% of the market to 13% of the market. Combined, Apple and Android now have an 87% share of the US market, about the same as their 90% share internationally. The days of the easy market share gains from weak players, therefore, are almost over. Hereafter, the two platforms are mainly going to have to compete with each other.

Apple will likely see a temporary surge in market share in the fourth quarter, on the strength of the iPhone 5. But the trend is clear, globally and in the U.S.:

Barring a significant change in product strategy, Apple’s relative market share will continue to drop.

But Wait, Isn’t The Mobile Market Different Than The PC Market Was?

Apple fans frequently dismiss concerns about Apple’s market share losses by making five points:

  • The mobile market is different than the PC market
  • Android is hugely fragmented, so it’s not really “one platform”
  • Apple is in the “premium” segment of the market and has most of the profits–it doesn’t care about the rest
  • Apple’s content, app, and services ecosystem is better than Android’s
  • Developers can’t make money on Android

Each of these points has some validity, so let’s take them one at a time, starting with the differences between the PC market and the mobile market.

The biggest and most important difference between the PC market of the 1990s and the mobile market today is that many of the most common smartphone “apps” are available on all phones, regardless of platform. These include:

  • Phone
  • Email
  • Web
  • Texting
  • Popular games and apps

What this means is that you’re going to get most of your smartphone functionality regardless of which platform you use.

In the PC market, meanwhile, you couldn’t really do anything with a PC unless you had apps (for most people, the hardware and operating system itself was useless–like owning a car without gas or a flashlight without batteries). For a PC to be useful, you needed apps, and after Microsoft began to dominate market share, most apps were built for Microsoft first and Apple as an afterthought. All this began to change when the Internet arrived and some apps and services began to live in the cloud. After that, the importance of the operating system (“platform”) on the PC began to erode, which, ironically, opened the door for Apple’s comeback. But in the early years, the PC platform controlled everything.

The “platform” component of the mobile market is certainly less important than it was in the pre-Internet PC market, but it’s still important. The third-party app business is now huge. And one of the biggest selling points for Apple’s platform is Apple “ecosystem” of content, apps, and integrated services, as well as the way that Apple products tend to work well together.

Right now, most developers still develop for Apple first and Android second. But if Android’s market share continues to increase, and Android solves a few problems that continue to plague its value as a platform, the incentives for developers will begin to change.

“But Android Is Not One Platform–It’s Many Platforms”

The second knock against Android is that its highly fragmented, with many versions of the operating system and most gadget makers and carriers customizing each version in some fashion. This, combined with Google’s inability to update all Android phones to the latest version of the software at the same time, is indeed a disadvantage when it comes to competing against the unified Apple platform.


android software

Many versions of Android are running in the wild. But most of them run most Android apps.

Android’s fragmentation means that some new apps don’t run on older gadgets. And some apps don’t take full advantage of Android’s newer features. And so forth. 

But most Android apps do run on most Android gadgets, the same way that most PC software is compatible with most Windows PCs. And Google is getting more and more strict about Android licensing terms, which will increasingly limit the amount of customization gadget makers and carriers can do to the platform.

So, the fragmentation issue is indeed an issue. But it’s a huge stretch to dismiss Android by saying it is “many platforms.” And the Android platform is becoming more unified all the time.

“But Apple Doesn’t Want To Sell Cheapo Crap Phones–It Just Wants The Premium Market”

The next point that Apple fans make is that Apple doesn’t care about the Great Unwashed Smartphone Buyers who will buy any old thing as long as it’s cheap–a segment of the market that, Apple fans correctly observe, accounts for a big percentage of Android’s market share gains.

From a current profit perspective, that’s a fair point.

From a longer-term platform and future-profit perspective, however, it’s shortsighted.

More than 1 billion people in the world already have smartphones and tablets. The next 6 billion people who get them are going to be increasingly price sensitive–because they don’t have much money. Apple’s refusal to offer a truly cheap smartphone is one of the reasons that Apple is struggling in countries like India–a huge market, but one in which buyers are very price sensitive. (Samsung is crushing Apple in India).


Mobile profits by phone maker


Apple owns most industry profits–for now.

Furthermore, from a platform perspective, most developers won’t care whether the gadget their app runs on is a “premium” gadget or a mass-market gadget. They’ll simply care that they can reach a lot more potential customers on one platform versus the other. 

This argument also ignores the fact that Android is doing increasingly well in the high end of the market, too. Samsung’s latest phones, for example, are killing it. If the iPhone 5 really is still “better” than, say, Samsung’s Galaxy S3, it’s not much better. Amazon’s Kindle business also appears to be doing well.

Apple knows that selling truly affordable gadgets will mean making less money per gadget. It would also mean possibly threatening the immense per-gadget profit Apple’s makes on its top-of-the-line gadgets. But gadget buyers don’t care about Apple’s profits. As cheap Android-based gadgets get better, and high end Android gadgets continue to close the gap, Apple will face increasing price pressure. And if the company insists on protecting its profit margins at the expense of market share, it will risk losing even more of the latter.

One of the reasons Apple has done so well over the past several years is that it learned a critical lesson from its 1990s debacle. Specifically, it learned how hard it was to maintain “premium pricing” in a mass platform market (In the old PC market, Apple’s products were always more expensive than Wintel PCs).


Apple profit margin

Y Charts

Apple’s profit margin gains have helped drive the stock.

Apple’s decision to keep the iPhone and iPad prices in parity with other high-end gadgets, therefore, was brilliant, and it removed a huge potential advantage its competitors could have had. Thanks to its extraordinary efficiency, Apple has also been able to maintain these prices anda gargantuan profit margin while also offering the best products in the market. 

But this is becoming increasingly difficult as Apple’s advantage in the “premium” market narrows and massive competitors like Amazon and Google compete aggressively on price.

As the mobile gadget market continues to mature, Apple will not be able to maintain both its market share and its profit margin. And if it chooses to protect the latter, which it appears to be doing, it will risk losing even more of the former.

Apple’s recent decision to price its iPad Mini at $329 was instructive. Almost everyone agrees this price is expensive relative to the competition. In this case, Apple is clearly trying to protect its profit margin rather than driving for more market share. More decisions like that could begin to seriously erode the value of Apple’s platform.

“But Apple’s Content And App Ecosystem Is Way Better”

Another valid point Apple fans make is that Apple’s App Store and iTunes are much better than the Android alternatives, which, again, are fragmented and less convenient. And Apple’s payment system is easier, because “Google Wallet” isn’t everywhere. And so forth.

This is true, at least for now.

But Android’s offerings are getting better in this regard, especially Google. And with Amazon now a big player in tablets and likely to be a player in smartphones, there may soon be a competitor whose ecosystem is even more impressive and convenient than Apple’s, at least for content.

So, again, the competitive trend is working against Apple. Its lead is narrowing, and it doesn’t have such a huge installed market share of users that it will be able to fight off competitors because of inertia alone.

“But Developers Can’t Make Money On Android”

The last big knock against Android as a competitive threat is that developers make much more money creating apps for Apple platforms than they do for Android platforms (See Slide 17). That’s undeniable. And, thus far, it has been a huge source of Apple’s competitive advantage.


Cross-Platform Revenue Comparison: iOS vs. Android

Apple’s still where the money is. For now.

One of the reasons for this has been Android’s kludgy and fragmented payment systems–iTunes and the App Store are just easier. 

Another reason has been demographics. Android users have tended to be bleeding-edge tech folks who think everything should be free, or mass-market consumers who don’t have the time, interest, or money to spend a lot on apps.

Both of these factors are still in play, but…

Android’s payment systems are getting better.

And Apple is still being extraordinarily greedy when it comes to taking distribution fees–demanding a 30% cut of everything it sells. Apple is obviously entitled to charge whatever it wants, but as Android becomes a more viable option, it’s hard to see why developers won’t celebrate its lower fees. And if Apple tries to protect its profit margin by holding fast on price, it may drive some of these developers away.

The Bottom Line

The bottom line is that market share matters in platform markets, and Apple is losing share.

With each year that goes by, moreover, the competitive advantage that Apple has with its gadgets and ecosystem is continuing to narrow.

As the market matures, Apple will not be able to protect both its market share and its profit margin–it will be forced to choose between one or the other. And given the importance of market share in a platform market, the smart strategic decision is almost certainly to protect market share.

Unfortunately, protecting market share will almost certainly mean that Apple’s extraordinary profit margin will drop in the coming years, probably significantly.

That outcome would be much better than the outcome of the late 1980s and early 1990s, in which Apple’s loss of the platform war left marginalized and nearly bankrupt. But it’s not an outcome that will please short-term Apple shareholders who are focused on the company’s profit margin.

(BI Intelligence is a new research and analysis service focused on mobile computing and the Internet. 

Microsoft Surface – Getting Some Awful Reviews

Image representing Microsoft as depicted in Cr...

Image via CrunchBase

Oct 24

The reviews are in for Microsoft’s Surface tablet. And the verdict is not good.  

The most scathing of the reviews we’ve read so far comes from Josh Topolsky at The Verge

Here’s a sampling of what he has to say:

  • “It’s also not very useful on your lap — unless you like to struggle.”
  • “It’s not really that comfortable to hold in landscape for extended periods, and in portrait it’s laughably tall.”
  • “I actively avoided using the mail app if at all possible.”
  • “Nearly every app I tried crashed completely at least once while I was testing the tablet, third and first-party.”
  • “This product is supposed to represent the future of Windows and Microsoft, so why did I feel so frustrated so often while using it?”
  • “The whole thing is honestly perplexing. If this device is not as good as (or better than) the best tablet, and not a complete alternative to a laptop — who is this for? What is it supposed to be?”

Gulp. Well, it wasn’t all bad from Topolsky:

“The actual interface — the tiled environment — is a joy to use. It’s really, really cool. I found myself legitimately delighted by some of its functionality, particularly its multitasking and side-by-side apps concept.”

He’s not alone in his criticism of the Surface. Here’s Sam Biddle at Gizmodo:

  • “Surface is a fantastic promise, and holds fantastic potential. But while potential is worth your attention, it’s not worth your paycheck … it is undercooked.”
  • “After the initial delight of an evolved tablet wears off, you’ll groan—because Surface brings the appearance of unity, but it’s really just the worst of both worlds.”
  • “The Touch Cover is a letdown.”

Matt Buchanan of FWD:

“The thing is, Surface is supposed to be so much more than just Microsoft’s iPad alternative, the Other Tablet. It may very well be one day. It has everything it needs to be that. But today it’s just another tablet. And not one you should buy.”

And David Pogue at The New York Times said:

  • “Would you take a job that pays $1 million a year — cutting football fields with toenail clippers? That’s the sort of choice Microsoft is asking you to make with the spectacularly designed, wildly controversial Surface tablet.”
  • “Little inconsistencies and bafflements are everywhere.”

But Pogue did say this:

“On the hardware front, Microsoft has succeeded brilliantly.”

Look, not all of the reviews are wildly negative on the Surface. But, after reading a few of them, and scanning many of the others, the primary takeaway is that this is not better than the iPad.

This is a first generation product from a company that’s never built a computer before. It has some bugs to be worked out. If you were thinking about spending $600 on it, then you might want to think again.


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