Sunday, 3 February 2008

Top 10 analyst misconceptions about Apple - Part 2

In January, Mac Predictions published the following "Top 10 analyst misconceptions about Apple"
  1. Apple is really a software company
  2. Apple should license the Mac OS to other PC manufacturers
  3. Apple formats are proprietary, whereas Microsoft formats are standards
  4. Apple is making the same mistake with the iPod that they did with the Mac
  5. Apple is now a monopolist
  6. Apple’s success is down to it’s “legendary ease of use”
  7. Apple should integrate Windows emulation into Mac OS X
  8. Apple’s notorious secrecy is harming it’s business
  9. Apple doesn’t make a profit on the iTunes store
  10. Apple is the BMW of the computer world

Numbers 1 to 3 were covered off in January's post. Here are numbers 4 to 6:

4. Apple is making the same mistake with the iPod that they made with the Mac

Analysts making this assertion miss the patently obvious fact that an iPod addresses a very different market to a Windows PC, and as such it requires a very different marketing approach.

Windows run on industry standard hardware, which results in a competitive market between numerous commoditised PC vendors. Competition drives down prices. Commoditisation minimises vendor lock-in. The result is a product that appeals to businesses, which rapidly adopted the platform in the late eighties and early nineties, accounting for the vast majority of Microsoft’s early sales lead, and still account for the majority of Microsoft’s revenue today.

By contrast, iPods are consumer electronics – purchased by individuals who are not particularly concerned by issues of vendor lock-in, and are not as price sensitive as business customers. Instead, they have different priorities. Firstly, unlike business customers, consumers do not have IT help desks – they need their gadgets to “just work”. A vertically integrated solution, such as Apple’s, where hardware, software and online services are provided by a single vendor, results in a product that is less likely to go wrong, plus there’s the reassurance that if something does go wrong, you know exactly who to talk to about it. Secondly, consumers do not seek out commoditised products, favouring instead products that differentiate, and express their individuality. A sensible, cheap, boring MP3 player from Dell, running similar software to your PC at work, was never going to cut it.

This may seem like a statement of the obvious now, considering that even Microsoft has given in and copied Apple’s vertically integrated solution with their Zune product. But it’s amazing to consider the number of supposedly respectable IT journalists and analysts who argued for so many years that Apple’s business plan was flawed, and that Microsoft’s Windows Media Plays For Sure “ecosystem” would inevitably win out in the end.

5. Apple is now a monopolist

Apple’s music business is increasingly being described by industry commentators, analysts and legislators as a vertical monopoly. Comparisons are even made between Apple’s monopolistic control of the music industry and Microsoft’s Windows monopoly. However, such analogies unravel under closer scrutiny.

Strictly speaking, a monopolist has complete control of the supply of a particular commodity or service. In this sense, neither Microsoft nor Apple are monopolists, since they both have competitors in their respective markets. Windows competes with Linux, Solaris and Mac OS X, whilst Apple’s music business competes with any number of music stores and music players. But in the IT industry, there’s a special kind of monopoly – where a proprietary platform becomes so dominant that customers become locked-in to such an extent that competitors’ products are no longer a viable option.

For many customers, Windows is just such as monopoly – since users expect their PC to interoperate with other PCs, which use proprietary Microsoft technologies such as Windows File Sharing and Windows Media. The only aspect of Apple’s music business that is comparable is “FairPlay,” Apple’s DRM solution. Since FairPlay tracks can only be purchased from Apple, and are supported only by Apple’s devices, FairPlay is undoubtedly a closed solution. For it to be a monopoly, however, this would require that Apple’s customers have no alternative but to purchase Apple’s products, and this is simply not the case. Music can be purchased on CDs, which do not contain DRM, or from an increasing number for digital services that provide DRM-free tracks.

The market is clearly moving towards DRM-free music, which will eliminate Apple’s lock-in advantage in DRM music. Whilst it’s possible that Apple may come to dominate movies in the same way that they currently dominate music, this is by no means assured, and many other competitors, such as Microsoft, plan to give Apple a run for their money in this area.

6. Apple’s success is down to it’s “legendary ease of use”

The concept of Apple’s “legendary ease of use” harks back to the late eighties and early nineties – specifically the period after the launch of the Mac, and prior to the introduction of Windows 95. During this period, there was no denying the fact that Apple’s computers were the easiest to use. But only analysts over the age of thirty, who still hanker after those halcyon days would reel off this tired old argument today.

Macs may still be easy to use, but in an era when most users are more familiar with Windows, adapting to the Mac is not always an easy transition. Furthermore, Mac OS X is a sophisticated (we may even say complex) product… Far more so than earlier incarnations of the Mac OS. As such, mastering its intricacies is not always an easy task.

Whilst it’s undoubtedly true that ease of use is important, we should take care not to overstate the argument. Reliability, stability, security, good design, aftersales support, bundled applications… the list of benefits for Apple’s products is so long that ease of use is these days a much smaller part of the overall picture.

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