Apple, Inc. is struggling. That’s an understatement. Apple is moving as fast as it can on many different business fronts, defending, attacking, building, reinforcing, plotting, scheming, winning, and losing—struggling to meet demand, struggling to fend off competition. There is a high profile battle that Apple cannot win.
Apple’s Battle Fronts
Apple’s iPod business is in defense mode, slowly eroding as users move their music to smart phones. On the other hand, Apple’s Mac business has gone through a resurgence in recent years. Thanks should go to Microsoft’s virus and problem plagued Windows XP and Vista which made the Mac seem like a safe haven for weary PC computer users.
The Mac’s market share growth, with record revenue, record unit sales, and record profits, is attributed to a combination of additional factors. The Apple stores, the iPod halo effect, and the iPhone halo effect, all of which combined to bring many millions of non-Mac customers to Apple’s classy stores to sample the company’s wares, both hard and soft.
Apple’s iPhone platform became an instant darling in 2007 and remains both the fastest growing single smart phone model, and the most profitable, even amid intense competition from major cell phone manufacturers (over 60 Android OS models vs. the iPhone).
While Apple’s iPod business is on the decline, it remains profitable and dominant in the face of nominal competition for Apple’s iTunes ecosystem. Despite a relatively small market share, the Mac has never been more profitable, and commands a disproportionate market share of personal computers which cost above $1,000, not to mention revenue and profit.
The iPhone line is now Apple’s largest revenue and profit generator. Indeed, Apple wages war against intense competition at every turn. Just as Apple lost the battle for desktop computing to PCs running Microsoft Windows, the iPhone faces another battle it cannot win. But all is not lost.
Apple’s iPhone vs. Google’s Android
Whatever spurred Google to compete with Apple in the smart phone arena may be hidden for now and become fodder for future historians. One thing is clear. Google’s Android smart phone operating system will do to the iPhone what Microsoft’s Windows did to the Mac.
This is the battle Apple cannot win.
Already there are credible reports that smart phones running Google’s Android OS outsell Apple’s iPhone. In smart phone OS market share, Apple cannot win that battle and become the dominant OS. That crown will eventually go to Android OS, which is provided free to cell phone manufacturers. In turn, cell phone manufacturers can build a smart phone that resembles and competes well with features on the iPhone at comparable or lower prices.
Nearly two dozen smart phone manufacturers worldwide can introduce multiple Android models each year, giving customers a wide range of new devices from which to choose, while Apple maintains the relatively slow footed annual update of hardware and software.
How can Apple win such a battle? It cannot. But fear not.
Fortunately, wars are seldom based upon a single battle. While Apple has already lost the smart phone market share battle to Google’s Android, Apple may already have won the war. Which war? The most important war. The revenue and profit war.
First, unlike Microsoft’s Windows, Google receives no revenue from giving away Android OS. Smart phone manufacturers receive revenue by selling Android OS devices, but compete mostly against each other on price and hardware, with little differentiation of the software on their products. Manufacturers are forced to differentiate products on hardware features, despite some Android customization capability.
Second, Apple takes a disproportionate share of revenue and profits from the continually growing smart phone market. Apple loses the battle but wins the war (not much different than losing the operating system battle to Microsoft, but winning the war of revenue and profits vs. PC manufacturers).
Apple’s game is not to win every battle.
The game is to win the wars that count by focusing on battles that matter. Unit market share is not a battle Apple can win with the iPhone and the company knows it doesn’t matter. What’s more important? Mind share. Revenue growth. Profits. Loyal customers. Shareholder value. Developer loyalty. Product ecosystem. Those are battles that Apple wins, and collectively, important battles won win wars.