Think about the status quo from just a few years ago. Microsoft was the dominant OS on desktop and notebook PCs. Microsoft’s Windows, BlackBerry, Nokia and others controlled chunks of the highly fragmented mobile device industry.
Along came the iPhone and a massive disruption began. Google entered Apple’s disruption stream with a competing OS to the iPhone. Within a year, smartphone makers had a mostly free way to combat Apple’s growing iPhone market share.
What of Microsoft, BlackBerry, Nokia and friends? The nature of disruption is such that there are winners and losers. For now, the clear winners are Apple and Samsung (most of the revenue and most of the profits from smartphone sales). The others are losing money hand over fist.
That list includes Google, which has yet to turn a profit on Android, despite the disruption to the industry (witness the expenses incurred to combat Apple’s high profit growth, patent litigation, and Motorola purchase).
As Apple continues to rack up huge revenue and profits for iPhone and iPad, only Samsung is putting up a decent fight for second place. Third place? It might as well be 25th place. Third place is crowded with all of yesterday’s heroes, and a few newcomers.
With Android, Google had a shot at disrupting Apple, too, though it has yet to play out that way. Android is free, but Google has not cashed in on a substantive revenue stream (let alone an ROI). Apple makes money by selling hardware. Lots of money. And that contrasts greatly with competing players.
Take Amazon and Google. Both have introduced very inexpensive tablets; Android knock-offs of Apple’s highly successful iPad. Unlike Apple, which has margins to die for, Amazon and Google’s hardware efforts are sold at close to the cost of manufacture. It would seem to be disruptive to the market leader when a competitor sells a similar product at less than half the price of the leading product.
So far, that disruption hasn’t occurred. Why not? An Amazon Kindle Fire and a Google Nexus 7 are both about half the price of an average iPad. Yet, despite growing competition, the iPad has gained market share though priced significantly higher than new Android-based products.
Disruption usually occurs when a new product goes up against a market leader with similar quality and features at a lower price. Or, for about the same price, offers notably better product quality and features.
For now, the public perception is that Apple’s iPad is of substantially higher quality and capability than competing tablets, and both Amazon’s Kindle Fire, and Google’s Nexus 7, though of surprisingly high quality, are not in the same league as the iPad. The feature set of the also-rans is not perceived as competitive with the iPad, hence, no disruption at the lower end of the tablet market.
Apple CEO Tim Cook has vowed that Apple will not provide a pricing umbrella for products, but that is exactly what has occurred. Apple’s products cost more than competitive offerings. Apple could easily afford to reduce prices to compete at the lower end, but why? There’s no disruption taking place. Yet.
The iPod remains the portable media player market leader because Apple protected the product with a wide pricing scheme that was competitive against all comers.
What of iPhone and iPad? Both are market leaders which bring enormous revenue and profits to Apple’s burgeoning coffers.
How disruptive would a smaller, lower priced iPad be to the Android tablet knock offs? Apple may enter the smaller tablet arena to expand the iPad product line, but there’s no such option for the iPhone. Instead, Apple sticks with last year’s model as the low-end, entry-level option, and ensures that iOS, and most apps, can still function well on even three-year-old models.
Compare that to most Android OS smartphones which seldom get upgraded to the latest OS, therefore, cannot run future apps.
With quality products priced far lower than the market leader, Amazon and Google should be disrupting Apple’s juggernaut. That has not happened. Why? Apple brings a holistic ecosystem as part of the package of products. Neither Amazon nor Google have been able to match that ecosystem, hence, no disruption.