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In-Stat Analysis: How Long Will the Apple Garden Last?
May 6, 2010 |Estimated reading time: 4 minutes
SCOTTSDALE, AZ -- Apple, by all accounts, is a very successful high-tech company. The most recent success of the iPad demonstrates Apple’s unique position in the market as a device OEM and content aggregator, which allows it unprecedented interaction and interface to the customer for the device and the content and applications. In the process of developing a complete solution, Apple controls just about every step in the value chain. Jim McGregor provides this analysis on Apple for In-Stat. Apple is in control of the design and manufacturing of the processors powering its consumer electronics devices, the devices, the entire internal software stack from firmware through OS, the content associated with its proprietary formats, the applications available for its consumer electronic platforms, and now even the tools for developing those applications. The only portion of the value chain that Apple does not control is the cellular service, but even here Apple directs with a heavy hand through its contractual relationships with the 3G carriers. In a time when open platforms and standards are the mantra of the high-tech industry, Apple is demonstrating an incredible amount of control through its own walled garden. The results of this walled garden are evident through the rich user experience and other attributes of the solution, such as the extremely low power consumption and long battery life of the iPad. The questions are why has Apple been able to maintain its lead and how long can it last? The reason why Apple has been able to maintain this approach is simple -- Apple is the only OEM that has been successful at moving up the value chain to become a content aggregator. In addition, there has been a lack of competition. Yes, there are many other CE device content aggregators and content providers, but no other company has pulled everything together into a complete solution as well as Apple has done. This is why I speculated in The Battle of the Tablets article that the content aggregators like Apple, Amazon, Google, and Netflix, have a better chance of succeeding in a multimedia rich platform like tablets than anyone else, including the traditional OEMs. With the lack of competing solutions, consumers are not pressed to look for other solutions, and the issue with proprietary formats does not become a problem unless consumers want to use their content on other platforms. How long it will last is a more difficult question to answer. The competition between key consumer electronics platforms like smartphones and PCs is, or will shortly, hit a fever pitch. As it does, consumers will move from platform to platform based on the performance and features, which will cause consumer frustration and dissatisfaction when the content does not easily port from one platform to another. However, the issue of trying to port to other connected devices, such as home entertainment solutions, is likely to cause even more consumer dissatisfaction and will likely drive demand for more rapid change in the industry away from walled gardens. The other issue is with regulatory bodies, particularly in the E.U. and U.S., both of which are increasingly scrutinizing the practices of the high-tech industry leaders. US regulators have recently launched an investigation into Apple’s requirement to only accept mobile apps developed using its tools. In addition, Apple has faced issues with its proprietary formats in the past. Pressure from regulatory bodies are likely to heat up over the next few years and may force changes at a more rapid pace than consumer demands might alone. For now, Apple remains a very successful and highly competitive company. Even with changes, either made willingly or under pressure, Apple’s positive image and market position are unlikely to change significantly. But the history of the high-tech industry indicates that holding onto a walled garden approach leads to either obscurity or death for a company in the long-term. In Apple’s case, there will probably always be nutcases willing to go stand in line to buy the latest gizmo, but that does not mean the mass market will follow, and maintaining the walled garden approach is going to become increasingly more difficult over the next few years as new platforms -- such as Andoid -- gain in popularity, second tier OEMs -- such as Acer -- push for market position, and regulators push for more competition within market segments. If this article was of interest, visit In-Stat’s Mobile and Computing Devices reports at http://email.in-stat.com/cgi-bin4/DM/y/hBZCj0N2EnE0K560HiCg0E4. Jim McGregor, chief technology strategist at In-Stat, may be contacted at Jim.mcgregor@reedbusiness.com.
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