Apple’s Challenge: Becoming A Services Company

Much has been said about Apple’s challenges in developing into a services company. Services are core to Apple’s future. Becoming more of a services company is a challenge Apple must meet head on.

I’ve read many articles attempting to outline and critique Apple’s services challenge from pundits and journalists. I find some to be insightful but most are extremely shallow. I hope to add some needed perspective to this discussion.

First Party vs. Third Party Services

I was moderating a panel a few years ago at the Berkeley Haas School of Business. On that panel was a good friend of mine named Tim Chang who is a partner at the VC firm Mayfield Ventures. He said something during our session that I thought was insightful. We were having a discussion about platforms and software and he stated:

“Generally, many popular third party services/features eventually get integrated into the operating system.”

He then went on to describe many popular third party software programs that eventually became integrated into Windows or OS X. Of course, he is correct. The question a platform company, in this case Apple, needs to answer is which services are core to the platform and should be owned, and which services should left to third parties. The answer to this is both strategic and philosophical. We can discern many things about a platform’s strategy and overall philosophy by the types of services they decide to own and build into their platform and the ones they choose to leave for third parties.

Integration is Differentiation

In some cases Apple was first in providing a service, iTunes for example, and in others they were later, such as Maps. In either case, whether they are first to offer a service or add services later that were initially offered by third parties, it is important to grasp a fundamental concept.

Apple’s core services challenge comes to the forefront when other third party services do it better. In the case of Maps, Google did it better. Google had more mapping data and expertise since they had been doing it longer. Clearly, the challenge for Apple was, first and foremost, to build a mapping experience that was at least on par with Google Maps. Some may argue they are close while others may argue they are nowhere close. But for the sake of the foundation I am trying to lay out, let’s assume Apple Maps is now on par with Google Maps. Even if this is the case Apple needs to address the question of why I should use their mapping solution over Google’s, especially given that I have been using Google maps for many years and am comfortable with it. The answer is convenience. Apple can more tightly integrate their mapping solution into the core iOS experience thus making using Apple maps more convenient for the user than a competing service. Interestingly, Apple has done just that with Maps.

I’ve completely switched over to Apple’s mapping solution for the primary reason of convenience. ((I have had no problems with the accuracy of Apple Maps)) I commute weekly all over the Bay Area meeting with people, startups, etc., and often I need directions. Apple’s tight Maps integration into the core of iOS makes it feel less like my guided process is isolated to an app and more like it’s a core experience throughout device. Things like how it works when the screen is off and then only turns on when a key turn or instruction is necessary. Or how seamless it is to exit the Maps application and still get key instructions to pop up as a notification when needed. More importantly, I am convinced that Apple’s deep integration of Maps into iOS is yielding better battery life with the location services. ((I have battery benchmarking between the two I am compiling to validate this)) [pullquote]The fallacy most make when critiquing Apple’s services is to believe that Apple needs to out-innovate competing services. The truth is, all they need to do is out-integrate them.[/pullquote]

iTunes Radio has the same initial challenge as Apple Maps. At a surface level one may look at it and question what it will do that is better than Pandora, Spotify, Rdio, or any number of streaming music services. My family and I are heavy Pandora users and Apple has a particular challenge to get us to move to iTunes Radio. But here again the answer may be in levels of integration that lead to a more convenient experience. This can be in discovery, consistency, ease of acquisition of newly discovered music, etc. If iTunes Radio is more convenient to use, it doesn’t necessarily need to be better.

The fallacy most make when critiquing Apple’s service challenge is to believe that Apple needs to out-innovate competing services. The truth is, all they need to do is out-integrate them. Apple’s advantage is unique in this area because they create the software that runs on their hardware. They will always have an unfair advantage with the services they chose to invest in.

Now this doesn’t mean that Apple should not strive to create services better than competing ones. Only that integration will always be their biggest competitive advantage in respect to their services.

Published by

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

42 thoughts on “Apple’s Challenge: Becoming A Services Company”

  1. “The fallacy most make when critiquing Apple’s services is to believe that Apple needs to out-innovate competing services. The truth is all they need to do is out-integrate them.”

    Freaking brilliant.

  2. Dead on. I would note, though, that for Maps, accuracy is a baseline requirement. One reason that there was so much disagreement about Apple Maps from the beginning is that the maps in the Bay area were always pretty good, while in some places they were awful. In the Washington area, Apple Maps does now know how to get me from my house to Dulles Airport without requiring me to abandon my car on a highway and climb a security fence. But there are still lots of errors in the maps. In my neighborhood, for example, Apple Maps still shows a nonexistent elementary school while missing a real one. Google Maps has mistakes too, but Apple has a lot more of them, and all the integration in the world won’t make people comfortable with maps if they lack confidence in the data.

    1. I use maps like I use search engines. I consult with more than one when charting a new untraveled route. In fact, in my experience, Apple’s map app has caught obscure details that google and map quest did not.
      That said, I was under the impression that Apple was supposed to use crowd sourcing to hone their accuracy. In my experience, they are not. Apple maps shows three fast food restaurants in my semi-rural residential neighborhood which is several miles from such places. I have “reported the the problem” via the built in report option several times, and they have never fixed it. Either Apple is simply negligent on this, or they have moved on to some other plan they have up their sleeve concerning Maps accuracy.

    2. My big surprise with Maps vs. Google Maps has been how many people assume that because Google Maps is accurate for them it’s accurate for everyone. While I have many problems with places not being listed in Maps, the number that have been listed incorrectly has been vastly fewer.

      Google Maps, on the other hand, I’ve found I can’t trust at all. I regularly find Google Maps finds locations as far as 20km out from where they should be, mislabels cities, etc. It’s a completely untrustworthy experience.

      You might get the impression that I’m saying Maps is better than Google Maps. I’m not. They’re both completely unacceptable. (Though I prefer to have no result than a wrong one.)

      These days I’m going to primary sources more. I trust the websites that list their own addresses, then route those addresses with Maps. So far, it hasn’t really given me bad directions. Though it will often surprise me with a “in 250 meters make a U turn” rather than telling me to turn into my destination. Odd bug.

      1. Are you talking about Google Maps for mobile? I’ve found Google Maps for the desktop to be dead-on accurate everywhere I’ve used it. I’m in the Washington, DC area.

        Steve Wildstrom lives here, too and he’s complained about Google Maps being way wrong in places, but I’m pretty sure he’s referring to the mobile version. I would think both versions would come from the same database so I don’t know why they’re so different.

        1. I think all instances of Google Maps use the same underlying data. I agree with Rich that the accuracy of Google Maps in the Washington area is outstanding, though I have run into errors elsewhere.

          By the way, by map errors, I am talking about two different things. One is misplacing visual features on the map, which remains a very serious problem with Apple Maps in the Washington area. The second is incorrect routing. I don’t expect any navigation system’s routes to ever top local knowledge, but I expect the route suggested to work, even if it isn’t the most efficient. Especially in the beginning, Apple failed at this very badly around here, though it has gotten better. There was the notorious routing to Dulles Airport that I hinted at: It had you take a turn off Va Rte 28 into the airport perimeter fence. If you somehow made it over the fence, you would have to proceed on foot, about a mile over a runway and many taxiways, to reach the terminal.

          1. And just as you were walking across the runway, several cars would converge on you and serious-looking men with dark glasses would invite you to seat yourself in one of the cars. Subsequently you would be detained for 10 hours in a basement room with bright lights in your face, and questioned until you were starved, exhausted, and praying they would release you.

  3. Thanks Ben nice article, nice angle. Smooth integration is essential and consumers love it, normally without knowing why the experience is so good. Seamless. Just FYI, Apple maps are pitiful, virtually unusable in Australia. At present you wouldn`t bother. This will surely improve with time. Google is still the benchmark for most important services, but like you say Apple may only need to catch up to par to have this covered.

    1. Thanks and mapping is definitely and interesting one in this regard since Apple had to get data from elsewhere. I actually think iTunes Radio is going to be very different. Apple has quite a bit of expertise in this area, so I don’t think iTunes radio will be less better than competing services. I’m expecting it to be better actually, or at least I’m hoping. But as I pointed out, regardless its about integration.

  4. You say that Apple’s strategy can be seen by looking at which services they integrate but don’t mention what you believe that strategy is. Care to elaborate?

    As for integration, it only enhances their overal product if people want to use their services. If I prefer to stick with Google Maps, for example, the inability to choose its app as default detracts from my enjoyment of my iPhone. That’s the problem with focusing on integration.

    Clearly they’re on your side however, given that iOS 7 still provides no way to choose alternate default apps.

    1. Ah, yes, I figured someone would pick up on that. I should have added a footnote, maybe I’ll update.

      I do plan on elaborating. I’m actually working on a fairly holistic report on Apple at the moment, so I’m still finalizing much of this thinking. ( Part of the reason I really enjoy doing analysis is public, is to get feedback or test ideas while I am still fleshing out my own thinking.)

      But for example, we can see quite a bit of Google’s strategy with their services with an underlying agenda of data capture for the use of advertising. Because Apple’s agenda is a bit different than Google’s therefore the services they are and will be investing in have a different agenda. Partly this, service or services, enhance the ecosystem since that is core to Apple.

      But to your question. I feel like right now, Apple appears to be more focused on media and entertainment experiences as a core services strategy. This is clearly part of their heritage and passion, but its also a core value proposition for the mass market.

      More to come.

      1. re: what services to integrate…

        iOS’s journey of constant refinement will dictate what will be integrated. Of course, this will depend on how “ripe” that market segment is.

        e.g. payment system

      2. re: what services to integrate…

        iOS’s journey of constant refinement will dictate what will be integrated. Of course, this will depend on how “ripe” that market segment is.

        e.g. payment system

  5. So, Ben…what kind of services does a platform operator need to provide, and what kind should they allow to be outsourced..?

    1. Well, its tough to distill this in a generalized sense because it will vary so much by each platform and their agenda.

      But messages for example, although not perfect, makes a lot of sense. BBM made a lot of sense and you can see why its a core service for iOS. Should MSFT and Google do something similar? This would be the question.

      Economics, lock in, etc., are all part of the things that go into what services to own vs leave for third parties. But even with that said, a third party can likely create some kind of new service or feature and if its good enough it will get integrated.

      1. Ahhh i get what you mean. Google as a services company vs apple as a hardware company would result in different strategies.

        I’ve noticed that there is an increasing notion amongst consumers: that Apple is ‘exclusive’, because iCloud, iMessage, etc, only work on Apple devices. Steve Wildstrom even wrote an article about it recently. So Apple is kind of in a pickle; the tighter their services are tied to their own platforms, the more they seem exclusive. This results in customers being wary to ‘buy into’ Apple, as they don’t wanna be ‘walled in’.

        But this integration, is exactly what makes Apple devices great. I wonder how Apple can overcome this problem.

  6. “The fallacy most make when critiquing Apple’s services is to believe that Apple needs to out-innovate competing services. The truth is all they need to do is out-integrate them.”

    Great sound byte and so true. Dead on.

    It also creates a chicken and egg scenario for the ecosystem…
    I have to think more about that and what it means.

  7. Here’s a thought to ponder over regarding core services and integration. Social networking isn’t a natural point of strength of apple’s just like maps isn’t. So would apple go out and build the infrastructure required to host an in house social network and would your argument of apple only requiring to integrate the service vs out innovate a competing service, analogous to how they built out the infrastructure for apple maps?

  8. The problem with Apple’s services is the fact that they ignore other platforms. If I have a multi OS environment then Apple’s services are useless. How do use Apple maps on my Android phone or Windows PC? I can’t.

    Services are supposed to be platform agnostic…. That’s something Apple doesn’t seem to understand.

  9. Google do good services, but do they make any money? I keep reading on here that nearly all their money comes from the adverts on their desktop search engine rather than selling space on Drive or selling All Access passes.

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