Apple’s Competitive Advantage 2.0

One of the first articles/analyses I ever published on Tech.pinions was aptly titled Why Apple Has a Strong Competitive Advantage. I’m linking to this article, but I encourage you not to read it as my writing skills have greatly improved, and when I go back and read is a little painful. Nevertheless, that article remains the most read article on Tech.pinions to this day and still generates significant monthly views because of people searching the term “Apple’s competitive advantage” via search engines. Meaning, this is clearly still a topic many are interested in.

I’m not going to go back through my points, but I will list the core pillars because I still believe they apply to Apple’s competitive advantage today. The core pillars of Apple’s advantage I outlined in my essay were:

  • Apple’s Hardware + Software
  • iTunes & Digital Asset Management (what turned into the services businesses)
  • Apple’s Retail Strategy

This piece was written in 2011, and Apple as a company has matured greatly. What I outlined for iTunes/digital was the early seeds planted for Apple’s services business, which is absolutely a key part of their differentiation and advantage. Other things I would include today are things like Apple being a functional organization (one PNL instead of competing business units) and their hyper-focus on customer experience as a culture and philosophy. One could argue these are ingredients of their advantage more than pillars, like their integration of hardware and software is or retail, and I could agree with that. But if I were writing that article today, I would add two new areas that I feel are undoubtedly pillars of Apple’s competitive advantage.

Apple Silicon
My belief that Apple’s investment in custom silicon is a pillar of differentiation won’t shock many of you since I cover this subject extensively. However, in today’s computing economy, I would argue that Apple’s efforts in Silicon are the underlying foundation on which ALL of Apple’s differentiation is built. Meaning, every other pillar of differentiation and competitive advantage is made possible because of Apple Silicon.

I’m not saying Apple would not be as successful if they never started making their own silicon, although I am quite confident the lead they have over multiple competitors would not be nearly as significant if Apple shipped the same silicon components their competition does. In essence, their differentiation and advantage would likely still exist, and it would just not be as strong.

Apple’s investment in silicon brings them many advantages but first and foremost is the custom tuning of components to hardware, software, and services vision. Apple has the luxury of roadmap planning in lockstep with hardware, software, and silicon engineering, and this is a luxury they have that none of their competitors do.

It could be easy to say their efforts in silicon are just part of their integration strategy. And that is true, however, I contend it is the core of their integration strategy. I’ve long said the famous quote from Alan Kay that “people who are really serious about software should make their own hardware” should be revised to say “people who are really serious about software, and hardware, should make their own silicon.” I think if Steve Jobs were around today, he would be ok with that revision as an orientating way that Apple thinks about integration.

In looking at structural competitive advantages, we look for things that the company we are analyzing is uniquely equipped to do that competitors are not, or at least not in the same way. This is why I would add Apple’s efforts in privacy as a pillar of their competitive advantage.

Apple’s business model is a key reason they aren’t able to harvest user data for economic gain. I know this has become a topic of debate lately since Apple has been clear they do collect some data to improve their products and services for their users. However, there is a difference between observing some of your habits for other people vs. observing some of your habits to make your experience better, and Apple falls more into the latter than the prior. I’m still on the fence on a few areas with Apple’s advertising pushes, but that’s for a different analysis.

Ultimately, the point I want to make here is people trust Apple, and it is becoming clear their trust Apple with their data and their sensitive data. I’m not saying people don’t trust other companies, but I am saying that if you asked a random person on the street what technology companies they trust their most sensitive and private information to, it would be an extremely short list.

People have proven to trust Apple with their credit cards, location data, family location data and information, medical records, health information, and more. Of course, Apple didn’t get there overnight, and its efforts to protect consumer privacy have been around for a while. But making this a point of marketing and doubling down on privacy will award them some advantages that other companies will not have.

The main one that comes to my mind is around Apple Watch. Apple is by far the leader in wearable consumer devices, and the advancements made to Apple Watch every year only go deeper into a consumer’s health and well-being. However, they could not do this if they didn’t have a base of trust, and in some cases, are still working to earn the trust of their customer base.

Leveraging the Advantage
With those two additions to the pillars of Apple’s competitive advantage, I want to look forward to future products and industries Apple can move into. When we think about going deeper into health/healthcare, more personal and intimate wearables, computers like glasses and beyond, and even automotive where our lives are at stake, Apple Silicon and Apple’s privacy stance become fundamental advantages that will allow them to go into markets competitors can’t.

It is easy to see the whole picture now, but seeing how far back Apple has clearly been planning and deepening their advantage with the pillars of silicon and privacy as competitive advantages, shows us just how far down the road Apple thinks strategically.

Apple’s Automotive ReOrg, Apple Watch Sales 2018

Apple’s automotive project, codenamed Titan, is one of those rare private yet public internal projects we are not accustomed to with Apple. With the latest news about a small round of layoffs in the division, I thought it was worth touch on Apple’s automotive initiatives and adding some food for thought around what may or may not be going on with Apple in automotive.

Apple’s Next Five Years

I’ve been doing investor calls on Apple the past few weeks. Mostly post-earnings as most investors are trying to form a new, better, narrative on Apple. I’ve been loosely theming my comments to investors around Apple’s next five years. While I go into much greater detail in the course of a 90 min call, I’ll briefly highlight some key points. There are three technology fundamentals Apple will bring to market which will be the foundation for hardware, software, and services innovation over the next five years which will set the foundation for a much longer timeframe.

Rising Tech ASPs and the Holiday Season

It has been interesting to research consumer spending habits over the last few years in a series of quantitive studies we did. While people in the tech industry may assume that tech represents the largest part of a consumer holiday shopping budget, the reality is it often does not. Most consumers may have one or two major tech purchases planned, but that is generally about it. There are a few implications of much of tech’s rising ASPs may have on the holiday season.

Brands Bypassing App Stores and the Value of a Marketplace

An important debate is brewing. Along with this debate, an interestingly strategic arc for brands may be emerging. The discussion of how much a marketplace holder should receive is not new. It has become more heated as of late as reports that Netflix is looking at ways to avoid Apple’s cut of subscriptions generated from within the Netflix App. This move is not surprising as Amazon has been doing this year with digital content (only place Apple’s cut is applicable). I’m reminded of this every time I purchase a Kindle book on Amazon, which is about twice a quarter, and I have to leave the Amazon app, go to on Safari, buy my book for Kindle, then go back to iOS app to download and start reading my book. There is much friction in this process, and it is annoying, but I do not blame Amazon one bit.

Apple’s Struggles in India

I’ve been studying the Indian smartphone market for many years now, watching it closely as it grew into the worlds fastest smartphone market. It was only a matter of time until India became the second largest smartphone market since the size of the country is second only to China. However, these two markets could not be any more different.

Platforms of Efficiency

As is so often in the world, the technology industry is cyclical. Looking back at the past two decades of developer conferences, and precisely what each platform company releases as new features to their platforms, we can divide the ebbs and flows of platform feature into two buckets. The first bucket contains elements that are truly new, and enable new use cases and behaviors. The second bucket contains features that build on existing features and make them better and more useful for users of the platform. In one cycle, a platform has an opportunity to show us the future, and in other cycles, a platform has an opportunity to help us be more productive and efficient.

iPhone X Study Follow Up

I’m sure by now most have you have seen the iPhone X survey I published went viral. Many thanks to John Gruber who linked to the article and made it the second most read article in Tech.pinions history. As of now over 75,000 people have read that aritlce and at this rate it will be 100,000 by the end of the day. On the back of that article I intended to add some follow up commentary given there is plenty of data from that study I have not shared yet. But, the public reaction to my article brought up some new thoughts as well worth sharing.

Chromebooks, iPads, and the Desire for New Computing Platforms

I recently got my hands on Google’s Pixel 2 Chromebook. I have been wanting to use the Pixel 2 for some time and test it in my everyday computing workflows. There is so much to like about the Chromebook platform. It’s fast, fresh, and feels extremely modern. Much more modern than Windows or OS X. But it is really the speed, lack of clutter, and overall fresh feeling of the OS that I like best. After a few weeks with the device I can see how you can make a strong case an operating system like this has more legs for the future of notebooks, and maybe desktops than Windows or OS X. With the exception of apps.

Apple Watch’s Big Quarter and a Series of Firsts

It is no secret that I’ve been very bullish on Apple Watch since day one. I’ve held my ground against the naysayers and defended this product because I believed in it and the broader role it can and will play in the future of computing. After a rough second year, when many of the naysayers thought they were right, Apple Watch is truly gaining steam.

I love this headline even though it is wrong: “Apple and Android are destroying the Swiss Watch Industry.”

Diving Deeper on HomePod

I encourage you to read my public thoughts on HomePod from spending about a week with Apple’s newest addition to the product family. I think a caveat needs to be made with my take on HomePod. I’m not the normal consumer who will get their hands on this product and form an opinion. Due to the nature of my job, I use more technology, and try a vast array of products and integrate them all into my life in ways most consumers will never do. So the comparisons I can make of products against each other are not things normal people will ever experience.

The Picture is Clear for Virtual Reality

Each year, virtual reality has become a bigger story. The last few years have brought more questions than answers to the VR category, but I believe the story around virtual realities value is starting to become clear.

At CES this years, I saw positive momentum for VR in both technology and use cases. HTC Vive showed off their Vive Pro headset that includes a wired an wireless solution as well as a dramatic increase in resolution for VR experiences. We have known for quite some time gaming was going to be a driver for virtual reality and that has certianly been the case today. Including Gear VR, most estimates peg the installed base of VR headsets (not including cheap solutions like cardboard) at ~10 million units. Forecasts for 2018 are ~13m units growing to 27m sold in 2020. Definitely a slow burn, however, the next few years adoption of VR headsets will be large enough to be taken seriously by developers and applications/solutions providers.