Tag: ecosystem

Apple Is The Disney World Of Tech

On Twitter, Ben Bajarin, and others, recently argued that the value in tech tends to inevitably shift from software to hardware and, finally, to services.

Hardware to software to services. Apple is in a unique position to capture content. ~ Ben Bajarin (@BenBajarin)

Ben, you’re essentially saying Apple is beginning a new business model around iOS. ~ eric perlberg (@eric_perlberg)

I’m not so sure.

24_44I think Apple’s business model is similar to the Disney World business model. There are boardwalks and amusement fairs aplenty, but there is only one Disney World. It it the crème de la crème of amusement parks. Similarly, there are smartphones and tablets aplenty but there is only one “Apple World.” It is the crème de la crème of mobile computing.

Disney World does not charge per ride. Rather, they charge a single admission fee to allow admission to their parks. Similarly, Apple does not charge for its platform. The iPod Touch, iPhone or iPad is the price of admission to their ecosystem — the “ticket” to “Apple World.”

Hardware As A Ticket

Pundits often ignore the value of Apple’s ecosystem. They compare Apple’s hardware to the hardware of Apple’s competitor’s and, finding it wanting, proclaim it to be “overpriced”. But if one includes the Apple ecosystem in the cost of the hardware, then the premium charged by Apple for their hardware is more than justified.

Without a doubt, Disney World generates huge amounts of money from the sale of foods, concessions and hotels, but it is the Disney Park that draws the customers. Similarly, Apple makes huge amounts of money from the sale of apps, music, TV and movies but it is Apple’s entire ecosystem — not just their content — that draws the customers.

Strategy Bonus

Microsoft sells its software licenses to Original Equipment Manufacturers (OEMs). They, not the consumer, are Microsoft’s true customers. Google gives away its services and sells consumer eyeballs to advertisers. The advertisers, not the consumers, are Google’s true customers. Apple, on the other hand, sells their hardware — their “ticket” to their ecosystem — directly to the end user.

Microsoft, Google and Apple all want the end user to have a superior user experience. But since Apple sells their hardware directly to consumers, it is easier for them to stay focused on that task. With Apple, the customer and the end user are one and the same. Apple’s desire to help its customers is perfectly aligned with Apple’s desire to help its end users. One might call this a Strategy Bonus. Microsoft and Google, try as they might to please the end user, have a customer layer between themselves and that end user. Apple does not.

Different, Not Best

Am I saying Apple’s business model is superior? Not at all. Throughout my life, I’ve enjoyed going to my local boardwalk and I would be unable to do that if the Disney World model were the only amusement business model available. On the other hand, it took a unique man with a unique vision to create a unique place like Disney World. It’s a one of a kind, world class, amusement experience. And the world would be a lesser place without it.

Similarly, it took a unique man with a unique vision to create “Apple World”. I’m glad the world has Microsoft and Google. But the world would be a lesser place without the unique vision that created Apple. It’s the Disney World of tech.

Why Surface Will Be Good for the iPad–and the Rest of Us

Microsoft SurfaceFor the past 2 1/2 years, iPad as has ruled the world of tablets. Except for Amazon’s Kindle Fire and the Barnes & Noble NOOK Tablet, both special-purpose devices dedicated to consumption, there has been no competition worth mentioning. But with the entry of Microsoft into the fray, both with the Surface and an assortment of third-party Windows 8 and Windows RT tablets, the business is about to get a lot more interesting.

I start from the premise that only competition keeps the tech business driving forward and that in the absence of effective competition products stultify. This definitely happened in PCs. After Apple failed to respond to the introduction of Windows 95, the Mac market share fell to the low single digits and without effective competition, Microsoft innovation faded. It has only been Apple’s across-the-board success in recent years that lit a fire under Microsoft.

The iPhone never had iPad’s grace period. It entered a crowded market, where it had to displace the entrenched market leaders: BlackBerry, Windows Mobile, Palm, and Symbian. That proved to be surprisingly easy, helped by lunkheaded competition, but  Android soon came along as a serious challenger. I don’t think there is any doubt that the iPhone and Android have made each other better and I expect this process to continue, especially if Google can build and app and services ecosystem that rivals Apple’s. And I think the entry of Windows Phone 8 can  only improve things, pushing both Apple and Android, though its commercial success is an open question.

The fact that iPad has improved quite a bit since its 2010 introduction seems largely the spillover of iPhone features into the tablet space: better apps, better services, faster processors, and the retina display.  The first notable effect that tablet competition has had on the iPad is the introduction of the iPad mini, which is clearly a response to smaller tablets finding at least some success in the market.

Android tablets, especially the larger ones, have suffered from many problems. but the overwhelming issue is the lack of decent software. The success of iOS devices and even, to some extent, of Android phones has proven that consumers want native apps. But Google has had a very hard time seeing beyond the browser. The Android app situation remains calamitous, with most of the available choices being blown-up phone apps that are terrible on a 7″ tablet and unspeakable on a 10″.

Microsoft is not making this mistake.  The selection of Windows RT apps is still quite limited, but Microsoft understands the care and feeding of developers. The RT apps that are available are designed for the Surface’s display (and those of Windows 8 laptops and tablets) and consistently speak the Metro (for lack of a better name) design language common to Windows 8/RT and Windows Phone. Many of the apps are quite good (a notable exception being the built-in Windows 8/RT Mail app, whose awfulness is both inexplicable and inexcusable.)

Equally important, Surface is being launched into a mature Microsoft ecosystem. Microsoft has spent years seemingly pouring money down the holes of Xbox and what used to be called the Windows Live collection of online services. But now, those investments may be about to pay off, as the company pulls together the entertainment content of Xbox and cloud services such as SkyDrive, Outlook.com, and Office 360–not to mention the deep understanding of cloud services it has gained from its enterprise back office offerings. iOS devices sold a lot of Macs because of the way they work so well together in the Apple ecosystem. The same dynamic could work for Microsoft in reverse: the vast installed base of Windows PCs could sell Surfaces and Windows Phones to gain the advantages of the Microsoft environment.Surface is being launched into a mature Microsoft ecosystem..

Surface is not designed as a head-on competitor for the iPad. In many ways, from its ability to work with USB peripherals to its all-but-mandatory keyboard, it is far more PC-like. Like the iPad itself, it represents a new device class in what is turning out to be a surprisingly big space between smartphones and traditional PCs.

It’s going to take a while before we can judge the success of the Surface strategy. Microsoft, however, is a patient company that is smart enough not to expect an instant payoff from its very big bet. But by offering tablet-hungry consumers a worthy alternative to the iPad, Microsoft has put pressure on Apple to keep its game up. That can only be good for all of us.