The Threat of a Hollowed-Out Apple

Just over three years ago when I was an analyst at Ovum, I gave a presentation at the CTIA mobile industry conference about a possible threat to Apple’s business. The deck from that presentation is embedded at the bottom of this post. I reviewed Apple’s famous “There’s An App for That” campaign and spoke about how what had been a strength for the iPhone was becoming a potential threat to Apple’s future success. I thought it would be interesting to go back and review the key themes of that deck, see how things have panned out, and where Apple stands today in relation to these threats.

“There’s An App for That”

Back in early 2009, Apple’s ads for the iPhone 3G played up the App Store the company had added to the iPhone OS the year before with the slogan “There’s An App for That” (here’s an example). The thrust of the campaign was there were many things you’d never expect your phone to be able to do and, while the iPhone itself couldn’t do them, there was an app you could download from the App Store which could. Over the next few years, Apple’s App Store model went through a variety of changes. One of the key challenges Apple had to deal with was regarding apps either the company or its carrier partners deemed threatening. That included, at various times, the Skype app and the Google Voice app, both of which spent time either banned from the App Store or in limbo pending review. In time, these objections and obstacles were overcome, resulting in an App Store which had alternatives for almost every pre-installed Apple app on the iPhone, as shown in these two screenshots from my original presentation:

App for that

The risks of an open app model

In the vast majority of these cases, the apps in the App Store posed no threat at all to Apple and served only to enhance the value of the iPhone and its ecosystem. But the same openness that has allowed two million apps to flourish on the iPhone has allowed competing ecosystem providers like Google, Facebook, Amazon, and Microsoft, with rafts of apps that compete, not just with one of Apple’s own apps but increasingly big swathes of the iPhone’s built-in functionality. Microsoft alone has 82 apps available for iPhone, Google has 72, and both Facebook and Amazon have 22. Many of these apps duplicate functionality provided by Apple’s apps, including browsers, photo management, cloud storage, note taking, content stores and players, email clients, and so on. In some cases, you could almost recreate my screenshots above with apps just from one of these companies.

The big risk here is these ecosystem providers will come to contribute so much of the functionality on users’ phones that those users begin to see these companies and not Apple as the most important part of their mobile user experience. Once users spend the majority of their time in someone else’s apps, the device itself becomes just hardware holding someone else’s services. At that point, it becomes easier and easier to switch to devices that put those services front and center. So Apple’s famous tight integration of hardware, software, and services gives way to even tighter integration between someone else’s hardware and the services people actually use. As I’ve written previously, I think this is exactly why Apple is getting deeper into content categories like music and news. It recognizes this existential threat and wants to make sure users aren’t just spending time on its devices but actively using its services as well.

WWDC changes the picture again

The interesting thing about last week’s WWDC announcements is how they change this picture in ways that both open up more opportunities for developers and potentially integrate third party apps at a deeper layer in the OS. On the one hand, Apple opened up new aspects of iOS to developers, including Siri, Maps, and iMessage. They also made it possible to delete (or at least hide) Apple’s preinstalled apps. In some ways, this is “There’s An App for That” all over again but playing out in three new settings, with all the attendant risks. These third-party apps can now get into parts of iOS previously reserved only for Apple’s apps and a handful of hand-picked partners.

On the other hand, this integration can be seen as another plank in Apple’s strategy to refocus attention on the iPhone. If activity around those third party apps now happens within Siri, Maps, or Messages, it provides unique value which isn’t available in the same way on other devices, even if the underlying functionality comes from other companies. Siri, Maps, and Messages all get better and potentially get used more because of third party apps, which is a totally different ball game from just seeking to compete more effectively with third party apps on a standalone basis. Apple is walking a fine line here between opening itself up to more competition and bringing some of the competition into settings where it does less damage and, in fact, enhances experiences unique to iOS. Importantly, Siri integration in particular is limited to certain domains which don’t include either navigation or music services, two areas where Apple has invested heavily in its own apps in recent years. Though the intention is apparently to broaden the domains addressable by Siri over time, I wouldn’t be surprised if Apple put these domains in particular at the bottom of its to-do list.

The double importance of services

In the context of all this, it becomes clear services at Apple serve an important dual function. On the one hand, there’s the new revenue opportunity associated with things like Apple Music, the App Store, iCloud, and so on, which becomes more important as Apple’s hardware revenue starts to grow less quickly. But on the other hand, as Apple faces the risk of being hollowed out by competitors, it needs to reinforce its position in services in order to fend off that threat and keep providing experiences which create unique value on its devices versus those provided by competitors. The changes announced at WWDC should help with this, but it’s an ongoing battle in which Apple needs to continue to make meaningful progress over time.

Here’s that deck I referenced at the beginning:

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

26 thoughts on “The Threat of a Hollowed-Out Apple”

  1. it needs to reinforce its position in services in order to fend off that threat and keep providing experiences which create unique value on its devices versus those provided by competitors.

    I have difficulty with this statement. At least if you look at Apple’s current strategy, it does not seem to be a position that Apple consistently adheres to.

    Apple Music for example is clearly standing by itself and for itself. Apple has not blocked Spotify but still Apple Music has already captured a large portion of the market. On the other hand, it’s also available for Android.

    Apple’s default apps seem to have done relatively well, even when integration was weak. Although this is the first time they are going so far as to allow deleting of their own apps, users have been free to ignore iMessage, Video, Notes, etc. for a long time despite minimal integration and unfair advantage.

    I consider allowing removal of their own apps as more a sign of confidence from Apple, that hollowing out is not a real threat. I think it is a realisation that the power users who want to use third party apps as defaults is actually quite small, and that the risk is minimal. On the other hand, removal of their own apps helps developers who can thrive by catering to only the power users, a small % of the market.

    In conclusion, it seems to me that this is a simple Win-Win between Apple and developers. Apple does not seem to worry too much about hollowing out anymore, and as long as they can make a competitive service, they can come back and win on iOS. No rush here. I doubt they lose sleep over this.

    1. On one hand this is not that different from what Apple has to deal with on Macs. On the other the hyper-mobility of smartphones increases sub-cultural niche applications amongst different groups.

      I do so much traveling that errors are as common in Google maps as Apple Maps. But my daughter long ago ditched Apple Maps for Google Maps because she lives in NYC and needed the transit info.

      Plus, Techpinions has regularly written about messaging apps in non-western countries being standard to avoid SMS fees. And different age groups line up behind different offerings like Snapchat.

      So I don’t think this is _strictly_ about a small percentage of power users, in the traditional sense.

      But Apple has a different capacity with iOS than when they were at the mercy of Adobe with regard to Macs and Mac OSes of the day. Apple, I think, has long been on this track of finding ways to tie disparate developers into different themes, such as Healthkit and Homekit. The next logical step, based on what users are using on their iPhones, is this new step—iOSKit?

      And if they use the Mac model, then what they offer may not be the most comprehensive, it will—comparing to your power user argument—be more than sufficient for a broad category of users who aren’t in particular niche groups. Like how iWorks is certainly no MS Office. But it is more than adequate for the vast majority that don’t need Office.


  2. Hollowing out (-core) is good for an Apple pie… iPhone could be a distribution platform for small companies (let’s say up to $1 million in revenues), but big businesses (Google, Amazon) are more than capable of making their own phones (with spinning off a closed version of Android) and not to be at the mercy of Apple to get an access to their applications.

  3. So Apple has to run fast to keep up with (or stay ahead of) the competition. Welcome to the 2016 tech world.

    And wait till AI starts really coming on strong…

  4. Apple: centralized closed system that employs deliberate planned obsolescence, outrageous pricing based on name alone, known 3rd world labour exploiter and tax evader.
    I hope they get eviscerated in the most economically brutal way possible.

  5. “The big risk here is these ecosystem providers will come to contribute so much of the functionality on users’ phones that those users begin to see these companies and not Apple as the most important part of their mobile user experience.”

    You say that as if it’s a bad thing… 🙂
    How is that bad for the user?
    Only Apple stakeholders should care “If it’s good for Apple-tm”

  6. Apple’s business model in its most basic form is walled-garden ecosystem. Hence the control. Customers within the garden are only allowed to use or enjoy whatever provided by Apple (and the partners of Apple). I usually use hotel analogy to describe Apple’s walled garden.

    The quality of experience of a software isn’t only measured by the app alone, but also requires the supporting environment e.g. the operating system, the device features, and the API/SDK for the software fundamentals, etc. Users may see the same app across platforms, but the experience of the app in each platforms wouldn’t be the same. Apple just has to make sure that the best user experience is provided by apps in its walled garden.

    Apple even also walled-garden its developers. Almost all development tools from Apple are locked-in. If you’re an Apple developer, you can only use XCode on Mac, you’re encouraged to use Swift programming language, Apple’s SDK/APIs help you ease the app development, etc. You can’t have all of them —in the same feature and quality— from the other platforms. Eventhough you can create the same app for other platforms, you have to be ready to double the cost and effort (in some cases even more). It’s really a big hit to your productivity. Plus, Apple’s customers seem to be more generous on buying apps over customers on other platform (namely: Android).

    Through the uniqueness of Apple’s platform, there are some kinds of apps that would be great only if it’s on Apple’s OSes and devices. For example, security and privacy. If I’m a security freak, I won’t use my banking app —or any security related apps— on a platform that is the most common target for hackers and viruses. Apple’s stance on this matter is loud and clear. Another example, iOS apps that are in compiled binary mostly work faster and has minimum latency are good for realtime multimedia apps. GarageBand is a great example of this. There’s no app in quality and experience as good as GB in other platforms.

    So, I don’t think cross platform apps are really a serious threat to Apple. 🙂

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