Companies compete on the basis of cost or value advantage over other products. Either they make a product at a lower cost than competitors (often at the expense of value), or they offer more value (which is measurable to an extent, but is more than just the difference in willingness to pay or WTP). A very few companies are able to compete on both – having a dual advantage over competitors.
For Apple, I truly wonder where they are in terms of strategy. As far as computers, margins are so ridiculously low that they can’t possibly be competing on cost. Every single bit of a computer is a commodity now – even the coolest part of any computer, whatever you may think it to be, is just a common item as far as accessibility and availability are concerned. Apple does have a value advantage, and they utilize this by getting away with charging more than competitors for similar products. Even so, the value difference is not enough to really make computers a meaningful source of revenue over time.
Speaking of revenue – the iPhone makes up 40% of Apple’s revenues. That’s almost unbelievable. And it is also a key component of Apple’s strategy over the past few years.
By moving towards mobile devices – first the iPod, then the iPhone, and now the iPad – Apple has managed to diversify horizontally, into entirely different markets. They used some existing expertise – the same design skills and engineering innovation that led to the iMac, for instance – but for the most part Apple has been blazing its own path, doing new things with new methods and ideas each time, then evolving that idea slowly into the next product. The iPod brought the best user interface for a portable music player. iTunes for Windows created a complete system for managing one’s music and having it at hand. The various generations of iPods have helped develop an entire style of portable devices. The iPhone brought mobile and ubiquitous computing in the form of a smartphone. All of the design lessons from the iPods, with a new touch interface that took the existing UI to a new level. The App Store became another important part of the equation – much as the iTunes store completed the iPod music system, the App Store completed the smartphone system, with the iPhone and iPod Touch as the platform.
These have all allowed Apple to achieve a massive value advantage over competitors. On the cost side, while Apple has done much to keep them low (“designed in Cupertino, made in China,” and the move to buy up flash memory like gangbusters), fundamentally designing, inventing, innovating, etc cannot be a low cost proposition.
The “system” offered by iTunes has made displacing the iPod all but impossible. The value advantage is huge. But for smartphones, the iPhone has lost ground as new devices have come around. And the App Store has taken hits on the one hand for being so restrictive and regulated that developers have had a hard time getting all of their products out and on the other because other platforms (uh…Android) are so wide open. Android has made it possible to develop a phone OS that could seriously compete with the iPhone system.
The issue is that there is now a full platform for the smartphone market that competes with the iPhone that has gained traction (as compared to Blackberry, whose OS is very hard for developers to work on, and Palm, whose WebOS never took off).
The iPad is a different situation. I am waiting for mine to arrive so I can try it out first hand then comment on it…I am uncertain as to it’s market.