In 2013, Microsoft had dominated the tech industry for three decades with the incredible success of its OS. The company gradually lost its leading position, but not because the model stopped working, but because Android from Google followed the precepts of Windows, but at the same time was absolutely free. It seemed that it would become the leading OS for smartphones.
That obviously didn't happen: not only did Apple build and maintain a large enough app base to support the iOS ecosystem, it also continued to profit from almost the entire smartphone industry. Due to varying reports, it is impossible to determine the exact proportion, but according to most experts, it is 70% -90% over the past five years.
As you know, Apple is a company with tight product integration, at least in terms of the operating system and hardware. It turned out that integration is not a flaw in the operating system, but its huge advantage in the market, in which, having a monopoly on MacOS, you can sell millions of devices with a failed keyboard or other shortcomings for years.
Benefits of integration
First, the integration provides an excellent UX. Business schools teach you to evaluate only financial costs, but you can’t do this when analyzing vertical integration. There are other costs that are more difficult to quantify. Modularization has a user experience cost that cannot be prevented or measured. Businessmen and analysts simply ignore them, but consumers do not. Some users value quality, looks, and attention to detail, and are willing to pay amounts that far outweigh the financial costs of vertical integration.
Not all consumers appreciate (or can afford) what Apple has to offer. In fact, they are the vast majority. But the idea that Apple will start losing consumers just because Android is “good enough” and cheaper is counterintuitive to consumer behavior. In the past fifteen years, the company has focused on creating disruptive innovations that change the balance of values in the market.
Apple differentiates the offering with design that can't be measured in numbers. However, it certainly appeals to consumers who are both buyers and users.
Second, integration maximizes the success rate of new products, including the iPhone. Before the advent of the iPhone, telecom operators basically offered the same services: voice messages, SMS, and data transfer. This increased elasticity of substitution made it possible for Apple to pursue a divide and conquer strategy, all they needed was a single operator.
Apple reportedly started iPhone talks with Verizon (a major US telecommunications company), but it turned out that Verizon was already backtracking on AT&T (then called Cingular) thanks to the latter's aggressive investment and use of new technologies. She increased the number of subscribers mainly at the expense of AT&T. Verizon saw no need to change their strategy, which included strong branding and full control of the phones on their network. AT&T, meanwhile, was on the opposite side of the coin: they were losing, and this, in turn, had a significant impact on their BATNA - they were more willing to compromise when it came to branding and user experience, and therefore the release of the iPhone with AT&T passed under the terms of Apple.
That's when Apple's edge in user experience and the resulting customer loyalty paid off: for the first time, customers were willing to endure the hassle and expense of switching carriers just to have access to a particular device. Over the next few years, Verizon began to lose customers to AT&T, although their service level was many times better. Four years after launch, the iPhone finally began supporting Verizon with no carrier branding and no control over the user interface. In other words, Verizon ended up agreeing to the same deal they rejected in 2006 because Apple's customer loyalty gave them no choice.
Thirdly, integration leads to a monopoly: only Apple devices work on iOS. Many agree that Apple has perfected the manufacturing model. The majority of the company's corporate employees work in California to design and sell iconic devices that are created in Chinese factories built and operated to Apple's exacting standards (including a huge number of on-site employees) and then shipped around the world to consumers hungry for the best in Apple. class of smartphones, tablets, computers and smart watches.
What makes this model so effective and profitable? That Apple has differentiated its devices through software. Software is a completely new type of product because it is infinitely differentiable and at the same time available in unlimited quantities. This means that the theoretical price of the software is $0. However, by combining the distinctive qualities of software with hardware that requires real assets and goods to produce, Apple can charge high prices for its products.
The results speak for themselves: for the past "bad" quarter, Apple's revenue was $ 50,6 billion. The company received $ 10,5 billion in profit. Over the past nine years, the iPhone alone has generated $600 billion in revenue and nearly $250 billion in gross profits. This is perhaps the best product (at least from a commercial point of view) ever created by man.
Today, conventional wisdom has changed: integration is considered the best system. Just look at Apple's success! Indeed, looking at the company, it is difficult to disagree with such conclusions, but it should be noted that a number of potential disadvantages of integration have recently been revealed.
Problematic keyboard
Apple recently had an important event: the company released a laptop with an updated keyboard. Previously, the key mechanism was easily damaged even due to small dust and debris. Since the entire line of MacBooks has not yet been equipped with the new keyboard, an article still hangs on the Apple website recommending cleaning laptop keyboards with compressed air. Needless to say, this is not normal - as are the keys failing on thousands of devices around the world for several years.
Apple first released its infamous butterfly keyboard in April 2015 and only replaced it in 2019. However, the company has sold $99 billion worth of Macs in that time, most of which are laptops. This is really the merit of integration!
Or, in other words, the strength (and disadvantage) of a monopoly. No, Apple doesn't have a monopoly on computers, but the company does have a monopoly on macOS. It's the only one that sells MacOS hardware, so millions of customers kept buying computers that (especially in the last couple of years) suffered from a number of serious problems.
To be honest, Apple did not commit any crimes. At the same time, it's hard to imagine that the butterfly keyboard would have continued to be used for four and a half years if the company had serious competitors. Integration can provide a great user experience, but as soon as the competition disappears from the integrated product, it starts to deteriorate.
NFC and innovation
The second problem is related to the news from Germany. The Verge wrote:
In Germany, Apple may be forced to open access to iOS to all payment services that compete with Apple Pay. The country's parliament voted to introduce appropriate measures on Thursday, Zeit Online reports. The bill was passed in the form of an amendment to an anti-money laundering law and will need to be approved by the upper house of parliament before it officially takes effect next year.
If this bill is approved, then in Germany, Apple will have to allow other companies to use the iPhone's NFC chips. Prior to that, she severely restricted access to them. Zeit Online notes that the change could result in individual banks offering NFC payments through their own apps rather than through Apple's service. Apple will reportedly be allowed to charge for access to the NFC chip, but it won't get the 0,15% it currently receives from every transaction in Apple Pay.
With its control over the iPhone in general, and the built-in NFC chips in particular, Apple could give Apple Pay a significant advantage over competing payment apps (which are forced to use awkward QR codes). This means that Apple can use its strong position in the smartphone market to conquer the payments market. It is worth emphasizing (especially in the context of this article) that integration can hinder innovation.
NFC stands for Near-Field Communication. This technology is a protocol for communicating between two electronic devices that are within 4 centimeters of each other. There are three options for using NFC chips on smartphones:
- Smart card emulation, which makes NFC devices act like payment cards. Apple Pay is an example of this use case along with transit accounts and smart keys.
- Read/write data. An active NFC device reads or writes data to a passive NFC device (such as an NFC tag powered by a magnetic field generated by the active device).
- P2P data transfer between two NFC devices.
In short, NFC allows two devices to communicate without any prior configuration, making the range of use cases much wider than, say, Bluetooth… and yet the only NFC technology that most of you have probably used is for payments. . Why?
Perhaps Apple should be blamed for this. Android devices have been equipped with NFC chips since 2010, while iPhones only introduced them in 2014, and they were used only for Apple Pay. Two years later, Apple made it possible to read some NFC tags, and only two months ago allowed NFC tags to be written.
The problem is that the NFC chip on the iPhone is closed: it's integrated with iOS, and Apple has a firm grip on the reins. Given that the company charges 0,15% on each Apple Pay transaction (and also because of previous attempts to charge third parties to integrate into its ecosystem or create accessories), it is fair to assume that such a limited use of technology is due to financial side of the issue. The development of NFC has been stalled due to Apple's complete control over the iPhone chips.
Control over the App Store
The third problem is described in a recent Washington Post article:
On Friday, Apple removed all vaping-related apps from its App Store, joining experts calling vaping a "health crisis" and a "youth epidemic." Some of the 181 vaping apps removed by Apple allow the user to control the temperature or other settings on vaping devices. Others offer users access to social networks or games. The App Store has never allowed vape cartridges to be sold through apps.
"We are constantly evaluating apps and keeping up with current news to assess the risks to the health and well-being of users," Apple spokesman Fred Sainz said in a statement. Apple cited evidence from the Centers for Disease Control and Prevention and others that links vaping and e-cigarette use to deaths and lung injuries.
Of course, such a decision is to be supported – especially given the problem that has arisen due to vaping this year and widespread fears that it is becoming an incentive for tobacco use. Again, given that the crisis appears to have been due to counterfeit cartridges, being able to connect to your smartphone could be of real benefit to people.
But there are also more sophisticated devices with USB and even Bluetooth support that allow users to control heating settings, adjust indicators and update firmware. Bluetooth devices are accompanied by applications on iOS and Android mobile platforms that allow the patient to measure and monitor their use. As with PAX, they allow you to identify the drug loaded in the device and see its contents - for example, a list of cannabinoids, a terpene mixture, and other ingredients. Applications also allow the user to verify the authenticity of medicines.
These apps—and therefore device functionality—are no longer available to iPhone users. You can't get that level of functionality in a browser - not because they're illegal, but because the owners of the company decide they are. Their opinion is the law, because the App Store is integrated into the iPhone. Apple has a monopoly on which apps may or may not be installed on a device.
Let's be honest: you may not be affected by the ban on vape apps. But what if the company bans an app that highlights Hong Kong rallies or an app that tracks drone strikes? In both cases, you can argue that the company is simply complying with the standards of the countries in which it operates, but the main reason why the question of removing the app at all is because of Apple's control.
Apple's approach to the App Store also raises questions of competition and innovation. The Company uses its control over the application approval process in the form of interest charged on the sale of digital goods and/or benefits for its own products. Apple's restrictions on developer business models make it difficult for high-performance apps to emerge.
Of course, Apple's tight control over the App Store has huge benefits not only for the company itself, but also for developers. Many customers are afraid of malware on Windows, preferring Mac products. However, this approach has quite a few downsides.
Integration versus monopoly
This article is not legally correct. In particular, the term "monopoly" was used very loosely. Apple takes a great approach (from a business point of view) - by integrating hardware and software, it has managed to generate monopoly profits that cannot be classified as a monopoly. However, while "integration" leads to good results, this is not the case for "monopoly." Pay attention to the advantages of integration, with which the article began, combined with its disadvantages:
- The excellent user experience of Apple's integrated products eventually resulted in the company using a substandard butterfly keyboard for four years.
- Apple's ability to leverage its user base to bring new products and features to market has caused the company to slow down NFC app development.
- Apple's ability to earn high profits from software-differentiated devices is increasingly enhanced by an attempt to charge interest on digital goods and/or give the company's own services a competitive advantage.
Apple's example helps to draw the line between healthy integration, which generally does not carry anything bad, and the monopoly pursuit of profit.
Source: habr.com