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« The week of September 3rd in My Digital Life | Main | The week of September 10th in My Digital Life »

September 07, 2007

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Chris Carlin

I think the business strategy with regards to the iPhone and iPod is widely misunderstood. For one, what you express here assumes these products exist largely independently from Apple's other products, such as its computers.

Taken as a whole--that is, viewing these items as part of a larger environment Apple is nurturing across all of its products--these price cuts aren't an indication of a troubled product but a smart move to continue success.

In short, they're doing very well in the relatively small smart phone market right now, and they're positioning to do well in the larger cellphone market going into the future. And all to support their overall business, including computers.

Stephen Skarlatos

With 110 million iPods sold and whatever number of iPhones sold, the overwhelming majority are attached to Windows systems, making the iPod/iPhone largely independent of other Apple products. I agree that these products help feed purchases of other Apple products, but overall it is a relatively small percentage to the overall PC marketplace. Yes, currently big for Apple but that is relative to their 4-5% market share. I believe they understand that and it is why they have designed the iPod/iPhone to work as well with Windows as it they do with MAC OS. (Why did they drop FireWire?)

I disagree with your theory on price cut, any marketing person will tell you that a 33% price cut after the a products has been out for 2 months with no obvious competitor, tells you something's not right.

But in the end, this is all conjecture and we will have to see the earnings to determine what how well they are doing.

Chris Beard

I think Apple sorely miscalculated on this, they anticipated their potential customer base to be more "liquid," because of past experience with the iPod etc. But the fact that Apple limited themselves to a locked phone on the Cingular network is a new twist that Apple tried to play. To me, when seeing the specs, I immediately thought that the iPhone was an inferior device to other Windows Mobile devices, including one I already owned. This is especially true when you consider Cingular already having a built-out 3G network and the most expensive phone offered by that provider doesn't utilize this technology. One of the only selling points was the iPhone's sleekness. Apparently not enough for the price point...
As far as the Windows/Mac platforms are concerned, Stephen, you are right that Apple realizes that they can't move past Windows on that, as evidenced by the Windows compatibility of iPod and iPhone. I myself have recently made the switch to a MacBook Pro and love it so far, but that doesn't change how I will use my other devices, such as my T-Mobile Wing. With Parallels everything works perfectly in both Mac and Windows at the same time, my phone syncs wirelessly to Exchange and I can sync files in Windows on my Mac. And I get to reap the benefits of a Mac, including performance and stability. Apple understands this, which is why they often ship new Macs with Parallels already installed.
In short, the lines that used to be absolutely clear between Mac and Windows are disappearing and kudos for Apple for understanding that and helping to blur those lines. In the end the user will benefit from all that.

Chris Carlin

In reply to Stephen:

"the overwhelming majority are attached to Windows systems, making the iPod/iPhone largely independent of other Apple products."

But that's touching on the big secret: the iPod and iPhone ARE Apple computers. They aren't just nifty gadgets to plug into your home computer, but something approaching computers in their own right.

Unlike other companies' offerings, these devices are built on the same technologies as their general-purpose desktop cousins, and there are many interesting and significant implications of this.

As a quick contrasting example, WinCE and Microsoft smartphones are built on foundations that are hardly related to XP/Vista at all.

Think about it: through the iPod and iPhone Apple has managed to sneak 110 million Apple computers into customers' homes.

Yes, an iPod/iPhone are starkly different from a PC in many, many ways, but just sort of leave this thought in the back of your head.

Stephen Skarlatos

Chris wrote: "As a quick contrasting example, WinCE and Microsoft smartphones are built on foundations that are hardly related to XP/Vista at all." I don't disagree that the kernels might be different, and I would bet money that the iPhone's kernel is different than the one in MacOS for Intel. Win32 and .NET calls in WinCE are identical to the ones found in XP/Vista. Yes it is a subset of the calls from XP/Vista, however the syntax is the same. You can develop one application that runs on XP, VISTA and WinCE. I am sure the iPhone also only has a subset of the calls from Mac OS.

As for the 110 million number, that is for all time. If you compare 2006 numbers there were 239,424 million PC sold (source Gartner), while only 3,976
million Mac sold (source Apple). That is only a 1.66% market share for the year.

I agree Apple and MS have taken very different approaches, my curiosity lies in understanding the Apple long term strategy.

Chris Carlin

Keep in mind that I'm trying to be neutral when I talk here. I'm not a particular fan of Apple's, I own no Apple products, and I don't necessarily think they would fit my needs. I just find them interesting.

With that out of the way, it turns out the iPhone actually does run on precisely the same foundation as the desktop, and this gives Apple huge benefits. Instead of having to shake out a new platform, including the headaches that would necessarily come with it, or license one from, say, Symbian, Apple was able to use the tried and true, well studied technology that it used for OS X.

It's interesting to see how things have worked for Microsoft and Apple after they made radically different software choices. While MS has had so many problems over the years--and so many failures--based on its approaches, the Apple-UNIX connection seems to be a fantastic match.

Apple has been able to take rock solid, almost mathematically perfect software from the academic world that was never going anywhere and apply it to real life, so to speak. MS could have (and still could) do the same even with its different UI priorities, but I suppose it feels its focus on software makes this decision distasteful.

Apple's overall strategy is an extension of this: just as it used well understood, well standardized, "free" software to its advantage it now wants to promote other well standardized, "free" technologies to continue moving ahead. We see examples of this in everything from what it's doing in collaboration to its x.264 activity.

But how can it promote these standards as the underdog? Well, by not being an underdog :) This is the real purpose of the iPod, the iPhone, and the price cuts: get everyone using open standards and Apple can benefit with the rest of society.

Chris Carlin

I guess I should address things more directly: there's a huge difference between sharing compatible API sets and being based on the same platform. You're still thinking in Microsoft terms when you focus on the API: a similar API only matters given certain strategies such as the huge 3rd party developer strategy you suggest Apple take up.

In fact, the solid API can be a huge hindrance, as MS has found, but I'll leave that for another time.

Since Apple has a single codebase, an improvement in OS X (or even FreeBSD) will improve all products in a multiplicative way that Microsoft simply can't take advantage of.

While MS is trying to keep up three or four independent kernels while also planning the next rewrite from scratch, Apple is developing a single one for all of its products.

---

Of course I don't dispute that far more PCs are sold than Macs (though there are a number of things to take into account to draw an accurate picture there). I'm only pointing out that through these non-computer devices Apple is gaining a good deal of influence, which fits in with its strategy.

Hm, I really don't feel good ending without saying that your math is flat out misleading. Simply dividing sales as you have done is a rather flawed way of presenting it.

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Since Apple has a single codebase, an improvement in OS X (or even FreeBSD) will improve all products in a multiplicative way that Microsoft simply can't take advantage of.

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