The impetus for this post is focused on the lessons of history. Very recently in an article in Australia, Netgear CEO Patrick Lo launched a scathing attack on Steve Jobs and his closed ecosystem company Apple. What stuck out most was his references to history and the fact that open distribution channels and platforms have generally always won the battle for dominance whether that be in software or hardware terms.
Let’s row back a few years and first examine Apple in the early eighties and its focus on the educational market over the enterprise market. On the flip side, Apple’s key competitor of that time, Microsoft, was targeting the ‘enterprise market’. Apple’s logic was that kids would learn to use computers on a Mac and therefore use them once out of school and in the workforce. Yet Microsoft had won the war by the late eighties or early nineties. Why? Because even if kids had learnt how to use a computer on a Mac, the large majority of businesses, both large and small were using PC based computers using DOS and Windows.
The reason? Firstly, businesses had been the prime target of Microsoft and so they ensured market penetration and dominance by the time kids finishing school were entering the workplace. Secondly, DOS and Windows operating PC’s were a cheaper option for businesses. Whilst yes, cheapest does not always mean best, it did however ensure market domination. Part of that reason TMV would say is that Windows whilst yes still a closed operating system “opened up” its distribution channel to market. Distribution channel is the key word in this post.
Moving on now, as Patrick Low has stated that he has “seen this movie play several times”, pointing to the Betamax vs. VHS video format war, Mac vs. Windows and various proprietary networking protocols that at one stage tried to compete with the now dominant TCP/IP. In each of the above cases, the more open platforms won more market share.
Obviously to date the closed platform has been successful to Apple because Steve Jobs thought leadership has been so far ahead of the pack. However, one only has to look at the Google Android platform’s one year growth from 3% to over 25% market share in the smartphone sector to realize the scale possibilities leveraged via open platform opportunities.
Whilst Apple has undeniably been a thought leader in terms of UI and sexy consumer products over the last decade, its growth and scale possibilities have been severely limited by its closed ecosystem. History already played out this battle in the 80’s/ and 90’s between Apple and Windows. Windows won that war and still to this day Windows is the predominant computer operating system on a global basis. Regardless of UI, of which Windows was and in TMV’s mind, still is inferior – Windows still has market dominance in terms of desktop OS.
In part Google’s Android platform has overtaken Apple’s iPhone in market share terms in the space of one year, due to three key reasons. Firstly, Apple stupidly undertook exclusive deals with single operators (quite often being the worst operators in terms of 3G network infrastructure) – thereby tying its customers into deals where the network operator could not cope with the data capacity the phones were using. Obviously, it was Apple’s GREED which drove this. Secondly, having only one handset type has severely limited scale in terms of consumer hardware choice for using iPhone OS. Thirdly, by failing to leverage the power of many handset manufacturers and mobile carriers and utilizing them as distribution mechanisms to operators Apple missed a key opportunity to ensure scalability. The same seems to be occurring in terms of iPad vs. Tablets game.
Going further the Android OS is available for free and across numerous handset choices, not limited to one manufacturer and open to all operators. Once again this comes back to distribution channels. The more distribution outlets you have available, the higher the opportunity of scale. It’s simple economics folks! It took Apple three years to reach its market share of over 20%. It took Google Android a year to increase its market share by 22%. However, many in Apple want to deny it – to keep in this game Apple will need to open up its ecosystem or risk the same fate it did previously – irrelevance!
To build market share in the emerging markets of the Far East Africa, and South America, Apple will require a dynamic and open distribution structure along with a price point that consumers in such economies can actually afford. Furthermore, consumers want choice of handset type and operator – which currently Apple does not provide in any territories. Without these two key elements TMV predicts that the Apple iPhone will be a minor player in a high growth smartphone sector. Some might even predict it is already in decline if it does not change course and avert a repeat of its previous history with the same CEO at its helm TMV might add.
On a final note, history has proven that open distribution channels and hardware device choice ensure market dominance. Closed systems and hardware options have continually failed over the medium to long-term.
