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iPhone as a part of Apple’s strategy. The future of Apple, Inc.

Tell me, what is the most burgeoning out IT-market in the world? No, not a country, but a market segment, which develops faster than anything else. Perhaps, desktop PCs, you say? And you have missed - this market is not all rainbows and roses. Notebooks? You have already got your hands on one or about to buy a laptop – the sales of portable PCs are indeed growing, but the pace is nowhere near tremendous, plus the competition in this niche gets tougher by the minute. Our beloved cell phones? A billion units a year, legions of users – definitely, bulls eye! It has to be what we are looking for. But, what a pity, again, this market goes up, but not fast enough to impress us.

Give up?

There is a surge in the number of people using the Internet, however the user base on this market is about one third of that of the mobile communications. Here are some figures on Q1 2007 and subscriber statistics по первому кварталу 2007 года и количеству подписчиков мобильной связи.

Apparently all these people are surfing the Net not just for the sake of it – they are digging, reading something, consuming certain online services. Some of the countless applications of the Internet include, say, email, which is all around these days and educational resources. The boom-like growth of online services has much to do with WEB 2.0 concept, where the users themselves shape up the network’s contents and services it has on offer. Smart and far-seeing people have now pricked up their ears – could it be that we are about to get down with the war of the browsers subject again – since these apps are used for accessing the web and examining its contents. By no means – “the war of the browsers” is in fact another cliche brought up by journalists, and it has no particular meaning backing it up (for some reason nobody shouts about “the war of the mail clients”, even though the multitude of such applications for PC and other platforms can barely be counted). Even more sophisticated readers, who are quite familiar with Apple’s history among other things, will nod their understanding – that must the sign that what follows is a breakdown on Safari and its being the connection link for various gadgets. Not quite. What we are really going to talk about here is Apple Inc. as a company, its strategy, aiming at establishing new segments. Also, we will touch on the struggle, albeit indirect, with the current leaders of the market in some fields. The browser, the iPhone and a clutch of other products are only the pieces of one puzzle, which we will use to get the big picture.

Apple’s strengths today

Every company has its strengths and weaknesses. So what are Apple’s trumps today? Not an easy question, since there is no universal answer that would suit everybody. Those whole despise the company’s solutions or, on the contrary, love them, agree with the following: the design of Apple’s products is very tidy and complete; every one of them is a sort of work of art. So, we have figured the first thing the company is praised for by many.

At D5, Steve Jobs, while talking about the iPhone and its web department in particular, noted «the Japanese CE companies who were the preeiminent hardware makers just couldn't do software as well it needed to be done. The Japanese CE companies couldn't make the leap to create that kind of software». Developing this idea further he told: the iPhone’s abilities in this field are “what the Sony Mylo should have become».

Indeed, Sony has put a lot of effort in this product’s promotion, but the hype surrounding fell off pretty quickly. There were not so many enthusiasts craving for a highly tailored device for browsing the web yet lacking all these extra features. This is what many other companies are into – UMPC concept, portable web-tablets and the like. A fine example is one the surface – the Sony PSP comes with a browser and allows accessing the Internet.

But let’s get back to Steve Jobs’ speech. As he precisely noted back then, all today’s mobile terminals are alike. The edge of the iPhone lies in its software department served in an appealing shell of a queer design. Jobs is courageous enough to clam that Apple is at least 5 years ahead of other makers software-wise and has been working on its OS for more than a decade, releasing updates every 18 months. As if among all other things, he underscores the iPhone’s MAC OS X, yet without content, desktop and a number of applications. In other words, it is a full-fledged version of the operating system tweaked to run on a mobile device. Every Safari browser found in the iPhone shares a whole lot of design cues with that for desktop computers.

But for the iPhone we saw on its official release day, it is, to put it mildly, not quite what you get. Both the OS and the browser are different from their desktop iterations. It is quite another matter, though, that soon enough all these distinctions will get balanced out. Why it will be this way – read more on this below, but for now, let’s keep investigating the company’s strengths.

It is not a secret that creation of an own operating system was a mush-have, an essential part for the development of the company’s desktops business, which has always been the top-priority for Apple and before the advent of mp3 players had been dominating all other fields. In 2007 Apple Computers INC turned into Apple INC, for what reason? Many attributed this alteration to the success of the iPod range. This is a very comfortable explanation, so the company’s representatives decided not to argue. But the first parallel all journalists should have drawn is Nokia’s statement made early in 2007 – “from this point on, Nokia is an internet-company”.

Again, moving back to Steve Jobs and his reasoning on the roots of the iPod’s success. One of the constituents, according to him, is the software of these devices. Well, if someone mentions it once, we may well take it as a coincidence, but one and the same factor spoken twice for different products – it is being done intentionally. The company really sees its software as its competitive edge. Even the fact that they forwent own design of desktops in favor of Intel’s platform wasn’t much of a blow – without an OS, computers are nothing but a pile of chips, while banking on software allows to cut the costs, avoid production costs and thus ensure greater – sometimes significantly greater – rate of return. So here comes the second strength of Apple – Software.

The third advantage of Apple is not this obvious. This is... Steve Jobs. If he hadn’t opted for business, and would’ve gone to, say, West Point – perhaps he would have been a brilliant strategist. Naturally, lady luck does mean something in business, but persistent persons can always get along with her. In fact, business and war are no different in the essence, and those who do realize that usually win.

We won’t look at PR and marketing in this piece – these are all important factors, but they don’t make all the difference after all.

Three businesses for Apple and a hobby

Today the company is into three businesses:

Mac – computers and software;
Music – the iPod;
Handsets – the iPhone as the first go at it;

Steve Jobs also says that the Apple TV is a hobby, for today it generates thousands of units per year, rather than millions: the market has to get mature and other then it will become the playground that brings real profit.

What is the weakest spot of the company, which results from the structure of its activities? Hardware, components and their integration into a single whole. Examples abound, but one is for sure – the company does not long for investing significant sums of money into production in order to ensure their leading position. Apple leaves this chunk to other companies and focuses on its traditionally strong points, which is undoubtedly the right way to go.

Over at Apple they employ “blue ocean” strategy, whose meaning is this simple – you don’t rival already established leaders in some market niche, you just create new needs and requirements in consumers’ minds and then satisfy them. This strategy worked out and paid off in the case of the iPod. Here is a great video where the iPod is being launched and Steve Jobs presents the device and discloses its trumps.

Now, a tricky question – which Apple’s product has become the most popular and beloved, has influenced the market and can serve to tighten the company’s grip on the market down the road? I love this type of questions – all answers are on the surface, but pretty hard to think of at the same time.

If you look solely at the businesses the company is into, you might end up lost in prejudices and cliches. Perhaps, the best thing to do is see how the company is trying to struggle with already established players on the market. If we sway a little bit more towards military terms, then a frontal attack is doomed, no matter how you look at it – these companies differ too much in their power, so are their partners, which seem to be in different weight divisions. However, bringing into life any kind of large-scale strategies on the market requires a popular device or software that will be widely adopted. And again, what we really mean is not the browser but iTunes, which is currently housed by 300 million computers, and over at Apple they say it is a very rough estimate – the actual number may be even greater. Today iTunes is the most popular Apple’s product running not only the company’s very own computers, but also other Windows- based systems.

Extreme popularity of the application is brought about not by the penetration level of the iPods or Apple’s computers – it has much more to do with the company’s efforts to tout iTunes. The music store helps both the applications itself and the devices. In fact, Apple’s multi-facet strategy has several sub-levels and a multitude of tasks. What seems to a mere backup for some particular device turns out to be a way more interesting and versatile solution. And there is no way that such a sophisticated and perfectly elaborated strategy will be dumped any time soon.

The workaround in the form of iTunes is beautiful, but how does it benefit the company in the near term? Technically it only supports its current products, that’s it – obviously, the entire portfolio has something to do with iTunes, some solution more, some less. The application is starting to shape up as a payment system, an authorization service, and it will be garnering more abilities for delivering different types of content onto a variety of devices. It is not an operating system, but rather an application sporting all the key features for delivering content directly to the end users and able to run on just about any popular operating system these days.

All this look smart, feels promising, but why would Apple need this? Could it be that the company will start bursting out multimedia content and sell it to its audience?

They should know better than to do that – to get a firm grip on the market, one should be the largest information provider (content is mere information), all you need to do is offer proper tools for effective, fast and straightforward search (example – Google), categorization (iTunes for media-formats), encoding (QuickTime, Flash) and distribution. In this regard iTunes has what it takes to elevate its success to new heights and become the platform for a variety of services in the future.

Any attempt to create information on your own bumps into obvious hurdles – there is so much information out there already that its creation will come at great cost, and hence prove non-lucrative. It is so much more beneficial to come up with tools for handling information – both hardware and software agents. With this height reached, the flourishing iWorld will be within fingers reach.

What is a terminal or a “thin” client?

Most people have a very short memory; this quality is common to many, including journalists. Let me venture a short rundown of history of the technology, so as to give you an idea of what is happening on the market these days. When computers were huge (the age of mainframes) and occupied enormous areas and rooms, consumed hundreds kW, and desktops weren’t even in the wildest dreams of people of those times, accessing these machines was done via terminals – keyboard-equipped displays able to send requests to a mainframe, and give it some particular task. And even though, the users were queuing up to get a piece of that computing power, the number of terminals was significant indeed. The concept of mainframes was deep into the minds of the market players back then, that a representative of IBM once predicted that in the years to come after the debut of the personal computer, the market for them won’t measure bigger than 50 units. IBM PC shapechanged the market to the point when it didn’t look like it old self, and turned IBM into one of its many players, brought up Microsoft and of course Apple itself, as well as some other players like Oracle.

Nonetheless the idea of terminals was still around and reigned over the minds of many developers. SUN’s Java was nothing else but an attempt at making up a cross-platform language that would run on any device, like mobile phones, PCs, tablet computers and wouldn’t be too hardware-hungry. However, today Java has been attuned in the way to meet the needs of the booming market of mobile terminals. The initial concept failed to settle down in minds of the players and was modified.

However this very concept was adopted by other companies. The first surge of interest to such terminals and the infrastructure formed by them was provoked by Microsoft late in 2002, which led to a bunch of solutions, both of hardware and software nature, a tad later – in 2003-2005. But these were not terminals as we know them, but rather “thin” clients, work stations with no storage linked up with a local server, where an operating system alongside some applications was located. All data was piled up on this dedicated server. About the same time, the US saw a handful of companies that came to the market to introduce these services to the Internet. Broadband connections were a fairy tale, but it wasn’t the main reason why a complete bust – people were used to store personal data on own hard drives. Such “bad habits” can bury alive any titillate technology, regardless of how brilliant it is.

The first projects to fare pretty well in storing vital data of others were free mail services. The interest they garnered encouraged the companies to take another stab at the market. The most notable example of today is Google, which has been busy with making up an ecosystem of remote applications (Google Calendar, Google Docs etc). As the number of subscribers grows, and the audience basically starts to have faith in these services, the concept of terminals will be all the rage once again. And the first terminal to kick off the next wave is the Apple iPhone. Why do I call I a “terminal”? Simple. This product has a number of traits to it:

Obligatory use of PC for uploading data (technically you can deem it a server, even though in practice it is not so);
Big screen for easier network communications and corresponding technical talents EDGE, WiFi);
Standard suite of applications with non-customizable functionality and the ability to store results on a local storage device (the major difference from the terminals of the past – in a word you are free to chose remote or local storage place). The market has already seen this implementation, and as far as we know nobody has come out embraced – it is email;
The core applications have gone online, which ensures the device’s safety and stability (fewer ways to go for developers, more unified software which is easy to make up). Outside the network these apps can’t operate properly, but when you are always inside the coverage area, it doesn’t make any difference.

Looking at the iPhone as a terminal we will surely come to realize that this is a very unique and revolutionary solution – as of today, the market has seen no models with this “thin” client concept. Unlike Nokia, which is also moving pretty much in the same direction, Apple is not held back by compatibility issues, it doesn’t have to care about the previous generations of products. The major pain for Nokia is that they can’t just let go of every last thing they did before – but, to tell the truth, they don’t need to do that. If you consider the company’s statement on going online and becoming Internet-focused in this context, then all pieces of the puzzle click into their places. By the way, Nokia’s “thin” client is, for the most part, a WEB-tablet computer, for example Nokia N800 today, Nokia 7700/7710 previously and Series 60 powered smartphones with touchscreens down the road.

At the time being the market is experiencing the paradigm shift, both in software and hardware. Not everyone needs desktop PCs in the way they are today – in many regards they morph into gaming stations, for office applications are so much less hardware-hungry. Obviously, the PC market is not going to vanish any time soon, but, undoubtedly, there will be times when an alternative will come along. This moment feels much like the day when IBM’s engineers predicted popularity of computers for the years to come. The world is now ready for changes – that’s why they are inevitable.

iPhone, or a tiny part of the strategy

When the iPhone was first announced, I got a notion that all top-of-the-line iPod models will be ousted by Apple’s handset. Steve Jobs himself calls it the best widescreen iPod and the best player they have ever made. Unfortunately, or, maybe, luckily, it is not the case, so high-profile solutions will not go away just like that, they will be differentiated by storage space, battery time and some other options. There won’t be any brood wars within the company’s portfolio, or, let’s put it differently, it is unlikely there will be many of confrontations.

So how Apple is going to make the best of its software trumps? Steve Jobs promised not only to roll out a development environment for the iPhone, but also make it safe, so that the device would be a very stable performer unlike other models, which, as he claims, tend to crush at least once a day. The root of all evils is the user’s set of custom applications, which turn out to be incompatible in some cases, and sometimes just crudely written. That said, what’s the conclusion is?

For the time being there is no public strategy for software development for the iPhone, so the brand fans can close their browsers right now and proclaim every word I say a fiction. But the avid readers might find the following scenario inserting.

First off, the company will extend the basic functionality of the device on its own, which will guarantee the device’s safety and make it much less vulnerable. Second, developers will be given an opportunity to make up applications that will be uploaded over the web – in fact this is Apple’s and Google’s main goal. Otherwise, network applications just won’t find their place here – it is vitally important to generate an ample user base to spark some sort of chain reaction. The beauty of such applications is that they won’t need to access the iPhone’s hardware – system utilities will remain within Apple’s domain.

Then, the company has plans for tight integration of this terminal with MAC OS Leopard on mind. Thus the handset’s software update will bring along some new, previously unseen features. Naturally, there won’t be a whole lot of them, nor will they provide any sort of extreme flexibility, but this will be quite enough to enhance the iPhone’s functionality and tack on some new abilities like data synchronization, data categorization (no parallel with file managers intended!) onto the device. At the same time, the caps on music/video uploads over the air will remain intact – this is where Apple will never step a few inches back, otherwise iTunes will never morph into what Apple has on mind.

The next iPod generation brings along some features that so far have been seen only in the iPhone. Apple will also stick with its focus on rolling out various solutions that may have some talents in common, but eventually they will end up in different corner of the ring thanks to design, price, positioning and inclusion/omission of certain abilities.

WiFi has finally made it the iPod, and basically it was always just a matter of time. The need in WiFi is brought about by the very concept of network devices, applications and content access. More on this in our next article, where carries are the big focus.

Eldar Murtazin ([email protected])
Translated by Oleg Kononosov ([email protected])

Published — 06 September 2007

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