Wednesday, January 23, 2013

Apple, 10% Market Share in Smart Device. I've See this Movie Before

Is Apple destined for 10% market share in the smartphone & tablet markets? I’ve seen this movie before.  The big killer is looming.

Apple is great at innovating, branding and selling really cool products.  From its inception Apple has pushed the proverbial envelop over and over again.   The iPhone and iPad products have clearly been pioneers in the entire industry. 

However, like the Macintosh, the inherent forces in the technology universe will overcome them yet again.   The reasons are too numerous to mention.  A fundamental reason is the aggregate sum of R&D and Marketing budgets. 

By Apple’s own doing, there are ZERO competitive forces for iOS products.   Yet in the Android and Window markets there are many manufacturers fiercely competing both against Apple and against each other.   As big and profitable as Apple is they cannot compete over time against the aggregate sum of R&D and marketing dollars of an entire industry. 

One case in point is in semiconductor devices.  For any given common function in a phone or tablet there’s likely to be at least two semiconductor device manufactures competing fiercely for market share.  This in turn drives innovation and economics in that segment.  The same goes for glass, plastics, software and every common component.  If you add up the total R&D investment in the supply chain the problem gets worse for Apple.  Once the “non Apple” solutions start gaining market share, Apple’s slippery slope accelerates.  More R&D and marketing forces and more economy of scale create an unstoppable downward force on Apple. 

Then, the big killer sets in.  No longer do software vendors start with Apple and then migrate to Android then Windows.  They lead with Android and then decide “which one next” Apple or Windows? This too creates a competitive innovation engine that puts further downward pressure on Apple.

Yet, as in the previous “movie”, Apple will have its die-hard consumers to protect a lower market share and provide it profits to continue to innovate.  To their credit, Apple is leading the brand wars, at least in the U.S.  and among the under 25 year old demographic.   Perhaps this movie will have a different ending.

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