Those who fail to learn history are doomed to repeat it…
Given that Apple’s blockbuster introduction of the iPhone six years ago effectively created the smartphone market, it’s astonishing that Android today reigns supreme.
Within the U.S., depending on which figures you wish to reference, Android has anywhere from an eight-to-twelve percent lead over Apple iOS. Just this week, IDC released global numbers with a far more drastic split: 79-13 percent, in favor of Android. Yet another report suggests that Apple may lose its crown as the world’s most popular app platform within the next few months.
There have been several reasons put forth to explain Android’s overtaking iOS: phone variety, price points, Google marketing pushes, general usability, etc. There’s one argument I don’t think has been adequately covered: Apple failed to heed the lessons learned from its desktop OS battles with Microsoft in the 1980s.
I’m old enough to remember Apple vs. Microsoft for PC supremacy, and I see remarkable similarities from those days and today. In the cases of both PCs and smartphones, Apple implemented a walled garden approach to establish complete control of hardware, OS, and applications. By creating this culture of “insanely great” products, Steve Jobs drove incredible amounts of usage and fan fervor – not to mention extraordinarily lucrative business segments.
However, it can also be persuasively argued that this “holistic” strategy led to Apple’s fall from the top of personal computer market.
While Microsoft designed MS-DOS to work as an open system that could run on multiple computers, Apple was limited by the closed design of the Macintosh system. Jobs’s strategy had dire consequences; by 1988 Microsoft had become the world’s leading software provider primarily because it stayed out of the hardware business and licensed MS-DOS to a wide range of vendors, including IBM, Dell, Compaq, etc. Apple’s market share fell to the low single digits, putting the company on the verge of bankruptcy.
It’s the Mobility Battle, Stupid
Fast forward two decades, and the battle for mobile supremacy became the defining technology issue of the day. True to form, Jobs utilized a walled garden strategy, giving Apple complete control over everything about the phone. Even faster than the Macintosh desktop OS, the iPhone became dominant and the main driver behind Apple becoming the world’s most valuable company in 2012.
Compared to the PC market, Apple’s subsequent fall within the mobile OS market has happened much quicker. Android achieved 70 percent global market share in a surprisingly short timeframe. Remarkably, the same principles proven in the Home PC market battle of the ‘80s apply.
Android’s development was starkly different than iOS. Google established the Open Handset Alliance (OHA) with dozens of mobile devices and software firms, the result of which was the Android platform. Google took a page from the Microsoft playbook and made Android available to a wide range of handset manufacturers, including their recently acquired Motorola handset division. By creating beneficial third-party partnerships, Google positioned Android for rapid consumer adoption, and by 2012, Android had surpassed iOS in marketshare.
Over the past twelve months, Apple’s market value has been under siege, its stock price dropping nearly 40 percent from its September 2012 peak of more than $700 per share. Yes, it’s true that Apple’s mobile franchise remains more valuable than Android, but Apple will be hard-pressed to maintain this position should iOS market share continue its precipitous fall. For example, a recent Barron’s article speculated that Apple’s market share decline may adversely impact contract negotiations with major carrier partners over minimum phone purchase commitments and phone subsidies.
What Might Have Been
I respect the counterargument that Apple could not have achieved its level of success without Jobs’s closed platform approach. Alternatively, Apple could have emulated Microsoft’s approach and licensed iOS to third party device vendors, which would have driven down price points of new phones and accelerated market penetration.
But in both the PC and mobile arenas, Apple may have been best served utilizing a phased strategy with a closed platform launch transitioning to an open hardware licensing model, while preserving control over the operating system and maintaining direct participation in the application software business (in the mobile sphere, iOS and App Store). Of course, that strategy poses its own significant challenges, including cannibalizing lucrative product margins and running counter to the Apple culture.
I am an enormous fan of Steve Jobs and have extraordinary respect for how Apple raised the bar for all others who participate in the technology industry. Nevertheless, I am surprised that few people draw the connection between Apple’s PC struggles in the ‘80s and its similar mobile challenges today. Apple is still the most profitable company in the world, but it must be concerned about its lost mobile OS market share. The equity markets sure seem to registering this concern.
Predicting the future of technology markets is notoriously difficult. I am fascinated by the current dynamism and chaos within the mobile industry. For venture investors, it’s a formidable challenge to stay current, but also a highly lucrative category for investment. Buckle up and enjoy the ride…
