Thursday, July 22, 2010

The Rise, Rise and RISE of Apple

Is the news at this point surprising?

Apple's Profit Rises 78% on Appeal of New Devices

Apple's position is further cemented by one simple fact. The iPhone has fundamentally changed the way people operate, i.e. not only the things I can do on a day to day basis while I'm on the move but also when I'm sitting at home. In contrast neither Windows or Mac OS X have fundamentally altered how I've interacted with personal computers for years. While in some cases they do provide interesting back end services such as Windows' Media Center, Netflix's streaming service is the primary manner in which I consume video and I don't need a personal computer for that.

With Apple's latest firmware iOS 4 I leave Skype running on the iPhone in the background all the time. I can make and receive various voice calls and bypass AT&T completely. At the same time Pandora runs in the background streaming music based on previous feedback I've given it. This all the while relaxing on the couch and web surfing. If Pandora isn't doing it for me, I can fire up RemoteX and control WinAmp to start streaming music from various different sites that are in my default playlist. The music then starts over the Klipsch 5.1 speaker system on the PC. If the music streams aren't doing it for me either, I can fire Apple's remote app, search through my entire iTunes music library for a specific musician/song and start playing it:

Then again maybe later in the day I decide that I'd rather watch some video content. I can fire up Boxee on the PC, display it on my HDTV and control the experience through my iPhone:

(Aside: If you haven't tried the latest Boxee beta you're doing yourself a disservice, check it out)

You see it's about choice, choice and even more choice.

This is the fundamental difference between the Apple of old and the Microsoft of old. Many years (+15?) ago Bill Gates used to talk about "information at your fingertips" but his vision was very desktop centric and predated the rise of the World Wide Web which was spearheaded by forces not aligned with Gates' visions and Microsoft's fortes. We've reached a point where it's about consumption at your fingertips. Nowhere is this better showcased than what happened to Flipboard recently:


Flipboard, which uses Amazon Web Services, has been doubling its server capacity each day. The company would not reveal how many people have signed up for the service, but said it is a good percentage of iPad owners, of which there are more than 3.3 million.

Personal computers have been as much about content creation as content consumption which is why a desktop centric approach placed on a small device in the palm of your hand doesn't work and helps explain the runaway success of the iPad.

One other fundamental change Apple has elicited from consumers is they've opened up their wallets. While the sales of software to corporations has been par for the course for decades, consumers became extremely frugal quite some time ago getting very used to the idea of FREE. For example, I can recall the days when you had to pay for anti-virus software for your home computer, there's no reason anyone should pay for anti-virus software today. No doubt this is one factor why CompUSA exited the brick & mortar retail space.

Specifically, the rise of micro-transactions and digital distribution has put an end to the walled garden of various middle men relegating them to the dust bin. With many applications either free or 99 cents, Apple's App Store has ushered a new age where people buy software with no significant concern for the money they spend or the value they derive. After all, if it's a lemon, the most they're out of is 99 cents. Yes, no more $9.95 and $19.95 software specials thank you very much.

As middle men's leverage disappears with new digital distribution, it allows people that actually create products to achieve independent wealth:

The creators of Doodle Jump have sold millions of units. And the math is quite simple, app developers get 70% of the sale which means Doodle Jump's creators are now collectively millionaires and no surprise they quit their day jobs to focus on their new entertainment software business.

This is the kind of story that would never have happened 5 years ago if you were talking mobile applications. It's no surprise that because of stories like this along with the iPhone's market/mindshare, developers have flocked to Apple's platform. It also means that Microsoft, Google, Nokia and RIM (Blackberry) have their work cut out for them trying to establish similar mobile software ecosystems.

While Google has made lots of progress with its Android platform, I have to point out that all of the things I mentioned that I did at home with my iPhone (examples I gave earlier of controlling my PC) have absolutely no reliance on the telephone network (AT&T). Everything I talked about can be done with an iPod Touch or an iPad (via Wifi). Meaning the same software that works on the iPhone works on the latter Apple devices and such a dynamic or complementary ecosystem doesn't exist for other vendors. While there is movement in the Android space with respect to tablets, I'm talking about the here and now.

Which precisely leads into my key point. The reason why Windows has had a vise grip on the desktop is because of its ecosystem of choices. Whether its software drivers to drive an old laser printer to DVD creation software to photo imaging software, you name it, a turnkey solution for the consumer on Windows is probably there.

Switching to the mobile market, until the iPhone came along, there was no such equivalent ecosystem of choices. The telephone companies with their typical lack of vision did not make installing applications easy nor did they pioneer the smart phone category with a partner. Apple created the category and AT&T was willing to go along for the ride. With the introduction of the Apple App Store, seemingly overnight an explosion of choices for consumers became an ecosystem of choices. Which means the average consumer (jailbreakers, hackers, idealists, open source zealots need not apply) stands to lose more peripheral consumption capabilities than gain if they leave Apple's platform. Not being able to do many things you're used to becomes an extremely powerful dissuading force and people are very much creatures of habit further reducing the chances of them jumping ship.

As Microsoft, Google, RIM and Nokia will find, unseating such an ecosystem of choices is not easy. The peripheral advantages often outweigh enticements like "FREE". This is why OpenOffice hasn't suddenly supplanted Microsoft Office despite being "FREE". Or why LINUX desktops haven't supplanted Windows desktops despite, again, being "FREE".

It boils down to the ecosystem of choices and the side effect of having lots of choice (vs. few or no choices).

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