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  • Apple Doesn’t Have to Be First to Succeed!

    November 2nd, 2010

    There has been an ongoing meme among tech journalists (and even the mainstream media) over the years that Apple must fail unless it can be first in all markets served. This attitude is the result of the fact that Apple has been consigned to a small minority of the PC market.

    In the PC industry, it has long been felt that only one player can live long and prosper, citing Microsoft's near-eternal dominance. Even with their share declining some to roughly 90%, give or take a few, how can any other player in the industry possibly stay in business?

    Of course, when it comes to open source operating systems, such as Linux, no company is actually earning anything from its distribution, except for those who provide support contracts. Indeed, when it comes to Web servers, the major player remains Apache, an open source app that continues to dominate at the expense of Microsoft. However, Microsoft still earns huge profits from the sale of server products, so being number one doesn't necessarily matter.

    Depending on which survey you examine, the Macintosh has a global market share of roughly 5%, but it's reputed to be some 20% in the U.S. retail space. Regardless, Mac sales continue to grow ahead of the overall PC market, and Apple makes plenty of money from hardware sales.

    In short, Apple can continue to deliver Macs successfully, even when and if the iPad takes over a large portion of the consumer and business PC markets.

    Yes, I realize Apple dominates in the media player business, having essentially replaced the Sony Walkman as the verb for such products. Apple made smart moves early on, and turned a nascent product category into a multi-billion dollar success. Every single competitor was trounced. Microsoft's efforts to duplicate Apple's walled garden with the Zune failed miserably, and total sales are hardly a blip in the total.

    With the iPhone, Apple entered an existing market where traditional handsets had plateaued. The largest growth was confined to third-world countries, where the cheapest gear had the best chance of success. With the arrival of the iPhone and Android OS products that mimicked Apple's major features, such as touchscreens, smartphones have taken off big time.

    As you've already heard, far more Android gear is sold in the U.S., in part because there are loads of models available that are offered by all the major wireless carriers. Apple is still tethered to just one, though that limitation will soon change. With a Verizon version of the iPhone, expected early in 2011, you have to expect some sales will be cannibalized from AT&T as contracts expire. Other customers who held off buying iPhones, because of real or perceived problems with AT&T's network in their city, are expected to take the leap.

    In the end, other platforms are apt to continue to do better overall than the iPhone. But as a single product, Apple stands to remain a top-tier builder of mobile devices, and the larger companies will retain their status largely because of all the cheap low-profit gear in their lineups. So long as iPhone sales gains remain in the high double digits, Apple succeeds, even if the Android OS is twice as popular.

    For the iPad, nobody really knows how well the competition will fare. Up till now, tablet-based PCs have only flourished strictly in low-volume vertical markets. Apple made the product mass market, and the iPad's aggressive pricing promises to keep this gadget at the top of the heap for a long while.

    Indeed, Samsung's pricing policy for the competing 7-inch Galaxy Tab is a huge misfire. You only pay less than the iPad for the entry-level product with a two-year data plan from a wireless carrier. If you just want one without the subsidy, the price is $599, despite the smaller display. Can you imagine Samsung's hubris — or stupidity?

    Yes, it's quite possible that competing tablets will ultimately dominate, just as they have in the smartphone space. But for that to happen, they will have to match and beat the price of an iPad, and provide loads of extra features. Can they do that affordably? Well, maybe, but if Samsung, a company that supplies many key components for Apple's products, can't build a cheaper tablet, the fate of potential iPad killers may be decided even before they actually go on sale.

    As with the iPod, Apple has taken a huge leap with the iPad, and owns the market, at least for now. As new models with more features, such as built-in cameras, become available, you can bet that Apple will continue to market them aggressively and keep the prices as low as possible. No other company seems able to come close.

    But even if the iPad killers take a larger share, so long as Apple can continue to report fast growing sales and great profits, it doesn't' make a difference. Too bad far too many alleged industry pundits continue to be clueless about such matters.



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