Apple: Can it stop the Android menace?

I want to take a break from banking and macro stuff and talk a little bit about technology. I wrote an article about Android a few weeks back. That was a more personal account on why I was switching from a Windows Mobile phone to Android, the latest whiz-bang operating system running mobile phones. (Don’t ask me why I stuck with Windows Mobile for so long – even I don’t know any more). This article is looking at the Android phenomenon more from a strategic perspective.

You may have seen the Verizon commercials on TV. They’re everywhere: Droid has arrived. And this happens to be a big problem for Apple Computer.

(In case you haven’t seen the commercials, here is one embedded below)

 

As you probably know, I am a bit of a technophile.  I’m that guy you remember from high school who was taking AP Computer Science and programming in Pascal, the guy you remember who always had the latest gadget. And I’ve done my stint in technology companies too. But, at heart, I am a finance guy and when I look at technology, I do so from a finance guy’s point of view.  That’s why I see the emergence of Android phones as significant. The recent flurry of announcements about hardware manufacturers adopting the Android platform has me thinking about Apple Computer and the 1990s again – and that’s not good for Apple.

The Macintosh

From the mid-1980s to the mid-1990s, I was a Macintosh user and an avid fan of Apple Computer and its products. I started using PCs only because incompatibility with my colleagues’ work product forced me to do so.  The Macintosh was miles ahead of the PC in user-friendliness and platform robustness. And Apple is a company that cares about customer service too.

But, forced to do so or not, I did switch to the PC, as did millions of others.  The reason: one company cannot compete against 100s. Apple refused to open its system and that limited production to Apple alone. Meanwhile, in PC world, you saw Compaq, Gateway 2000, HP, Dell, IBM, Toshiba, NEC, Packard Bell and a host of other vendors jumping onto the PC platform. Eventually, the PC was ubiquitous – and often incompatible with the Macintosh. How could Apple compete?  It couldn’t. Eventually, the Macintosh lost market share and became a niche product for die-hards, education and design.

Digital Music

But, Apple maintained its core competencies of user-friendliness, platform robustness and customer service. While PC makers were technology companies run by engineers, Apple was a consumer product company run by design and marketing. So, when Apple hit upon the digital music scene with iTunes and the iPod, it instantly became a success.

I am a big music fan. Because I tend to be an early adopter, I went all-in for digital music and CDs, buying my first CD player in 1988 – a top-rated Kyocera DA-610cx. When digital music hit the portable device market, I was there as well with my portable supposedly skip-free CD player plus car adapter. But, eventually I switched to Mini Disc and then on to Digital Audio Players. Remember the Diamond Rio 500?

The iPod

Then came the iPod. This was a ground-breaking product which was to digital music players what the Macintosh was to computers. It revolutionized the industry, bringing Apple Computer back to prominence as a technology company. The iPod became the dominant digital audio player (the hardware) – and with it, iTunes became the dominant digital music player (the software). It was almost like Intel and Microsoft rolled into one. Again, it was the product design and robustness of the iPod and the user-friendliness of Apple which made the difference.

Since then, Apple has successfully branched out into all manner of related spheres: video, podcasts, and most crucially digital music purchases and mobile telephones. They have also been very successful at integrating all of the platforms.

The iPhone – Android wars

But, everyone knows the standalone digital music player is passé. And iTunes, the digital music software application is free, a loss leader. The real money is going to come from digital music purchases and Apple’s mobile telephone, the iPhone. So, strategically speaking, this is why I see the flurry of announcements about Android phones as a problem for Apple.

Android is the Linux-based operating system developed by Google. it is now being implemented on a number of different platforms from internet tablets to low-end personal computers to mobile telephones

What I question is how Apple is going to compete in mobile telephones. Don’t let the hype around the Verizon Droid fool you. The phone, manufactured by Motorola, is a very good phone. But, it is only one of many that are now coming to market. There are also phones in the works from Sony Ericsson, Samsung, HTC, Dell, Garmin, LG, and a host of other manufacturers. Even Google is supposed to be coming forth with the much anticipated Google Phone – the phone designed to prevent the splintering of Android which doomed Unix as a consumer-based operating system.

To my eyes, this is looking like a repeat of the Macintosh-PC Wars of the 1990s which Apple lost. On the one side, you have Apple, competing at the high end and very concerned about platform integrity and control, and preventing other manufacturers from building its hardware. On the other side, you have another operating system designed for the lower end and installed on a host of manufacturer systems – which may or may not cause serious platform integrity problems down the line.  Who wins that battle?

In the 1990s it was Intel and Microsoft. And they went on to reap massive rewards as Apple foundered.  Today, Apple risks a repeat of this if it does not come out with a credible solution to deal with its burgeoning Android problem.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.