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Dave Michels
David Michels holds 20 years of telecom hands-on experience, starting with IVR systems to Fortune 100 operations. Currently President of...
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Dave Michels | November 26, 2012 |

 
   

Apple is Killing Us Softly

Apple is Killing Us Softly While we marvel at the design and innovation of their products, we need to understand the cost. Apple earned this. But at what point does it become too much?

While we marvel at the design and innovation of their products, we need to understand the cost. Apple earned this. But at what point does it become too much?

Apple is a phenomenal company and Steve Jobs was a brilliant visionary. The company is an icon to the American dream--from Dad's garage to world's most valuable company in about 35 years. It is nice to see the company rewarded for innovative products that captured the hearts and desires of so many people.

But Apple's incredible rise is not a reflection of the economy in general. Economic conditions, and how to fix them, were indeed among the top and most controversial aspects of the recent election. Apple is not the rising tide that lifted all boats, but rather the opposite. It is a zero sum economy, and Apple's growth is at a far greater price than is reasonable.

Take a look at the nearby shopping center: Most likely the busiest store is the Apple store, on average consuming more dollars per square foot than any other retailer--a feat that is becoming easier with all the nearby "For Lease" signs. Gone are the computer stores, software stores, music stores, and movie rental stores. The nightmare of owning a Blockbuster in the age of the iPad was the theme of a "South Park" Halloween special.

The problem is bigger than retail.

Consider consumer electronics as a whole. Once-dominant Sony, Panasonic, and Sharp are all in crisis. Sony's Walkman products owned the market for portable music pre-iPod. Computers? Dell, HP, and Lenovo are scrambling to react to Apple's Air and iPad. Distribution? Think Borders, Capitol Records, Egghead, and Blockbuster. Cameras? Nikon and Canon are both down about 50% in profits--despite the bankruptcy of Kodak and an Enron-like fiasco that beset competitor Olympus. Cell phones? Blackberry has been hemorrhaging customers since the iPhone's introduction, and the then-market leader Nokia is on the edge of irrelevance. Games? Sony and Nintendo have both reported declines in forecasts and revenue. The list goes on.

Sony recently posted a record loss of $5.55 billion. It is being hit hard across multiple business units including computers, cameras, music players, gaming, movies and music--all of which compete with Apple.

With music players and mobile phones, Apple taught Microsoft some hard lessons about consumerization. Microsoft is attempting to respond to the iPad with an ambitious strategy around Windows 8. Microsoft, like Google, has been pushed into manufacturing its own tablet at the expense of longtime hardware partnerships. There is no denying that Microsoft's influence has diminished with Apple's rise.

There are always winners and losers, but we are talking entire industries here--VoIP and unified communications included. Cisco and Avaya both reported declines in UC revenues, and along with most of the industry, now prominently feature iPad apps in their portfolios. Remember when a vendor's products had the same vendor's name on them? FaceTime visually connects the C-suite, which has impacted Cisco and Polycom. There are an astonishing number of iPads on display in conference booths at events that don't even list Apple as a sponsor or exhibitor--including Enterprise Connect and CES.

Vendors have little choice but to try to ride Apple's coattails. That's because Apple doesn't easily share. When Microsoft rose in the '90s it also brought along Intel, Compaq, HP, Dell, Adobe, Symantec, and many more. Many vendors are happy to just be ignored by Apple--ask Adobe.

Typically, when a manufacturer rises, the channel wins. But with Apple, its direct retail dominates. Many of Apple's retail partners are gone, including CompUSA, Circuit City and countless local Apple dealers. There's a strong ecosystem of third-party accessories, but many pay Apple licensing fees. Software distributors should be growing with the success of new platforms, but the App Store has a lock on the market and takes a hefty 30% distribution fee (previously, software distribution was a low-margin business).

There are a few winners with Apple's success. China got most of the manufacturing jobs. US victors include Corning, numerous software developers, FedEx, and UPS. And of course an army of lawyers that have litigated suppliers, competitors, and partners.

That sucking sound from Cupertino isn't just related to competitors. It's also about practices. An example is BYOD, the result of corporate phones not being as desirable as iPhones. Aberdeen estimates that 1,000 smartphones adopted via BYOD can cost an organization an additional $170,000 per year--largely due to 1,000 monthly reimbursement checks instead of a single check for a discounted contract. That's cash that could have gone to other corporate purchases. Consumerization has a nice sound to it, but Apple is making modest or no attempts to accommodate the needs of large organizations.

I get capitalism. Apple earned this. But at what point does it become too much? Typically, we rely on antitrust rules to protect us from big companies. Antitrust laws were drafted in response to abuses from Standard Oil which, at one time, was the most valuable company in the world. Apple currently holds that title, but antitrust rules don't seem to apply as Apple is not the dominant (monopolistic) vendor in most of its markets. Its anti-competitive effects are not from its market share, but rather from its wallet share. There's only so much oxygen in the economy, and entire industries are suffocating.

In October and September, Pandora, a music streaming service, had its stock halted from trading. Not because of what the company did or said, but because of a rumor that Apple was going to expand into music streaming. Pandora's stock dropped 11% on that rumor. Pandora has multiple viable competitors, but the Internet is big enough for all of them to flourish--unless one of the competitors is Apple.

Apple makes wonderful products. I don't mean to tread on their innovation or success. My goal is to question when too much of a good thing becomes poisonous. While we marvel at the design and innovation of their products, we need to understand the cost. When it comes to our economy, do we want to continue to let the i's have it? All around us companies are struggling. The general news is poor quarterly announcements and layoffs. Where has all the money gone?

Dave Michels is a contributing Editor and analyst at TalkingPointz.



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