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The Critical Path #56: Strategic Disadvantages: A discussion with James Allworth

James Allworth, Harvard Business School Forum for Growth and Innovation fellow and co-author of How Will You Measure Your Life joins Horace for an in-depth discussion of the vulnerability of Apple to low-end disruption. Specifically, assuming the iPhone reaches a point of over-service, did Apple arm its suppliers with the means to create its replacement? We dip into case studies of Dell, HP, HTC and Microsoft and touch on how iPod escaped this fate.

via 5by5 | The Critical Path #56: Strategic Disadvantages: A discussion with James Allworth.

  • Gary

    One of your best podcasts to date. Thanks.

  • http://www.facebook.com/scott.minehane Scott W Minehane

    A good podcast indeed. Apple would seem to understand the risks with its investments in inter alia chip design, cloud computer facilities/services etc. Samsung had an opportunity to get a favoured deal with Apple but rejected it to develop more slavish copies .. one wonders whether they would be a better long term position than currently if they had taken such a deal.

  • http://www.facebook.com/scott.minehane Scott W Minehane

    I would add that the lack of LTE speeds outside of the US for the IPad3 is the key reason why the Ipad2 is good enough. Other than the US it is relying only on the retina screen. With the success of the Iphone 5 with LTE which is usable in a number of world markets (eg – LTE 1800 is in Germany, now the UK, Singapore, Australia etc) I believe we will see an early refresh or change to the specifications to the new Ipad … unless the new new ipad (Ipad4) is around the corner. if not then Apple should do this to secure additional/new IPad3 demand with the Ipad portfolio.

  • http://michaelkdawson.com/ TrendRida

    Agree this is one of your best podcast yet. James is clearly an early adopter based on his comments about lining up for the iPhone and also his interest in Google glass. However early adopters are not APple’s primary audience. The fact that he is not interested in upgrading from as 4s to a 5 IMO is far from a early signal. Most people upgrade their phone when their contract expires every 2 years. Your metric of watching the ASP will be interesting to watch. Great job by both of you.

  • http://twitter.com/keuril Keuril Smythe

    I disagree with James’ contention that the iPhone 4S is “good enough”. The iPhone 5 is the biggest hardware improvement to date—better form factor, bigger and better display, lighter body, faster, better camera, much better battery in my experience. However, the iPhone 5 itself may be good enough, and next year it may be hard to achieve sufficient improvements over it to sustain iPhone ASPs.

    • http://www.twitter.com/jamesallworth James Allworth

      Hey Keuril — interesting. You sound like you might be slightly more demanding than me in terms of your needs.

      You may well be right. But if we’re not there yet, we are getting mighty close!

      • Kizedek

        This “good enough” discussion is very interesting. What struck me is that there are a lot more factors to it than just a quick look at how the hardware specs of the iPhone 5 improve on the iPhone 4S.

        Sure, if you have a 4S, and LTE doesn’t make any difference to you, then you will be unlikely to upgrade right away; that’s perfectly understandable. Some with older iPhones, or some users new to Apple, may opt for a new iPhone 4S over the 5; and Apple was shrewd to offer this as you note.

        But your fear that iPhone 4S users might go to an Android because the Android is good enough and the iPhone 5 over-serves and is more expensive? I suspect that might be an over-generalisation or an over-simplification:

        1) for one thing, loyalties of whatever nature aside, there is the feeling that Apple products are more than a sum of their parts and that you get some quality as well… so, a move from iPhone 4S to an Android is unlikely.

        2) But, despite the fact that Android users (having never used an iPhone) tell us in no uncertain terms that the latest Galaxy (or whatever) is good enough and they can do what ever an iPhone can do, or more, for less money; despite that, it is fairly obvious that Android phones are marketed and sold on the basis that they ARE *better* than the iPhone, and that the iPhone is NOT *good enough*: they trumpet specs like larger screens, brighter screens, more CPU cores, faster clock speed, more RAM, card slots, USB slots, removeable batteries, higher pixel cameras… and more freedom and better Google features on the software side. The apparent feeling is that the iPhone 5, with LTE, finally, just barely brings the iPhone up to par, but still woefully lacks some basic things. At least, that is what we are told every day.

        Number 2 really nags at me when the discussion is about “good enough”. One wonders why phone makers like Samsung are constantly trying to improve the specs as a way to compete for business. If phones were good enough already, then wouldn’t they be looking at other areas of improvement, like software and services and quality?

        It makes one wonder if a Samsung simply can’t follow Apple in those areas, or if they just don’t know what needs and jobs people are looking for their phones to fulfill (as Samsung has been so busy following Apple in every other area that it could). That being the case, then these manufacturers are more likely to hit any “good enough” wall far sooner than Apple: just as in the PC industry when the escalation in specs of desktops overserved and laptops and netbooks became the norm before Apple completely wiped those out.

        So, I am more in agreement with Horace when he says that there are vectors for continued improvements of the iPhone, particularly in services and ecosystem; and that there is yet potential for even more disruption from Apple, through Siri for instance.

      • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

        “One wonders why phone makers like Samsung are constantly trying to improve the specs as a way to compete for business.”

        Marketing of the improved specs could also be a sign of commoditization. Car manufacturers competed with each other (at least on the marketing message level) on the basis of engine horse power even after the power became good enough for average consumers. Even today, one of the main marketing vehicles for car companies is sporting competitions targeted at the most demanding customers: road rallies, off-road races, formula X and so on. It does not mean that people are willing to pay for such performance. In fact, manufacturers keep on improving the cars in order to justify the same prices or slightly lower (inflation adjusted) than last year or 2 years ago. Not a very good business proposition.

        To break this vicious circle a company needs to (re)invent a business, which is an incredibly difficult exercise. Management practices of the last decades, like core competencies or quarterly business planning are a big obstacles for any such attempt.

      • Kizedek

        I guess you saying, all things being equal, if the parts the OEMs use are good enough, then who wants to pay a couple hundred more dollars for an iPhone just because Apple felt like designing its own chips?

        However, it is the “all things being equal” that is the debate. Besides the parts of Apple’s business that others can’t replicate, their own custom chip design, among other things, actually has some value — such as extending battery life and providing a smoother UI at the same time.

        In your car analogy, it would be like offering a car with the same power but 3 times the fuel mileage. The real-life benefits should be obvious and desirable without focusing on the power as just one more spec.

        So, are Phones (and cars?) ultimately judged on the whole package, rather than the isolated benchmark. If so, then one should have confidence in Apple’s approach, regardless of whether Apple reinvents businesses on a regular basis or not.

        But it’s interesting that you bring up cars. Because I am afraid that those who think the iPhone 5 over-serves, or that the iPhone 4S or an Android is good enough, see phones *exactly* like cars — they ultimately have one purpose: cars drive you from a – b, phones place calls. The question is whether the iPhone, then, is a phone at all; or, a computer that happens to have an app that places calls, as Horace always contends. If that’s the case, then we should really be dreaming about cars that we can live in, or fly in, or sail in… then they are no where near good enough yet.

      • http://beautyandthesoftware.blogspot.com/ Adrian Constantin

        The only reason I have brought up the cars is that car manufacturing is a business which has quite obviously past the point of being good enough, but still advertizes improved specs. I had no intention in extending the analogy in any other direction. I also think that the phone function is a side-effect in an iPhone, but that has nothing to do with the cars in my previous example.

      • http://twitter.com/ggruber66 ggruber66

        The “good enough” idea is intriguing, but isn’t Samsung and other Android or Windows Phone OEMs more at risk for this? There are dozens or permutations of Android phones out there with many more choices on screen quality/size and cost.

        Apple actually might have been more vulnerable to ‘good enough’ if they had a non-Retina display. By definition, every Android, WP and BB owner are seemingly satisfied by non-Retina displays, so by definition, aren’t they good enough?

        For me the iPhone5 offers two significant improvements over previous models — LTE and (at least through Verizon), unlocked versions under contract that can make them world phones without being punished as an AT&T subscriber. James, you can talk about A5 v. A6 from a processor performance perspective all you want, but LTE v. 3G is a world of difference in experienced performance.

      • http://www.twitter.com/jamesallworth James Allworth

        Re good enough/screen displays, I think we’re at that point. I think most of the users outside of the echo chamber probably wouldn’t be able to tell the difference between the screen resolutions. As for the Android devices being there, yes, but that’s the point. You start competing on another basis then. I think that’s what Samsung has done quite well.

        Re LTE. It is a big jump, agreed (I’ve had the chance to use a new phone for a day). I think I mentioned in the chat though the biggest difference is actually when you’re using the phone as a tethered device fuelling a PC or perhaps an iPad. There aren’t that many usage scenarios on the phone itself where I notice the difference (I’m not really watching movies on my phone, for example). The issue there is the carriers, particularly in the US, have set up restrictions and prices that make it somewhat infeasible to use the phone in this way.

        I think one area where the phone could prove disruptive is to home internet connections, but I do think the carriers are hamstringing this — and the reason is most of them are in both markets and don’t want to be the ones to cannibalize themselves.

        — james

    • http://twitter.com/keuril Keuril Smythe

      Forgot to mention all-day LTE. Kind of nice. It is hard to see how anybody could not consider the iPhone 5 a huge upgrade over the iPhone 4S. Again, the question for me is how will the iPhone 5S achieve significant improvements over the 5.

      • Shameer Mulji

        If History is any indication, the 5S won’t achieve “significant” improvements, as Apple seems to be on a 2-year cycle, doing a major release followed a refreshed release.

        It seems to be doing the same with software – major release followed by refreshed release.

        And that’s okay as the iPhone 5 is a phenomenal phone even though the design language doesn’t change from the 4 / 4S. There’s tonnes of innovation in it.

      • http://www.facebook.com/profile.php?id=729522170 Derek Chew

        I agree with Keuril… I bought an iPhone 5 for my wife during the launch but stuck to my iPhone 4S. After playing around with the iPhone 5 off and on for about a week, I went out and paid a penalty to recontract to obtain my iPhone 5.

        What drew me to the iPhone 5 is how much more refined the experience was. LTE and the faster speed made the usage experience much more fluid and responsive. This was what drew me to the iPhone 3G when it came out. I was used to ‘pek and wait’ with old Sony Ericsson P800 and the iPhone was so much superior. The iPhone 5 also felt more balanced in the hand and the LTE speeds added much to the usage experience. With the iPhone 4S, the UI was fast but I had to stop and wait for the data to catch up with me. With the iPhone 5, it was really smooth and I could hardly feel any system pauses when I switch task.

  • Mark

    A fantastic and wide ranging podcast. It fleshes out the key questions investors and industry watchers should be thinking about brilliantly. Horace rightly cautioned against thinking we could predict in advance where the “good enough” point would be. Their are unknowns that move that goalpost, and sometimes this is even an unintended consequence that no one was striving for that do so.

    And then there are the consequences of the modularization that “good enough” leads to. Fragmentation. It is the industry analog to the “mind-body” problem of philosophy. Or maybe closer to a “ship of Theseus” problem. Anyway, it is an intractable problem. Is the whole greater than the sum of the parts? Many people divide on this question and don’t even understand what they’re opinion is based on. The thinking is that fragmentation isn’t anything that a bunch of smart programmers can’t solve. But that idea is false. Steve knew that, and few others did. I would argue that Microsoft benefitted from the “good enough” and the consequent modularization in their path to dominance over Apple, but then fell victim to it’s unintended consequence. Namely, that too much modularity leads to complexity and poor function and Apple was still vertically integrated and so could be invigorated by Steve after 97. He then proceeded to hoist MS on their own petard. They should never have thought the battle was over, but they were philosophically challenged bean counters.

    This is why I’m more sanguine than Allworth that Apple will not reach the “good enough” point for a while yet, and even when that time comes on the platform that we’ve never seen what a real battle looks like between a smart and nimble integrated company (if that is what Apple still is post-Jobs) and the modularizers. It isn’t clear that Apple will go the way of other integrated companies because it isn’t clear that any of the previous models really got why they were successful. The modularizers of history have generally known why they are successful, but I suspect the integrated ones have tended to be not very analytical about it and attribute their success to merely “customer satisfaction”. While true, it isn’t any sort of deep or complete analysis.

    If it turns out that Apple is still led by a nimble set of folks that gets the real reasons for getting where they are, and if the modularizers are as short sighted as they often are, maybe we should be thinking of military strategy. John Boyd’s understanding of the OODA loop may have something to do with all this. http://en.wikipedia.org/wiki/OODA_loop#Overview

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  • orienteer

    I confess that I listen to most 5×5’s with one ear as I am working. (Don’t worry, I’m not a brain surgeon.) This one however compelled me to stop work and focus on every word. Very provocative and deep discussion, thanks Horace and James.

  • orienteer

    I confess that I listen to most 5×5’s with one ear as I am working. (Don’t worry, I’m not a brain surgeon.) This one however compelled me to stop work and focus on every word. Very provocative and deep discussion, thanks Horace and James.

    • http://www.facebook.com/people/Vera-Comment/100002347335999 Vera Comment

      that’s the biggest problem with this podcast. Can’t do anything else or you might miss something.

  • BoydWaters

    A fantastic discussion of “good enough” and possible vectors of disruption from modularization!

    I wonder, though, if mobile devices can be considered independent of the wireless networks that serve them. From a “jobs to be done”, the network cannot be ignored.

    Here in remote New Mexico, Oklahoma/Texas panhandle, it is always possible to receive AM radio. Cellular and WiFi coverage is simply not able to reach into the mountains, arroyos, canyons… I had two OLPC computers to play with for a while, and the radios on those devices were very robust and worked to extend the WiFi net (served by a landline, DSL) at the ranch. Sent them to India a few years ago.

    Anyhow, don’t underestimate the sparseness of population in North America. It’s a weird, under-served market: not “first-world”, or “third-world”. Just here.

  • Chris from Chicago

    Interesting discussion. To respond on one of your comments made on the podcast, Horace
    .
    I think it will be extremely hard to determine when Apple ‘s iphone is good enough and thus over-serving consumers. The main difficulty is that as you have written somewhere, the iphone is not a finished product. The jobs it performs are not determined only by the hardware but by the software. Therefore we keep finding new jobs for it to perform. And each of those jobs may or may not be done well enough.

    By this rationale even the PC is a work in progress and has been good enough for long enough to hurt growth of sales because developers haven’t thought of more jobs for it to do that can’t be done more conveniently on other devices.

    I think to begin to answer the question of whether the iPhone is good enough, we need to examine the types jobs developers are building tools/apps for in the AppStore. If developers cannot invent more jobs to perform that take advantage of the iPhone hardware and ios platform, then customers may choose cheaper devices that don’t have the same hardware and platform advantage. I think one thing to look for is new category of apps that don’t currently exist, or oddball apps that don’t fit into typical categories of location, video, purchasing, camera, games, etc.

  • Thomas Connolly

    I accept the assertion that during the time of PC commoditization, the profits “trickled up” the supply chain to the component suppliers. However, I believe the specifics are more nuanced. The profits during this stage trickled up primarily to Intel. The competition was cut-throat for all the other components in the computer and even the other chips on the motherboard.

    A PC can be thought of as 7 different components:
    1. a case or container
    2. a power supply
    3. a motherboard, which contains a number of semiconductors (chips)
    4. a CPU
    5. some quantity of memory (RAM)
    6. a graphics controller, and
    7. some quantity of hard drives.

    Specifically looking at the motherboard, a computer motherboard is essentially comprised of a CPU which talks to a North Bridge, which creates the PCI bus. High speed components are connected to the North Bridge like hard drives, PCI cards and graphics cards (or chips) (which communicate over a variant of PCI). In some older implementations even main memory went in and out through the North Bridge. Over time, the CPU has become more complicated, but this is sufficient background. The South Bridge would connect to the North Bridge and create the interface for slower buses: serial, parallel, USB, etc. The North and South Bridges collectively were known as “The Chipset.”

    My sense of the profit share among these components was that Intel earned the most, with the CPU being both the most complicated as well as the first decision made about which components to put on the motherboard. Having won the coveted first decision, Intel would also compete for the Chipset. The third choice made would be the graphics solution, which had to be compatible with the CPU and chipset, assuming graphics was to be installed on the motherboard. Every other chip on the motherboard, and every other component in the computer, was a highly competitive decision and did not generate a great deal of the profit share.

    I began developing a theory that the component which was selected first in a new motherboard design would be able to earn outsized profits. This decision was frequently the CPU. So the CPU vendor (Intel and perhaps AMD) could earn a great deal of the profit being suppliers to the commoditized PC industry, however that profit was not shared by all suppliers in the supply chain.

    So the application of this theory to the smartphone market could be that if the market begins to commoditize, Apple could become a smartphone chip supplier (CPU) to compete with the other “first decision” components (aside from the manufacturing decision). But there’s no way to assure that Apple’s CPU will work in a modular architecture, and they would not have the benefit of an ecosystem.

  • poke

    This was a great show but there are a lot of things I disagree with. I actually agree that the iPhone is now “good enough” on a hardware basis. But surely the question new buyers are asking themselves is, “Which ecosystem do I want to be a part of?” The competition is now on the ecosystem and services. Just because I’m happy with an iPhone 4S over a 5, doesn’t mean I’d be happy with Google Play over iTunes and the App Store. It doesn’t mean I’d be happy with a generic Chinese phone that might not even give me access to Google’s ecosystem.

    The points made about companies like Dell and HP being “hollowed out” are spot on but I think Allworth is drawing the wrong conclusion here. Essentially there is no longer a need for these businesses to exist and it is on that basis that software/services/ecosystems companies can design their own hardware. Outsourcing makes Dell and HP irrelevant; now the company that makes the software, that provides the services and that manages the ecosystem has no reason to not also design the hardware. Thus, we have Apple, Google, Microsoft and Amazon all in the hardware business. The manufacturers at the end of the supply chain can’t enter the market because they can’t do the software/services/ecosystem side of things, even if they can make the hardware. Hardware is now just something you wrap your software, media and services ecosystem in. That makes integration key. The hardware is branding. That’s why Apple is drawing attention to its laser-cut chamfered edges; they tell you something about Apple, which makes you want to be a part of its ecosystem. The iPhone is the price you pay for entry.

    The other big issue is how the development of consumer-level system software has proved so difficult to replicate. Samsung has been successful in the smartphone market only because Google created Android. Nobody outside the US has managed to replicate the skill set needed to produce this kind of software. Even inside the US, Apple has been the primary source of innovation in the area and consumer OSes always tend to have some sort of connection to Apple (for example, NeXTstep, BeOS, WebOS and Android all had the involvement of ex-Apple employees). People forget how long it took Microsoft to replicate Mac OS. In fact, for almost a decade it was not Windows vs. Mac but rather DOS vs. Mac, with Windows existing more as a promise than a developed reality. As long as this vast moat of expertise continues to exist, Asian suppliers will never be able to move up the supply chain to compete directly with the big US software and services companies. At best they can hope to be in the precarious position that Samsung now finds itself in: being the hardware supplier for one of those companies, waiting for the axe to drop.

    • Mark

      Wow poke, quite the astute comment. I’ve been following the industry for a couple of decades and I intuitively find grounds for everything you say. Indeed, my previous comment also at least hinted that Horace seemed to have a depth of understanding that Allworth, for all they do share, seems to miss in his analysis. We’re talking about nuance here. At the end of the day Allworth’s analysis, for all its value and understanding, is reductionist in a way the Horace’s isn’t. That was what I was hinting at in my “whole not the sum of the parts” comment. Jobs was right; it comes down to the liberal arts. It comes down to design and use philosophy. And so while there is a lot of truth to the idea that the 4s or has arrived at the “good enough” point (for example the threshold for doing airplay mirroring), Apple’s competitors at the end of the day are in denial that Apple’s methods and ways are in any way valid. That tells me we’re no where close to “good enough” all considered, whatever a raw hardware comparison may show.

      • http://twitter.com/fivetonsflax fivetonsflax

        I like Horace’s analysis better than Allworth’s on the whole, but it was refreshing to hear Horace get challenged by someone who speaks his language.

      • http://www.twitter.com/jamesallworth James Allworth

        It’s Horace. It’s hard to compete with that :)

        Thanks for all the thoughtful comments so far guys. I’ve been coming over here quite regularly to read them all. It was great getting a chance to speak to him and having the conversation continued on here has only made it better.

        Cheers

        — james

    • fateh

      I think you’re falling into the same trap that Apple is. “Laser cut edges” to make you feel like you’re part of Apple’s ecosystem? Really?

      Horace and Allworth talk about ecosystems on the show and I think I tend to agree with what was said. There are so many apps and the interface isn’t really scalable to keep adding them. People are starting to cut back on apps they are using as a result. Who wants ten screens of apps? It’s just silly. There are only a few that really matter.

      I also think you missed the outsourcing point. If “the manufacturers at the end of the supply chain can’t enter the market
      because they can’t do the software/services/ecosystem side of things,
      even if they can make the hardware”, then how is it that Samsung are threatening Apple? That’s the point that Horace and Allworth were making — you don’t have to be integrated in today’s world because performance has overshot need. Or else why would Samsung be able to sell more phones than Apple does?

      As for the consumer-level system software, I’m not sure it’s difficult to replicate at all now, thanks to Android. People have a basis in Linux to make whatever they want (as Amazon just has). I mean, if your argument is that you have to do it from scratch then it’s both academic (because who cares) and it’s wrong (both iOS and Android were based on something else anyway). There’s WebOS which certainly wasn’t a bad effort, especially for an early version, and Windows Mobile. The issue isn’t how hard it is to make. The issue is, why create a new one when you can just use Android? Amazon had a good reason, but if you’re interested in making a phone, it’s a hard question to answer.

      • poke

        Samsung is essentially Google’s hardware partner. They’re in the same position HTC was with Windows Mobile, and Google just bought one of their main competitors. The point I’m making is that the cost of being integrated is no longer there. You no longer need Dell or HP or even Samsung. You no longer need factories in order to do the hardware. “Modular” is a relative term and what’s included in the bit I do vs. the parts I outsource can change. In this case we’re seeing hardware become part of the user experience, part of what the ecosystem provider does.

        I highlighted how difficult it has been to replicate the consumer-level aspects of system software because that’s the part Samsung or another player would have to replicate if they wanted to fork Android. Kernels, file system, etc, are all long solved problems. The difficulty comes in creating the UI and APIs. It’s worth pointing out that in the history of computing, few companies have even managed to master copying this aspect, and arguably only one company has any history of sustained innovation in the area. This is an absolutely remarkable fact from a business perspective. Apparently the organisational capacity to build this kind of software and build it well is very difficult to come by. Success here generally requires institution change.

      • Mark

        That only two companies in the world had ever been successful at the UI and API game historically as of 2000 was my original basis for investing in AAPL. That was why I thought Apple had a chance to have the best implementation of the best OS (Unix) and shake things up like they hadn’t been for a long time. This is a very big deal that doesn’t get enough attention. We get jaded over time and tend to think about anyone can do this now, but it just isn’t so. Whether Google has made themselves a third element in the UI and API game is still an open question in my mind.

      • Mark

        fateh, I’d be careful about dismissing doing things “from scratch”. In a strict sense nothing is made from scratch except by God (ex-nihilo), but in the real world this derivative originality is called “innovation”, and that is what separates those who assemble components based on someone else’s design from those who design them with an original vision. And sometimes just because you can doesn’t mean you should. I think when the history of the decline of MS is written, it will include a chapter on how they decided to continue to write their own underlying OS which was never as good as Unix instead of just using Unix and layering on their own services on top. Because it takes too long to update a monolithic OS theses days when your competitors don’t need to if there is no competitive advantage to justify it. The moral to the story is that you should put your best creative work into what matters selectively, not to attempt to protect your market share because that will be futile in the long run. If it makes the product better in a way that differentiates it than go ahead. If not then what’s the point? So whether and how one designs things “from scratch” is neither academic nor a wrong metric to be interested in, it is something fundamental to the nature of competitive advantage. Why should I buy company A’s product and not company B’s?

  • Oak

    The most amazing the about Horace’s site is not his work, which is fantastic but under his control, but the comments, which are devoid of trolls and always insightful. How is it possible to have such a purely clean, intelligent comment section on the INTERNET without moderation? Especially on such a polarizing company. Is there simply a nerd threshold beyond which trolls dare not pass? Regardless, I’m consistently amazed. I’ve never seen another place like it.

  • torifile

    I found this discussion of suppliers “learning” how to scale at the integrator’s expense to be a nice way to view what we’ve seen happen historically but I think the analysis is off the mark. In the old school way of thinking about these things, the suppliers were the makers of physical goods. Hence, the Asus/Dell, HP/catalog shops, etc.

    I think that the concern over Apple’s suppliers serving that role to Apple this time around is a little off. Firstly, the software running in the aforementioned examples was available to Asus, etc. This is not the case in the current situation. Secondly, the CapEx numbers Horace has run here show that while Apple isn’t the nominal owner of the factories, they are de facto owners.

    But, I think that focus on hardware just doesn’t work in this market. The software is the thing here and I think that the model may work when looking at the services suppliers Apple’s been using. Given that the maps issue has been a hot topic of late, it is serendipitous that we’re seeing this drama unfolding just as this podcast was recorded.

    Specifically, I think that Google has spent years learning how to scale maps on the shoulders of Apple’s platform. Yes, Google is remarkable with scale and data crunching but Google’s maps were quite pathetic when they started out on iOS. Fast forward to today, and you see who has the upperhand in the relationship.

    I think that Apple realized this and has made a move to marginalize Google and decentralize their service suppliers. This will lead to some growing pains but as people become accustomed to Siri looking for things for them, the pains will subside.

    I don’t care if Yelp finds me a barbeque place or Google does. It doesn’t matter to me if Yahoo! serves up my sports scores rather than ESPN. As long as the data is what I want.

    All this is to say that Apple is not reintegrating rather they are fostering modularization and they are the owners of the glue – Siri. I think that Horace is right that Siri is the disruptor and we’re only just seeing the beginnings of it (Siri Eyes-Free will be in cars very shortly, for example). If only she would learn how to understand restaurant names in other languages!

  • LS

    2 Things.
    1st, is the product that is being sold or job being done the iPhone 5 or the iPhone(n), MacBook, AppleTV & iCloud? Is the ecosystem the job that is being done or an individual product?
    2nd, who’s the audience for the job to be done? Is it for those of us who follow in excrutiating detail the twists and turns of these products, or is it someone else?
    I’m of the opinion that the ecosystem is the product being sold (job being done) and I am not the target audience for Apple. My wife has an iPhone 4S and before she owned an iPhone my daughter and I were the only 2 people using these devices. When the iPad came out my wife expressed some interest in in and when I got it for her she became a convert. When the iPhone 4S came out (based on her experience with the iPad) she was eager to get it. Recently we got our son an iPhone 5 and to my amazement (this previously dyed in the wool ludite) would gladly get the iPone 5 if she were eligible for it. And the difference between the ecosystem that Apple is selling versus the ecosystem that is the PC industry is that Apple controls the entry into the ecosystem and the supply chain doesn’t really have access to the ecosystem. They supply chain can create their own ecosystem but that’s not the same as having access to it and disrupting them from inside it.

  • RobDK

    Many thanks to Horace and James for a first rate podcast which really does get into the meat of the topic!

  • http://twitter.com/fivetonsflax fivetonsflax

    I worry that you might be making a mistake in looking at the average revenue per unit rather than the ASP for signs that the physical phones are too good. (I don’t know if ASP is available, though.)

    It seems to me that when the handset is good enough, the basis of improvement shifts to the services delivered over the network. If these begin to generate significant revenue in a way that’s counted in the average revenue per unit, it could obscure the signs of handset overshooting.

  • http://twitter.com/fivetonsflax fivetonsflax

    I worry that you might be making a mistake in looking at the average revenue per unit rather than the ASP for signs that the physical phones are too good. (I don’t know if ASP is available, though.)

    It seems to me that when the handset is good enough, the basis of improvement shifts to the services delivered over the network. If these begin to generate significant revenue in a way that’s counted in the average revenue per unit, it could obscure the signs of handset overshooting.

  • FalKirk

    First, I loved the podcast. I listened to it twice.

    Second, I loved the interaction between Horace and James Allworth. You didn’t always agree and that’s a good thing. The discussion about where you disagreed were where some of the most interesting points were made.

    Third, I don’t want to hear less of Horace, but may I respectfully suggest that these two-way and even three way discussion become a regular feature? I like Horace’s monologues, but I often find three to be the perfect number of hosts on a podcast.

    Perhaps the best podcast of the year. Well done. Well done.

  • FalKirk

    First, I loved the podcast. I listened to it twice.

    Second, I loved the interaction between Horace and James Allworth. You didn’t always agree and that’s a good thing. The discussion about where you disagreed were where some of the most interesting points were made.

    Third, I don’t want to hear less of Horace, but may I respectfully suggest that these two-way and even three way discussion become a regular feature? I like Horace’s monologues, but I often find three to be the perfect number of hosts on a podcast.

    Perhaps the best podcast of the year. Well done. Well done.

  • Anonymous

    It’s the software. Hardware is easy to copy. The reason Asus became a competitor is because they could load PCs with the same OS that came with Dell.
    Foxconn could never compete with Apple because of IOS.
    It can only compete using Android. Which brings us back to competing ecosystems.
    Will the PC model prevail, or will the Vertically Integrated model prevail?

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