Competing Against Apple?

It’s been relatively big news in iPad competitor world. But the news highlights the problem would be iPad attackers have in competing with Apple.

It used to be easy to compete with Apple, and the Wintel duopoly is credited with providing the proper framework. Here are the major tenets

1. Beat Apple on price. Apple has a premium brand label and Apple is very focused on high margins so there’s room to beat up Apple on price alone. This is reliant upon having a “good enough” OS like Windows 95/XP to erode the Apple OS feature advantage.

2. Software availability and software standards. Make sure that the Apple platform appears to be limited in software and make sure certain software titles are not available for Apple.

3. Beat Apple on feature sets. Tied to tenet 1, beat Apple on price and offer a host of features that have potential future use (like 4 USB ports instead of Apple’s 2), or offer ports/features before Apple brings them to market (USB 3.0 for instance).

Now, these Wintel tenets are being applied to the whole iPhone v Android battle and the iPad v everyone else battle. However, these rules never applied to Apple’s iPod business unit and right now are not working for the iPhone/iPad.

1. Cost – This is the biggest issue Apple’s competitors face right now. Motorola’s much discussed Xoom is rumored to be $799 and require a data plan activation. It’s a nice piece of gear, but it will be competing against the iPad 2 very soon. The HP TouchPad still months from release is rumored to be $699. The RIM Playbook might come close to the $499 sticker of the entry level iPad, but the Playbook is a 7 inch tablet. And none of these devices are offering any killer feature that the iPad will be missing.

3 years of subsidized pricing and no vendor is really beating the iPhone on price. The newest iPhone is around $199 with contract, and the top end Android phones competing against the iPhone’s feature set are all around $199 (newest HTC Android device the 4g Thunderbolt is $249). With the real cost of the iPhone and its’ Android competitors residing in the service plan, Apple is not getting squeezed at all in pricing. To clarify, Apple at most trails in price by $99 against the best Android devices, but this price difference is inconsequential for a product with a real lifetime cost of $1500. And the biggest test for Android’s appeal versus iPhone in the premium phone market is arriving with the Verizon iPhone.

For both devices, Apple in fact is probably the largest individual purchaser of the key components (flash memory, LCD screens, System on Chip processors) and gets preferred pricing by investing billions in pre-purchase agreements with component vendors. Apple for the foreseeable future is not going to get pinched on pricing by any of their competitors. Unless their competitors take a complete scorched earth bath on margins. Several pundits in fact are starting to suggest that the tablet market may end up resembling the iPod market where Apple never surrenders a dominant 70% market share. The tablet market does not have any issues like smartphones of carrier differences (CDMA and GSM) or carrier influence.

And if rumors pan out, Apple may even be planning an iPhone “Nano” with a smaller screen (or not) that will be offered to vendors at significantly lower cost with a $200 price which would then allow carriers to redirect $200 to $250 dollars to a reduced service plan allowing carriers to perhaps hit an ideal $45/month voice/data plan for lower cost customers. The service plan fees right now are the biggest barrier to customers leaving their feature phones and choosing smartphones. This Nano iPhone could directly target the second biggest Android market, cheap feature phones produced by Huawei and others.

2. Software – Apple has a huge lead on software applications for their smartphone and tablet iOS. The Android market place is expanding rapidly, but the quality of apps is low and the commercial prospects for vendors selling apps is even lower. Apple in addition has opened an app store for Macs and iOS vendors can port their applications to another Apple platform for even more commercial avenues. RIM, Win Phone 7  and HP’s WebOS face a daunting task to be become relevant in this application sphere, and “there’s an app for that” is perhaps the most important feature of the iPhone/iPad.

3. Feature set – Right now competing vendors cannot “out screen” Apple on displays to any meaningful degree. They cannot “out memory” Apple.  They can try and add USB ports, SD card slots, and HDMI video out hoping that there’s a feature that will be decisive. It’s hard to say though that any of those options are going to over ride Apple’s software advantage and potential cost advantage.

So where did Apple’s competitors go? They could hope that the price factor will eventually kick in so Google’s Android is good enough and at the very least Google seems able to copy Apple. Samsung appears best equipped to pull off this competition, although Apple is apparently buying $7. billion worth of components from Samsung so how much price edge Samsung can generate over Apple is up to debate.

The Cloud looks like a feature where you can beat Apple. But Apple maybe improving MobileMe to the point where that gap will be closed.

If you cannot beat Apple on price/features/software, then you have to out innovate Apple. Google right now is showing a great ability to copy Apple in OS development, but innovation? What does the rest of the landscape look like?

WebOS is the best bet from an innovation standpoint. But HP’s level of commitment in the phone arena is questionable, and their third party software deficit is huge.

RIM’s investing in innovation in the OS space with their QNX based OS, but if the Playbook tablet bombs and their Blackberry market share continues to fall will RIM have time to create their lineup of new phones before they fall into single digits marketshare irrelevancy. Being a cutting edge OS innovator is a whole new skill set for the Canadian company. And like WebOS their third party software situation is a mess.

Win Phone 7 and Nokia. Now MS is the master of “good enough” OS strategy. However, Win 7 is about 12 months away from being good enough, and that 12 months may be too long, iOS and therefore Android is a moving target. And iOS is a unified strategy for smartphones and tablets. MS and Nokia are still scrambling for a tablet solution. Still, new Nokia CEO Steve Elop clearly thinks their combined power/marketing muscle can make Win Phone 7 the third solution for smartphones. Trying to out innovate Apple though usually gets Microsoft into trouble. To repeat a previous comment, Nokia really should have bought the WebOS.

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