When new markets open, value chains first build up, then across. Someone first creates a vertically integrated experience, and then the market opens up as free competition drives efficiency. This is the challenge that currently lies ahead of Apple.
Apple has been the acknowledged master at creating seamless, vertically integrated experiences. They did it with the personal computer. They did it with music. They did it with mobile. They did it with tablets. The advantage of working within a closed value chain is that you control every aspect of the experience. You can make sure that everyone plays nice with each other.
The challenge is that at some point, as adoption heats up, you simply cannot scale fast enough to meet market demand. Open competition drives horizontal competition, which drives down prices. The lack of control up and down the chain introduces some short-term user pain, but eventually the dynamics of an open market overcome this, and the advantages of having several companies working on an opportunity outweigh the disadvantages.
Apple loves early markets. Or, at least, they have in the past. Under Jobs, they had a knack of
creating an elegantly integrated experience that was carefully crafted from top to bottom within the walls of Cupertino. The vision and obsession with detail that defined the Jobs era was a potent
combination for building vertical experiences.
Somehow, Apple was able to open new markets over and over again, seemingly at will. They were able to bridge Geoffrey Moore’s “Chasm," by making new experiences painless enough for the front end of the adoption bell curve. As markets rode up the curve, they turned from vertical to horizontal, driving a decline in margins and prices. This is where Apple tended to kick out and look for the next wave to catch.
But that was then, and this is now. As mentioned, Apple doesn’t do very well when markets turn horizontal. They depend on high margins. Only once, with the Mac, were they able to come back and stake out a respectable claim in a horizontal market. And they almost disappeared in the process. The number of dependent circumstances that would be required to repeat that trick is such that I doubt they’re eager to go down the same path with the iPhone or iPad.
Many year-end summaries
mention a seeming anomaly: that despite Android’s massive market share dominance over iOS (81% vs 12.9%, according to a recent Forbes article) it’s Apple that’s ringing up the
holiday sales with mobile shoppers (23% vs Android’s paltry 5%).
These numbers become more understandable when you put them in the context of a vertical market that is becoming horizontal. Shopping experiences are still much less painful on iOS, and it has a user base much more comfortable with mobile ecommerce because they’re on the leading edge of the adoption curve. They’ve had a mobile device for a number of years now. Android users, in general, tend to be further back on the curve. As the benefits of Darwinian competition redefine the mobile marketplace along more horizontal lines, those ecommerce numbers will revert to a more natural balance, but it will take some time.
As this inevitable change in the marketplace happens, the question then becomes, “What does Apple do next?” Can they find the next wave? And, if they do, does an Apple without Jobs still have what it takes to create the vertical experience that can open up a new market? There are plenty of opportunities, the two most notable ones being connected entertainment devices (the much-rumored new generation of Apple TV) and wearable technology (iWatches, etc).Apple has always been known for keeping their cards glued against their chest. In 2014, it remains to be seen if they have anything amazing up their sleeve.