Understanding Apple’s iOS as a complex system of devices

iphone by Gonzalo Baeza Hernández

★ Emotional Rescue
[Via Daring Fireball]

There was an interesting thread of iOS-vs.-Android news and punditry over the weekend, starting with this report by Seth Weintraub for Fortune:

I had a chance to speak with Jim Tran, VP/GM Handset Line of Business for Broadcom, who was able to elaborate on the details of the new processor and what it meant for the industry. […]

But the kicker is the price. Tran says that phones made from the BCM2157 chipset will retail for under $100 and may dip as low as $75. Those devices should debut in just 3-6 months (and we might hear about them next month at CES). […] To be clear, That sub $100 price is not the cost of materials, it is the suggested retail price after the manufacturers (and carriers) have taken their profits.

In other words, $100 Android phones within the next year.

I’m not sure how this qualifies as news, though. US discount carrier Cricket already sells a Huawei Android phone with reasonable specs for $130. I’m not aware of anyone paying attention to this industry who hasn’t anticipated a race to the bottom from discount Android handset makers.

Here’s how Weintraub concludes his report:

What’s most interesting is that unless Apple has a plan to keep up, their iPhone, once one of the only usable smartphone games in town, may wind up back where most Apple products are slotted — at the top of the market, affordable only to those willing and able to pay a premium for Steve Jobs’ aesthetic sensibilities.

In other words, ever-cheaper Android phones spell trouble for Apple.

I expect better from Weintraub. He says the iPhone “may wind up” relegated to the top of the market. But isn’t that exactly where the iPhone started, and has remained, from 2007 through today? The key is how much of the “top”. There’s a big difference between, say, dominating the top 5 percent of a market and the top 30 percent of the same market.

In July 2007, by some measure of the word “usable”, Apple had 100 percent of the market for, to use Weintraub’s term, “usable smartphones”. Things only look disastrous for Apple if you count their ever-declining share of “usable smartphones”, rather than the company’s share of phones, or even just smartphones.

The real story, if Weintraub’s report of $100 Android phones in 2011 pans out, is the elimination of the distinction between “phones” and “smartphones”. Horace Dediu gets it:

What strikes me about the claim from Broadcom is that a $100 retail price for a smartphone implies an ASP of about $85 or so (assuming $15 or a very modest 18% channel mark-up).

That means that a smartphone could be built using this chip which would have nearly half the average price of all branded phones sold last quarter.

It would also be priced cheaper than the average price Nokia charged for all its phones (75% of which were non-smart phones.) […]

Note that I’m not suggesting that the market for high-end smartphones is threatened yet–there is still a lot of innovation that still needs to happen to shape that market into one of mobile computing (vs. mobile phoning).

Instead, what I am suggesting is that the bottom of the phone market is very vulnerable to becoming smart.

In other words: $100 Android smartphones in 2011 would be cheaper than the typical non-smartphone that was sold in 2010. Such phones will be a much bigger threat to traditional handset makers — Nokia, perhaps, particularly — than Apple.

Think of it this way: Apple has been competing against $100-150 cell phones ever since the iPhone was announced. Most of these phones are given to customers “free” when they sign or extend a two-year contract. The difference going forward is that even low-end phones are going to be what we today call “smartphones”, by any reasonable definition of the term.

[More]

A fascinating say about Apple’s position with regard to the iPhone. WHat is partly discussed here is that Apple has created a complex ecosystem with its devices, a system no one else has. Many pundits look at each piece as if it represented Apple in toto.

But Apple has created something else. They are well on the way to having a single OS for ALL computing devices, from mobile to tablet to laptop to desktop, an OS that developers can leverage against all these devices. All the other devices fall into separate ecosystems.

In a biological sense, most phones, tablets, laptops, and desktops occupy separate niches, ones with very little information/development flow between them. So what happens on the tablet has little effect on the mobile device. The danger here, as with life in a real ecosystem, is that environmental changes can devastate anything that can not adapt rapidly.

But Apple lives in multiple niches at once, is able to adapt to changing environments by altering its devices as needed or putting more effort into others – for example, iPod sales are down but the overall iOS market is way up.

As mentioned by John, Jobs realized when he first saw a graphical user interface, he knew immediately that this would be how all computers would work. The Mac made this so and soon every computer looked the same on the screen. The iPod came out with its scroll wheel and soon, most MP3 players had similar hardware. Apple came out with the iPhone and soon smartphones looked like it. Apple came out with the iPad and soon tablets had the same look.

Things like iTunes and the App store hold this system together. But it really seems like something unique to me.

Like with humans, there are other animals that can do some things better than us, but none can do so many, especially when we demonstrate an adaptability not seen elsewhere. I expect Apple will continue to be more adaptive than any others in this market. That is why they are doing so well.

2 thoughts on “Understanding Apple’s iOS as a complex system of devices

Comments are closed.