Tuesday, February 7, 2012

Apple in the Enterprise: The Ice Melts

Yesterday's story about Halliburton migrating to iOS devices from Blackberries serves as a major milestone in Apple's transformation to an enterprise-friendly vendor. Not long ago, Apple would rather have ignored Halliburton's pleas for help. Now, Apple not only highlights enterprise iOS penetration, but actively works with enterprises looking to switch to Apple platforms.

Too bad Apple doesn't sell a rack-mounted server any more. But then, is that where the money is? At Microsoft, it certainly is: the back-end server applications and the server-branded operating system versions on which they run are all connected both to Microsoft's high-dollar consulting business and to its stranglehold on corporate desktops (which is based in large part on their requirement to access Microsoft servers' services). An attack in the server realm is certainly invited by enterprise iOS adoption – how else will iOS devices be managed and maintained, their images standardized, their applications updated, and so on? Corporate IT needs to know what version of what software is running on its users' phones, and these things need to be under the control of policy-making personnel with access to server tools capable of pushing this stuff onto Apple-vended handhelds.

Much of Research in Motion's revenues come from server subscriptions. To replace RIMM in the enterprise is to invite Apple to offer replacement parts. Not on costly subscription, perhaps, but anything Apple does to level the platform for desktop purchase decisions is a significant advantage for Apple in making desktop enterprise sales. Given the relative longevity of Apple hardware, and its reputed need for less support, this might be an easy sale if Apple bothered to invest in the infrastructure to make it feasible.

And what about RIMM? Not exactly the platform of the forward-thinking. 82% of Blackberry users are not using BlackBerry OS 6. Only half of RIMM users are even using RIMM's last-generation operating system. The rest are more than an entire generation of software behind. Given that the ability to sell apps to users depends on the support of their operating system, it seems few RIMM customers are part of the addressable market for the latest, most current mobile applications. Else, RIMM is so poor at providing a valuable platform for developers that they can't be bothered to write apps that depend on it, and are therefore writing for old operating systems. If so, what are the prospects that RIMM's OS 6 will catch on?

With RIMM looking weak in the enterprise (and falling from 20% to 16% or lower in smartphone share in less than a year), Windows still suffering in the smartphone market, and Halliburton preferring iOS to Android, Apple's star looks like it's rising not only in the enterprise (where over 90% Fortune 500 companies are either considering or deploying the iPhone), but broadly in the high-end market. (Android enjoyed a huge rise in share last year, but may have a huge chunk of the phone market, but last quarter Apple sold more smartphones than all Android vendors combined, and anecdotal evidence suggests Android satisfaction may be poor, and one article I can't find at the moment cited surveys that Android buyers generally purchased without thinking about the operating system, possibly purely on price.) In fact, last quarter Apple's highest-priced line of phones (the new 4S) outsold the next-tier phone (the 4) by 75%, and outsold the lower-tier iPhone 3GS 400% (for a 5-to-1 sales ratio). Each of these three tiers of Apple products ranked ahead of the highest-ranking non-iPhone.

Apple is certainly the leader in profit share, and while the aggregate of all Android vendors have in some quarters managed to sell more units than Apple sold by itself, Apple by itself has consistently been keeping more profit than all other smartphone vendors combined (the graph of profit share over time in this article is interesting, as it extends the graph previously published here). With but 9% of the market, Apple has 75% of the profit at present. The current performance is up from 52% of the profit with 4.2% of the market share in the quarter preceding the iPhone 4S launch. Apple isn't coming to the end of the pie, though – it's enlarging the pie as it grows, with carriers offering outsized subsidies for iPhone products in order to compete with each other for users who demonstrate willingness to switch carriers to access iPhones. Why? They want the customers, and decided to work with Apple rather than bet against them. And Apple is the top handset maker by volume in two of the last four quarters. What should it tell us about Apple's profit that it sells higher margin units, and more units, than anyone else on the planet?

Apple's effort in enterprise should lead it to improved security and improved remote management, and ultimately into the IT back office where it will be hard not to compete with Microsoft's life-sustaining back-office effort. But Apple doesn't need the back office to succeed on the desktop: Apple has long led unit sales of top-end PCs, it grows share while other vendors' sales slump, and enjoyed a 26% YoY growth in Mac units this last quarter. Apple's profit share in PCs has exceeds its share of unit sales for the same reason as in smartphones: Apple doesn't sell loss-leaders, it sells differentiated products priced to profit. Also, Apple enjoys certain margins advantages unavailable to PC commodity vendors, thus profits more even at the same price. Apple, long unranked globally in PC volume, stands to break 5% globally and become a top vendor by volume and not just by profit: the PC market may be among Apple's next frontier of growth, and deployment in enterprise may play a role in its global growth as enterprises target Apple's platforms not just for mobile apps but desktop apps and back-end user support. The enterprise could be a major part of how Apple ultimately retakes the lead in the so-called platform wars.

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