Sunday, March 18, 2012

Apple's Tablet Market Moat

A new article at Seeking Alpha attempts to describe why Apple has safety in the tablet market with comparison to commodity vendors like Dell. After that article was submitted, the press revealed more reasons for developers to prefer Apple's ecosystem. Apple will be hard to catch in mobile.

Since Google makes its Android money on advertisement to mobile users, rather than on sales of devices or software, its incentive to make life good for Android developers is rather different than at Apple, which needs people to buy devices and can't retain its market unless its entire ecosystem offers perceived value to users and the developers who serve them. Google hasn't managed to use Apple-like control over users' software experience, instead allowing carriers to continue to dictate upgrade cycles. For example: only just this month, Samsung announced Android 4.0 would come to the Galaxy S II. Seriously? Just now announced availability of an OS released last fall?

Among the factors discussed in connection with the tablet market is the as-yet unreleased Microsoft Windows 8 tablet operating system. As an ARM platform, it won't be able to run desktop applications coded for x86 machines. Presumably Microsoft's business model will be akin to its business model on the desktop: it will sell operating system licenses to tablet manufacturers, and it will sell developer tools to developers. Based on Apple's success in acting as a transaction intermediary at the App Store, Microsoft should be expected to sell to developers its Product Activation feature – repackaged as the exclusive way to run applications on Win8/tablet. Microsoft will almost certainly try to secure subscription fees from users of tablets as it does from users of its console products. I have some theories about how this market will succeed at delivering value to customers, but they're a topic for another day.

Apple's position in the home entertainment market – which seems to include iPads now – has taken a step forward as AV receivers now support AirPlay from iOS devices and iTunes. Those without built-in support can do what the rest of us do, and plug into the AV receiver's HDMI port a $99 AppleTV, now upgraded to 1080p. This support will definitely be a trend to watch. If we start seeing this in cars' in-dash systems, we'll be able to dispense with some of the awful map controls in manufacturer-supplied GPS systems. Even without AirPlay, some manufacturers are targeting iPhone for in-car infotainment. The fact that iPhone is in specific demand from car manufacturers is an interesting development for a company that fifteen years ago was about to go under because its desktop business hadn't caught on in business. Now, OEMs line up to supply Apple with lower-cost parts through which Apple raises margins over the life of its products. (Some examples of competed-for parts are described in the video appearing here.)

The article at Seeking Alpha lays out the basic argument; these little additions were just a bit late to make the press.

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