Pundit Wants Apple to License iOS to Fix a 30-Year Old Mistake

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There is something magical about Apple that befuddles and confuses some observers. Time and time again people proclaim Apple’s imminent or eventual demise; label success failure; or—and this is my favorite—say what Apple really needs is to do what everyone else does. And that’s what I have for you today, a bold proclamation that Apple must “license the operating system and undo the mistake of 30 years ago.”

This advice comes courtesy of Vivek Wadhwa, a Distinguished Fellow and professor at Carnegie Mellon University Engineering at Silicon Valley, writing for Marketwatch.

Searching for market share amidst Apple's pile of profits.

Searching for market share amidst Apple’s pile of profits.

It’s Like Gil Amelio All Over Again

His central thesis is that Apple needs to get out of the hardware business and license iOS to third party hardware manufacturers. You know, like Microsoft did with Windows (and the failed Windows Phone/Mobile/Whatever), and Google does with Android.

“Instead of owning a big chunk of a large pie as Alphabet’s Google, Apple owns a decreasing share of an increasing market,” Mr. Wadhwa wrote. “It may have the most profitable slice, but as the numbers show, this won’t last.”

The central conceit of that central thesis is that market share is all that matters. In the minds of such people, he who owns the market share wins.

  • Never mind that Apple makes almost all the profits in the smartphone market despite having low market share.
  • Never mind that Apple is the most profitable PC maker despite having low market share.
  • Never mind that most of the value proposition of Apple’s iOS is predicated on the whole widget model, and that this value proposition evaporates in an open licensing model.
  • Never mind that Google makes little money on Android despite having a dominant market share.
  • Never mind that Apple became the most profitable company in history precisely because it did NOT do open licensing.

These things don’t seem to matter to Mr. Wadhwa. He sees the proliferation of cheap Android devices at the low end of the market as the sweet spot Apple should chase. He believes that services, app, and content purchases by this segment would make up for Apple’s lost premium hardware profits.

Again, never mind that Google doesn’t get those revenues or profits now despite owning this exact same segment of the market. Never mind that Apple’s services business is a huge business precisely because Apple’s owns the high of the business.

In other words, never mind the bullocks, here come the market share chasers.

Same as It Ever Was

It’s so weird to me, but Mr. Wadhwa is far from alone in pushing Apple to follow-the-leaders into mediocrity. It used to be a regular feature in Apple’s quarterly conference calls. Analysts would congratulate Apple on another record quarter and then ask when the company was going to start doing things like its competitors.

Now that Apple had back-to-back quarters that were down year-over-year, I expect that theme to return. Analysts and pundits alike (like Mr. Wadhwa) will be emboldened by Apple’s short-term decline to argue Apple should join the race to the bottom and pursue market share.

Never mind that even with its two-quarter year-over-year decline Apple still makes more money than all those other companies combined.

Marketsharechosis

Part of the problem for folks with Marketsharechosis is they assume everything good about Apple’s ecosystem exists independently of that ecosystem. They appear to believe iOS would be just as good on a Samsung device as it is on Apple hardware. Accordingly, in their minds, iOS would just crush the market if every Tom, Dick, and corporate Harry could license it.

This is a fundamental, gross misunderstanding of Apple’s business model. It’s a gross misunderstanding of why devices work better when the company making the software designs the hardware. It’s a gross misunderstanding of how the attractive aspects of iOS are able to exist.

There are any number of ways to measure success, and there are always plenty of reasons to complain about Apple. But when Apple is kicking every other company’s butt in profit and quality, it’s really bizarre to argue Apple should stop being Apple and start being Google or Microsoft.

I mean, seriously. It’s weird.

10 Comments Add a comment

  1. Bryan, you are missing the point. Over the next 5 years, with the price of smartphones dropping dramatically (to the $25-50 level in China and India) and Internet connectivity becoming pervasive, 2 – 3 billion people will be coming online. They will all be buying mobile devices. These devices are not going to be Apple devices because Apple was targeting the same elite group that it has since its inception.

    Now look at what happens in the early 2020s: Apple will have 300-400 million users and Android, 3-4 billion (yes, the Apple numbers will be shrinking from the estimated 500 million users today). If you were developing the next Pokemon Go, would you build for the iPhone or the larger market? Your app is free but you sell add-ons–which everyone can afford. The point is that Apple will have become much less relevant and will not be at the center of the smartphone universe. The hottest apps will be built on other platforms and Apple will be an afterthought.

    Now look at the earnings numbers. The only bright spot in Apple’s earnings this year has been subscriptions–which grew 19% to $6 billion. And then look at another change that happened in the industry, the monetization of data; data has become the new oil. Companies such as Facebook and Google give their services away so they can gather data and make money from it–or train their AI tools with it. Apple is largely missing out on this market opportunity because of its relatively small user base.

    Apple has done many things right and has amazing technology. But it doesn’t have the best hardware any more (this is not my opinion, it is what Consumer Reports said: http://www.consumerreports.org/smartphones/samsung-galaxy-s7-vs-iphone-6s/) and its global market share is shrinking. Apple is also very slow to release new products.

    I don’t see how Apple can survive the disruptions that are happening unless it does something radical and learn to play the new game. The solution isn’t to look backwards and say that just because something worked before, it will work in the future. No, that is not how things work in the era of exponential technologies we are in.

    I threw out an idea. I would love to see you and your readers come up with better ideas. Just don’t try to recreate the past or say that because Apple has lots of money in the bank, it will be okay. Look forward and then try to come up with ways Apple can retain its technological and marketing edge. I really worry about the greatest company of all time, Apple, becoming “toast”; going the way of Yahoo.

    And by the way, I am an Apple loyalist–and have been since the days of the first Mac. I own practically every Apple device made and used to get in lines to buy new products when they came out.

    Vivek Wadhwa
    http://www.wadhwa.com

  2. Bryan Chaffin

    With respect, Mr. Wadhwa—and as is true for most people on two sides of an opinion—I suspect it’s you who is missing the point.

    Everything you are saying about the smartphone market has been said for the last 20 years about the PC market. Yet Macs gain share and Apple makes money on Macs when PC makers don’t make money on PCs.

    Furthermore, and as intimated in my piece, Apple’s services would not scale with share in the handset market. There’s no profit in the bottom of the market. There never has been. I personally can’t see a day where there will be. From my perspective, this is true for hardware, services, and content.

    Apple’s return to growth lies in its next disruptive product, not chasing share and ditching its whole widget model.

    Cheers, and thanks for dropping by to comment! You are always welcome. 🙂

  3. 2old4fun

    To be a successful business one must have a good business plan and execute it correctly. A good business plan must include a product that can be sold at a profit. It can include several products but all products must contribute to the profit. Each in itself does not have to be profitable as long as it enhances the profit of other products.

    This definition does not include any reference to marketshare. Marketshare is a number derived from dividing the total market by ones portion of the market. This does not measure the success of a company which is only measured in how it is performing relative to its business plan.

    I believe that Rolex and Rolls Royce are successful companies that do not dominate marketshare in their respective industries.

    Analyst try to apply numbers to define intangible concepts. This often fails. In a comparison of Timex and Rolex by marketshare, Timex wins. But if someone is asked if they want a Timex or Rolex, if they are both free, I believe that Rolex wins. This detracts in no way from the success of either company. That is only measured in how they are executing the respective business plan.

    I see Apple as a successful company. Simplified, their plan as stated many times, is to make the best product that they can and price it at a point that allows them to continue to execute their plan. What they are producing now may not be what they produce in the future, but if they continue to execute their business plan, they will be successful.

  4. Jeeze, history, repeat yourself much? The only reason they have an opinion at all is to ensure that their own pockets get sufficiently lined. Believe it or not, once upon a time in the prehistoric ages, people invested in things initially because they believed in the idea, company, or product. It’s just a big shell game now, as it was in other insidious, unregulated times (yes, this has happened before. Didn’t end well at any of those times), they are all fat cats that could never be fat enough for their liking. I’m glad Cook and co. largely don’t seem to give a shit, because it’s desperate and pathetic. These guys are NOT the ones getting the girls (or boys, as the case may be).

  5. Bryan, Mr Wadhwa, et al:

    While I appreciate that the idea of Apple licensing their OS (macOS, and now iOS, watchOS, and tvOS), is not new, I welcome the opportunity that Mr Wadhwa’s piece affords us to revisit the topic under fundamentally different circumstances than those under which BG originally offered his advice. Further, while predicting alternative histories is fundamentally speculative, there are real world events that can inform and harden that speculation. Whether or not Apple or the world would have benefited from licensing their macOS back in 1985, there is no guarantee that Apple would have employed all of the licensing constraints that MS did (indeed, the history of Apple’s proprietary protections of their original OS suggests otherwise), and thereby benefited from such licensure as did MS, nor that they could have simultaneously executed a successful distribution of that OS and develop their hardware, nor that control or ownership would not have been wrested from them (likely by BG himself), nor that they would have made a sufficient impact on the industry prior to such ownership loss to garner the brand loyalty that permitted the company to rise from ashes with SJ’s return in 1997. MS’s focus on Windows was brilliant, singular and ruthlessly prosecuted without the distraction for multidisciplinary competency in hardware and software. Indeed, their few hardware attempts were abortive.

    What we have observed, however, is that when Apple finally did license macOS, it bled both their feeble marketshare without expanding its base, as well as their profits, compelling SJ, like a skilled surgeon, to first staunch that haemorrhage before getting to work on the body of the product line. We have no evidence, beyond this, that licensing macOS would expand adoption of the Mac platform (more on that in a moment).

    Regarding Apple’s mobile OSes, specifically iOS, the Google model has not garnered profits for Google per se, but rather only that lesser fraction (numbers have never been published) that are registered with Google Play. Rather their real business model, and therefore profits, centres round the sale and exploitation of client information, a model that Apple, rightly in my view, have publicly eschewed and linked with compromise of consumer privacy. This does not address the negative impact on the user experience that both OS fragmentation, and the inability to rollout security and feature updates across the user base, that Google have faced, leaving whole swathes of their users unable to benefit from such updates, a subject that security experts have addressed.

    And herein, we begin to approach the issue of user experience, which more than any single product, is the driver behind Apple’s success.

    Apple are no longer, if they ever were post SJ2, a single or even multi-product company. They have been building an expanding ecosystem of products and services that Tim Cook has referred to as a platform. That platform is greater than the sum of its parts. Licensing components of that platform, particularly on inferior hardware, and without the ability to control, protect and enhance the user experience, would diminish that experience on single products, damage the brand, and therefore the compelling case for choosing Apple’s OS.

    Furthermore, there are two assumptions implicit in your argument, Mr Wadhwa, that you should revisit.

    The first is that consumer purchasing patterns, particularly in these emerging markets, will not change, but simply expand. Secular trends of the demographic transition, specifically the expansion of the middle classes, have shown otherwise. Tastes and purchasing patterns perforce change, no less than does birth rates and education. The expansion of this class, and with it, the base for aspirational purchasing of superior products and services, will affect high end markets, like Apple, BMW and other manufacturers. We are seeing this in South and SouthEast Asia.

    The second is that Apple licensing components of their platform would not negatively affect their profits, such that they could still invest in the requisite R&D to produce compelling products – and it is precisely this, new products and innovation, that lies at the root of analyst angst over Apple’s future. Potentially diminishing Apple’s platform does not suggest a recipe for addressing that concern, and likely would militate against it.

    While I offer these from a layman’s perspective, I submit that they do offer a framework for speculation on alternative futures.

  6. As noted above, user experience is key. If a consumer buys hardware which has licensed an OS, and that OS is updated (with added functions) at a subsequent time, say, a year later (but it could be shorter), then that hardware, if not upgradeable, becomes obsolete in a year. This is the Android model, and it compels the user who wants the latest functions to buy another piece of hardware. And that increases Android market share. If this happens in several consecutive years, Android market share stays high, while Apple customers hang on to their devices for a few years before buying again. So are we really comparing apples to apples? Would a $25-$30 smartphone ever compare favorably to an Apple iPhone? And even sales over multiple years may not yield the profit that buying one Apple device yields.

    It then seems the argument is to increase market share while markedly reducing profits. Furthermore, doing so would increase the number of customers (for training, service, etc.) in Apple stores by an order of magnitude—or several orders. Customers would lose not only quality, but good service as well. And the user experience would decline. Apple would lose both profits and goodwill, and their brand would suffer.

    How would this not be a disaster?

  7. Paul Goodwin

    Lots of good points here for not licensing. The best hardware specs don’t make the best phone. It’s the user experience of the hardware design and OS integrated into a first rate product that produces the profit in the end. Nobody but Apple has been able to execute this at the level they have. Good point Wab95 about buyers changing in the overseas markets. They too will realize that paying just a little bit more is more than just worth it. And that extra cost over 2-3 yrs is minimal. The buyers will always learn what is worth it and what isn’t, and so far the world has voted for Apple with their wallet -for many reasons. Licensing iOS is a terrible idea. It’s part of the Crown Jewels.

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