Mossberg: Apple Has the Right Business Model

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Writing for The Wall Street Journal, Walt Mossberg says he thinks Apple has the winning product development model now that we have moved into the "post-PC era." The component model, which has served Microsoft well, simply doesnit meet consumers needs now that companies are focusing on portable music players, cell phones, and dedicated gaming consoles. The end-to-end model that Apple uses for the Mac and iPod serves that market better.

In a component-style model, several companies develop hardware and software that all work on a common platform; in this case, Microsoft Windows. Product prices tend to be lower, but the individual pieces donit always work well together. In contrast, an end-to-end model results in higher quality products that work well together, but sometimes cost more.

The end-to-end model is where Apple shines. Mr. Mossberg says "Tightly linking hardware, software and Web services propelled Apple to a huge success with its iPod."

Microsoft has seen this, too, and chose to develop and build the Xbox gaming system internally. The design team created the Xbox hardware and operating system itself, creating a product that works far better than if it was built component-style on top of Windows.

Mr. Mossberg thinks that Apple is applying its style to a couple of new products, too: a iPod-like cell phone, and a digital home-media hub. Unless Appleis design team stumbles, both would likely do well in the market.

Microsoft is predicting that consumer demand for products with the quality and ease of use that the iPod and iTunes Music Store offer will wane, and eventually buyers will be happy settling for commodity products that follow the component model. But the company isnit counting the end-to-end model out. The Xbox team is already working on a portable digital music player the company hopes will dethrone the iPod.

Itis hard to say which business model will win out in the long run. If consumers continue to demand higher quality products that are easier to use, the end-to-end model will probably come out on top in the consumer electronics market. If they are willing to settle for products that are just "good enough," the component model will succeed. In the end, the consumer will decide if Mr. Mossberg is right.

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