Better is NOT Perfect

March 9, 2009

Addiction, Not Lock-In, is Apple’s Motive [UPDATED x3]

[NOTE: This article was originally posted on January 5, 2009 on my personal blog.]

Addiction, Not Lock-In, is Apple’s Motive

I was reading Sean Devine’s thoughts on the App Store. I believe he is correct in Apple, Inc.’s actions, but not the motive.

Apple clearly is giving no preferential treatment to “quality” apps, just making it easy to get at the quantity of them. Sean believes the purpose of this Large Selection focus is to lock people in via a large investment in native apps.

I disagree.

I think that as a hardware-sales-based-profit-model organization, every software related action Apple, Inc. takes is to increase the disability of the hardware it sells.

The KEY to maximizing iPhone profit is to create very high switching costs for users, just as they did for the iPod via the iTunes Music Store

The iTunes Store (both apps and music) run on the slimmest of margins, and (according to Apple) exists only as a perk for their hardware customers and a “value booster” of their hardware.

The fact that native apps (DRM’d or not) cannot be moved to another platform is a technical barrier and to blame it on an attempt at lock-in is assigning malice without cause. Yes, Apple benefits from this, but they benefit equally every time an iPhone specific web site shows up or an iPod user pirates a song off bittorrent.

DRM on music can go away tomorrow and while it would wreak havoc on AAPL’s stock price, it would have zero negative effect on Apple’s bottom line.

Likewise, if all iPhone developers pulled their App Store app and put it on their web site recompiled to run on Android – the iPhone 3G would STILL be more useful than the original iPhone, which people loved.

I’m not suggesting a mass developer exodus wouldn’t hurt Apple or the App Store, I’m just suggesting that Apps are not the gotcha in a customer snare-and-trap scenario.

I believe Apple is snaring customers, just not by locking them in. Apple is snaring customers with the out-of-the-box gadget itself and keeping them happy (and compliant) with apps.

It’s the apps, but then again it’s the object itself.

Unlike a game console, the outer shell of the hardware (and not technical specs or benchmarks) is more important to the vast majority of the people slapping down their cash (aka the non-geeky).

The non-geeky lust after the gadget itself first, THEN what apps you can get for it.

The only ones who are even aware that you can add features to phones is the 7% of the population that knows how to install hard drives in their PCs, the 2% of the population that have downloaded an app to their existing phone, and developers.

The iTunes Store purchases that “locked people in” to iPods never seemed to erupt into an issue, even after hundreds of millions of iPods and billions of DRMed songs. Why? People were addicted to the iPods, not the store purchases.

I doubt App Store purchases are tying people to their iPhone any more than iTunes purchases tied them to iPods.

Evil Apple, Inc.

All of the negative stereotypes (Selfish. Greedy. Smug. Control Freak. Superior. Arrogant. Secretive.) about Apple, Inc. as a company or Steve Jobs as a person can be boiled down to four basic corporate policies:

1. Apple writes their own machine-level code rather than outsourcing it.
2. Apple designs their own baseline hardware rather than using snap-together pieces.
3. Apple writes code that it doesn’t license to others.
4. Apple follows the model of Loose Lips Sink Ships.

These four policies put Apple at an advantage with all their partners, vendors, developers, and customers – and a lot of them complain loudly. Others carry it farther and assign dark motives for these policies and attempt to predict future actions based on those dark motives.

Lock-in is a dark motive, as it keeps you prisoner. With Apple products you aren’t a prisoner as much as you are an addict. (Getting people addicted is also a dark motive, but in manifests itself differently than a lock-in motive.)

Once they’ve locked users in, they’ll shift focus to mine as much profit as possible from each of those users each year.

Like how they’ve constantly raised prices on music in their 75+% marketshare music store, and pushed prices higher with their 90+% marketshare of a TV/Movie store? Like how they won’t allow any non-DRM’d material on their hardware? No, wait… they’ve never done any of those things.

What HAVE they done? They’ve fought with music studios against raising prices. They’ve waged a public war against DRM and used the RIAA’s instance on it as a bargaining chip to get the least restrictive copy protection in the industry.

They’ve prioritized HTML5 and h.264 over proprietary extensions and plug-ins.

Do you think they were doing it for the benefit of all mankind? No. Open file formats and communications protocols puts all platforms on a level playing field – and Apple believes that when all things are equal, their physical/tangible gear is more desirable than the gear sold by other hardware makers. (The arrogant bastards.)

Their existing customer base agrees. They become rabid at the release of any new hunk of plastic, glass, and metal that gets the Apple Seal of Approval.

What Addiction Looks Like
Jeremy Horwitz had to go 24 hours without his iPhone.

What hasn’t been publicized as much is the iPhone addiction factor—the “you couldn’t pry this thing out of my hands without a gun” survey question—which will be the key to understanding whether, as a key Palm investor claimed last week, the first wave of iPhone users are itching to be free of their two-year contracts come July and ready to won over to Sprint, or rather, that they’re just waiting for the next big iPhone release in order to make another Apple purchase.

My gut feeling is that, absent some really big screw-up by Apple come late June, there will be no tidal wave of departures from the iPhone’s existing userbase—at least, to smartphones at similar price points.

[…]

Yet from (a) my wedding day to (b) the birth of my daughter to (c) the day when I went from the original iPhone to the iPhone 3G, an iPhone hasn’t left my side—or been out of use—for any significant length of time since the original day of release. It has become something close to indispensable for keeping in touch with people, pretty good for music and movies, and even more of a draw since the launch of the App Store.

I don’t think Jeremy is even considering getting a phone from a different maker any time soon, do you? I don’t think he’ll even be seriously looking at them.

Apple’s M.O. is simple:
Phase 1:
1. Build a Better Mousetrap, then make it gorgeous.
2. Let the world know about your better mousetrap in a Spectacular Fashion.
3. Remove all barriers to your door, then make more doors.
4. Profit!

Phase 2:
1. Addict them with something new and shiny.
2. Release something newer and shinier.
3. Repeat and Profit!

As long as you are hooked on their gear, you won’t even LOOK at anyone else’s. If you don’t look at anyone else’s, Apple can convince you they invented fire and the wheel.

And you’ll be happy to believe them.

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2 Comments »

  1. At the top is says, “This article was originally posted on January 5…”

    And in this article, you wrote,”DRM on music can go away tomorrow…”

    And what happened the day after you wrote that? Apple announced that DRM on music was going away!
    http://www.apple.com/pr/library/2009/01/06itunes.html

    It’s almost as if you’re psychic!

    Well, unless we read the rest of the sentence: “and while it would wreak havoc on AAPL’s stock price, it would have zero negative effect on Apple’s bottom line.” You were right that it had zero affect on the bottom line, but wrong about the stock price, which is up something like 30% since that announcement. (But not, I think, becasues of that announcement.)

    Comment by Steven Klein — April 25, 2009 @ 6:41 pm

  2. @Steven Klein.

    I’d been preaching it for a while, and that was the last time I got to use it. It was just happenstance that that time I was “right”.

    Now let’s see how well I do with my WWDC 2009 predictions.
    https://betterisnotperfect.wordpress.com/2009/04/26/3rd-generation-iphone-my-money-is-on-june-26-2009/

    Comment by Neurotic Nomad — April 26, 2009 @ 3:54 pm


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