An antidote to iPhone complacency

My posting last night on Apple vs. Nokia got picked up by Seeking Alpha. It’s gratifying to get the exposure and discussion, although (as with any online discussion) the quality of the posts was variable.

Most of all, I was surprised to see the suggestion that I was too pessimistic on Apple. Readers of the Seeking Alpha site don't know me the way that my blog readers do, so let me fill in a few blanks.

I bought my first Mac in January 1984 and have never owned a DOS or Windows machine. I wrote a book on Mac programming and wrote columns or articles for 3 Mac publications. I started a Mac-only software company in 1987 and ran it for 15 years. Before the Jobs II era, we would have said "I bleed in six colors."

Today I'm a little more dispassionate as an academic strategy researcher. I did my PhD thesis on Apple losing market share in the US and Japan. I published a book chapter about why the conventional wisdom on Apple's cloning decision was wrong. Now I teach technology strategy to MBA students and consult to software companies.

My long history with Apple is EXACTLY why I think the ahisotric Apple bigots (particularly the iPhonatics) are missing the boat. In the 1990s, Apple had great products and technologies and still almost died. I know, I was there, and it’s why in 1993 I started looking for a new career to replace being a Mac ISV.

Yes Apple has had enjoyed a good run of innovation success. As I’ve noted earlier, in MP3 players Apple is crushing Microsoft and sells the vast majority of standalone MP3 players in the US. It also has dominant mindshare (again in the US) in smart phones.

However, when it comes to innovation, past performance is no guarantee of future success. Look at Apple in the 1990s. Look at Sony. Look at Ford or Chrysler or GE.

OK, some wiseass thinks because I make a blanket statement "don't stand still or (fill in the blank) will catch up," I don't know what I'm talking about. Would you prefer (say as an AAPL shareholder) that management says to the troops "We are so far ahead that no one will ever catch up?" Of course not.

Exhibit A is the old bumper sticker (and T-shirt) "Windows 95 = Macintosh '89". The problem was, Apple’s innovation (with the exception of the first PowerBooks) slowed to a crawl after System 7. Thus, Macintosh 89 = Macintosh 95 = Macintosh 2000.

Exhibit B is that 10x as many people bought Windows 95 as Mac OS 8, even though the latter provided a demonstrably better user experience. For Windows 3.1 the ease of use difference was dramatic, but for 95 it was not, and Windows 95 had other advantages: cheap hardware, more hardware variety, a larger potential installed base, more applications. Ease of use is important but it’s not everything.

A decade ago, Apple got crushed by Microsoft and nearly died. Today, there’s an even wider range of companies that could do to the iPhone what Windows 95 did to the Mac. What would it take?

First, Apple’s competitors would need to recognize what Apple has, and that it’s selling better. Nokia may be in denial, but I don’t think Microsoft or any of the major vendors in the US have missed Apple’s success.

Second, it would require the resources to apply to catching up to Apple. Samsung, LG, Microsoft and Nokia all have the resources to do so, and I think Research in Motion does too. In the short term, I’m ruling out Motorola and Sony Ericsson because their recent record on innovation is more dismal.

Third, it requires the ability to execute, in this case on software and user interface design. Obviously Microsoft could copy Windows and the iPod so there’s no reason that they can’t copy the iPhone. The other firms haven’t done well on software, but there’s no reason why they couldn’t procure that expertise. Maybe the gPhone is halfway decent. Or someone buys the PalmSource team. Or companies use the market to find some other open innovation solution.

Once LG or Samsung (or Nokia) has a decent alternative to the iPhone — particularly a CDMA phone — thanks to Apple’s foolhardy Cingular exclusive, the iPhone knockoff will have the upper hand with a majority of the market. The Koreans and Europeans will also have an advantage in their home markets where the iPhone has had a much smaller impact, in addition to the global economies of scale that Apple currently lacks.

Finally, other firms catching up to Apple will only happen if Apple is still roughly the same place when others match Apple’s existing offerings. Sure, Apple is on a roll, and as long as Steve Jobs remains savvy and healthy, their odds look good. But it’s not a lock.

Remember Netscape Navigator? The Motorola flip phone? The Sony Walkman? The Chrysler minivan? (The Boeing jumbo jet?) In many cases, a revolutionary product is all about the concept, and a concept can be copied. It’s not just about innovation activities, but also about the potential for those activities (as Geoff Moore argues) to achieve separation. If you can’t achieve separation, we call that commoditization. (NB: MCI, AT&T, the airlines, banks, or enterprise software vendors).

So I wouldn’t short Apple, but I also wouldn’t bet any sizable sum that all of its competitors will be asleep at the wheel for the next three years. And if Apple management shows signs of being as complacent as the Seeking Alpha iPhonatics, then sell! sell! sell!