Apple at a crossroads

Usually, coverage of Apple’s platform strategies is naïve, oversimplified, or worse. In some cases, the mistakes are over trivial things, but in other cases, reporters get the core story wrong. For example, in response to claims that Apple’s problems in the 1990s were due to its cloning decision, I wrote an academic paper noting that more likely causes were its supply chain problems and its failure to innovate.

I have generally been positive on Apple the last few years, even if not optimistic enough to invest in the stock at the lofty price of $60 (today it closed at $190). It’s had great quarters, growth and record earnings. Still, I feel it’s had a good run — everything breaking its way (except for the AppleTV belly-flop) and that someday its luck might change.

This evening I was impressed by a very thoughtful (and to my mind, accurate) critique of the crossroads Apple faces in its current strategic goals — shifting from a PC company to a PC and music company to a PC, music, video and mobile phone company. The conclusion to the article by Adam Penenberg in the December Fast Company strikes exactly the right tone:

Apple is at a moment of choice: If it can stay hot and produce breakout couture hardware indefinitely, it can hold onto its closed model, elite pricing, and huge margins. In many ways, the world would be a prettier place if it did.

... Now that the race for an end-to-end system has begun in earnest (significantly, it doesn't look all that different from the race to own the desktop years ago), Apple needs either to win that race outright, or to get comfortable with being simply part of the solution. Winning outright is a very tall order, of course. It means coming up with a self-contained system so beautifully functional that a critical mass of consumers are willing to enter that world and never leave.

OK, so I think Penenberg’s right because he agrees with me. But it’s really a pretty simple equation: either a closed system provides a complete solution, or it has to become more open. (The iPod works with MP3 files and the iPhone works on GSM, but you know what I mean).

Closed used to work for DEC but then their industry segment died. Closed still works pretty well for Sony, Microsoft and (once again) Nintendo. However, Steve Jobs faces two major problems that the console makers don’t face. One is that the content suppliers hate Steve’s buyer power, meaning that competing systems (open and closed) will be getting a lot of attention from said suppliers.

The second is that the mobile Internet is going to at least a partly open model — where cross-platform content (such as eBay or Google Maps) is going to be an important part of the value proposition. If most of the value comes from open services and apps (such as Web 2.0 apps), then it will be very hard for a closed system to build a dramatically superior solution.

So if the past five years have been a perfect storm for Apple, the perfect storm against Apple would be a mobile phone industry with lots of Web 2.0 content and a good rival music site.