Posted by: mikepearsonnz | April 15, 2010

The Apple Business Model

This post is a brief summary (Part 2) of my lunchtime presentation to the NZCS Wellington branch  about the Apple business model vs the Google business model.

Engineering approach

Tech bloggers have  slated the iPad for its lack of multitasking, its lack of a camera, its lack of openness, …, and the list goes on.  However sometimes we lose touch with what people want from technology.

Users want a device that:

  • works reliably
  • without artificial restrictions
  • offers new features as they become available
  • protects from security threats

Users have traditionally got new features resulting in:

  • bloat, slow performance, and introduced bugs
  • escalating security measures that inconvenience and limit users

Its not wrong that Apple has chosen to take a minimalist approach to device design.  Their decision to exclude hardware features such as USB is valid, if users have a better experience because of it.

The iPad is meant to be more of an appliance, than a general purpose computer.  If consumers accept the idea, then they won’t expect USB on an iPad, any more than they expect USB on their toaster.

Hardware vendors do not understand this, and so you will continue to see product reviews touting the latest iPad killer device with more bells and whistles.

Engineering Philosophy

The Apple philosophy is a closed system, meaning:

  • Strict control of the user experience
  • Managing all support issues itself

By taking responsibility for everything, Apple adds value to their brand.

Within their closed system, their business model involves developing an ecosystem for the content industry, especially publishers and gamers.

Using the Google Android model for comparison, the Google philosophy is an open system, meaning:

  • A wide variety of Android capable devices
  • Allows you to modify the core software
  • Allows you to install any app

From a user experience point-of-view, the brand recognition is the manufacturer, e.g. HTC or Samsung, not Android.

Google has  a business model, based on providing targeted advertising in exchange for consumer free services.

Each philosphy is equally valid — they’re just different.  Each has good and bad points, and the consumer will ultimately decide which they prefer.

iTunes store

iTunes salesI find it interesting that there has been little analysis done of the iTune store as part of the Apple business model.

The iTunes store was launched in 2003, with 200,000 items to purchase.  Today, it has 11,000,000+ songs.

More importantly, it has 125 million registered iTunes users (ie customers).  Those customers are 1-click (borrowed from Amazon) away from payment via a verified credit card with a billing address.  That’s an awesome established market.

The iTunes store has changed the way that consumers expect to buy things.  Pricing is by individual song (not by album).  The pricing is lower than stores, NZD$1.79 for music audio, NZD$2.69 for music video; and there is no subscription fee.

Apple have reused its iTunes store infrastructure, to sell Music, Videos, Ringtones, Podcasts and Audiobooks.  More recently they added Apps.  Apps are priced lower than stores, NZD$1.29  is not uncommon.

Reusing the iTunes store for Apps has created a new developer ecosystem, with 70% of the purchase price going to the developer(s), 30% going to Apple.  For Apple it created a new business with major revenues and no major costs.

As with any digital content, iTunes brings a number of information management issues, that challenge national  laws and enterprise policies, such as:

  • Finding things
  • Censorship
  • Pricing
  • Copy Protection



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