Apple retreats towards its core

Apple's iPhone 5 has been slammed for lack of 'uniqueness', but tech sector shifts will make it increasingly difficult for the giant to innovate and could force a strategy overhaul.

Looking back, it is clear that Apple’s strategy has always been to be a premium service in a specific niche market. It never captured the majority of the market – it was happy to leave that to competitors who would be satisfied with lower margins, while it built up a very healthy 25 per cent market share.

This has been a strategy that worked very for them in the past, but the recent successes in iPhones and iPads has created havoc with this strategy. The company will now have to make a decision if it wants to pursue a mass market approach or stick to its premium price strategy.

Developments surrounding the company over the last few months indicate that the ‘premium’ strategy will also be its strategy for the iPhones and the iPads in the future. By protecting its patents it wants to be able to maintain its own uniqueness, which is essential if you want to operate in niche markets. The key to Apple's success, however, will be maintaining uniqueness that warrants charging a premium.

The fierce patent battles and their follow-up activities will further isolate Apple from other smartphone developments, as more and more developers will be forced to work with Android vendors, who take a far more open approach. So Apple will basically be alone and up against a much larger innovation drive from the other companies, as well as the broader world of developers.

This premium strategy has worked for Apple in the past but the question is whether it can be repeated with the new products. The strategy might now be under threat as there most certainly is not the same difference between, for example, the market shares of the Mac and the PC as there is between the Apple and Android smartphones.

Smartphones and tablets have become far more generic products and the differences for example between the smartphones for Apple and Samsung are significantly less that the differences between a Mac and a PC, this will make it far more difficult for Apple to demand the sort of premium prices that they have been used too. This also puts enormous pressure on the innovation capabilities of the company.

The recent launch of the iPhone 5 was accorded an underwhelmed response from the tech gurus. While it still has that slick Apple uniqueness there was not the ‘wow’ that many had hoped for. Apple will find it increasingly tough to stay in the innovation lead.

On the other hand Google will have the full force of the broader software development market behind them and the sheer volume of that innovation base will give it plenty of opportunity to outshine Apple. True, they will have to deliver on that – but the signs are that this is more than likely to happen.

Another change that is taking place in the broader ICT market is the relentless push for open systems. Next generation network developments, in combination with IP technologies, are making open networks the networks of the future, and Apple will be fighting a lonely battle to keep its proprietary technology relevant in such an environment. This might work as long as they are in the lead but as soon as its share of the total market drops there will be fewer applications and services that will give priority to the Apple standard.

Meanwhile Google and its Android allies are championing the open standard. They are already selling more smartphones than Apple. The question is whether, combined, they will be able to outmanoeuvre Apple on the innovation side.

So it will be interesting to see if Apple can regain the lead in innovation and ensure it keeps that lead over its competitors – and whether that difference is sufficient to maintain its premium position in the market.

Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.

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