Apple and the three bears; or, why great can beat cheap or free

Apple and the three bears; or, why great can beat cheap or free

Apple, in the minds of some media outlets and market makers, is perpetually failing. The latest big thing is always the last, the newest competitor is always the killer, and no matter what Apple does, they won't be able to sustain their current advantages. They're predestined to doom. Yet, to date, since the turn-around begun by Steve Jobs' return, Apple has vexingly failed to fail. John Gruber deftly points out the reason for this, one the three different types of Apple bears he defines keep missing: Design quality and customer delight are sustainable advantages. From Daring Fireball:

So the irony here is that iOS vs. Android (or, if you prefer, iPhone and iPad vs. commodity smartphones and tablets) is in fact a replay Mac vs. Windows — but not in the way that most who make the comparison would have you believe. Judging by its actions, Apple is keenly aware of the lessons to be learned from 20 years ago. To wit, this has nothing to do with focusing on raw market share, and everything to do with keeping the pedal to the metal on design and quality. If Apple maintains a lead over its rivals in those regards, the Mac suggests that Apple can occupy a dominant, stable, long-term position as the profit leader in the mobile market as well — a market that is already bigger than the PC market ever was, and unlike the PC market, is still growing.

How many commodity electronics vendors, the ones who dumped VHS players in the 80s, are still vibrant today? How many computer makers, the ones who dumped netbooks in the 00s, are still growing right now? If you compete on price, your customer's loyalty is to price, and they'll go wherever the lowest price goes. If you compete on quality - real quality - your customer's loyalty is to quality, and they'll likewise go wherever the best experience takes them.

The big difference is that it's a hell of a lot easier to slash prices and undercut competitors than it is to make the best products in the business and outclass competitors. That's why it's also easier to lose customers for whom low price is the most important feature, than it is to win customers for whom quality is the most important feature.

Any company in consumer electronics can quickly make the next cheapest phone. No other company on earth right now could make an iPhone without tremendous time and effort. That's a pretty great competitive position for Apple to be in.

(I kinda went off the rails here; read Gruber's piece for some terrific analysis of the three main bear positions on Apple.)

Source: Daring Fireball

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Rene Ritchie

EiC of iMore, EP of Mobile Nations, Apple analyst, co-host of Debug, Iterate, Vector, Review, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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Reader comments

Apple and the three bears; or, why great can beat cheap or free


The author of this article is clearly an iSheep... Ok, BloatDroids, I got that out of the way for ya. From this point on lets keep a constructive comment thread. Thanks.

"If you compete on price, your customer's loyalty is to price, and they'll go wherever the lowest price goes. If you compete on quality - real quality - your customer's loyalty is to quality, and they'll likewise go wherever the best experience takes them." One of the best pair of sentences to describe why Apple does what it does.

A chinese computer maker (the top dog right now) and the only PC vendor consistently growing in a dying business. They are aping Apple in the pc and mobile market (the latter being only in China).

Undercut prices? I don't understand. All flagship phones generally cost the same at launch. 150-300, so saying price is what matters makes little sense.
Also quality is not an exclusivly Apple trait. HTC, Motorola and Nokia make well designed devices too.

They may be talking about chinese phones or the tablet market.. None of Apples competitors undercut them on price in the mobile market, only in the tablet market

I wasn't referring exclusively to Apple, just using Apple as an example. You could argue Android is big enough to be its own market, and that there are different vendors at different positions in those markets as well.

Apple, thus far, hasn't released budge phones or computers. Many analysts keep insisting they need to.

Arguably Samsung has displaced Nokia, and Android, Windows Phone. Apple is still Apple.

"No other company on earth right now could make an iPhone without tremendous time and effort."

Rene, why do you think the iPhone is the best phone in the world? I understand you're an Apple fanboy but do you really think the iPhone would be this popular without Apple's unprecedented brand recognition? HTC makes high quality flagship phones also but their problem is that they don't have as much brand awareness as Apple does. Now if Samsung did make high quality flagship phones Apple would be in serious trouble. Just get over it Apple's products maybe high end but they're certainly not the greatest of all time.

If only they'd stop being arrogant and ignorant, they'd be doing better than they are now. They need to accept the fact that bigger screen sizes are a thing now and to just adapt and I'm making that judgement based on Samsung's increasing quarterly sales of their flagship Galaxy and Note series. In order to continue being the best you must meet demand. Samsung may have lower quality phones but the increased screen sizes and with a variety of different screen sizes seems to work for them. I'm not saying Apple should abandon the 4" screen size but to add 5" iPhones to their lineup. It'll only create more demand from those who want it and increase their customer base and may even steal customers from Android. It wouldn't hurt to add more choices to your current lineup that consumers want, it will only attract more customers.

Who exactly is saying that large displays are in? You? Other android users that use large displays? You do understand that Apple far surpasses Samsung and their entire lineup of Galaxy S devices including the notes and S don't you. Not only that but they do it with one phone. So the market is saying something completely different then you are. I think that yes apple would be silly if they ignored a larger display, but they are in no kind of trouble if they didn't look into it because they set the market and 9 million phones sold in a weekend should show you that especially when it took Samsung 90 days to sell the same amount and that is still a huge number. I'm sorry but Rene is right. Samsung is the largest phone developer in the world and that isn't because of their Galaxy lineup. It's not even close. It has to do with their extremely low end devices in third world countries. Apple doesn't need to scramble to meet the demand of people that want larger displays because they already have the high end market virtually locked down. This large display argument is the same as the whole argument that people say apple must make a cheaper iPhone to compete. They don't need to do that as they make much more money in the premium market and until sales go down I just don't see your logic in the slightest. Yes, you and others might want a larger display, but there are 9 million people in just a weekend that has shown apple they don't care about a larger display. Until a company can come along and show me that having the larger display will actually give me some real world advantage like the iPad did with tablet optimized apps then I will be happy on my iPhone and I've come from owning over a dozen larger displayed android devices. They don't offer me any real world advantage because I'm still using blown up phone apps that aren't necessarily even designed with displays over 4-4.5 inches of real estate. Not to mention the apps in the play market on my nexus 4 and nexus 7 are so far behind what I can get on my 5s and mini that all they do is collect dust. So please don't talk like your the voice of the market because I don't share your opinion in the slightest.

I didn't say the iPhone was better, I said no other company could have produced it. It's not easy making an iPhone, and took Apple making very specific investments over a long period of time.

Maybe those decisions weren't good or smart, and Samsung or Nokia or someone else will clobber them in the market, but that's a different story.

Cramming all that tech into a phone that small and that well built is non-trivial.

Tony Fadell is so great talking about the first iPhone research effort. He likens it to the getting the moon project. Re: multitouch: “[Jobs] said: ‘Tony, come over here. Here’s something we’re working on. What do you think? Do you think we could make a phone out of this?’ ” Fadell says, referring to a demo Jobs was playing with. “It was huge. It filled the room. There was a projector mounted on the ceiling, and it would project the Mac screen onto this surface that was maybe three or four feet square. Then you could touch the Mac screen and move things around and draw on it.” See "And Then Steve Said..." New York Times.

Capacitive touch seems simple today only because all the other guys had Apple devices to reverse engineer.

I don't get it.

"(I kinda went off the rails here; read Gruber's piece for some terrific analysis of the three main bear positions on Apple.)"

If "gruber said it better" then why bother writing your own mangled take on a subject you don't understand or can't coherently explain?

If you don't understand journalism nor respect how it works then you should keep your mouth shut. Your comment is ignorant and unnecessary.

It's a conversation. Gruber's piece made me think of a tangent I wanted to explore. That's how blogging works. That's what leads to evolution of thought.

My take veered off from his. Apologies if it wasn't understandable to you.

Why do you degrade this site with crap from daring fireball. Sorry but my crap that I flush down the toilet is worth more than any drivel from that crap site.
Rene you are better than this. Daring fireball is a place that gives apple fans the horrible reputation. It is own by a true die hard fanboy that would put you to shame.

Sorry but daring fireball is a site that should just go away. All it is basic fanboy drivel.

How about you discuss the merits (or lack there of) of the piece rather than just throwing around the trollish word "fanboy".

If you use the term "fanboy" you disqualify yourself from intelligent debate. It dismisses any possible hope for communication or understanding.

It's self-limiting. I prefer to attack arguments, not people. It's easy to call names, it's hard to make a cogent point.

Let's do what's hard.

Short answer is daring fireball has shown far to many times to be so one sided and bias that it is not a place worth anything. It is a pathetic site and if it came from a better source it would be another thing but daring fireball is a site that gives apple fans a bad name.

I question the source. As such anything from said source is questionable at best.
There is no getting around the fact that everything from there is spun worse than fox news.

If you want the stuff Rene ask for.

The argument breaks down in the standard part of saying Oh iPhone sell more than a single Android phone. Problem there is Android has more choices so people who like Android are going to be split up into smaller groups.
It first goes what OS do you want. Android or iOS.
With iOS you then are very limited in what screen size you want. Android you have a lot of choices ranging form fablit (largest I have seen is 6.5" now) to smaller phone size.

After that it you can choice which design you like better from different manufactures. So you have to look at as a whole. iOS or Android. Add to that fact that Android has computation inside the OS of itself the prices are lower for better hardware.
As for things like Bear 3 argument. Sorry but more and more dev time is be shifted over to Android. Apple had the early lead. Even where I work I am seeing the shift. More of our development resources are being shifted over to our android app as our more of the clients are going that direction. Apple got a massive head start in Tablet so that has not shifted as far yet but long run Apple is going to run into the problem of being a 2nddary focus.

Numbers matter. People who think Android is where cheap people go only are well quite frankly idiots.
But all does not change the fact that as a site Daring Fireball is crap site and stuff coming out there is bad and so slanted that it is not worth anything. I hold iMore to a higher standard that using stuff from their. Daring fireball is a bad site plan and simple.

The most rational of the bears do not think Apple is *dying* -- just that they are not likely to maintain a dominant position indefinitely. As the end of Gruber's piece notes, the mobile market is being commoditized. I happen to agree with Gruber that the consumer segment of the market will never be fully commoditized, and that Apple has plenty of opportunity to make piles of cash selling to the discriminating consumers who delight in what Apple offers above and beyond commodity levels. Quoting:

"“Some” need not be “most”, or even all that close to “most”, for Apple to maintain a lucrative position"

However, even such a "lucrative" position is in some ways a step down from the plurality position Apple enjoys in phones, and from the overwhelmingly dominant position they hold in tablets. That is why some investors are bearish on Apple -- not because they think it is dying, or even that it will fail to thrive, but simply that current dominant position combined with its (admirable) focus limits its potential as a growth stock.

I don't disagree with that, however, I don't think it's anything new or unanticipated by the smarter investors.

I do think a lot of people are getting taken for a ride with Apple as the car to separate them from their money.

Agreed - but unfortunately short-term stock prices are driven by herd psychology almost as much as performance metrics. If the "non-smarter" investors are swayed by this, the "smarter" investors have to account for crowd reaction, not just Apple's fundamentals. If the crowd has already priced Apple as the dominant entry, anything less will drive down the stock, even if Apple continues to thrive in absolute terms.

If "Apple is doomed" talk bothers you, try hearing it as "Apple's stock will experience short-term volatility" - as that is what most of them really mean.*

* Excepting, of course, those who believe Apple has already made a critical *product* misstep, but that crowd is not very large.

Rene writes, "Any company in consumer electronics can quickly make the next cheapest phone. No other company on earth right now could make an iPhone without tremendous time and effort."

I think this is right. Ellen Ruppel Shell makes a similar point in her book, 'CHEAP: The High Cost of Discount Culture': "Objects can be designed to low price, but they cannot be crafted to low price. Craftsmanship takes time, and time is the enemy of the discounter" [and the Wall Street investor--my remark].

For Apple to join a dubious race to the bottom to pacify Wall Street's desire for frequent, marginal profit extraction, it risks the long-term effect of diluting the company's successful brand and its relationship with customers who value their products and platform.

The problem I see with this rhetoric is that it seems to be "You either make the iPhone or you are categorized as producing cheap commodity". I don't see this as the case at all. Not even close. The Samsung Galaxy series, HTC One, Moto Maxx, LG Ultra-mega whatever, Blackberry Z10, Nokia Lumia 10 million - these are not "cheap to undercut competitor" devices. They are high end top level competition to the iPhone (and each other). Obviously none of them sell as much as the iPhone but they are competition selling at the marketing level and price points of the top end iPhone series.

Most of the non-Apple manufacturers (probably all) ALSO make cheaper commodity hardware that is priced to be placed into frugal hands with sometimes little regard to quality. This does not fairly represent the entirety of the efforts of HTC, Samsung, et all who ALSO make premium devices that millions of people find to be a BETTER choice than the iPhone.

The industry is just not that black and white - no industry is.