Well, that didn’t take long.
In a decade, Apple (AAPL) has gone from niche-market roadkill to a company whose growing dominance and competitive tactics in a booming market are thrilling investors, angering competitors, and drawing regulatory scrutiny.
Unless Apple shows a quick change of attitude, the benefit of its market position–power, scrutiny, and tens of billions in profit–are only going to grow.
Apple is no longer the beloved underdog that Microsoft kept alive in the late 1990s to improve its own standing in the eyes of regulators (remember the investment and agreement to keep building Office for the Mac?). Apple is now the wildly profitable owner of the dominant iPod platform and rapidly-becoming dominant iPhone platform, which are really one in the same. Unlike any other competitor in the industry, moreover–including the still PC-centric Microsoft–Apple has managed to link the two big personal computing platforms together, through its software and resurgent Mac business.
As Apple extends its lead as the mobile computing platform of choice–calling the iPhone a “phone” misses the point–Apple’s dominance of this enormous opportunity will increase. This dominance should put Apple in a position to generate an extraordinary share of the value in the this industry over the next decade, just as Microsoft did with desktop computing. The FCC investigation of Apple’s rejection study of Google Voice, meanwhile, should serve notice that Apple’s days of doing this beyond the gaze of regulators are over.
To appreciate why Apple investors are so excited–and why competitors and regulators are concerned–you need to understand the real source of value here. At first glance, Apple’s market position seems much weaker than it actually is:
- less than 10% share of PCs (lower worldwide)
- ~ 1% of global phones
- ~ 20%-30% share of US smart-phones (lower worldwide)
- ~ 70% share of US standalone music players (50% worldwide)
If the standalone music player market were still booming, Apple would be getting a lot more heat for its market position. As Apple itself has admitted, however, standalone music players are dying. Fortunately for Apple, iPods aren’t really “music players,” and the larger mobile platform market is very much alive.
The iPhone and iPod touch are two gadgets based on a single mobile platform, one that now supports thousands of popular apps. To get a true picture of Apple’s dominance of this platform, therefore, you need to look at the iPhone and iPod share together. And then you need to consider the relative popularity of Apple’s mobile platform as a platform for apps versus the alternatives.
In reality, “music” and “phone calls” are just apps–and as Apple has already illustrated, they are far from the only ones. The real value in plaftorms is created by network effects: The more end users and developers that adopt a platform, the more valuable it becomes. Apple is already well on its way to owning the standard platform in mobile computing, just as Microsoft did on the desktop.
If you view iPhones and iPod touches as “mobile platforms that support a wide variety of third-party apps,” Apple probably has 30%-40% of the US market (less worldwide). If you consider platforms that already have huge, vibrant developer communities, thousands of apps, and all of the momentum, however, Apple’s share of this market (US) is probably more like 80%-90%.
This chart tells the story, and it’s already three months out of date:
Google’s Android is a player here, but it’s relatively tiny. Android also has no mind-share outside the tech community. Nokia is a player internationally, but not in the US smartphone market. BlackBerry has a huge piece of US smart-phone market and a very loyal following, but it’s still weak on third-party apps. In short, Apple is running away with this game.
The bottom line: The mobile market seems to be well on its way to becoming a platform market, just the way the PC market did. And Apple is well on its way to dominating this market, the way Microsoft did with PCs.
So it’s no wonder that Apple investors are excited about the company’s future. And it’s no wonder that consumers, competitors, and regulators are already getting agitated.
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