Apple should not repeat past mistakes

I read with interest Edward Rizzo’s column Was This A Lost Decade For Microsoft Shareholders? (December 29) where he reviews Microsoft’s financial performance and compares it to Apple’s.

During the past few years, Apple’s performance has been impressive due to its introduction of the iPhone and iPad. However, this spectacular performance does not guarantee a bright future for the company. History might be an eye-opener for the performances of both Apple and Microsoft.

Since its inception in the mid 1970s, Apple has embarked on a strategy of rolling out innovative products. As a matter of fact, it was the first personal computer company to introduce a desktop computer which featured the mouse and graphical user interface. Apple’s strategy has been to design, develop and produce both the operating system (OS) and hardware. This tight bundling of the OS and hardware led Apple to remain a niche market player, selling mostly to the education and publishing segments. Moreover, this bundling strategy led to Apple’s decline during the 1990s until Steve Jobs came again on board and saved the company.

On the other hand, Microsoft’s strategy has been to develop the operating system and license it to third-party hardware vendors who manufacture and sell commodity PCs. This strategy created a huge market for the PC/Windows technology and also gave rise to independent software vendors who wrote all sorts of applications for the Windows platform. These in turn continued to increase Windows’ market share and it became the dominant OS for the Intel-based PC architecture. The Windows OS and applications such as Microsoft Office generated a huge revenue stream for Microsoft although its products might not have been the most innovative.

Apple’s current direction for the iPhone and iPad devices is similar to its past strategy – that of bundling the OS with the hardware. Its competitors in the devices space, namely Google and Microsoft, are adopting a different strategy whereby they are licensing their OS to third-party hardware manufacturers.

As the market matures, the hardware (device) usually becomes a commodity with a large number of highly competitive manufacturers producing low-margin products. However, the OS will continue to be supplied by one or two dominant software companies who will reap huge profits. Moreover, independent software vendors develop a wide range of applications for these OSs, making them more valuable.

In conclusion, if history repeats itself, Google and Microsoft might command the lion’s share of the market while Apple’s share might decline significantly.