Will Apple's power enslave captive users?

DANNY O'BRIEN

WIRED: WHAT DOES it mean for Apple to be the company with the largest capitalisation on earth (it surpassed Exxon this week)?

A tech company whose record profits last quarter surpassed Google’s entire revenue for the same period and were $3 billion more than Hollywood’s US gross box office receipts for the whole of 2011? Whose cash reserves are close to $100 billion, whose gross margins averaged 44 per cent, whose employees last quarter brought in close to half a million in revenue “each”?

It’s honestly hard to comprehend. Certainly, even Apple’s keenest supporters in the markets and in the papers weren’t expecting such a profitable quarter.

Pundits worried about the allure of the new iPhone 4S, the threat of Amazon’s cheap tablet, the Kindle Fire, and the passing away of Steve Jobs. Only oil and gas companies have historically made these kind of profits.

Can the company continue to grow? The bulk of Apple’s income comes from its smartphone sales, a market that still has plenty of growth. It has created and captured an entirely new market, the consumer touchscreen tablet, where it appears to have little competition, and which appears to be finding both new consumers and eating into the traditional PC market. The company has only begun to spread into emerging markets such as China (after consumer riots surrounded its launch of the iPhone 4S there, Apple suspended its sales of the new phone, and will re-attempt the release later this year).

Can Apple continue to compete, now that it is so clearly the target to beat?

Apple’s traditional competitors in the mobile market, RIM and Nokia, are largely vanquished. Microsoft’s Windows mobile software is struggling to get a look in, and only Google’s Android remains as a current opposition.

Nonetheless, on the hardware side, Apple can use those enormous cash reserves to pay ahead and buy up the global output of particular technologies, including fast Flash Ram, and ultra high-resolution screens.

On the software side, Apple mostly depends on its in-house operating system and a closed external ecology of application developers, most of whom are tied to its own proprietary operating system and development tools. And given that Apple distributed about $700 million in payments to those developers last quarter, many are happy to stay with that client relationship.

There’s no argument that Apple created its ascendancy from making and marketing the better product. Its rise started in 1997, close to bankruptcy, and with no experience in the music or mobile markets. But now, it’s equally unquestionable that Apple has a tremendous lead. And the real question is this: is that going to be good for the rest of the technology business? Is it going to be good for consumers?

The traditional model of the dangers of a disproportionately large company mostly revolves around its monopoly powers. In the United States, that worry boils down to concerns about price-fixing and collusion, and the capture of related markets. But the real threat of technology giants is rarely expressed in price. Technology prices continue to tumble down and, if anything, Apple’s ruthless competitive efficiency has lowered product prices.

The real impact of Apple, the giant, will be on how it distorts the infrastructure it now plays such a large part in defining. Before its earnings call, Apple held a press conference to announce its new line of interactive textbooks for the US market. The textbooks are far cheaper than their print versions, but they work only on iPads, and can be sold only through Apple’s iBook service. The software to create them runs only on Macs, and using it includes agreeing to a contract that states you can only sell the books you create on the software through Apple. Apple takes a 30 per cent cut on every book.

Children who don’t have iPads don’t get the cheap textbooks.

There’s nothing illegal about Apple making this offer. But it’s a far cry from the world promised by the last decade of the web, where content was made for viewing on machines built by hundreds of companies, created by dozens of independent tools, and using software made by Apple, Microsoft and independent open-source developers.

This, instead, is the world that companies such as Microsoft and AOL intended to bring about, but never managed to. Those companies were treated with suspicion, in part because their products seemed limited, their ambitions low and the alternatives uncomfortable to switch to.

Apple is riding on a wave of justified consumer support, and few are being compelled to buy its goods except out of genuine desire.

But an overpowerful Apple has the potential, as Microsoft had before it, to weaken, disillusion and extinguish the viability of its competition. We’re at a moment where Apple’s captive audience is held by a genuine desire for Apple’s products.

But, at some point, Apple’s power will mean that it will be tempted to use its market sway and wealth to pin its customers down, rather than tempt them in. If – and perhaps more realistically when – that happens, will the alternatives still be strong enough to offer an escape route?

• Comments Feed
• |

0