Sure, everyone knows Apple’s Mac was disruptive to the traditional PC industry. The same disruption occurred with the iPod, iTunes Music Store, the iPhone and App Store, even iPad and Watch changed the landscape.
Even more disruptive than Apple’s long list of market successes is the damage to traditional industries thanks to the advent of free products. Linux is a free operating system copied from Unix. Android OS, built on Linux, is a free smartphone and tablet operating system that competes against Apple’s iOS. How does a company that sells products manage to be successful against free competitors?
Spotify vs. Apple Music
10 years into the smartphone revolution ushered in by the iPhone in 2017, Apple has managed to carve out heady profits from every technology product segment where it competes. Mac, iPhone, iPad, Watch, app stores and services, all combine to make Apple not only the mindshare leader, but the industry’s profit leader, marketshare be damned.
How does Apple do that? Hardware. Yes, services at Apple are the fastest growing product segment, but those services are tied to 1-billion or so hardware products in the wild. Without the hardware, the services die on the vine, but because Apple has so many customers who want and need such services, it grows, too.
Apple competes against free from Microsoft, too. No, Windows 10 isn’t free anymore, and it lags macOS and iOS on product market penetration, but Apple competes against traditional PC makers, and most of them sell products with either Windows 10 (free to the customer when purchased with a new device) or Chrome OS, also included free on cheaper Chromebook notebooks.
Apple, a hardware company, competes against products that are free. A free or nearly free operating system means a smartphone or PC manufacturer does not have the costs Apple faces by providing the OS on every product it sells. Apple operates many hundreds of retail stores which provide support. The only close competitor is Microsoft, with a few dozen such stores, all modeled after Apple’s success. Except for the success part.
Apple Music is the new kid on the music streaming subscription service block, and again, the company competes with free. Spotify has a free option. So does Pandora. As of the last count, Spotify has about 40-million paying subscribers to Apple’s 20-million or so, but over 100-million active monthly users, thanks to the free option. Spotify is a freemium service, which means basic services are free. Apple Music has a free three-month trial period before the subscription sets in.
Since business is all about money, you can see why Apple struggles to compete against the free models. Here’s an interesting perspective on Apple’s so-called troubles and the popular doomed meme which prevails among technology journalists. Free doesn’t make much money. Google’s apps and search engine services are free to use, but it’s advertising which pays the freight. It’s a different business model; successful for Google; but nobody else.
Wait. What? Isn’t Samsung profitable? Mildly so, compared to Apple which dominates profitability at every corner; Macs vs. PCs, iPhones vs. Android-based smartphones, iPads vs. Android-based tablets, Apple Watch vs. the entire watch industry, and more– Apple TV, iTunes Music Store, both iOS and Mac App Stores, retail stores… you get the idea, right? As much as critics howl that Apple no longer innovates, no longer produces the best hardware, and no longer dominates (only the iPod dominated; everything else just competes), Apple seems to be positioned where it has been for many years. On top of mindshare and on top of profits.
Yes, it’s a struggle. It ain’t easy competing against free. Can you name a company that does it better?