As we all know, Apple last week announced two new iPhones, a payment service (ApplePay), and a line of Apple Watches that require iPhones to work. There’s not much I can say about these products that you can’t read somewhere else. They are bigger and better than what preceded them and — in the case of ApplePay and the AppleWatch — just different. They are all topnotch products that will stand out in the market and have good chances of being successful. So instead of writing about products we already know about, I’d like to write about moats to protect products from competition.
Moats, as you know, are defensive fortifications typically built to surround castles, making them harder to storm. In order to even get to the castle, first you have to get past the moat which might be filled with water and that water might, in turn, be covered with burning oil.
Moats are important in business because Berkshire-Hathaway CEO Warren Buffett likes moats. He likes the businesses in which he invests to have large and defensible product or service franchises with those defenses characterized as moats. Buffett’s the guy who coined the term, in fact.
Warren Buffett and his moats have also lately been a real pain in my ass.
I have a book out, you see, called The Decline and Fall of IBM, and the easiest way to criticize my book is to ask, “If you are right, Bob, and IBM is in big trouble, why does Warren Buffett (the numero uno investor in the whole danged world) have so much money invested in the company?” Since this is a column about Apple, not IBM, I’ll just say that Warren loves moats, Apple doesn’t believe in them, and — for the kinds of businesses Apple and IBM are in — Apple is right and Warren is wrong.
It’s easy to criticize Apple on moats because from the outside looking in it appears that Apple had the lead in PCs and lost it, had the lead in laser printers and lost it, had the lead in graphical workstations and lost it, had the lead in music players and saw it erode, had the lead in smart phones and lost it, had the lead in tablets and saw it erode, had the lead in video and music downloads and saw those erode, too. Apple appears to invent businesses then either lose them or watch them fade away. No moats.
If Apple had moats it would fight for market share based on price, shaving margins. If Apple had moats it would stop inventing new product categories because it would no longer have the need to invent new product categories. If Apple had moats, we’re told, it would make more money.
But wait a moment, isn’t Apple already among the ten most profitable companies on Earth? How much more money do they need to make to be considered successful? If profits are the measure of business success, it’s hard to see Apple as anything but the biggest technology business success of the 21st century.
Apple makes more money than any high tech company with a moat ever did including Microsoft, Intel, and IBM. So why have a moat?
A moat is an insurance policy. Moats are attractive to people who don’t have direct influence on the operations of the companies in which they invest. If Apple had moats, the idea goes, Apple could remain hugely profitable for years to come even with the loss of 50 corporate IQ points.
Companies with moats are supposed to be better prepared for enduring stupid mistakes or unforeseen market shifts.
I know Apple fairly well and they don’t like moats because they don’t like playing defense. Instead of being able to withstand any assault, Apple sees itself as more of an Agile Fighting Force capable of taking the battle to any competitor in any market at any time. Apple doesn’t want to survive the loss of 50 corporate IQ points because a dumbed-down Apple wouldn’t be Apple. Been there, done that back in the 1990s under Sculley, Spindler, and Amelio.
Apple would rather die than go back to those days.
And so they count on their products succeeding on merit, not low prices. They like it that old product categories die and new categories replace them. They like not having moats because moats reward only sloppy behavior.
They like products and customers more than defensible franchises.
If Apple had built a moat around the Apple II would there have been a Macintosh? If they had built a moat around the Macintosh would there have been an iPod, an iPhone, or an iPad?
Would there have been an Apple Watch?
No.
Moats are for dummies.
Back to you, Warren.
Apple does have a defensive moat, it’s in the legal department. Just ask Samsung…
A patent isn’t so much a moat as a barricade. If you build a moat, you have to sit inside it and wait for an assault. If you drop a barricade, you can expect it to slow down the enemy while you march off in a new direction.
a patent is a squadron protecting each little jewel or scrap of coin in the castle’s treasury. if you have the squadrons, hey, screw the moat. you have to keep fishing out the suits of armor after the alligators have lunched on the armies, or the alligators climb out and eat the serfs bringing you the goodies.
they didn’t have patents in King Arthur’s day.
and if they can’t get enough programming to launch Apple TV streams, they should be able to stream the legal action over the patents 24×7 and make as much money as some silly old dramas would.
Defending patents is not building a moat, it is too protect assets from being stolen.
This commentary might have made sense a few years ago when Apple was still innovating and “inventing new product categories,” but these days it’s just hollow. What was the last product category Apple created or revolutionized? iPad (the original)… how many years ago was that? These days all Apple does is chase, not lead or trailblaze. iPad mini, iPhone 5, iPhone 6, Apple Watch, ApplePay, iOS 6, 7, and 8… they’re just catching up and I don’t see anything on the horizon that is any different.
That isn’t to say Apple isn’t successful or won’t be for the next few years. But if they don’t turn the innovation engine on again soon, they’ll be nothing more than a niche or “boutique” player.
Eric,
Samsung created a smart watch on the mere rumor that Apple was doing one.
After a while I actually started to think that Apple put the rumor out there just to get Samsung to spin it’s wheels and spend it’s money pursuing something that was rumor ware.
Care to site any evidence? I’m pretty sure I heard rumors about the Gear and the supposed iWatch around the same time (early 2013 or late 2012). Even if it were true, how does that show innovation by Apple? just like mid-size tablets, phablets, mobile payments, NFC, etc., Apple is late to the smart-watch game and just trying to play catch-up.
Not to say that Apple Watch won’t be a good or successful product – nobody can say since nobody can actually have one; just that, in a past life, Apple would have innovated the smart-watch, not just produced their own brand of the same concept that at least 3 other vendors have already done well in.
By the way, lest I be labeled an Apple-hater, I’ll point out that I own several Apple products (2 MacBook Pros, an Airport, and my iPod Nano (for my wife) – they all coexist with my Android phones, Windows laptop, and Samsung tablet. I don’t hate Apple, I just recognize they’ve lost their edge… and see no signs that they’re finding it.
Eric, you can make that point about just about any Apple product. They weren’t the first MP3 player, or ever the first MP3 player with a hard drive. They weren’t the first smartphone or tablet, either. But they were able to make these products work together in an ecosystem where they could leverage their expertise in UI and industrial design.
There have been a few articles written that the iPhone 6 looks a lot like the 2012 Galaxy. But (hopefully) Apple has studied what Samsung did and learned from their mistakes. Same thing with the watch…
Apple has never really been about innovating new product categories. They actually do better at bringing a refined user experience and product design to categories pioneered by others. And then they patent their refinements (rounded corners?) to build a moat around their ergonomically improved products. iPod, iPhone, iPad, MacBook? None of them invented new categories, but they changed the perception of consumers as to what was desirable in their categories.
Moats are not for dummies, but dummies do not always recognize moats–Bob, I am not saying you are a dummy. Apple’s constant product differentiation and cannibalization is, in my humble opinion, a moat of sorts. But it is fluid, not static, as you suggest a moat should be. Also, the company’s marriage of hardware and software is a factor in this as well.
It is funny, when the stock traded under $400 (pre-split), no one discussed Apple as having a moat, but now that we are back over $700–eureka, it has a moat! As long as the innovation continues, and continues to be successful (strong customer demand), the moat is intact.
You might want to add the word “would” to this sentence:
“If Apple had moats, we’re told, it make more money.”
I appreciate the Cringely insight. The claim of a moatless Apple is interesting, but keeping proprietary systems seems like a type of moat to me – the reason I still won’t buy an Apple product. In a lesser crowd I would list the many proprietary systems, but I anticipate the folks here know what I mean. Perhaps this could be regarded as a wall instead of a moat, but my point is that Apple typically isn’t wide open with their products for direct/immediate commodity competition, though there is obviously competition.
I agree the proprietary thing is a moat if you ask me.
I don’t know if Apple’s got a moat or not. But I suspect not, in that any of their products are easily imitated, if not equaled. But they do have proprietary technology that protects the high end of their business and bonds a certain number of customers to them, a) their ecosystem is pretty good, and b) because switching costs are high.
That said, what’s wrong with a proprietary operating system as long as it supports basic standards? Apple was instrumental in establishing certain standards that we take for granted today such as apps, mpeg, USB, Postscript, Firewire, not to mention Excel and Word, which were both released first on an Apple product.
There are many examples of proprietary systems that customers have embraced. For instance the K-Cup coffee makers. Or the BMW automobile. The Brita Water filter. So if you avoid all proprietary technology you’re stuck with generic. What fun is that?
Re: “I don’t know if Apple’s got a moat or not.” Bob has chosen to define “moatless” as Apple’s business model of designing new products rather than just protecting the old products. So IBM has a moat because they are not moatless in the same way Apple is moatless. Both companies build protections around their existing ecosystems, but Apple pays engineers to design new stuff as well.
From my experience, what Apple has is the equivalent of the fences and barbed wire of a (very voluntary) prison to keep you in. I’ve tried to examine what it would take to move to Android and Windows/Linux, but after 7 years of MacBook/iPod/iTunes/iPhone/AppleTV, I’m so deep in the Apple ecosystem, it’ll take a lot to overcome the inertia – like the company folding or a monumental screw up that drastically and directly affects me.
Interesting view, but, like others, I have to disagree.
Apple has a massive “lock in” moat that is a fundamental part of their philosophy and strategy.
And, Warren Buffet is no fool – he may even agree with Bob’s recent, well reasoned, criticisms of IBM – but as long as he’s making a whole pile of money from the way IBM is behaving – why should he care? And, like others, he is making a whole pile of money. Watch for the moment at which he exits – THEN you will know IBM has reached a major bump in the road, or, more accurately, it has gone far enough past it that there is no milk left in the cow!
And, in addition, for all Bob’s strident (and somewhat valid!) criticisms of IBM – it has actually reinvented what it does repeatedly and with some success – in a space so different from Apple that comparisons are pointless and invalid.
Bob, you might want to clarify just what you mean with the key word “moat” here, because after reading this post, it seems to me that Apple certainly does use moats, and that doing so is what’s made Apple successful. Apple doesn’t release the source code for its operating systems or hardware schematics for its hardware. This is why it makes a lot of money. To me, a “moatless” approach is what IBM did with the IBM PC, releasing the complete BIOS firmware source code AND full hardware schematics with the machine. Of course, this open architecture made the PC the most-cloned microcomputer in history (today’s PCs are still largely based on this architecture), and while that made the PC architecture itself a very lasting technical spec, once the clones came in, IBM didn’t find much profit in the PC business and sold the division off to Lenovo. Apple prevails precisely because nobody knows exactly how its products work and therefore nobody can make a knockoff which works just as well but costs half as much. After the initial PC rush, IBM failed because it didn’t set up any kind of barrier to ripping off its work; Apple makes ridiculous amounts of money purely based on protectionism of its intellectual property. So just what makes IBM a moat-using company that Apple doesn’t do?
“Apple doesn’t release the source code for its operating systems”
Oh, really?
http://opensource.apple.com/
I suspect he means that while it’s legal, and encouraged, to run Windows on Apple hardware, it is not allowed to run OS X on non-Apple hardware.
Excellent post, Bob. The reason why so many “analysts” and “experts” like to trash Apple and keep calling on them to cut prices is that’s all they know. IBM (and to an extent MSFT), are in the shape they are because they’ve let the MBAs and their biz school catechism dominate their thinking. One thing you should stress, however: the reason why so many companies build moats is because they have NO IDEA on how to innovate and are too intimidated to create a new category. If there’s not a model for them to follow, then they don’t believe a market exists. As long as Apple keeps the MBAs from Wharton, Kellogg and Harvard out, they’ll be able to continue their record of innovation and leave the moats to Google and Samsung.
You normally make almost total sense but this is so ridiculous. Surely Apple has the perfect moat as it is the only provider of all its type of devices, which no other hardware company can claim?
That’s Bodiam Castle, in case anybody’s wondering.
Nonsense, it’s clearly the home of the roguish Sheriff of Nottingham and his robot army.
Cringley, you surprised me with this posting.
Apple has had a big Moat for decades. It may be not visible to some, but it’s there unless you’re a brand blinded fanboi. Apple has been the best covert moat operator in the tech world.
The moat is the proprietary operating system on its products. In addition, Apple has tried hardware moats by sealing several of its consumer products, like the battery on the iPhone and keeps trying with its changing non-industry standard power plugs.
None of its moats have worked, with the exception of the OS, and it keeps developers away from it with its “developer ecosystem”.
The optimistic defender thinks a moat will keep the enemy off the castle for a long time. The realist knows its only a tool for delay, not for successful defense. No moat, of course means immediate commoditization, and as Peter Thiel on the WSJ says, competition is for losers!
“Apple has had a big Moat for decades. It may be not visible to some, but it’s there unless you’re a brand blinded fanboi. Apple has been the best covert moat operator in the tech world.
The moat is the proprietary operating system on its products. In addition, Apple has tried hardware moats by sealing several of its consumer products, like the battery on the iPhone and keeps trying with its changing non-industry standard power plugs.”
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Hardly.
You are saying that you can’t compete with Apple because you can’t get in and change their product? That’s a specious argument. You couldn’t build a better iPod because you couldn’t compete with a firewire based power plug? You couldn’t build a macbook killer because you couldn’t overclock Apple’s MacBook? That Apple locking the battery bay kept my company from succeeding in the tablet war?
Really? REAALLLY? that’s your argument?
Go and boil your bottoms, sons of a silly person! … You and all your silly English K-n-n-n-n-n-n-n-niggits!
(“chercher la vache!”)
Moat’s are consumer/market lockin. (keeping people from leaving the castle), just as much as keeping outsiders from overrunning it’s walls.
The better example of an Apple moat that is building and deepening is the ITMS account structure. First your music, then your apps, now your cloud and texting and video phone calling, and tighter integration with your desktop…. next your credit cards purchases and health information. Apple isn’t sharing that with anyone.
That’s Lockin. That will be the moat that keeps Apple buyers in, and Apple competitors out.
Darth and Geoff are presenting different examples of Apple “moats”. But neither type prevents people from switching to Android or Windows other than inertia combined with familiarity and satisfaction with what they have. In fact, those are the very things that keep me away from anything Apple, until such time as Apple introduces a sufficiently compelling product.
Also, Apple’s ability to monopolize the output of their suppliers is another moat/barrier to entry in competing against their products. See https://medium.com/@bolt/no-you-cant-manufacture-that-like-apple-does-93bea02a3bbf
Sometimes I honestly believe you write these columns that take a ridiculous position just to be controversial.
Apple = no moats? Ask any Apple 3rd party developer about that. One platform to develop on, one language to program in, one OS to code for, one place to market and sell your software.
Bob — your Apple fan boy is showing again.
and that is different from the Microsoft Way, or the Android Store, how?
there are also SourceForge makes for Apple, by the way, so every wall has chinks between the stones.
You can develop Android apps on all three major desktop platforms and install them on any device without asking some megacorp for permission or jailbreaking the device. You can develop iOS apps on OS X and install them on devices only after Apple gives you permission or you’ve jailbroken the device. I have no desire to waste my life playing patty-cake with corporate America, or Ireland, or wherever they claim to live this tax season.
As a buyer of things, I don’t want “service” from you as a vendor of things. I want you to give me the thing I paid you for and get the f*** out of my way and my face, or I’m going to hurt you and take what I want at the price I want anyway. (You’d be right to imagine I avoid Applebee’s, Lush and the like…) If you don’t want to do business under those conditions, you should have gone into nursing.
What, exactly, is IBM’s moat these days? IBM’s “product [and] service franchises” are increasingly neither large (e.g. hardware’s overall revenue contribution trend) nor defensible.
For all of those who claim that Apple has a moat because their software is proprietary while Android doesn’t, you’re just parroting the ignorant.
Most of Android is now proprietary. The calendar, the contacts, the whole of Google Play. Every year, Android looks more and more like the iOS walled garden. There’s a reason for it. Google is sick of not being able to update bugs without carrier permission, and there were too many security holes in the original applications. Plus, Google wants some lock in too.
You’re not stuck on Apple’s ecosystem. Apps are low cost or free. Music is no longer protected. Your photos can easily be downloaded and reloaded into a new service. Your Netflix and Kindle accounts still work. (Okay iBook is a lock in, but I don’t know how many people use that). Documents made with Pages or Numbers can be converted into Microsoft word. iCloud documents can be moved to other operating systems. Most users who use Apple’s mail apps use Google’s or Microsoft’s mail servers, so there’s no mail lock in. If you just happen to use Apple’s mail servers, you can still continue to use them when you switch to another OS.
The best you can say is if I buy a new iPhone or Mac, it’s immediately setup for me the second I log on. If I switch to Android or Windows, I might spend an hour or so getting everything to work — just like you would have done if you bought a new Mac to replace your old Mac back in 2002.
David,
Although I was focusing on Apple in my comments, you are correct in that Google Android has as many, if not more “moats” than Apple product OSes. They have essentially mutilated Android capabilities to the point that about 58% of all CPU cycles and 44% of communications transmitted is strictly advertising, user monitoring and end user function control via function removal, all in the name of national defense, making the carriers monopolies and restricting productivity. I wonder (because you can’t tell due to Apple’s “moat” commonly called the “walled garden”) how many cycles and communications bits are used for non-user functions like monitoring, advertising, etc.
And when it comes to privacy…..well, I can’t really tell the difference.
However, if we take privacy for the user into consideration, Blackberry looks better, but even an old Nokia “non-smartphone” begins to look more attractive every day!
One day the cellular carrier providers will realize that user freedom from monitoring and restrictions will actually bring them more profit.
Bob, Apple has a *huge* moat.
From Investopedia: “DEFINITION OF ‘ECONOMIC MOAT’
The competitive advantage that one company has over other companies in the same industry.”
( https://www.investopedia.com/terms/e/economicmoat.asp
see also: https://www.investopedia.com/ask/answers/05/economicmoat.asp )
What Moats does apple have?
1) Its “Ecosystem” (something that IBM got in serious trouble for a mere half century ago!).
2) Its Brand. Yes, Samsung has the cheapest phones — but they aren’t Apple. “Rule #1 Investing” uses BMW’s “The Ultimate Driving Machine” as an example; other cars can do no more than copy that. Similar to “It’s a Rolls …”.
3) Legal protections. Massive moat there.
4) Its packaging. Yep, that can constitute a moat. Ask Mattel how well they’re doing with their “Barbie” moat …
There are, as I recall, only two smartphone companies actually making money right now — Apple and Samsung. And when it comes to “Cheap, but good quality” it’s hard to beat Samsung’s Brand Moat.
Moats suck, but so do walled gardens.
Amen Larry! Ask the developers not favored by Apple whose applications are not allowed for whatever reason “Apple has deemed it not good for your application to reside on …….” about moats!
In the electronics business, if you don’t eat your young, someone else will.
There’s no point in building a moat when the competition already owns vast amounts of Moat-B-Gone 😉
The more interesting question generated by Bob’s column is: are innovation & moats diametrically opposed?
Of course, moats and innovation are diametrically opposed. The moat doesn’t just keep marauders out, it keeps the occupants inside.
Sounds like they are making excuses for losing share. Now it is a defensible posture to have, certainly more fun, but I doubt that is the actual thinking in the company.
You can actually lose share and be doing well provided your margins are rising so the overall profitability is stable or continues to rise. There is nothing fundamentally wrong with having a highly profitable and loyal customer base for your products. However, that’s not the case with some of the Apple products.
Great insight Bob, it seems to comes down to having courage to commit to continuous innovation, or ‘balls to the wall’, as some Americans like to say. Sadly, so many ‘established’ corporations have long lost their desire for raw honest creativity, and would rather stifle competition and long-term prospects just to earn one short-term dollar.
IBM’s moats are?
Nice article. Yes Apple likes playing offense, who doesn’t? Playing offense requires constant invention and reinvention. That fits nicely into the tech industry so far which has been in its teenage years in the sense of constant growth. I do wonder when the day that Moore’s Law ends and spectrum use is fully optimized if tech will be just like traditional industries.
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Other industries don’t have that constant reinvention and become about commodities. Economies of scale become the moat.
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There is a kind of hopelessness with a moat. You are as trapped inside of it as potential adversaries outside of it. Here’s to the grappling hooks and battering rams.
I think we should listen to Apple’s own words on moats…
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“If everyone is busy making moats, how can anyone perfect anything? We start to confuse moats with joy. Moats with choice. Designing moats requires focus. The first thing we ask is: What do we want people to feel in a moat? Water. Arrows. Burning oil. Minnows. Then we begin to craft our moat around our intention. It takes time. There are a thousand moat’s for every castle. We simplify, we perfect, we start over, until every moat we touch enhances each castle it surrounds. Only then do we sign our moat: Designed by Apple in California.”
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The new Apple Moat.
The average schmoe doesn’t even think about moats until its too late, despite warnings from tech savvy friends who do care about moats and their proprietary annoyingness.
Jesus Christ, fellow commenters. Fixating on a freakin’ metaphor is causing your concepts to not match descriptions of reality.
Bob started it! Most of us agree that Apple is the one with a moat, so it’s up to Bob to define a technology moat, without the castle metaphor, and compare IBM and Apple directly.
I think 3M is worthy of a mention here. They have a philosophy, which I shall paraphrase from memory, note the spirit is right but the actual numbers? maybe not so much.
“At any point they want half of the products they are selling to have come to the market in the previous 5 years.”
It’s worked pretty well for them, they have got the premium market on their products, and have new stuff coming through all the time.
Jerry
Jerry, 3M came to my mind too. I don’t know if they’re still on that product cycle, it’s been a decade or so since read about them, but their deliberate emphasis on new products over old seemed to do well for them.
To their credit, they did not invent 8-track tape “Stereo 8, commonly known as the eight-track…was created in 1964 by a consortium led by Bill Lear of Lear Jet Corporation, along with Ampex, Ford Motor Company, General Motors, Motorola, and RCA Victor Records (RCA).” http://en.wikipedia.org/wiki/8-track_tape
In the spirit of the article and using NFC as an example, Apple would leave this unlocked since they would feel their technology/marketing/influence was the best and Apple Pay would win out over rivals such as Paypal, Google Wallet, etc.
Not going to happen and pretty sure this qualifies as a big..old…moat.
https://www.cnet.com/news/apple-locks-down-iphone-6-nfc-to-apple-pay/
For decades a key part of business was the development of new products and services. Most good sized companies had R&D departments. As old products would fade, the new products would take their place.
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Then in the 1980’s the MBA’s took over. More profit was to be made eliminating the R&D department and milking the existing business for every penny. Under this business model moats became a necessity. Firms had to protect their business because they had nothing to replace it.
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Change in inevitable. Most products and services will become obsolete someday. Just this week GE announced they are selling their appliance business. If you remember the appliance business from the 60’s and 70’s, you know this is huge. Many of the USA brands are a small fraction of their former greatness. Meanwhile Samsung and LG are stepping into this business.
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Castles and moats were a short term solution to a problem. In time better military technology made them obsolete. A business strategy to hold onto the past and ignore the future is a plan to fail. How many firms followed the MBA trend, maximized profits and shareholder value, and are no longer in business today?
Bob, I would humbly suggest that the Apple ecosystem is tightly ensconced within a moat, at least as far as interoperability with the Linux environment is concerned. Look at the hassle we have to go through to simply put mp3’s (or aac’s as they would have it) on their blinking iPods (or iAnything) – with any other player I’ve used it’s sufficient to simply put the audio files in the appropriate folder. Not so with those clowns at Apple, if it isn’t put there via iTunes it doesn’t exist in a usable sense (and of course they never wanted an iTunes version for Linux.)
Sorry, the only Apple product I’ve ever bought, or ever will, is their stock (so far I’m fine with that ;-))
You are confusing public benefit with the benefit to Apple. If they could have kept a monopoly on Apple 2, and somehow kept that at the top, then who’s to say Apple is worse off for it?
Don’t forget that Steve Jobs killed off the Apple clone market.
Regarding public benefit by not having companies making money without innovating, that is a good reason to not provide subsidies for renewable energy. Let them be forced to compete with existing products, and they will bring their prices down.
You miss the point of moats – they’re meant to make you secure lull you into a false sense of security. You get lazy, make shoddy products and over charge for crap – it works a while blue skys every day. Then out of the blue from left field you’re attacked (undermined or blown up) – hunger for position is lost and you don’t think properly you have leaders that think they know what the public wants think Edsel and you have a downward spiral. HP, IBM, GM, Ford, tons of computer companies including Microsoft all thought that the future was the same as the past.
Why Apple is different is that it hangs ten on the wave it’s its skills that keep it on the board. Why it’s excellent is that it can pick a wave and work it. Lazy surfers wipe-out. But even then it needs new waves and as everything they don’t come some days for weeks.
Technology progress since 1990s internet boom has been almost endless and accelerating ever faster the next bubble burst will be a douzie and then we worry and cry.
Steve Jobs worried that the GFC of 2008 would destroy Apple – he was out by one it’s the next one with people like Cringely going for Bitcoin and forgetting banks printing their own money in the 1800s in USA. Forgetting history makes you poor.
I enjoyed the explanation and it fits the facts perfectly but it might just be retrofitting to a nice plan. I’d imagine that most desirable residences would have a moat if the owners had time and space to construct one so its a “Nice to have” when technologies are changing slowly. Apple have managed to change just fast enough to take advantage of the latest technologies: CPUs, touch screens, flash memory to ride the waves and to stay ahead of everyone by making nice products but they do need technology changes to survive like that.
There is one obvious place where Apple could and should build a moat because they give away their operating systems for free: their oldest technology expertise is computers and their greatest technology is their power efficient A8 processor so combine the two (a 4-core A9 chip) and Apple will now build the greatest laptop computer in history and they could afford to wipe out Intel’s large profit margin entirely, Microsoft’s profit margin entirely and still keep half their own profit margin but gradually destroy all the existing laptop industry as it exists today: it would be the best laptop ever made because of its power efficiency but also half the price of a Wintel equivalent because Intel and Microsoft get nothing. Killing your greatest competitor (Microsoft) should also be good for security,
Goggle doesn’t have moats. They even publish papers revealing their best technology innovations as they did with Page Rank and MapReduce. Apple does have moats. Remember when Steve Jobs pledges to spend his last dying breath and dollar destroying Android because it was “a knock off product”? Well who’s got 85% market share now . . . Android.
I’d agree. Their are developer obstacles left and right (we won’t see Swift ported to any platform soon, and what about open sourcing the FaceTime protocol as they said they would?). It’s not a moat per se, or even a shallow moat, but it does protect their interest and ensures a finer product because that is what they want -and they don’t care about ruffling feathers. Interesting perspective Bob.
Apple has characteristics that Cringley has pointed out over the years.
Apple is willing to sacrifice the market share of existing products for new products. Innovation or reinvention takes the place of the moat. The obvious contrast is CocaCola. Remember the new coke?
Apple does not make a habit of selling products at a loss. You pay for the product. This makes you the customer. Google offers you services for free, which makes you, and your info, the product, and advertisers the consumers.
Apple does not need the whole market, it is satisfied with the most profitable part of the market. It avoids commoditization.
Apple seeks to provide a user experience. Among other things, there is a walled garden. For most users this provides a decent experience. Technically savy uses know the walls are there, but that if you want to get out, they are not infinitely high. If you are claustrophobic, yes there are alternatives.
I used to avoid Apple and steer others away. But when Internet connectivity became common, my time spent on family and friends IT maintenance and issues shot up. Embracing Apple largely got rid of that time sink, and eliminated the friction of my facing the consequences of their behavior, at least on computers. Life is short, make choices that maximize the time you devote to doing what you want. That is really what Apple sells.
ot: Read IBM’s note to staff announcing mandatory training and 10% pay cut
“IBM has instituted a new, mandatory training program for some US employees whom management claims don’t measure up in the skills department – and participants will be required to give up 10 per cent of their salaries for the privilege.”
[…] https://www.cringely.com/2014/09/15/apple-proves-moats-dummies/ […]
If moats are defensive than Apple must be deploying a magnetic approach. It’s eco system is an analogy for their capability to draw you in and hold you as a customer. By keep strengthening their magnetic magnitude they are able to main the highest retention rate for their industry. Even though I am sometimes jealous of what the other companies are selling such as the previous larger cell phone screen size, it is the totality of services that Apple sells that keep me buying Apple products. I use to buy Sony exclusively for it’s quality and innovativeness, but that is greatly diminished today. It wasn’t an eco system magnet, but it was an enticing draw. As long as Apple maintains and strengthens it’s magnetic draw level it will keep growing and become even more dominate.
However, there is a fine line between moats and magnets. Windows could have been a magnet, Microsoft keeps using it as a moat.
Hey, that’s the castle on the cover of “Castles”!