Stop the Noiz

The Apple Monopoly Is Different

Frank Fox - 2010.01.14 - Tip Jar

There are many ways to achieve a monopoly. You can patent an invention and be granted a monopoly on it for 20 years. You can buy up all the competition through mergers and acquisitions. You can price the competition out of business.

Or you could do it the Apple way.

The Apple Way

Apple has become dominant in many areas. For instance MP3 players a la the iPod, or music downloads a la the iTunes Store, or smartphones a la the iPhone. Each one of these product categories existed before Apple came along, and each fallen under the influence - if not the control - of Apple.

We can show that there are plenty of smaller, struggling competitors in all of these areas. Apple generally hasn't bought out smaller competitors or undertaken an overt campaign to eliminate the competition. Apple appears on the surface to coexist with competitors.

For example, Microsoft introduced the Zune. Microsoft clearly tried to position the Zune as competition to the iPod. Apple does not drastically try to undercut prices, run advertisement that target the Zune, or pay for "unbiased research" to show how bad the Zune is.

The same can not be said about Microsoft, which uses all of these tricks against its competitors.

I can't say that Apple likes having competition. But Apple mostly ignores its competitors and uses other means to dominate a product category. They use the following strategies:

  • Design Excellence
  • Superior Marketing
  • Buying Power
  • Plan Big
  • Manage Growth

Running though all of these strategies is an effort to heavily leverage successful products to promote the next new idea.

Design Excellence

I've written about Apple's design excellence several times. For example, Apple combines hardware and software design to make a better product. At the same time, its designs are not just intuitive, they make them "idiot-proof" to keep the novice user from making big mistakes.

Design excellence helps a monopoly, because at the start it gets people interested in the product. The look, feel, and ease of use are great for getting people comfortable with a new product. Later, as the product is established, it gives the brand recognition that people are attracted to.

Design can also be used to fend off copycat competitors by filing trade dress suits when they try to imitate your designs.

Superior Marketing

Marketing is a tool for improving sales. For a monopoly, marketing is used to set your company apart from the crowd. It is a tool to educate people about what you have to offer. Why have a monopoly in an area that no one knows about, like a monopoly for trash removal?

We can see that Apple is much better at getting out the news about its new products by looking at Apple's launch of the MacBook Air. Apple can define a product category that has been in existence for years and make it seem like they just invented something new.

Buying Power

Key to the modern monopoly is buying power. The reason companies merge and grow is to gain the advantage of buying power. Buying power works in two ways for business. You can afford to buy bigger, faster, and better manufacturing equipment to crush your competition, or you can buy in huge quantities to destroy them based on lower cost of goods. Since Apple doesn't manufacture computers anymore, it can only profit by using its billions for shopping.

Apple has many times bought out the available flash memory supply for the iPod and iPhone. Its buying habits have spawned the ire of Korean flash memory manufacturers. Apple has definitely gotten the lowest price possible.

This technique serves many purposes for the monopoly. It saves money. It drives up costs for the competition. And most importantly, it limits a resource for others that you have in abundance.

A good example is the way Walmart uses its buying power to demand the lowest prices from its suppliers. Buy big, sell in huge numbers, and the little competitors get pushed aside.

Plan Big

A monopoly shows itself by having big plans, but shows the market when those big plans actually work. The poster child for Apple planning big is the iPhone. It wasn't just someone else's rebranded device. Apple spent years on development. It worked out how to use multitouch gestures, shrank OS X to fit, and found a partner to carry the phone on Apple's terms. When Apple was done with all that, many people said that the iPhone would fail, while Apple predicted that it would sell 10 million in the first year.

Apple was right, and everyone else was wrong.

Apple planned for big sales, and proportionally they put more effort into the iPhone to make it capable of achieving that much growth. A less thought out phone would have attracted fewer third-party developers. A phone with problems after launch would have given the product a bad reputation and slowed growth. By planning big and designing accordingly, Apple could exceed expectation.

The opposite of this was when Apple launched MobileMe. It was a disaster, because success overwhelmed the system. Apple did not plan for the sudden growth, and it suffered months of bad publicity as a result. A monopoly needs to plan what it is going to do once it makes it big.

Manage Growth

For all the success of the iPhone, it has been a controlled growth. The iPhone was released only in the USA at first and only with AT&T. Later it was rolled out in Europe, and slowly it has spread to countries around the world.

By controlling growth, Apple has maximized its profits. Apple charged $599 per phone on the day it was released. Later it dropped the price to spur growth. Finally, it switched to a subsidized price below $200 to gain even more growth. Apple built up demand as supply grew. Apple has sold phones as fast as it could make them.

One finally tool Apple uses is to leverage one product line for the next product. The Mac promoted the original sale of the iPod when it was a Mac only device. Then the iPod promoted iTunes - and vice versa - and this created growth on the Windows side. The iPhone used the iTunes Store to supply music. Later, Apps were added to the iTunes Store.

Each product is separate and adds to the matrix of products that came before it. The network strengthens each product while reinforcing the consumer dependence on the monopoly.

The goal of any monopoly is to control supply. For Apple, it simply controls the supply of their own product. It has made its product so desirable that each product acts like the only one on the market.

Is Apple Really a Monopoly?

Is Apple truly a monopoly? Technically no. There are plenty of products and companies competing in the same product categories.

Apple is a systems monopoly much like Microsoft, Walmart, Google, etc. Each of these companies controls huge shares of their market largely because they offer the "best" solution. It does make each of them a company to be watched, and if they start acting like a true monopoly, taking action to limit those practices. LEM

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