Apple's Downmarket Moves, Privacy and Security, Amazon's Fire Phone, and Google's Nest

Apple's Downmarket Moves

Apple is blending modular and integrated approaches to keep costs down and avoid low end disruption; it's integrated around things that add meaningful differentiation (design, mobile chips, fingerprint security, battery design and engineering, software and hardware engineering, high-end aluminum milling equipment, etc.) and modular around things that don't add meaningful differentiation (Intel chips, flash memory, hard drives, laptop/desktop glass, assembly line manufacturing, etc.).

Apple's approach allows it to keep dropping price: the company has been lowering prices for the iMac, MacBook Air, MacBook Pro, and iPad Mini, and Apple is probably going to lower the price of the iPhone 5c or another iPhone model. Apple is making its entire product line more affordable and simplifying products where possible. Look out below.

Apple also isn't giving up on the low end education market -- it's giving iPads to schools. This is how Apple is dealing with Chromebook competition in the education field.

Privacy and Security

Apple has a no compromises ecosystem product/service: Apple makes an integrated hardware/software product with no strategy straddle. No straddle is needed because Apple relies on hardware profits rather than profits from data-driven ads (e.g., Google) or e-commerce (e.g., Amazon). And Apple doesn't have to collect data on behalf of Google -- like Samsung does -- because it doesn't need Google services or Android. As a result Apple can focus entirely on the end user experience. See post titled "Acquisitions, Rivalry, and Strategic Trade-Offs."

Apple's tight focus on the end user allows it to give end users greater privacy control -- users can "open the door" as much as they wish. Google, OEM's who rely on Google, and Amazon have to open the door wide to support profitable ads and e-commerce. 

Privacy, security, and trust are becoming a bigger issue as devices proliferate. Privacy and security are going to be valued more and more, especially with health monitoring and health records. Companies that don't need to gather user information to support their business model, and can instead prioritize privacy and security, are going to be rewarded: this is where the puck (the money) is going to be.

Amazon's Fire Phone and Google's Nest

Amazon is probably going to struggle. The Fire Phone is a high margin product and must compete with Apple and Samsung smartphones that rely on the same business model (a model based on high margin hardware profits), which is poor strategy. See Concepts page and discussion of Clayton Christensen and Michael PorterThe Fire Phone doesn't address any simple, low margin job to be done for new or low end markets, where incumbents lack motivation to respond. Instead, the Fire Phone addresses a high margin job that's already being satisfied by well-entrenched incumbents; these incumbents will be motivated to respond, making it more difficult for the Fire Phone to succeed. See Concepts page and discussion of Clayton Christensen.

Google is facing the same problem with Nest: Google is now selling hardware for a profit, competing head-to-head with a well-entrenched incumbent's business model (Apple's hardware-based profit model), at the same time it's trying to collect data-driven ad revenues. So Google will have two hurdles to overcome: (1) a motivated response from an incumbent (Apple); and (2) the inherent difficulty of straddling inconsistent strategies (with one strategy focused on hardware profits and the end user's needs and a second strategy focused on data-driven ad profits and the advertiser's needs). See Concepts page and discussion of Michael Porter; post titled "Acquisitions, Rivalry, and Strategic Trade-Offs."

The author owns stock shares of Apple.