Why Apple "Outsources" Applications and Services

I believe Apple's business model is based on hardware profits, rather than profits from apps and services, because expensive hardware creation and the accompanying creation of Apple's OS and iOS are uniquely suited to the resources and capabilities of a large, well-funded company. 

Unlike hardware, the creation of apps and services doesn't normally require large capital outlays. And the best apps don't come from just one company or person -- they come from thousands of highly creative developers working alone or for small developer companies. Rather than compete against a large mass of highly creative developers -- by hypothetically trying to sell profitable, proprietary apps -- Apple instead offers its own apps/services at breakeven and allows developers to capture the profits from apps and services (with the possible exception of Beats Music, which Apple just purchased). This approach allows Apple to embrace and benefit from the creative efforts of thousands of developers -- creative efforts which Apple could not match in-house. It also allows Apple to embrace large, best-in-class service providers like Facebook, Twitter, and Google (to the mutual benefit of the service providers and Apple). When Apple feels it needs more control over an important service to enhance integration, ease of use, and the end user's experience, it takes steps to make the service proprietary (e.g., Apple Maps and Beats Music).

This may ultimately be the problem with Xiaomi's business model -- by relying on profitable apps and services rather than profitable hardware, Xiaomi makes the development of proprietary in-house apps/services the priority, when this kind of work should logically be outsourced to thousands of creative developers. Rather than embracing independent developers so that it can offer end users creative, best-in-class apps and services, Xiaomi puts itself in direct competition with developers.

The author owns stock shares of Apple.