Apple's Long Term Advantages

Vertical integration allows Apple to be right at the edge of what's technologically feasible, and to create any computing product it wants subject to these technological limits. As an integrated company Apple can make the internal tradeoffs in design, engineering, components, component interfaces, materials, and manufacturing needed to make products people didn't think were possible. See Concepts page and discussion of Clayton Christensen. Because Apple is integrated it isn't stuck assembling modular components created by others -- think Samsung relying on Android and Amazon/Google relying on hardware manufacturers like Asus. Vertical integration also means Apple doesn't have to copy and follow the innovative efforts of its competitors. Instead, Apple can create entirely new products that squarely target jobs-to-be-done, and can do so at the earliest possible moment, as soon as it's technologically feasible. See Concepts page and discussion of Clayton Christensen.

And what happens when a vertically integrated company that can create any computing product it wants sees a successful product mature and decline, like Apple has seen with the iPod? It just creates something new. The new product often cannibalizes the existing mature product but still benefits total sales. When a company can create anything it wants, declining mature products aren't that big a deal!

All this adds up to two big long term competitive advantages for Apple, namely:

(1) the ability and willingness to transition away from mature products by creating new products, even if it results in cannibalization; and

(2) the ability to target jobs-to-be-done at the earliest possible moment, giving Apple a big head start over competitors (and making Apple a serial new market disruptor).

The author owns stock shares of Apple.