In my last post I wrote about how the iPhone’s value proposition is material quality and customer service and not really based on the operating system. In the past I’ve debunked futurists who tried to make the case that software platforms were going to make your choice of phone irrelevant. How did I know these guys were wrong? Because I work in the real world where material quality and customer service ALWAYS influence market share and customer choice. It’s another reason I’ve always been pessimistic about Tesla’s future prospects.
Just as I predicted, years ago, the price of the iPhone has continued to climb because as people do more and more with their iPhones, they are willing to assign greater value to this purchase. They want a quality phone and good customer service. It doesn’t matter what flashy features your device has if you can’t rely on it to work when you need it the most. But what has been troubling me about the iPhone more and more lately is that the operating system has been drifting from a selling point to a neutral factor. As Android and iOS reach parity there are fewer and fewer selling points in one or the other direction. I value privacy but I seem to be in the minority these days.
But what is even worse, is that iOS seems headed to bypass being a neutral factor and heading into being a major liability.
The iPhone has a dedicated cadre of journalists who cover all things iOS. And they will all howl at any notion that iOS could/should go away. It’s probably also the same with Apple’s current management. But financial professionals get paid to be agnostic towards company doctrine and live by the credo “Just do the math”. What does the math say?
I’ve worked at more than one company where long held pillars of a corporate culture were challenged or even changed. And the seed of that change always came from the financial corner where the math didn’t support the beliefs. The financial professionals are paid to be skeptical. Proving that the current course of action is in the best interest of the shareholders is their calling. And make no mistake, a company exists for the shareholders, not the customers. The accounting group will never lose sight of that fact even if the journalists do.
And here is my problem with iOS. The math doesn’t support the idea that the iPhone is a success because it is differentiated by the operating system. And if I’m thinking it on the outside, you can guarantee that analysts within Apple are sounding the alarm.
Software is expensive. No way around that. Just look at all the consternation about how Twitter is going to make money through user engagement or how Amazon is going to monetize Alexa. Anybody who tries to say that the cost of iOS is irrelevant because Apple makes up for it via hardware sales is ignorant about how corporations work.
Because the problem with the idea that iOS sells iPhones is that the math says that Apple could sell MORE iPhones without it. Greater sales revenue and lower operating costs would propel Apple to even loftier heights as a company. iOS is simultaneously keeping many potential Android buyers away from the iPhone and imposing a huge software engineering cost to the company.
This hasn’t been an issue thus far because iOS could at least partially pay for itself via AppStore commission fees. This allowed iOS to exist in a symbiotic relationship with hardware without being a drag.
But as more and more attacks come from iOS developers who resent paying AppStore fees, this symbiotic relationship appears to be in danger of going away. And the developers aren’t content to simply complain, they’ve called upon corrupt governments to stage attacks on Apple. These attacks are actually anti-consumer and only serve to enrich various companies big and small.
If the attacks on the status quo with the AppStore commissions are successful, the next logical question to be pondered by the financial analysts within Apple is this “Why are we voluntarily constricting iPhone sales and increasing our operating costs?”. The math behind iOS makes no sense at that point.
As much as iOS fans would refuse to believe it, there will be pressure on Apple management from two directions. First, the financial community within Apple will start making the case that the operating system is an undue burden. And second, it won’t be long before the shareholders catch wind of the internal turmoil and start exerting pressure on the board of directors to force Apple’s management to reconsider their strategic plan.
I’ve seen this play out before. And I see this turmoil coming to Apple should the AppStore commission fee structure get thrown out and Apple can’t replace it with something equivalent. IOS must pay for itself. It cannot be subsidized by hardware. Any investment in software must generate additive value and not be a drag. This is an unbreakable law in the world of business that applies to all things. It’s not something peculiar to Apple.
An iPhone that runs Android may or may not ever happen. But the rise of people within Apple and shareholders advocating for it will.
But what is even worse, is that iOS seems headed to bypass being a neutral factor and heading into being a major liability.
The iPhone has a dedicated cadre of journalists who cover all things iOS. And they will all howl at any notion that iOS could/should go away. It’s probably also the same with Apple’s current management. But financial professionals get paid to be agnostic towards company doctrine and live by the credo “Just do the math”. What does the math say?
I’ve worked at more than one company where long held pillars of a corporate culture were challenged or even changed. And the seed of that change always came from the financial corner where the math didn’t support the beliefs. The financial professionals are paid to be skeptical. Proving that the current course of action is in the best interest of the shareholders is their calling. And make no mistake, a company exists for the shareholders, not the customers. The accounting group will never lose sight of that fact even if the journalists do.
And here is my problem with iOS. The math doesn’t support the idea that the iPhone is a success because it is differentiated by the operating system. And if I’m thinking it on the outside, you can guarantee that analysts within Apple are sounding the alarm.
Software is expensive. No way around that. Just look at all the consternation about how Twitter is going to make money through user engagement or how Amazon is going to monetize Alexa. Anybody who tries to say that the cost of iOS is irrelevant because Apple makes up for it via hardware sales is ignorant about how corporations work.
Because the problem with the idea that iOS sells iPhones is that the math says that Apple could sell MORE iPhones without it. Greater sales revenue and lower operating costs would propel Apple to even loftier heights as a company. iOS is simultaneously keeping many potential Android buyers away from the iPhone and imposing a huge software engineering cost to the company.
This hasn’t been an issue thus far because iOS could at least partially pay for itself via AppStore commission fees. This allowed iOS to exist in a symbiotic relationship with hardware without being a drag.
But as more and more attacks come from iOS developers who resent paying AppStore fees, this symbiotic relationship appears to be in danger of going away. And the developers aren’t content to simply complain, they’ve called upon corrupt governments to stage attacks on Apple. These attacks are actually anti-consumer and only serve to enrich various companies big and small.
If the attacks on the status quo with the AppStore commissions are successful, the next logical question to be pondered by the financial analysts within Apple is this “Why are we voluntarily constricting iPhone sales and increasing our operating costs?”. The math behind iOS makes no sense at that point.
As much as iOS fans would refuse to believe it, there will be pressure on Apple management from two directions. First, the financial community within Apple will start making the case that the operating system is an undue burden. And second, it won’t be long before the shareholders catch wind of the internal turmoil and start exerting pressure on the board of directors to force Apple’s management to reconsider their strategic plan.
I’ve seen this play out before. And I see this turmoil coming to Apple should the AppStore commission fee structure get thrown out and Apple can’t replace it with something equivalent. IOS must pay for itself. It cannot be subsidized by hardware. Any investment in software must generate additive value and not be a drag. This is an unbreakable law in the world of business that applies to all things. It’s not something peculiar to Apple.
An iPhone that runs Android may or may not ever happen. But the rise of people within Apple and shareholders advocating for it will.
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