When Should Something be Proprietary?

by Colin Berkshire

When the iPhone had 100% or 80% market share it made perfect sense to add special features that were proprietary. With everybody using FaceTime and iMessage it was compelling to purchase an iPhone so that you, too, could be in the ecosystem. The more proprietary features that were offered (like AirPlay or AirDrop the more compelling it was to be within the ecosystem. At the time, it was a smart move for Apple to enhance their products and to lock people in.

Today, Apple enjoys a 12% market share which is rapidly declining. (It has fallen by 30% in just two years.)

The correct strategy for Apple is now different.

Today, Apple users find that 85% of the time the person that they want to have a video chat with is incompatible because they are running Android. The same is true for sharing photos with AirDrop. At a market share under 15% it isn’t even worth asking other people if you can share photos with them using AirDrop. The larger the group of friends (such as at a party) the more pointless it is to even ask. So these proprietary features work against Apple. They actually just remind users that they live on a very small (incompatible) island.

Apple has been satisfied for a decade with their 10% market share on the Mac. It seems that Apple is destined to repeat this strategy with the iPhone, settling with a 10% market share of blindly loyal enthusiasts.

But I think this approach represents a grossly flawed way of thinking. While margins would be smaller, I think the total aggregate profits and economies of scale come from having 33% market share are larger.

Microsoft has become enlightened since Nadella took over, and it shows in their profitability and their stock price. The main strategy change I have seen is a willingness to become platform agnostic, and to offer products at lower prices. Microsoft products work equally well on Mac and Windows.

If I ran Apple, I would do the following:

  1. Offer FaceTime, iMessage, and AirPlay on Android.
  2. Improve the quality of iPhones, making them more robust so that even iPhone doesn’t have a broken screen.
  3. Lower the price and cost of entry level iPhones. It’s OK to have a full line, but the entry level models must be great, and they must be competitive.
  4. Offer an entry level Mac Mini that is simply outstanding. A $399 price should include 16 GB of memory and a 128 GB SSD Drive.
  5. Offer a cloud based data center MacOS offering.

If Apple truly believes that Services are its future, it needs to have superb non-crippled outstanding entry level products to lure people in. Developers don’t want to play with a company that has only a 10% market share.