Samsung has now overtaken Apple as the leading phone manufacturer.  This leads one to wonder if Apple would be better off deploying its formidable cash reserves to innovation and competition, rather than trying to drown the competition in endless questionable lawsuits based on 1960s science fiction.

In contrast to Apple’s clear desire to shut competition down and “hold exclusive rights to produce any modern smartphone or tablet, claiming ownership of all multi-touch in mobile devices and all thin, rectangular minimalist mobile device designs”, sources in Samsung have suggested that Samsung  ”does not truly wish to restrict consumers selection, rather they hope that a potential sales ban would force Apple to drop its questionable lawsuits out of self-interest and let consumers decide which company’s products are victorious”

Personally I’m a fan of letting consumers decide rather than attempting to legislate forced consumption based on designs featured over 40 years ago in popular science fiction.

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What do you think of all the suing and counter-suing occuring in the market place at the moment?  Samsung recently announced (regarding their largest customer, ironically) that Apple’s Been “Freeriding,” We’re Getting aggressive

Personally, while I am glad to see a little ‘pay back’ for what I am inclined to perceive as un-necessarily aggressive and broad sweeping behavior by Apple using some dubious “look and feel” type patents, I do wonder if all these this arms race is a waste of time and money.  With the Western world teetering in the edge of economic collapse, would these reserves be better deployed to innovation?  Not only would this benefit a lackluster global economy, but it would also enrich our lives.

[...]

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2010 is indeed heating up to be a battle of battles between Google and Apple.  Several years ago it would have been incomprehensible to imagine Google and Apple going head to head in an all out war, or at least Apple declaring all out war on Google.  The interesting thing is their entirely different business models.  Google’s is founded on advertising, subsidised with a small amount of paid applications.  Apple’s is the other way around – with high margin products and software, subsidised with a small amount of advertising in the (predictably named) iAd platform.  Google has a vested in interest in driving down margins and costs to broaden their market appeal.  Apple has a vested interest in maintaining profit margins through ecosystem lock in and clever marketing.

It is not the first time Google’s apparently charitable business model has come in conflict with a margin dependent business model, and it won’t be the last time.  On the surface, Google like to appear as the good guys who give everything away for free and eschew system lock-in, however this is only because they can afford to do it and in fact need to so they can drive ‘traffic’ through their ecosystem and sell ads.  Google also gathers a level of freely given market  intelligence that would have made George Orwell quiver.

Other companies like Apple rely on attracting and retaining high margin consumers to their ecosystem and providing a high quality level of service and product, in return for being tied to the platform.

So now Apple is launching a new assault on Google with the concept of a paid cloud offering, which essentially means less stuff to carry around and more stuff that is carried for you and available when you need it through the network.

Apple’s War With Google Takes To The Skies With iTunes In The Cloud.

However with all this gold rush toward the ‘cloud’, one question remains.

If access to the cloud is interrupted, what do you do?

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Android is currently riding on a wave of euphoria having blasted in the global and Australian smartphone market this year.  However, is this  just a honeymoon period, or is Android here to stay?  Android is based on a radically different business model to the established players of the declining Symbian and the mature Apple iOS (hardly breaking new ground with a naming convention there).

The Android business model is based on the open source Linux operating system – founded on a passionate merging of socialist ideals and advanced technology where software is poured in to a creative commons to be shared by all of humanity, free of charge.

Android is no exception, however Google is no charity either.  Google have chosen Android because it suits their business model of supply chain integration to drive down costs, and broaden their market for their core business of search and advertising.

This business model, by driving down costs, will commoditise everything it touches, the process by which consumers come to expect products and services to be low cost, undifferentiated and possibly even free.  This suits Google just fine, but offends established players such as Apple who rely on healthy gross device profit margins, while Google’s business model relies on broadening their market reach to more consumers with free or cheap services and products.  Apple and Google could not be any more different, and Apple are not happy about it having launched a proxy lawsuit against Google via HTC.

A comparison of relative profit margins in mobile device manufacturers reveals that on company operations, Apple enjoys EBIT(1)  profit margins of 40%, compared to Microsoft at 38%, Nokia at 4.9% and Dell at 4.1% (Forbes Magazine 2010).

In terms of gross margin on products, on the iPad alone, Apple enjoys gross margins of up to 55%, with concerns raised when the gross profit margin falls to ‘only’ 40% (Forbes Magazine 2010), with up to 60% gross profit for the iPhone (Elmer-DeWitt 2010)

Conversely, Nokia and HTC fall to almost half of this figure at just over 30% gross product profit margin.

So there is a lot to lose, as Nokia have shown with their declining profit margins and their CEO coming under increasing pressure to do something about it.  Meanwhile Android, based entirely on ‘free’ is becoming very popular with device manufacturers, who don’t have to pay royalties to use Android, and consumers, who enjoy cheaper devices and a more ‘open’ platform, in contrast to the Apple ecosystem ruled over by the benevolent dictator Steve Jobs.

2010 will be a very interesting year in the smartphone market, and only one true winner will emerge: the consumer.

Definitions

(1) Earnings Before Interest And Tax, otherwise known as Operating Profit is a measure of profitability that takes in to account the operating structure and expenses of the organisation such as marketing and R&D.  EBIT does not include potentially anomalous measures such as depreciation and asset write-downs structured to minimise taxable company income.

References

Forbes Magazine. “Apple Suffers Mildly From Slimmer iPad Margins.” Forbes.com. 14 April 2010. http://blogs.forbes.com/greatspeculations/2010/04/14/apple-suffers-mildly-from-slimmer-ipad-margins/ (accessed June 07, 2010).

Elmer-DeWitt, Philip. iPhone gross profit margin nears 60%. 02 March 2010. http://tech.fortune.cnn.com/2010/03/02/what-doth-it-profit-an-iphone/ (accessed June 07, 2010).

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Apple just won’t give up.  Having entered the ‘mobile space’ and declared sovereignty against any other newcomers such as Google (likely due to their joint chairman Eric Schmidt ‘defecting’ to Google a year or so ago), Apple has declared all out war against many mobile companies and is now embroiled in a fight with Nokia, HTC and Google

This is likely to be a long and very dull drawn out lawsuit that Apple hopes will stall the development of Android, perceived as being its main competitor.

What is curious though, is that until Apple decided to sue everyone else, Nokia had quietly accepted Apple violating Nokia’s mobile patents.

Is there a slight scent of hypocrisy in the air?

via Apple Filing Another Case Against HTC « Moby1 blog.

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It seems the open architecture of Android is both a strength and a weakness.  Here’s hoping that Android does not suffer the same problems that have maligned Microsoft operating systems for many years – from the ongoing security issues inherant to the open development models that allowed the very platform to succeed in the first place.

Android apps ‘open to snoopers’ – Technology – News – iTnews.com.au.

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It seems Google have ruffled more than a few feathers at Apple, ever since their joint chairman Eric Schmidt decided to defect to the ‘Dark Side’ (Google).  I am somewhat ambivalent about this development, as it appears Apple entered the advertising space, more than Google in to the mobile space which apparently Apple feels Google should not enter (not that Nokia complained about Apple entering its market)

Analysis: Apples ad strategy invites investigation – Technology – News – iTnews.com.au

This fight will continue for at least a year or two, and I suspect the main instigator will be Apple.

For what purpose I am not sure, and if this will benefit Apple in the long term, I really can’t say with any certainty.

What are your thoughts?

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Will this be looked back upon as a foolish move by Apple?  Or the day the market fragmented?  Or a storm in a teacup?

Adobe hits back at Apple over Flash – Technology – News – iTnews.com.au.

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Having used this phone for several days now and putting it through its paces, I am inclined to agree with this article.

The New Htc Desire Deals A Weighty Blow To The I-Phone | Technology Base.

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Interesting article… Makes me even more excited to get my HTC Desire in a week.

HTC Desire vs iPhone: how the Desire bucks Apple’s approach – Software – Technology – News – CRN Australia.

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