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    Apple logoWith the price of Apple’s shares making it more valuable than Microsoft and the phenomenal sales success of the iPad, now might seem a strange time to examine the vulnerability of what now seems world’s most popular technology company. But it is a business whose strengths could also be its weaknesses.

    Take that rise in Apple’s shares. The focus has all been on it overtaking Microsoft, but that is really to do with the media’s love of feuding personalities. Steve Jobs and Bill Gates are household names better known than anybody else in the technology industry.

    But what seems to have been forgotten is that Gates has long pulled back from Microsoft and now spends his time giving away his billions to reduce world poverty. The company he founded still makes huge profits that dwarf those from his former competitor, $14.6 billion annually according to recent figures compared with $5.7 billion for Apple. A similar divide was seen in revenues with Microsoft bringing in $58.4 billion against Apple’s $36.5 billion.

    But really the comparisons are pretty meaningless. The two companies have followed completely different paths. Microsoft has hundreds of product lines sold in both business and consumer markets. Apple’s focus is much tighter selling a very limited range of devices, mostly aimed at consumers.

    It’s the strategy famously championed by Jobs since in 1997 he rode back on his white charger to rescue the company he founded from incipient bankruptcy. He ruthlessly cut all the less successful lines, leaving the lean mean machine that provided the foundation for today’s business. Without Jobs’ return it genuinely seems unlikely Apple would have survived.

    When he came back as CEO it was still a computer company, although the first machines to appear after his return also marked the beginning of its transition to the consumer electronics business it is today. The all-in-one iMac with its confectionery-coloured case was a complete contrast to the beige boxes being churned out by other manufacturers. But it clearly wasn’t a business machine.

    Then came the iPod in 2001 and revenues from consumer devices began to eclipse those from computers. It was a phenomenal success. There were other MP3 players on the market, but next to Apple’s device they seemed clumsy, geeky and hard to use. The iPod’s rise to dominance was an absolute victory for great design.

    This was also the real start of what’s become known as the “halo effect”. Essentially this means the popularity of one product range has a positive effect on the rest. So the success of the iPod also boosted sales of Apple’s computers.

    In 2007 the effect undoubtedly gave some of the initial impetus to the launch of the iPhone. Looking back it’s hard to remember what a huge gamble this seemed. Not only was Apple up against the closely-knit group of mobile phone manufacturers that had built up cosy relationships with the networks, but it was competing in the smartphone arena that was less than fashionable for consumers.

    Multifunctional devices such as the BlackBerry were for business. The style-conscious consumers who bought other Apple products carried slim Motorola Razrs in their tight jeans. Many, including this writer, thought Apple had blundered. We were wrong.

    The main thing we didn’t predict was the popularity of apps. The concept wasn’t new. Palm’s original dominance of the handheld computer market was partly driven by the numbers of little specialist programs that were available for it. (Palm was recently bought by HP.) But the App Store caught a wider public imagination.

    It benefits Apple on two levels. First the store brings in cash from the 30 per cent cut it takes from each app sale. More importantly, it ties consumers in. They won’t want to throw away their apps when they get a new phone.

    This makes sense of Apple’s highly-publicised spat with Adobe over Flash and Developer software. The official line from Jobs boils down to: “Flash is crap.” Some observers say this is just the grumpy old man of Silicon Valley responding to some simmering row from years ago, but there’s also a strong business case.

    Adobe’s software makes it possible for developers to create apps independently of Apple. They’ll either run on a variation of Flash or they can easily be adapted using Developer to work on a variety of devices with operating systems from BlackBerry, Google Android, Microsoft, Palm WebOS, Nokia Symbian as well as Apple. But if consumers can get the same apps for a cheaper device, why would they buy an iPhone?

    The monopoly doesn’t just help Apple. It benefits many developers too. A massive, uncontrolled app market will drive prices down towards zero. Quality might suffer, but it would be up to consumers to decide.

    Again, this is not a new business model. It is remarkably similar to the one used by games console manufacturers. And there’s also a sign here of the dangers faced by Apple. Sony’s PS2 used to enjoy a similarly dominant position in the gaming world to the iPod. Like the iPhone the PS2 was caught in a virtuous circle. Consumers bought it because it had the best games while developers focused on it because it represented the biggest market.

    It did not take Sony long to fall from grace. The PS3 launched at the end of 2006 was by no means a failure, but it was nowhere near as successful as the PS2. What surprised commentators was the competition. Many saw the battle for the console market being between the PS3 and the similarly powerful Microsoft Xbox. In fact, both were eclipsed by the lower-powered, relatively cheap and cheerful Nintendo Wii.

    Apple faces a similar challenge when it launches its new fourth-generation iPhone almost certainly on Monday June 7. If it aims too high it’ll risk leaving behind the majority of its market that wants the iPhone style, but probably isn’t that bothered about increased power. It probably won’t go for the economy end of the market because many of the sales would be at the expense of higher-priced models.

    Anyway, Apple doesn’t do cheap very well. The iPod Shuffle has been the equivalent of the over-priced carrier bags sold in Harrods which offer the brand association to people who can’t or won’t spend the money.

    The continuing risk for Apple is that one high profile product failure will ripple through the company. The halo effect is a pyramid. The first successful product creates a pent-up demand that ensures the next will sell faster and so on.

    At the moment consumers enjoy being associated with Apple. Perceptions can change. That’s one reason why it is working so hard to disassociate itself from the spate of suicides at the giant Foxconn plant in China where many of its products are assembled.

    Apple probably is better than many western companies, but cheap manufacturing comes at a price. The image of 300,000 people working in military conditions where they’re not allowed to talk even during their short breaks is not what consumers want to think of when they go into a nice shiny Apple store.

    Certainly the iPad wouldn’t have performed as well in terms of sales had the halo effect been tarnished. Its long-term success is, anyway, far from assured. Although much has been made of the way its sales have reached two million faster than any other Apple product, that was almost inevitable unless it had turned out to be a real lemon. It remains to be seen whether that success will continue when other devices come along which are cheaper and have more functions such as a camera, expandable memory not to mention the ability to display Flash video and games.

    In the end, though, the challenge for Apple isn’t simply about technology. It’s in the fashion business, which creates its own delicate balancing act. Products fall out of fashion if they become too popular or if they’re not popular enough. It’s an equilibrium that’s almost impossible to sustain. At some point pulling out an Apple product will be seen as naff. The only question is when it becomes a victim of its own success.

    The other threat to Apple is its leader, Steve Jobs. The company may not really be a one-man show, but that’s the way it’s perceived. The ill-health which led to his liver transplant led to company shares plummeting and there’s no clear line of succession.

    Finally, it should be remembered this is not the first time Apple has been more highly valued than Microsoft. The last time was at the end of 1989 a few years before it almost went bankrupt. This is certainly not to say that history will repeat itself, but there is definitely the feeling of a stock market bubble when so much is invested in a company with so few products.

Apple logoTesco has cut the price of its iPhone subscriptions. Beyond a few British consumers this might not seem particularly exciting news, but it’s just the tip of the iceberg revealing enormous changes in technology which in the last few days can be seen stretching from British supermarket shelves to remote Indian villages.

As with all mobile phone deals, Tesco’s iPhone tariffs are a little complicated. But the cheapest 8GB model now costs £100 on a year-long, £35 a month contract. It’s still not exactly a bargain, but it’s probably a portent of what’s to come from Apple.

Most analysts expect a new range of iPhones to be launched in June. It’s predicted these will be more expensive than the existing models which could fall in price to compete with the growing numbers of cheaper smartphones.

For the army of Apple followers last week’s announcement of version 4.0 of the iPhone operating system offered clues as to what might be in the new models. To outsiders what was more interesting was what was going on peripherally to the main event.

It was absolutely no surprise when Apple revealed it was going to be providing a platform for advertising on the iPhone, iPad and iPod touch. It does, however, show the company is expecting real growth in mobile e-commerce. At the moment there are plenty of people who research their purchases on their phones, but they’ll buy using their computers or in physical shops.

The need to use a “real” computer for online shopping is set to become less important as phones become smarter and easier to use. This is a market where Apple already has a major share and it will fight hard and even dirty to protect its position.

It’s had a long-running feud with Adobe over its Flash software which many websites use to display video, games and animations. It doesn’t run at all on the iPhone or very well on Mac computers which, according to Apple, is because Flash isn’t very good software. The jury is out on that.

The argument between the two companies became more heated last week when Apple rewrote its rules apparently to prevent developers using Adobe’s software to create apps. This is seen by some as part of the long-running Silicon Valley soap opera where Apple boss Steve Jobs falls out with everybody in turn. But it goes deeper than that.

The common thread running through Adobe’s product line is that it enables material to be used on a wide variety of devices. For instance, it’s unlikely anybody looking at this article has not come across numerous examples of PDF files. Documents produced on Adobe Acrobat software can be read on Mac, Windows or Linux computers as well as just about every flavour of even mildly smart phone.

The “run anywhere” philosophy is at the centre of Creative Suite 5 – released yesterday. Amongst many other functions it allows developers to create apps which with minimum tweaking will run on all sorts of smartphone including those using software from RIM BlackBerry, Microsoft, Google Android, Palm and the market leader Symbian, which powers many Nokia phones. (It’s easy to forget that Apple only had 14 per cent of the global smartphone market at the end of 2009.

Adobe’s Creative Suite means consumers could have access to apps no matter what sort of smartphone they have. This may be good news them, but probably not for Apple. A large part of the success of the iPhone is a result of the apps that are available for it. If they can get them on any phone, why should they buy one from Apple?

The importance of apps to a phone business could not have been more clearly illustrated than it was yesterday with the news that Palm was up for sale. This is the company that created and dominated the pocket computer business with the Pilot and could have done the same with the Treo in the business smartphone market if it hadn’t let BlackBerry steal its share. But after a period in the doldrums it came back last year with the critically-acclaimed smartphones, the Pre and the Pixi. However, without large numbers of apps and widgets, the quality of the devices and the WebOS that runs on them didn’t translate into financial success.

Palm may just be the first high-profile victim of what looks as if it’s a war between smartphone companies but is really about grabbing a slice of the mobile internet. This promises to be so enormous that it will dwarf anything that exists now.

According to the International Telecommunications Union (ITU) the number of mobile broadband connections overtook the number of fixed-line connections in 2008. It’s a trend that’s set to continue apace is countries in Asia and Africa with little fixed telephone line infrastructure join the internet using smartphones and computers with dongles. It’s much cheaper to build wireless base stations than to lay down wires and cables.

Yesterday India began its much-delayed government auction of spectrum for 3G services. It’s being keenly contested and is expected to last for several weeks, but it should rapidly begin to make the internet available right across the sub-continent.

At the same time Germany became the first country to begin its auction of the 4G spectrum. This will bring fixed-line broadband speeds to mobile devices. At the moment it’s not clear what anybody will do with this capability, but no doubt services will arrive to fill the void.

All that’s clear is the future represents enormous growth and technology companies look at the way Microsoft dominated the personal computer revolution and think they’d like to do the same in the mobile market. And, of course, Microsoft doesn’t want to be left out of the party as it showed with the launch yesterday of its KIN One and Two youth-oriented smartphones which will be available in the US next month. Grown-ups will have to wait until the autumn for a slew of smartphones running Microsoft’s new and rather impressive Windows Phone Series 7.

No doubt some will be lined up alongside the cut-price iPhones in your local Tesco. The mobile internet will engulf us all sooner or later.



Murchadh MacLeòid

Is dòcha gu bi mi de bheachd gu tur eadar-dhealaichte ann am bliadhna eile. Ge-tà, tha mi a’ tighinn a-mach agus ag ràdh nach bi mi am measg an fheadhainn sin a cheannaicheas iPad Apple. Tha mi a’ coimhead ri cho comasach is tha e agus an liuthad rud a nì e, agus mi ag ràdh: tha rud nam phòcaid a nì na h-aon rudan, agus tha e air a bhi agam bho chionn bliadhnaichean. Tha mi a’ crochadh air Palm TX, uidheam a chaidh a-mach an toiseach ann an 2005 – sin linn Jurassic ann an saoghal nan coimpiutar. Ach ‘s e a tha math.

Bha mi uaireigin am measg an fheadhainn sin a bhiodh a’ ceannach uidheaman ùra gu math luath. Fhuair mi a’ bhann leathainn nas tràithe na mòran (2000 mas math mo chuimhne), cheannaich mi uidheam DVD nuair a bha iad a’ cosg barrachd na £100, bha mi cho mòr son teicneòlas ùr is gun do cheannaich mi Mini-Disc aig aon àm.

Ach an treub seo, fàgaidh mi cùisean an urra ri daoine eile. Nì an rud a tha agam a’ chùis glè mhath. Siubhal air an eadar-lìon thairis air Wi-Fi, nì e e. Post-d, leabhraichean-d, radio eadar-lìon, ceòl, dealbhan a chruinneachadh agus sùil a thoirt orra, fiosrachadh a chruinneachadh, clàran de rudan a tha rin dèanamh, nì e a h-uile càil de na rudan sin. Prògraman rim faighinn de gach seòrsa. Ged a nì an t-iPad siubhal air an lìon thairis air ceangal 3G, nì am Palm TX a’ chùis air an eadar-lìon thairis air ceangal le fòn-làimhe. iPad? Bha an rud agam bho chionn fhada.

‘S dòcha gu bheil mi nam fìor anorak leis gu bheil mi a’ smaoineachadh air na rudan seo. Sguir iad a’ dèanamh nan TXs an uiridh. Tha an companaidh a bhiodh gan dèanamh a nis air uidheam ùr a thoirt a-mach agus e ag obair le siostam ùr. Tha mi fhìn is an luchd-cleachdaidh eile gar fàgail le uidheaman a tha ag obair ach gun cus dùil ri prògraman ùra faileasach a bhith a’ tighinn a-mach. Agus cha tig deasaichidhean ùra de na prògraman a-mach dha uidheaman Palm ged a bhios iad ann dha uidheaman eile.

‘S e an rud nach tig mi fhìn is gu leòr eile ann an bith, carson nach eil Palm anns an t-suidheachadh anns a bheil Apple a nis, agus companaidh Steve Jobs a-nis cho cumhachdach. Tha fios nach robh ìomhaigh a’ chompanaidh cho gleansach is tha ìomhaigh Apple. Ach bha na goireasan a tha a-nis a’ toirt air daoine a bhith ag èigheach mu dheidhinn an iPad aig Palm bho chionn fhada.

Chan eil teagamh sam bith. Tha teicneolas math. Tha e feumail. Tha e a’ toirt dhuinn comasan is cothroman ùra. Tha cuimhne agam co ris a bha e coltach uaireigin a’ feuchainn ri fiosrachadh fhaighinn ann an leabharlann Steòrnabhaigh aig deireadh nan 70an is toiseach nan 80an. Bha iad a’ dèanamh an dìcheall ach bha cuid de na leabhraichean bliadhnaichean mòra a dh’ aois, agus cha robh iad cho pailt ri goireasan nam bailtean mòra. An-diugh, tha am fiosrachadh as ùire ri fhaighinn ann an àite sam bith – fiùs Taobh Siar Eilean Leòdhais. Tha e nas fhasa rudan a cheannach air-loidhne na tha e a bhith a’ ruith nam bùithtean anns na bailtean mòra, is cha ruig thu a leas dragh a ghabhail mi dheidhinn càin dhan chàr son a stad anns an àite cheàrr.

Tha barrachd leabhraichean agam nam phòcaid air a’ Phalm na chunnaic mo sheanair na bheatha. Ach bhiodh e math nam biodh an t-uidheam agamsa air a’ chùis a dhèanamh.

Murdo MacLeod is not being swept away by the iPad enthusiasm. He ponders how Palm, which had devices available some years ago which do most of what the iPad does, failed to dominate the market the way that Apple now does. But technology has transformed lives in the Highlands and Islands by giving the same access to information and research as the cities have.

Microsoft smartphoneNot since William Tell put away his crossbow has anybody taken such careful aim at an Apple. In Las Vegas Microsoft revealed a smartphone strategy to developers which will see its “Windows Phone 7 Series” compete head on with the iPhone.

The change needed to happen. Unlike Apple which developed the iPhone almost from scratch, Microsoft’s mobile phone operating system has evolved over almost 14 years from a time when there was no such thing as a smartphone. It was developed to compete with Palm’s handheld PDAs.

In recent years Microsoft’s been squeezed on the business side of the phone market by BlackBerry and Nokia’s Symbian. Then in 2007 Apple came along and more or less invented the consumer smartphone. With dividing lines fading between business and consumer devices, as well as Google’s Android devices joining the fray, it’s not been an easy time for Microsoft on the mobile front.

But it has stuck to its business strategy of just making software and leaving it up to manufacturers to do what they want with it. There have been minimum hardware specifications, but nothing in comparison with the control exerted by Apple.

Nowhere has this control been more successful than with the iPhone’s app store. Piper Jaffray analyst Gene Munster recently said he expected downloads in 2011 to be worth over a billion dollars and it’s a virtuous marketing circle. Consumer buy phones because they have apps, then buy the apps. As Palm has discovered, a very good phone such as the Pre won’t sell without apps. It’s unsurprising then that Microsoft’s told developers at its MIX10 conference in Las Vegas that it will follow Apple’s example.

Instead of continuing to allow pretty much anybody to develop programs to run on its smartphones only those that have been vetted and sold through the official download store will be allowed on the “Windows Phone 7 Series” which is due to be available later this year. In common with Apple, Microsoft will take 30 per cent commission for app sales. Apps for older Microsoft mobile operating systems won’t work.

Being ready in time for Christmas is vital for Microsoft as it wants to grab a chunk of the consumer market. In fact, such is the haste, that business users may feel left out. For instance, the tightly-drawn specifications for manufacturers lay down a minimum of a five-megapixel camera, but not a way of disabling it. Many companies have security policies that prevent staff and visitors carrying camera-phones.

So expect to hear a great deal of noise from Microsoft in a few months ready for the 2010 present-buying season. By then there’ll probably be new iPhones and perhaps Google will have got its act together. Mobile analyst Flurry has just estimated Google has sold just 135,000 of its Nexus One in its first 70 days compared with the iPhone’s million units in 74 days. Subscribers in Britain are still waiting for the chance to buy Google’s first branded phone.

The HTC Desire

The HTC Desire

There’s a strange feeling of déjà vu about 2010. In a large part of the technology business it could be 1985 all over again. Once more consumers and businesses are confronted by a bewildering array of devices that seem to do much the same thing, but not quite.

In the mid-1980s it was personal computers. Magazines were filled with advertisements for machines from Apple, Amstrad, Sinclair, Apricot, IBM, Commodore, Atari and a host of forgotten names some of which could run each other’s programs, but most which couldn’t.

This year it’s “smartphones” with large screens and internet access. There are devices running operating systems from Apple, BlackBerry, Microsoft, Google, Linux, Palm and Symbian. To add to the confusion handset manufacturers hide these operating systems under their own “skins” so they look different. Then the mobile operators such as Vodafone, O2 and Orange add their own bells and whistles. It’s all getting a tad confusing.

The recent Mobile World Congress in Barcelona resembled a game of Risk with all sorts of alliances being developed in order to stop the big players from grabbing too much of the board. Everybody was having a go at Google and Apple. (Next year the one to fear will probably be Facebook. It’s only a matter of time before the world’s favourite internet destination moves into mobile.)

It’s not simply the growth in numbers of people using mobile handsets to access the internet, 450 million last year according to IDC, but the possibilities of extracting money from them that’s causing so much excitement amongst businesses. They know how difficult it can be to persuade somebody sitting in front of a computer to enter their credit card details to make a purchase.

A mobile phone can effectively act as a credit card thanks to its built-in security. So-called “micro-payments” are a real possibility. The feeling is that people will spend a few pence on something such as a game, video clip or article if it just takes a couple of clicks on their moby.

Added to this is the falling price of the technology that powers smartphones. Marvell has developed chips which could form the basis of $99 (£64) smartphones. This is reckoned to be the magic price point and it really is cheap if you consider that’s without a contract.

Already the share of the market by what IDC calls “converged mobile devices” is rising very fast, up almost 40 per cent for the last quarter of 2009. It’s a trend that seems set to continue, unless the world tips drastically back into recession.

In this rapidly growing market there are three basic types of business: handset manufacturers, network operators and software companies. But the divisions aren’t straightforward. For instance, Apple, Nokia and BlackBerry develop both hardware and software. Google has its name on the Nexus One handset and could end up running a network. And the networks also put their brand on handsets in various ways.

Behind the competition between these businesses is a wildly varied collection of business models. Two of the big hits of the Barcelona conference were phones using Google’s Android operating system and Microsoft’s Windows Mobile 7, which won’t appear on phones until later this year. The difference is Microsoft charges the manufacturer a licence fee for every device that uses its software. Google gives it away in the hope that it’ll corner the mobile search and advertising market in the way it has for so-called “fixed devices”, laptop and desktop computers. Nokia’s Symbian used on almost half the world’s smartphones is also fully open source as of February 2010, so other manufacturers can use it without charge.

So with all this free stuff, where’s anybody going to make money? “Apps” is the obvious answer. Every handset manufacturer, network and operating system developer is in some way trying to copy Apple’s success. The variations are in how much control is exerted over the apps by the owners of the stores.

Again, there’s a feeling of going back to the early days of PC operating systems. Then, as now, Apple exerted absolute control over the software that could be run on its devices. That was one of the reasons its computers were less prone to problems than, say, those running one of Microsoft’s operating systems which left it up to the user to decide what to run on their PC.

Apple’s continued its old strategy with a rigorous if sometimes arbitrary approval process for its App Store and anything designed to run on an iPhone, iPod Touch or the forthcoming iPad. In contrast, all a software developer has to do to sell applications through Google is to register and upload to the Android Market.

It remains to be seen which model is most effective. Certainly the hit handset of Barcelona was the HTC Desire which runs Android and will be available in the UK next month. In price terms it’s going to be on a par with the iPhone and the smart money’s on Apple making an announcement in June about one or more new models.

The question is whether that will be a smaller, cheaper “Nano” iPhone, following the same sort of marketing strategy as the iPod where Apple started at the top of the market in terms of price and gradually introduced a series of lower-priced devices. If it does, that’ll put it into direct competition with Google which, because it gives Android away free, is more obviously suited to cheaper smartphones. And, of course, Nokia’s Symbian is still the biggest player in the smartphone market and Microsoft can’t be written off.

For the network operators this is very much a two-edged sword. There will be more users possibly paying higher subscriptions, but they’ll be consuming a great deal more data. It’s no secret that there was a drastic underestimation of iPhone use before it launched and now this is putting a real strain on the networks. Customers are going to be extremely disgruntled if their smartphones slow to snail’s pace through lack of capacity.

The networks will have to be upgraded even though the work won’t necessarily provide increased income for operators. Again, the next couple of years are really going to test their business models.

Three, for instance, appears to have benefited from offering Skype on its handsets. The company claims it has 40 per cent of the UK mobile broadband market. Making Skype readily available, however, wipes out the revenue from overseas calls.

That, in microcosm, is the challenge facing network operators. How do they attract and retain subscribers without overloading their systems or throwing away the profitable parts of their business.

Over the next few days we’ll look at what this means for individual consumers and business users including some hints if you’ve decided to buy a smartphone and what new services are going to grab the public imagination.