Tuesday, April 20, 2010

Responses to the Previous Article

My most recent article (Does Software Development Threaten to Dethrone Apple) got published on Seeking Alpha, and typical to what I expected there was a lot of discussion following in the comments section. In spite of the fact that it is exceptionally well covered already, I like writing on Apple because there is a very passionate community bullish on the company. This makes a great audience to write for because it serves as a trial-by-fire for your writing style and attention to detail.

Some of the points were very interesting, and one that was reiterated a few times (the argument that Apple's 30% take from App Sales is just enough to cover expenses) is a topic I'd like to do a follow-up article on in the future.
Along these same lines, I actually received two very well-written personal messages from Seeking Alpha members regarding Apple and the topic discussed in the article. I'm going to post them here, unedited by myself, since I feel that they bring up some interesting points, albeit not in favor of the point I was advocating for. If either of the authors are uncomfortable having their messages posted here, feel free to contact me at thesaneinvestor@yahoo.com and I will take them down immediately.

FROM: GregZw

This is the second article I have read predicting the downfall of Apple because they won't allow third parties unfettered access to their technical environment.

I took my first computer programming class in 1966. I evaluated the original Macintosh computer for Atlantic Richfield Co. before it was originally released in 1984. I worked with one of the original software developers for the TRS80 from Radio Shack that was the first product to use MS-DOS from Microsoft.

I was involved in many debates about the pros and cons of open verses closed technical environments in computing technology. Apple made a decision In the early 80's to keep control over their environment. Microsoft took the open approach.

Apple new they would lose market share in the sort term as most 3rd parties jumped on the Microsoft bandwagon. Apple knew they could provide a richer environment with greater innovation in the long run.

I believe Apples strategy has overtaken Microsofts and will continue to dominate in the future. The battle has begun with Google and will be very interesting to watch over the next several years as google search is replaced by Apple Apps. Google's "open" approach to phones is similar to microsofts approach to computers in the 80's.

Pandora's box is open for Google and it will be interesting to see how they support early adapters to their approach as new technology comes available.

FROM: doncarp

Within the larger context of open markets, your opinion on Apple's control of software on the iPhone and iPad seem to make some sense. But you ignore the role of technology standards has played across the entire spectrum of digital technology. One of Apple's strengths is its control of all hardware integral to its products. This might be, along with Steve Jobs's understanding that Apple is now a media company as much as a technology firm, one of the most important reasons that Apple is now matching Microsoft CPU products in new unit sales. The Windows brand has been damaged by the immense diversity of device interfaces it must accommodate.

Third party software is, I suppose, your exception to this rule. But for what reason? Certainly mainframe computers, automobiles, medical devices have controlled their software and hardware. In most cases, it was not only desired, it was necessary for the product to function safely and be service supported by the manufacturer. Why should the success of Apple products cause them to be excluded from such proprietary control? I'm sure Apple has thought about what margin they can justify within the context of market demand and growth. You make it sound as though they do not deserve the fruits of their success. A rather socialist opinion I might add.

Apple's proprietary marketing system has allowed single programmers to become wealthy in just a few months. It is an exciting and valuable means for tapping the immense diversity of talent and vision that exists all across the far reaches of Internet tethered individuals.

Perhaps you don't recall when Microsoft strong-armed retailers to muscle out Apple from their best display space. In the years that followed, Apple almost was sold out as a near death business. Do you recall the way the Bell system dominated communications here and in the process were able to influence government and their regulators in such a way that Bell became a pure money machine and in the process became an impediment to our national telecom policies. Now many smaller nations such as Korea have more advanced broadband available at cheaper prices than the US will have for many years. Business always tries to optimize its market advantage. If at some time in the future Apple's dominance hinders viable competition, as did Microsoft and Bell, then they should be the target of government anti-trust action. But at the moment, Apple is not keeping software vendors from doing business with competing hand held devices. They are simply doing what they do better than anyone else is doing it. They deserve to be where they are and they are rewarded by their customers with their present market dominance.

What young analysts here sometimes forget is that the country's technical rise to world dominance would not have happened if there were no laws protecting trade secrets and other intellectual property. There is a mistaken sense of entitlement in some consumers which suggests that there should be no reward for a company's technological excellence, that all innovative new products should be subject to immediate generic product cloning. If that were the case, who in their right mind would make the investment to even create an iPhone, iPad or iMac.

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