Apple’s folly: Why the iPhone is in trouble

On the surface Apple looks set to rule the world. The pedigreed Silicon Valley computing company has created what is indisputably the most sophisticated mobile device and operating system (OS) in history. The iPhone, and now the iPad, has forever altered the mobile computing paradigm and these are arguably devices most manufacturers try to emulate.

Recently, Apple surpassed its old rival in Microsoft to become the largest technology company in the world by market capitalisation. Who would dare criticise what appears to be one of the most innovative technology companies in history?

But a look at history reveals a deep flaw in the company’s DNA that could spell its downfall. It happened in the 1980s, and it could happen again now. The flaw lies in a hard, cold truth: You may have the shiniest gadget in town — but that won’t necessarily translate into long-term market domination if the business you spin around your products is flawed.

Apple is in danger. That danger is rooted in the largely closed and controlled business networks Apple spins around its products. Newsweek’s Jacob Weisberg recently put it quite eloquently when he pointed a finger at Apple CEO Steve Jobs for attempting to “replace the chaos of the Web with his own velvet prison”.

This encapsulates mounting criticism of a company that until a few years ago could do little wrong. It’s a growing paradox: the very brand that barely needs to spend a cent on formal marketing is developing an image problem as a result of its ruthless, walled-garden approach to business. It threatens to reach bizarre proportions: Apple is making Microsoft look like the good guys.

History is littered with examples of the more open business networks winning the day. Sony learnt the hard way when its technically superior, but proprietary Betamax was trounced by the more open, standardised VHS format during the VCR wars of the 1970s. And more recently, few were surprised to hear that Google’s open-source mobile operating system Android had overtaken that of the iPhone as the more dominant smartphone mobile OS. Perhaps a sign of things to come?

To find out how history is in danger of repeating itself, we need to go back to the Apple versus Microsoft battle of the 1980s. The companies are old foes and their history goes this far back. There were several dominant computing platforms in those days, but there was one computing platform that stood head and shoulders above the rest. It was the Apple Macintosh.

The Macintosh was a remarkable piece of equipment for its time. It was a small, powerful computer with an intuitive, aesthetically appealing operating system that no-one came close to. The archetype of innovation, it was the first commercially successful computer to feature a mouse and a graphical user interface that worked with intuitive window layers. It was ahead of its time and arguably what most of today’s computer interface work is based on.

In contrast, its main competitor was Microsoft’s DOS, the precursor to Windows, which relied on an antiquated command-line interface. DOS was ugly, geeky and impossible to use if you were not technically literate. It involved a series of computer commands on a stark black background. DOS was Macintosh’s polar opposite in terms of aesthetic appeal and usability. It was a case of beauty and a particularly ugly beast.

History would have you think that Apple wiped the floor with Microsoft’s, frankly, inferior offering – but this was not the case. The better product did not win. The company with the more open business practice won. Apple adopted a proprietary approach, keeping its OS and device tightly bundled, refusing to open it up. Microsoft, on the other hand, proceeded to licence its OS out to computer manufacturers, then set about building an ecosystem by incentivising the developer network to build software and applications on its platform.

And who was the winner? Microsoft. Much to the frustration of millions of consumers world-wide, only years later did Microsoft transform DOS into Windows, finally bringing it to a similar standard to that of that first Macintosh of the 80s. For years Microsoft triumphed over Apple’s superior computer with an OS that was simply sub-standard. Windows Me was a blue-screened, bug-ridden sorry excuse for software. Vista was a disaster. Some would argue that it’s taken the company till now, 2010, to finally catch up to Apple’s Mac OS with the release of Windows 7 — a good looking, light-weight operating system that’s finally stable.

Could this be a repeat of the mobile phone and tablet wars of today? Could the iPhone be the Apple Macintosh of the 1980s? Apple have created a vastly superior device and operating system -– but the company’s walled-garden approach is in stark contrast to its main challenger of today, Google’s Android — the search behemoth’s mobile operating system.

Google has been crafty. Much like Microsoft in the 80s, the company is pushing Android to multiple phone manufacturers, with Google embedded as the default search and mail provider. The examples are not identical, but are analogous.

Apple, on the other hand, appears again to be following its same old “closed” approach, keeping its operating system and platform closely tied together, closely tied to the company.

So, just like Apple had the edge with its 1980s Macintosh, the company indisputably has the edge in its iPhone, but as the world catches up, that advantage is increasingly eroded. This means that the slick iPhone device will become increasingly commoditised. As manufacturers catch on and catch up, Apple loses its exclusivity.

Moreover, as Android weaves its way through platform after platform, is adopted and adapted by manufacturers across the world, so it spins its open business web wider, creating an ecosystem of inter-dependence with its indirect competitors. Apple in contrast remains that island of innovation: It’s Apple versus rest, not Apple and the rest. Few realise this, but in many respects Google is emulating Microsoft’s business practices of the 1980s.

But can Apple learn from history and change its course, or will history repeat itself, like it so often does? Jobs is a renowned control freak — and this personality trait is reflected in the way his company does business and guards its platforms. It’s a characteristic that translates into excellent products, but does it translate into sustainable business?

The acclaimed company has a paradigm-smashing platform, but now it needs to look at a model that takes its business even further. Otherwise, in 10 year’s time we’ll be talking about how the iPhone had the advantage, but lost it. We’ll be talking about Android, because Android phones will be everywhere and the iPhone will be nowhere.