There are many ways to achieve a monopoly. You can patent an
invention and be granted a monopoly on it for 20 years. You can buy up
all the competition through mergers and acquisitions. You can price the
competition out of business.
Or you could do it the Apple way.
The Apple Way
Apple has become dominant in many areas. For instance MP3 players
a la the iPod, or music downloads a la the
iTunes Store, or smartphones a la the iPhone. Each one of
these product categories existed before Apple came along, and each
fallen under the influence - if not the control - of Apple.
We can show that there are plenty of smaller, struggling competitors
in all of these areas. Apple generally hasn't bought out smaller
competitors or undertaken an overt campaign to eliminate the
competition. Apple appears on the surface to coexist with
competitors.
For example, Microsoft introduced the Zune. Microsoft clearly tried
to position the Zune as competition to the iPod. Apple does not
drastically try to undercut prices, run advertisement that target the
Zune, or pay for "unbiased research" to show how bad the Zune is.
The same can not be said about Microsoft, which uses all of these
tricks against its competitors.
I can't say that Apple likes having competition. But Apple mostly
ignores its competitors and uses other means to dominate a product
category. They use the following strategies:
- Design Excellence
- Superior Marketing
- Buying Power
- Plan Big
- Manage Growth
Running though all of these strategies is an effort to heavily
leverage successful products to promote the next new idea.
Design Excellence
I've written about Apple's design excellence several times. For
example, Apple
combines hardware and software design to make a better product. At
the same time, its designs are not just intuitive, they make them
"idiot-proof" to keep the novice user from making big mistakes.
Design excellence helps a monopoly, because at the start it gets
people interested in the product. The look, feel, and ease of use are
great for getting people comfortable with a new product. Later, as the
product is established, it gives the brand recognition that people are
attracted to.
Design can also be used to fend off copycat competitors by filing
trade dress suits when they try to imitate your designs.
Superior Marketing
Marketing is a tool for improving sales. For a monopoly, marketing
is used to set your company apart from the crowd. It is a tool to
educate people about what you have to offer. Why have a monopoly in an
area that no one knows about, like a monopoly for trash removal?
We can see that Apple is much better at getting out the news about
its new products by looking at Apple's launch of the
MacBook Air. Apple can define a product category that has been in
existence for years and make it seem like they just invented something
new.
Buying Power
Key to the modern monopoly is buying power. The reason companies
merge and grow is to gain the advantage of buying power. Buying power
works in two ways for business. You can afford to buy bigger, faster,
and better manufacturing equipment to crush your competition, or you
can buy in huge quantities to destroy them based on lower cost of
goods. Since Apple
doesn't manufacture computers anymore, it can only profit by using
its billions for shopping.
Apple has many times bought out the available flash memory
supply for the iPod and iPhone. Its buying habits have spawned
the
ire of Korean flash memory manufacturers. Apple has definitely
gotten the lowest price possible.
This technique serves many purposes for the monopoly. It saves
money. It drives up costs for the competition. And most importantly, it
limits a resource for others that you have in abundance.
A good example is the way
Walmart uses its buying power to demand the lowest prices from its
suppliers. Buy big, sell in huge numbers, and the little competitors
get pushed aside.
Plan Big
A monopoly shows itself by having big plans, but shows the market
when those big plans actually work. The poster child for Apple planning
big is the iPhone. It wasn't just someone else's rebranded device.
Apple spent years on development. It worked out how to use multitouch
gestures, shrank OS X to fit, and found a partner to carry the
phone on Apple's terms. When Apple was done with all that, many people
said that the iPhone would fail, while Apple predicted that it would
sell 10 million in the first year.
Apple was right, and everyone else was wrong.
Apple planned for big sales, and proportionally they put more effort
into the iPhone to make it capable of achieving that much growth. A
less thought out phone would have attracted fewer third-party
developers. A phone with problems after launch would have given the
product a bad reputation and slowed growth. By planning big and
designing accordingly, Apple could exceed expectation.
The opposite of this was
when Apple launched MobileMe. It was a disaster, because success
overwhelmed the system. Apple did not plan for the sudden growth, and
it suffered months of bad publicity as a result. A monopoly needs to
plan what it is going to do once it makes it big.
Manage Growth
For all the success of the iPhone, it has been a controlled growth.
The iPhone was released only in the USA at first and only with
AT&T. Later it was rolled out in Europe, and slowly it has spread
to countries around the world.
By controlling growth, Apple has maximized its profits. Apple
charged $599 per phone on the day it was released. Later it dropped the
price to spur growth. Finally, it switched to a subsidized price below
$200 to gain even more growth. Apple built up demand as supply grew.
Apple has sold phones as fast as it could make them.
One finally tool Apple uses is to leverage one product line for the
next product. The Mac promoted the original sale of the iPod when it
was a Mac only device. Then the iPod promoted iTunes - and vice versa -
and this created growth on the Windows side. The iPhone used the iTunes
Store to supply music. Later, Apps were added to the iTunes Store.
Each product is separate and adds to the matrix of products that
came before it. The network strengthens each product while reinforcing
the consumer dependence on the monopoly.
The goal of any monopoly is to control supply. For Apple, it simply
controls the supply of their own product. It has made its product so
desirable that each product acts like the only one on the market.
Is Apple Really a Monopoly?
Is Apple truly a monopoly? Technically no. There are plenty of
products and companies competing in the same product categories.
Apple is a systems monopoly much like Microsoft, Walmart, Google,
etc. Each of these companies controls huge shares of their market
largely because they offer the "best" solution. It does make each of
them a company to be watched, and if they start acting like a true
monopoly, taking action to limit those practices.
