Virulent Word of Mouse

April 15, 2012

A Big Payoff

Google and Apple are two of the most profitable companies on the globe today. They seem to share little in common except that achievement. They took very different paths to the stratosphere.

Google, after all, is less than a decade and a half old, a child of the web with a successful approach to advertising, built around a search engine and many services to enhance the user’s experience. Apple is more than twice as old. Its original product, personal computers, makes up a fraction of its sales today, while its future profitability lies with a mix of software in iTunes and new hardware introduced in the last decade—namely, phones, tablets, and portable music devices.

What economic insight emerges from setting these two firms next to one another? A brief discussion of both of their businesses will reveal something trite and something deep. The trite part is this: Some settings produce lots of market value, and some firms capture large parts of that value, but those rarely happen together. The deep part forms the key insight today: these examples are fabulously profitable because they are unique.

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December 14, 2009

The evolution of value in smart phones, or “Why does my iPhone drop so many calls?”

Randall Stross writes the Digital Domain in the Sunday New York Times. In a recent column he discusses the quality of iPhones and AT&T’s network. His point is obvious from the title of the column: “AT&T Takes the Blame, Even for the iPhone’s Faults.”

Much to Stross’ credit, he investigated common misconceptions about the quality of AT&T’s network. He concludes that AT&T’s network has done reasonably well with the  growth of traffic generated by the iPhone.

More to the point, Stross concludes that popular perceptions about AT&T’s network miss the mark, as do Verizon’s commercials.

I recommend this piece even though I thought it was incomplete.

Let me say that more sympathetically. Stross gets only 800 words, which allows for only one major point. It is no surprise that Stross does not say many things.

Specifically, he does not say that the iPhone’s success foreshadows a large transformation in the flow of value within the market for mobile handsets. He does not say that this transformation coincides with an irreversible change from old rules and new rules in the structure of the value chain supporting the cellular phone market.

But if he had had more space he could have said it.

So let me be blunt. I think I understand the rules of the old game and the rules of the new. I think I understand what game Apple is playing. If I had to bet, I also would bet against AT&T.

These are the points of this post.

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