Morningstar analyst: Apple will not be able to sustain its leadership by delivering great design

“The list of once-great consumer electronics companies is long,” Michael Holt writes for Morningstar. “Brand loyalty is largely dead, forcing hardware manufacturers to compete on features and price each product cycle. This makes it difficult to sustain a leadership position. Temporary advantages are easy to identify–namely the number of available applications and first-mover advantage on tablets. More relevant and meaningful to a sustainable competitive edge is how a firm applies software to establish user switching costs that will pull customers from one generation of devices to the next. The heart of Apple’s (AAPL) strategy is to create a bond with the user that transcends device cycles.”

“The heart of Apple’s strategy is to create a bond with the user that is more powerful than any given device cycle. Current momentum and execution should deliver many years of customer acquisition, but Apple is building a moat around software that locks in customers. Given the loss of visionary leader Steve Jobs and growing competition from Google, Facebook, and Microsoft, we believe Apple will not be able to sustain its leadership by delivering great design,” Holt writes. “Great design and execution enable Apple to build its customer base, but it is the firm’s software that makes it difficult for consumers to switch to another device.”

MacDailyNews Take: That an insult to Jony Ive and his team who are going to shock Holt back to reality in short order.

Holt writes, “The switching costs Apple has established to date are tied to content and not yet strong enough to ensure long-term lock-in to the Apple ecosystem. Movies, video, and books are often consumed only once. Multiuse content, such as music, is much less convenient to have split across ecosystems. Ultimately, Apple must establish stronger ties to the customer than just music. Momentum is strong, and we believe the firm is on track with iCloud and SIRI [sic] to materially raise switching costs, but a lack of progress with these initiatives would be detrimental to Apple’s long-term success.”

Full article, with bull and bear speculations and more, here.

51 Comments

  1. There is a “moat” aka ecosystem around every device, Apple tor otherwise, so what’s your point? Seems like every anti-Apple analyst thinks Apple isn’t always moving the bar forward or they’ve been “lucky” ignoring the essential reasons why Apple is so successful. They aren’t likely anytime soon to forget the company they are, as built and setup by Steve Jobs. A setup that has lasting power and sense. As MDN said, Holt is about his ass kicked hard in the reasoning dept. and get a much re-learned lesson about Apple.

  2. I’m not sure the headline accurately reflects the analyst’s message.

    The analyst is saying DESIGN attracts customers, SOFTWARE keeps them. And AAPL’s software (based on content and, looking forward, iCloud and Siri) is marching forward.

    For example, AAPL is putting more new resources into Siri than just about anything else.

    FLAVR vectors across BUN for software development also indicate increasing lock-in (e.g. updates only through App store, data linked to applications, etc.).

    As always, impossible to make any meaningful statement about AAPL without zooming out for a larger picture.

    1. “As always, impossible to make any meaningful statement about AAPL without zooming out for a larger picture.”

      Totally correct and that is why this guy is smart but stupid. His take is Apple = Dell and someday it will crash cause it only cares about the money, like Dell.

      1. Exactly Norm!!!

        Michael Holt writes for Morningstar. “Brand loyalty is largely dead, forcing hardware manufacturers to compete on features and price each product cycle. This makes it difficult to sustain a leadership position.”

        Apple’s brand loyalty is growing, not dead. It purposely does NOT compete on price and number of useless features. IT IS NOT DELL OR MICROSOFT, HOLT, YOU PUTZ!!!!

  3. Not only is he wrong (in my opinion, of course), but this is why Apple is (rightly) trying to keep Samsung, HTC, et al. from slavishly copying their designs. They all know that great design (externally and internally) is exactly why people love Apple and their devices (i* and traditional computing alike). This is also why Intel is trying to copy Apple’s MBA design. People want the beauty, elegance, simplicity and “just works”ness that Apple provides.

    So all that to say, unless his point is that the courts are going to allow everyone to copy Apple’s designs (and frankly, I wouldn’t be surprised see more Pystar-like lawsuits coming as people attempt to further rip off OSX as well), he’s talking out of his ass.

  4. I’m (sic) of these fly-by-night “journalists”. THey aren’t even real journalists. A google search will show they ( these self-proclaimed journalists) are only copy-and-pasting what someone/something has said online previously, knowing that their followers are stupid sheep who won’t even notice they PLAGIARIZED. You know, decades ago in school, if you PLAGIARIZED someone else’s “work” you lost your grades and were suspended or expelled. These days, that earns you a salary and the title ” Joulnalist”. how fkcunig ( rearrange letters) sad.

    1. “Plagiarize,
      Let no one else’s work evade your eyes,
      Remember why the good Lord made your eyes,
      So don’t shade your eyes,
      But plagiarize, plagiarize, plagiarize –
      Only be sure always to call it please ‘research’.”

      Tom Lehrer – Lobachefsky

      =:~)

  5. A “moat” is well established around these idioits. The isle of “Analyst of Low Readership Desparity Seeking Publicity” has a moat the size of the Atlantic Ocean between them and reality.

    Sad, with such articles he has nothing to maintain readers and will only lose those to superior quality articles.

  6. To me, the bigger question…what is beyond the iPad? What is the “next great thing”?

    SJ had the visionary ability to literally will others to embrace and produce the “next great thing”, whether others initially believed it or not. Who at Apple is going to have the presence, vision and drive to fill this void? Whether it comes from a team of people or one individual, this ability is inherently important to Apple’s future position as an Industry leader.

  7. I agree to some extent w this guys reasoning around potential challenges but I seriously disagree with his thought that “switching cost” is only tied to content. Switching cost is both an actual cost and a percieved cost, if things “just works” and provides an appealing user experience then the percieved switching cost is huge and prohibitive. This leads to the issue I have with his narrow interpretation of the word design. All these bozos who believe consumers buy and stay with Apple products only due to their looks are truly missing the point.
    “Design is not just what it looks like and feels like. Design is how it works.”quote SteveJobs/JonyIve

    1. Yes, this is exactly my point. It doesn’t matter that Google or Microsoft deliver a good enough solution. At this point, they have to deliver a clear and compelling solution that would make people transition. This is NOT going to happen easily if at all.

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