“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.