Before evaluating Google’s decision lets understand the reasons for Apple’s move in the first place and the roots of their success.

Apple Inc. decision to open its retail stores was rooted in their strategy and competencies. Traditionally Apple Inc. core competencies is the art of hardware design.   And when they invented the new smartphone industry these devices were virtually unknown and they knew about the new product pipeline coming down road based on their core competencies. At that time Apple Inc. was in dire need of an outlet for showing off their innovation both in hardware and in iOS and retail stores were perfect way of executing the strategy.

Microsoft came along the way with their Surface tablet and tried to imitate the retail store model.  Unlike Apple Inc.  Microsoft didn’t bring much innovation to their showcase. The slapped Windows 8 OS onto Tablet form factor device with little or no additional value. Microsoft stores go pale  in comparison to Apple Inc. sales per Sq. ft.  By competing with OEM partners, Microsoft is pushing them more towards making Google Chrome OS tablets to hedge their bets. So Microsoft is actually helping Google with retail store and tablet strategy.

Now lets look at Google Inc. plans to start their own retail stores. Traditionally their innovation is in search and software NOT hardware. But Google may think that things changed by  Motorola acquisition.Think Again. If Motorola were really good at the art of hardware design they wouldn’t in such bad shape to start with. Given that Android OS is free,  Motorola would have survived on their own without Google’s help. But things could change down the line with time and cash infusion to Motorola division. And the change itself could take 1-2 years. And in the meantime stores could showcase Google Glasses and OEM partner devices just like Microsoft but that isn’t going to increase profits from device sales. Given that they already have the largest mobile market share, retail stores aren’t going to help much unless they are going to morph themselves into a hardware company. And that is very unlikely.

In my opinion, retail stores strategy would work for a companies that can innovate continuously in hardware and require customers evaluation at each iteration of the hardware design and for every product introduction. And both Google and Microsoft fail these tests and could end up with the burden of managing and investing in retail stores.

This is a frontal attack at the Google docs, drive and voice package that Google is trying to push into schools, small businesses and homes from the last few years with very little success.

I predict that one of the interesting side effects of this offering along with devices like new iPad 128GB is increasing adoption rate of tablets by households,  small businesses and school a market Google is desperately trying to enter in the last few years using Google docs and Chromebooks.

Slowly but surely Microsoft is trying to putting together all the pieces required for its tablet strategy success.  I predicted and advised this strategic move for Microsoft office  in one of my previous posts  and  you can read here.

Irrespective of  whether you are Android or iOS fan, you must be wondering if Apple can ever recover from its fall from grace in the shadows of the Samsung.

Most of the stock analysts and technology bloggers are ready to write off Apple from the technology map. For example, today’s WSJ article asks the question “Has Apple Lost Its Cool to Samsung ?”.  But everything good has to come to an end.  I would say Apple lost its focus but not cool. That sounds little odd but let me explain.

The last time it was in trouble, Apple has risen from ashes  because it gave users something they haven’t experienced before. So they created some value and they were able to reap the profits in the last few years.  In the last few year Apple focused on improving the experienced but lost the focus to change the game before others like Samsung could imitate.

In any industry, as profits rise  innovation will always be copied faster than the speed of light. And the only thing the firms could do is to innovate faster than competition’s copy rate. And if they don’t they become “uncool”.  Just like Apple.

So what can Apple do now ? Find another “white space” where they can innovate and shine again. Of Course, this time it isn’t going to be easy like the previous Smartphone cycle as competitors are better informed and are looking for opportunities just like Apple.

But there are still some  barriers that  can protect  Apple empire. For example iTunes store, application developers, adoption by some enterprises and a unique platform.  In the last few months Apple TV or streaming service were mentioned as an alternative source of income for Apple. But the barriers are so high that it will be difficult even for Apple to recreate the magic in these areas. But Enterprise is the one key market that they should able to focus and reap the benefits in the coming years.

First enterprise tablet adoption is still in the early adoption phase and the effect of Microsoft Windows based tablets is relatively small.

Second they can license the RIM enterprise services exclusively and can penetrate enterprise before the likes of Samsung and Google can. And the $137B cash hoard can only help in this cause.

If Apple can open the doors of enterprise for itself, they are more than likely to be the next Microsoft in enterprise than the RIM of last decade.

Let me know what you think and leave the comments .

Lets consider the scenario in which Apple does nothing to address large low-end smartphone market addressed by rivals like Samsung, HTC, Nokia, and others.  We don’t need an oracle to predict that in few years every phone for sale will be a smartphone irrespective level of smart features of the phone and apps will become the major source of revenue.

So If Apple wants to survive in this highly competitive smartphone industry, it can’t rely on selling high-end phones and high margins. At the same time, low-end smartphones can potentially become a desktop alternative to many of the users in India, Africa, China and other developing countries. So there is huge market potential for mini smartphones.

So if Apple doesn’t manufacture one this year it will be forced to manufacture one in the coming years.

Now lets consider the scenario in which Apple does manufacture a mini iPhone. First and foremost Apple is going take a hit on its higher end smartphone sales and  the average Apple smartphone sale price will go down.  That’s a big red flag for Apple long-term investors.

The only smart move that Apple can make  in this scenario is to increase its app store size and relevance in the market so that it can make the money it lost on phones by selling apps.

Interestingly in both scenarios app store ecosystem becomes the key to Apple’s success.  So Apple might as well manufacture a  mini iPhone now and focus on building a stronger ecosystem with a happy and large application developer community.

Let me know what you think and please leave a comment.

“This is a huge platform change; this is of the scale of 20 years ago — Microsoft versus Apple,” he said. “We’re winning that war pretty clearly now.”

But who is really winning here? Google or Samsung or Apple ?  To answer that question first we have to define what success means for each of these players. Given that Google is not a major smartphone manufacturer, at least not yet,  its success is really defined by the search and apps revenues it can generate using Android apps (Google Play)  and Mobile Ads.  But until now, we haven’t seen any strong evidence for the revenue generating capability of Android.  As last reported by AppAnnie iOS monthly revenues are four times those of Google Play. On the other hand, Mobile Ad space is wide open for Facebook, Apple and Google. No winner there yet.

For Samsung, all the profits are in hardware sales. Given the weakness of non-Apple players, Nokia, HTC, RIM, Samsung became major Android player. But with the introduction of Windows Mobile OS and phone supported by the largest marketing budgets of Microsoft things could change quickly. If ever Nokia can pull itself and bring back some competition to the low-end smartphone market, it could hurt Samsung more than Apple.  On the other hand, Apple enjoys hefty margins compared to Samsung.

The strategic mistake of both Google and Samsung can be summarized  as follows. First of all they pitch their  at cost devices  to the price sensitive customers and then they wonder why they can’t generate app and ad revenue from these customers.  Of course, the price sensitive customers aren’t going to pay for pricey apps or click ads. And this is exactly where Apple wins.  And exactly for this reason Google rushed to develop the maps app for iOS, as it can’t loose or ignore it’s paying customers.

Google’s strategy is good for Google’s search business but not for the smart phone manufacturers. Soon or later the open source nature of the Android OS is going to drive price based competition in the Android hardware market and that is not good for any of the Android phone manufactures.  If I can borrow Eric Schmidt’s comparison thoughts here, Samsung and HTC are like Nokia of yesterday.

For Apple, the success is defined by its share of profit pie rather than market share pie. Though Apple is going to have very tough time ahead in 2013 to sustain its lead and margins, it is more likely to survive because of its “rich experience” smartphones supported by iTunes ecosystem.  As reported by Guardian blogger  here, Apple customers are more likely to pay for apps than Android users are.  And for the same reason, apps will be more and so does the number of iOS users.  In 2013, because of the increased competition, Apple app and store sales growth will decrease but not slow enough for Android to take over, not at least in year 2013.

So it’s difficult to say Android is really winning at this time as the battle just started. Let me know what you think ? Leave your comments below.

RIMM’s management strategy goes back to what I suggested in one of my previous posts.  Although cloud services are essential  for any mobile services  provider, for RIMM it is just a distraction from its current problems.  By shedding some unnecessary weight, RIMM just increased its chance of survival.

Author Rafi Mohammed at HBR blog network wrote a nice article describing this phenomenon by retailers like Amazon and cautions them to be careful with this strategy as it can damage their reputation.

Dynamic pricing may be new for retailers but it is similar to stock trading where stocks are traded up or down based on the demand and supply.   Dynamic pricing would same but based on online demand and online supply. It’s easy to see why retailers would like this model compared fixed pricing or discount pricing structure offered by brick-and-mortar stores. Unlike brick-and-mortar stores which are spanned across multiple cities,   online retailers have the flexibility of monitoring in real-time their entire online transactions as well as the online supply from competitors.  So for online giants like Amazon, it is very easy to price the product based on total demand to maximize the profits.  But the important question is, is it going hurt them in the long run. ?

I would argue that these sales will have little effect on their reputation. The dynamics are much different from other failed situations Rafi points to.  If the price change is permanent then the customer who bought at prices would end up unhappy.  The condition is similar to a “Black Friday” sale. They opportunity just knocks and walks.  But if it is a short spike most of the customers are not even going to notice. And those people who purchased the product at lower prices aren’t going to complain but they are going to start looking for other opportunities.

In fact, dynamic pricing could work in two ways.  First, it can be used for loss leader strategy.  Second, dynamic pricing is a “reverse Groupon”. Groupon logic is to find enough number of customers interested in the product so that they all can get the discount price. But dynamic pricing can work exactly in the opposite way.  As demand increases , analogous to number of people signing up on Groupon, price decreases. And it shuts off as soon as the demand falls to its normal levels.

I would argue further that, it is actually better for the customer to buy the product when everyone else is buying and pocket the savings.  I would even argue for a trading platforms where customers can queue their purchase requests and  multiple retailers can compete to match demand based dynamic pricing strategy, a form of collective bargaining. Let me know what you think and leave comments.

We seen this pattern play out in the mobile world ( Apple vs  Nokia, RIM), Search world ( Google vs Yahoo ) , PCs ( Dell vs compaq ) and so on. But the mistake made by incumbent market leader is always the same. They don’t protect their core business. For example, Yahoo/Hotmail gave way to Google mail,  PC makers gave way to Apple Macbook Air and the list goes on.

And RIM is no different.  RIM left it core business customers unhappy with multiple email outages and lack of  new business enabled devices. In the last few years RIM was plagued by outages, product delays and slumping sales. But the new CEO Thorsten Heins took a stance to fix the costs and product pipeline. Knowing that this is RIM’s last chance at revival, Heins took the extraordinary step of delaying the Blackberry 10 launch to first quarter of 2013 instead of rushing to deliver an unfinished product and meet the fate of Playbook.

But the recent events suggest that  the wave is turning back in RIM’s favor. RIM announced FIPS certification, which is critical to adoption by government agencies. A segment which can’t be invaded by Apple or Google in short span. To guarantee its success RIM app world should focus more on the business applications than competing with iOS or Android ecosystems.  RIM can build its revenue stream from government , defense, and business customers. This is the core strength of RIM and what Blackberry customers are really looking for. Not Youtube or Angry Birds. If RIM succeeds in its  enterprise play, it will be another “Apple” like revival story.

update:

As I mentioned before the tide is really turning in favor of RIM.

http://www.marketwatch.com/story/most-active-stocks-microsoft-research-in-motion-ford-hewlett-packard-cliffs-natural-resources-and-nokia-2012-11-20

update 2:

========

Interview with CEO Thorsten Heins echoing my conclusion above.

http://www.theverge.com/2012/11/21/3675982/rim-ceo-thorsten-heins-interview-blackberry-10

There could be multiple  reasons for settlement.

• It is very likely that both Apple and HTC must have realized the costs of patent disputes and long drawn court battles.
• The other possibility is that the threat level  is so low that signing a deal is indifferent from no deal.
• Though it is highly unlikely, both of them got a real good deal and that they can’t refuse.
• One of them just wanted to close the deal before the situation gets any worse. Most likely HTC wanted to be safe than sorry.

In my opinion, the deal could be a mixture of good and safe deal. Most likely HTC wanted to be safe and on the right side of the game before launching a new wave of smart phones. As per reporting by TheVerge  there is no material impact on HTC financials, which essentially could mean that it is a cross-licensing deal both wanted. In anyway, we will never know the truth about the true impact on the Apple financials or Android ecosystem.

The Maps debacle

One of the arguments for Apple fall is that , maps debacle would have never happened under the leadership of Steve Jobs and Tim cook let it happen. I strongly supported Tim Cook’s decision to change maps though it is a big setback in the short-term. see here for more on this. In reality,  maps debacle actually proved one of the biggest strengths of the Apple ecosystem.  First , Tim Cook basically proved that no single app can threaten and hold the Apple ecosystem hostage ,even if the app is from Google.  Second, given the number of application developers for Apple ecosystem, Apple was able to suggest number of alternatives for the maps application.  So in my opinion the whole maps debacle is a trouble but actually helped the Apple in certain way.

Management shakeup

Second, the recent management shakeup. The recent management shakeup which led the departure of Scott Forstall and John Browett, basically proved that Tim Cook is the new boss and the boss can make tough decisions for the future. If Scott Forstall is a “trouble maker” for the rest of the team then he must go. Similarly John Browett wasn’t a good fit for Apple retail. I don’t think he ever understood what makes Apple retail stores different and special. I am actually glad to see him go.  Again, there is positive side to recent management shakeup, which can serve as a stepping stone for future Apple.

Lack of new products

Third, lack of new and innovative products different from the current iPhone and iPod line.  Apple can’t abandon current iPhone and introduce new product that can cannibalize the original products before its time. Every firm should try to get the maximum return for its initial investment and ideally should wait before introducing the next wave of new products. Incremental features are the best way to reap the benefits of the past investment. The drawback of introducing new products at a rapid pace is that the strategy can lead to failures and that is worse than not introducing new products.

Real problems

Now lets turn our attention to some real problems  that can make Apple the next RIM.  First, as long as Apple competes smart phone wars on the basis of hardware specifications Apple is bound to lose the ground to vertically integrated manufacturers like Samsung. Apple should shift the competition of smart phone from hardware specifications to  software.  For example, consider the early search wars between Google and Yahoo. Both Google and Yahoo used to advertise their search index size and then Google actually stopped advertising the index size and started competing on the quality of search results. Similarly, after a certain screen resolution it really doesn’t matter what resolution each tablet has but the quality and quantity of the application using that resolution matters.

Second, slow adoption of Siri, Passbook and iPad in enterprise.  Siri is “search” in disguise and the best way to compete with Google. Passbook is two-sided network that can deliver growth in iPhone adoption as well.  For Apple to survive the competition from Microsoft Surface, which is 100% compatible with office applications,  iPad adoption in enterprise is very critical. Apple better not lose tablets wars similar to desktop.

In short, Apple may be fumbling without the visionary leadership and unparalleled marketing abilities of Steve Jobs but the magic isn’t over yet.  I would still consider the current problems  as growth pains but not more.  I would wait patiently for another year before I make my final call on the fall of the most valuable company in the world.