Apple’s Embrace of Samsung Hides a Shrewd Business Motive
Even though Apple did not make an official appearance at CES, Las Vegas - aka the technos' prom - the talk of the town was Tim Cook’s letter to Apple investors and shareholders, wherein he explained the scaling down of first quarter revenue forecasts – for the first time in 15 years. The question on everyone’s mind was, is the sun setting down on the trillion dollar empire?
While the company was absent, Apple’s services made a prominent appearance at CES. Consider this, Samsung announced that its TVs would now support iTunes; LG, Vizio, and Sony announced support for services like AirPlay2, and HomeKit. This surprised many, if not everyone, in the tech world. Despite their court wars. Samsung and Apple seem to have cozied up in the last few months. Earlier, the thought of Apple allowing its proprietary software say, iTunes to run on Samsung’s hardware – or that of any other rival – would have been impossible. The answer might lie in Tim Cook’s letter.
In the letter, Cook pointed to China as the reason for all of Apple’s revenue shortfall. The Chinese market, crowded by local tech giants like Huawei and Xiaomi, coupled with the Communist Party’s nationalist protectionism, has starkly reduced Apple’s popularity in the world’s largest cell-phone market. According to the International Data Corporation, as of 2015, Apple was the country’s 3rd largest handset maker measured by unit sales. By 2018, it had slipped to No. 5. 2018 also marked Apple’s worst yearly performance since the financial crisis. Cook admitted in his letter that the company hadn’t predicted such a sharp decline, and that sales had been affected by the trade dispute between China and The United States.
iPhones make up the dominant share of Apple’s revenue. However, a slowing East Asian economy; competition in China; saturation in the West; and, lacklustre market share in India means that Apple’s cash cow is no longer performing at its peak. Many have also pointed to the fact that consumers seem to be clinging onto their handsets for a longer, as upgrades become more expensive, and less exciting. While this is great news for the environment, its bad for business. These factors have probably led Apple to make a greater push for services, evinced by the compromise it has made with the “Apple Ecosystem”.
The ecosystem , is a term used to describe Apple’s has gone for a ‘lock-in’ approach. This means that Apple devices or services works best – and in most cases, work only – when paired with other Apple devices and services. For instance, Mac and iPhone users can seamlessly access iMessage on both their devices, while their Android counterparts are left using third party apps like WhatsApp. This forces Apple customers to only buy Apple accessories and services. Your AirPods’ gestures will work best with your iPhone, and even then, only if you are using iTunes. Now however, Apple is beginning to realize that its revenue stream can only be secured if in addition to retaining users as captive customers, it can bring in those who don’t use Apple devices exclusively – or, in most cases, have no access to them at all. But there is a trade-off here, the more Apple allows its services to operate on other platforms, the easier it becomes for its existing users to slowly migrate away from its devices. If your iTunes library could be sourced to a Samsung device, you will more readily shift to a better priced Samsung device. On the other hand, by allowing Samsung devices to support iTunes, Apple is able to – theoretically – net in some of Samsung’s customers as well. Given their approach, it seems Apple’s bosses predict lower rates of attrition among their own user base, compared to that of their rivals.
So, if Siri can be used to stream a movie to my Android TV, is the idea of an Apple ‘exclusive’ ecosystem dead? The answer cannot be provided in a binary. The key here is that unlike phones, the turnaround rate for televisions – the rate at which people junk their old TVs for new one’s – is very low. Given that the offerings for iTunes will only be on new products offered by Samsung, the effect will take a substantial amount of time to proliferate.
So why would Apple undertake such a trade-off? It’s because Apple is also pushing for a new streaming service to combat the likes of Netflix. For that to succeed, it needs to be able to reach a wider network of people that don’t buy Apple products, and the only way to do that is through companies with a dominant presence in the white goods segment of the consumer electronics markets. Samsung, Sony, and LG, with their diversified catalog of television sets, offer this sort of heft to Apple. Its aim here is not to earn size-able revenue, but create access points for its streaming service. These must also be as robust as those that consumers already have for consuming content on Netflix – diversified to include Smart TVs, computers, phones, and devices like Amazon’s Firestick.
Apple wants you to get ‘hooked’ to the idea streaming videos from an Apple service on your Android TV. That is, if you don’t want to make an investment in Apple TV – a product that has less streaming market share than Roku, Google and Amazon. The bet is that consumers will be attracted enough that by the time it rolls out the streaming service, it can lure users from other sites. Its USP? ‘The Apple logo’, which comes with a finesse and presentation, that no one can match. So as Apple plants the seeds for transitioning into a primarily service driven firm – rather than a manufacturing one – look closely at your Android TV screen, it is about to heat up.
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About the Author
Akshat Jain is a second year student of Bachelors in Technology from Manipal University Jaipur. Originally from Delhi, he is an avid debater and has participated in numerous Model United Nations conferences all over the country. A West Wing fan, he likes reading and decoding social issues, and public policy. Previously, he has worked with the healthcare venture PeeSafe, in addition to The Kirat Youth Foundation, and Kairo Guard.