Apple Attacks Its Own Ecosystem (AAPL)

Mar. 3.06 | About: Apple Inc. (AAPL)

Among the predictable jubilation at Apple's release of a hi-fi for the iPod, and breathless speculation that Apple will soon release its own flat-panel TVs, three points have been forgotten:

  1. Apple's competitive advantage is in software and the integration of hardware, software and online services, not in simple hardware like flat panel TVs or hi-fi boom boxes.
  2. Apple's hardware partners form an ecosystem that helps guarantee Apple's future dominance in digital media.
  3. Margins on consumer electronics hardware are far lower than Apple's software-enriched margins.

So why did Apple release a hi fi devoid of any differentiating software or services? Is its brand really enough to command a large price premium?

And most important, do Apple shareholders really want Apple to be in the low-margin boom box and flat-panel TV hardware business, competing with its current partners?