Brian Bober

'Best of Breed' Business Model a Chink in Apple’s Armor?

I'm consistently impressed at the zealousness of Apple users, and I enjoy some of the creative analogies in these comments. Understanding how a consumer electronics company built such a religious following may be the greatest example of brand building and will provide material for decades of case studies.

I believe Apple’s brand has a more devote following than any other corporation. For example, last year Business Week named Nokia the number five brand in the world. In this post I basically trash Nokia for copying Apple and zero commenter’s came to support Nokia. Instead dozens wrote to support Apple even though this post was largely complimentary towards Apple's products. Of course, this has very positive implications for Apple investors.

Unfortunately, the gist of my post appears to have been missed or largely ignored. I'm not questioning their product quality; I'm examining their business model. In the post I espoused how Apple has great products; currently the best. However, outside a very core following of rabid users, who will always use Apple branded products, Apple relies on having the best of breed products. It is extremely difficult to have best breed products over more than one product generation.

In recent years Apple has benefited from the lack of innovation from HP, Dell, Microsoft, and others in the consumer computer/MP3 market. However, the next batch of products from HP's Voodoo line appears to be surprisingly innovative. If this is the beginning of a trend it could mark an inflection point of increased competition; potentially affecting Apple's margins. Apple's margins are astronomical compared to other consumer electronics companies. How sustainable is Apple's margins, even with their powerful brand?

Here's What Will Happen To Apple's Rivals

This article points out the compatibility with ActiveSync (e.g. Microsoft Exchange) which is being under-emphasized by most commentators. That is a huge deal as IT departments are continually looking to trim the number of suppliers they must maintain relationships with. I think the 3G / ActiveSync iPhone will choke off RIMM's growth and elevated margins.

Steve Jobs noted the number of Fortune 500 companies participating in the iPhone version 2. This is directly related to a desire to eliminate the RIMM servers they currently maintain to support Blackberry's proprietary e-mail software. I'm actively looking for a good entry point for a APPL / RIMM pair trade.