The launch of the mini iPad seems to make Apple a follower, instead of a leader.
Apple’s use of Intellectual Property is probably a prime cause of the Apple slowdown.
But a novel approach to IP – access to the Creative Commons – could help Apple to turn around and be innovative again.
Apple seems to be in trouble.
Apple is about to launch the mini iPad.
While the launch may still contain some kind of surprise, the consensus seems to be that, for the first time in years, Apple is trying to catch up.
That’s new. From the iPod, over the iPhone to the iPad, Apple was always significantly ahead of the competition, and often created new markets.
But the iPad mini is a follower, not a leader. It will compete with other 7 inch tables, such as the Google Nexus 7, the Galaxy Tab and the Amazon Kindle.
This means that Apple is on the defensive , and may find itself struggling to keep market share or gross margin at the high levels it currently masters.
Of course, Apple is not yet where Nokia is – but things can change fast, and the Apple slowdown over the last two years, consistently under-performing against its own, arguably very high, standards, is remarkable.
Role of IPR in understanding why Apple is in trouble.
This should not come as a complete surprise, though, and Intellectual Property Rights are actually a good way to explain why Apple looks like it’s in trouble.
First, Apple has the problem of fighting the Android operating system, and Android is Open Source. As I have stated before, when Open Source and proprietary go head to head, Open Source tends to win. This is because Open Source, without the burden of IP rights, is more innovative and creative, and allows for faster and more efficient innovation than proprietary systems.
Now, although some claim that Android is not really Open Source, it is Open Source enough to benefit from the Open Source advantage of having less of the IPR-brakes that slow down innovation and creativity in proprietary systems.
This also goes some way to explain why Apple is actually suing Samsung and others over Android, and tries to block the Android system in courts, because it fails to beat them in the market.
The second clue is very much linked to this. Apple has become a very big IP litigator. It has triggered the great mobile telephony patent war, a mistake I have often compared to the start of the First World War – so far, many futile offensives and useless victories, but mainly a big stalemate, and an enormous amount of energy and money wasted with no result whatsoever.
Why is this important? It is important because successful innovators don’t really care about IP litigation. They focus on the products, services, markets and customers.
When a business turns into an IP litigator, it is a telltale sign that they are over the top, and are shifting focus from innovating to trying to collect monopolistic entry rents into the marketplace. Microsoft is a very good example, as it is morphing into the largest patent troll on the planet, with its license on trivial patents on certain Android functionality a case in point. But also look at other dinosaurs with large patent portfolios, like Nortel, Kodak, Polaroid and Motorola, maybe soon to be joined by Nokia.
In other words: IP is not only a cause of slower innovation, IP litigation is also a telltale sign that a business is no longer innovative.
Apple suffers from both: it is burdened by an IP-strong approach in both its innovation and business model, and gets slowed down by IP-litigation and IP-minded thinking.
How the new IP of Creative Commons can help Apple.
But there is hope.
The key problem that this FT article – correctly I think – identifies is that Google and Amazon are Apple’s most dangerous competitors.
This is because, unlike Apple, they use their hardware to monetize their content. For Amazon content is, of course, their main product; Google’s content is the Internet search data that gets accessed through its algorithms.
As a result, Google and Amazon have decided to sell their hardware at much lower margins, because their real margin is in the content they offer. This is starting to hurt Apple quite a bit.
Apple does not really have any content, other than iTunes. But the iTunes business model is in serious decline. The concept of people paying to download music looks pretty outdated in a world that gets swamped by new initiatives offering music streaming, examples being Spotify, Deezer or Grooveshark, but also other approaches such as Soundcloud or Hitlantis. Add to this the technological developments such as HTML5, allowing anyone offering music or Apps to bypass the Apple tax charged by iTunes or the App Store, and we see how this approach to content does not really offer a good solution.
I have no idea if Apple hopes to use TV content in this respect, but it is hard to see how it could have a distinctive difference, unless Apple gains some kind of exclusive access to important pieces of TV content – which I doubt, failing to see why content providers would have an interest in providing such exclusivity.
So how can Apple fight back?
One original way, I believe, which could upset the others, and certainly Amazon, would be for Apple to start using the Creative Commons to offer access to content. Creative Commons is like Open Source, it uses IP rights to prevent the IP brake on innovation or creativity to apply. And, like Open Source, it is of course a continuous source of innovation and creativity, far superior to any system based on the IP-monopolistic approach.
If Apple were to use its hardware to provide easy access to Creative Commons, it would gain access to an enormous wealth of content. While not chargeable upon download, such content, and a structured, consumer-focused and clever approach to it, would still be very valuable. And we know that consumer focus and ease of use were the main Apple differentiators in their approach to hardware, so there is some serious expertise there.
It would also give Apple an opportunity to start collecting the benefits of community and social networks, an area in which it is virtually absent today. Indeed, when you think about it, it is actually quite surprising how much Apple sticks to the old, 20th century approach of a top-down relationship with its customers.
It may be because of this approach is too embedded that Apple ultimately may decide not to use the Creative Commons, because their closed ecosystem philosophy is anathema to the open character of the Creative Commons. But I think that that would be a big mistake: the Creative Commons is still largely untapped as a business opportunity. And in most open systems, there is a considerable first mover advantage.
I’m not in the business of giving investment advice, but I wouldn’t hold on to those Apple shares too much longer, if I were you.