There were a lot of happy smiles on the Street yesterday as stocks skyrocketed, and things aren’t looking too shabby today either. Apple and GE posted better-than-expected numbers and at least for the moment the hope of an earnings-season blowout is overcoming concerns about Eurozone debt, US deficits, and even some uneasy unemployment numbers.
Apple had another great quarter, and with their arresting success comes a possible new threat from a possibly-new business direction. No, I’m not talking about Apple dominating the smartphone or tablet space—they will almost surely suffer the same longer-term fate in these spaces that they suffered in the PC space. Apple is a trend-setter, a cream-skimmer in the device market. As it commoditizes (as all valuable spaces do), Apple loses share to price leaders. No, the problem isn’t in the appliances, it’s in services.
Apple has been looking at a revamp of its “cloud” or service position. The basic model that Apple has long applied has been to sell Apple users device-related services (MobileMe, iWork, iTunes, etc) and to use this add-on model to further raise revenue and (especially) profit. It’s not at all distant from the old call-forwarding feature model of the RBOCs; you make your money on the add-ons. To protect this space, Apple recently changed its policy to ban applications that accepted recurring subscription payments; they have to go through Apple’s store.
Apple is also raising a related and possibly even more difficult question, which is whether consumerism is now so dominating technology development and deployment that the business IT processes are also-rans in terms of focus, revenue, and planning. If most of IT is the consumer, then IT is a series of classical boom-bust cycles. For any Big Idea there’s a quick surge of revenue and profit followed immediately by a combination of commoditization and competition that kills the opportunity in a short period (about 20% of the total period of a market of this sort presents “opportunity”).
Alcatel-Lucent is, I think, trying to leverage its unequaled asset base to offer operators a way to counter this and other disintermediation threats. They announced a project with China Mobile to cooperate on a lightRadio-centric mobile ecosystem. The only concern I have about the deal is that it’s not highlighting any service-layer cooperation, but rather more stuff down in the network itself. It’s not that I think the network isn’t valuable, but that the real differentiation has to come in features that are hosted in a higher layer and that exploit value uncovered below. Until we have the hosting and exploiting part under control, developing other stuff isn’t going to pay the bills.