It's a nightmare scenario for carriers, retailers, device makers, and much of the mobile industry: Apple is sucking up all the money, leaving crumbs for the rest. That's the same fear the music business had when Apple introduced the iPod and iTunes. At the time, it forced the industry into a devil's bargain in which Apple reaped 30 percent of sales and fostered a dependence on its closed platform; otherwise, the music labels were faced with making no money at all due to the rise of file-sharing sites such as Napster. Their best option would have been to create their own platform, but instead they trotted out a series of clunky, mutually incompatible, hard-to-use products and left Apple as the only viable option.
That fear explains why carriers and retailers have aggressively promoted Android, Windows Phone, and other iPhone competitors. Carriers pay smaller subsidies on those devices, which helps keep their profits up. And a market where no one platform dominates gives them some leverage when dealing with Apple.
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But users have voted otherwise, vastly preferring the iPhone, which cost the carriers more money per unit, thus reducing their profits. Android sales plummeted in late 2011, after the iPhone 4S's release -- chalk another victory for Apple's superior product and unmatched level customer satisfaction. Businesses are just as gaga over the iPhone as individuals -- even archconservative firms such as Halliburton have made the switch. The result has been devastating on retailers' and carriers' profits, as Forbes details in its report. Meanwhile, Apple alone -- even though iPhones account for just 9 percent of mobile phones sold -- reaps about 75 percent of the mobile phone industry's profits, and that number continues to grow. (Apple's segment of U.S. sales is much higher, as is its share of smartphone sales.)
Should this economic trend continue, Apple will be the Microsoft of mobile platforms, the SAP of mobile apps, and the Oracle of mobile services. If you're an Apple fanboy, that's great news and would suggest a world very much like that of the Macintosh or iPod/iTunes: integrated, fun, innovative, and functional.
What could be bad about that? Nothing, for a while. But monopolies tend to devolve as the focus becomes about maximizing profit of the customers who have nowhere else to go. Any cable or telecom client knows that result firsthand, and it's a common fate in the technology industry's history.
A recent report by Deloitte of mobile carriers, device makers, and other industry leaders paints an industry that has lost control over its destiny, as companies such as Apple and Google ascend. Carriers have been unable to get to grips with the fact for more than a decade that their networks are essential to mobile usage, but they're not where the customer gets its value.
Research in Motion showed that with the BlackBerry, providing a new way to communicate. The carriers didn't do that; instead they were building proprietary messaging services that worked only among their customers. RIM's service required a BlackBerry but worked across carriers. Apple showed that with the iPhone, which put flexible computing power in our pockets. Calling them smartphones is an anachronism; they're pocket computers that can also handle phone calls. Again, carriers weren't driving any of this; all they've done is try to create walled gardens of crappy apps for customers that had no choice. Apple forced open that choice, so it reaped the economic benefits.
That Deloitte study shows this "dumb" pipe phenomenon has not changed at all; carriers still don't get it. But it shows one change: The carriers themselves now believe they have no hope of driving mobile value or innovation. They see Apple, Google, and other content- and Internet-oriented companies taking that mantle. Welcome to 2007.