The Strange Tale of MobileMe and Apples Post-PC

Adam Lisagor of Lonely Sandwich:

Signs do, however, point clearly to Apple steering away from consumer as creator of data and toward consumer as data itself. I no longer create the data I sync, the data is me and it syncs on its own. … My assertion is that in forgoing the ‘i’ and evoking the ‘me’, Apple is making a conscious effort to finally appeal less to the elite segment of the market and more to the vast numbers of Microsoft users.

And so if Apple, under Jobs, is tightly focused, what is it that they’re focused on? It’s not the pro market. It’s mobility — iPhone, iPod, MacBook Air. Adobe is a good company with good products, but they don’t fit into Apple’s focus at all.

I have been pushing these thoughts around in my head since WWDC, where Apple is heading — and they are not adding up right.

There is clearly something happening at Apple — significant change in their focus. The iPhone is no longer a premium product, but rather Apple’s affordable centerpiece; .Mac has become platform independent-MobileMe, with Apple prominently showing Windows-based PCs in its marketing and tours; and Apple has “paused” development of front-end features in OS X to focus on making it as fast and small as possible.

Both Adam and Roughly Drafted argue that MobileMe is not simply a .Mac evolution, but rather a new product altogether: MobileMe is version 1 of Apple’s web OS, an attempt to make the Mac experience platform-agnostic.

I think they are right, but this is only a part of Apple’s strategy. If Apple intends to focus on the web by creating a web platform, they are also declaring a key tenet of their philosophy since Jobs’s return, that companies which create both hardware and software make better products, outdated and invalid. It would not necessarily mean that Apple would stop making Macs and iPhones, but it would mean that they think the hardware used to interact with software is no longer important. Software would be separated from hardware.

Effectively, Apple would cede the argument to many of their critics — Apple’s hardware is nice, but is ultimately just pretty “design,” ornamental and unimportant, and their software is really what they are about.

Both from a philosophical and business perspective, I do not think Apple is ready to accept that mindset.

The iPhone most powerfully illustrates this. Apple could conceivably license OS X iPhone to other companies for use in their touchscreen mobile devices. But it would not only be a stretch, but also a bastardization of the term, to call those devices “iPhones,” because the software is not what makes an iPhone an iPhone. It is the entire experience.

These licensed iPhones may run its software, but to cut costs to compete with the other iPhone clones, many would likely have resistive, rather than capacitive, touch screens, so their screens would not react as fluidly and naturally to touch. They may have the iPhone’s iPod app, and even synch with iTunes, but their screen may be smaller, dimmer and have less contrast than the current iPhone.

Or, to also reduce cost in designing the device, these iPhone clones may also be oddly shaped, and simply not feel right in your hand.

The iPhone’s strength, like the Mac, is that it is a vertical product. Apple controls its hardware and software design, its desktop-synching, and now its online synching. This allows Apple to do what differentiates Apple from the market: they can think the experience through, from the moment someone buys the iPhone, to when they open the box, synch it with their computer, use it while out, and synch it again. They control the experience from end-to-end, and that empowers them to create as best of an experience as they possibly can.

Apple believes that controlling both hardware and software creates the best-possible experience, and they also believe that selling high profit-margin hardware is a better business strategy than selling software.

The iPhone now sells for $199 or $299, but this is not what Apple receives for each iPhone. This is the AT&T-subsidized price. It appears that Apple and AT&T are selling iPhones for that subsidized price, and AT&T is providing Apple with the difference — somewhere around $200 additional per phone. Apple has replaced its revenue-sharing agreement with a subsidizing agreement.

Apple sells a premium product, the iPhone, for mid-end prices, and is shifting the cost to AT&T.

This is an aggressive, and risky, strategy because Apple clearly believes in selling the iPhone with high profit-margins, and reducing the iPhone’s price so strongly threatens their future ability to build in strong profit-margins. If they had abandoned that business strategy, they would have done the reverse of what they are doing currently: they would retain their revenue-sharing agreement, and sell the iPhone at or below cost1, making up the difference in service fees over the next two years.

I think what this means is Apple not only still believes in software-hardware integration, and selling devices with high-profit margins, but that Apple’s long-term strategy is to dominate the post-PC market. The “post-PC” is a mobile device that, in Apple’s vision, complements a desktop PC, and is specific in function. It is the iPhone.