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Apple’s OS strategy and why telcos need to take heed

Something interesting happened at this week’s Apple event. No, it wasn’t the launch of new iPads or revamped laptops. It was its computer operating system, OS X 10.9, more commonly called Mavericks. In this age of mobile, it may be tempting to overlook the latest OS X as an irrelevance, but it’s not.

Apple’s new operating system is not in itself a revolutionary product; it has huge similarities with its predecessor, despite some marketing-friendly novelties. What is revolutionary though is its price – it’s free. Arguably the most robust commercial OS on the market today (at the very least it’s on a par with Windows 8) loaded with essential applications, for no money whatsoever.

It marks an important moment in Apple’s product roadmap, and could well herald the start of more widespread changes throughout the consumer electronics industry.

In 2005, OSX 10.4 Tiger cost $130, the same price as Apple’s first OS X 10 software back in 2001 when it launched its multi-coloured iMacs and heralded the comeback of Steve Jobs. In 2010 Apple charged just $30 for Lion, then $20 for last year’s Mountain Lion (10.8) upgrade. The trend was always heading downwards towards the zero price point.

We know Apple users love to keep their software up to date – just look at the iPhone. According to app marketing firm Fiksu, as of yesterday 71 per cent of iPhone users have already installed the latest iOS 7 operating system; 26 per cent are still on iOS 6, and just 3 per cent are still using iOS 5. Remember, iOS 7 was only released a month ago, and its adoption rate is 10 per cent higher than for the previous OS in the same time period.

Meanwhile, Google has released data showing that its latest Android OS (Jelly Bean 4.3), which was released in July, has an active distribution of just 1.5 per cent. Taken together, all three variants of Jelly Bean (4.1 – released July 2012 – plus 4.2 and 4.3) account for 49 per cent of the Android market. The next most used OS is 2.3 Gingerbread with a 29 per cent share – yet Gingerbread was launched back in December 2010.

Apple has learned lessons from the iPhone and the adoption of iOS, and applied them to its desktop range. Yes, there’s a catch – Mavericks won’t run on older models of Apple’s hardware, you need something that’s probably no more than five years old. But many of Apple’s loyal users wouldn’t be seen dead with anything but the very latest hardware.

It’s not a case of “any old laptop” will do – these days we are being manipulated into a more frequent replacement schedule, buying new equipment more frequently. That’s not going to change anytime soon. Users in the developed world pretty much have computers that are five years old or less; we are more or less keeping up to date with hardware. Apple knows the breakdown of its installed OS base; it knows how many are on the latest version and how many have still to upgrade. What it’s now doing is removing any financial barrier to an upgrade – even $20 is seen by some as too much.

All this matters because a key element to the success of any consumer electronics firm that is open to third-party involvement is the developer community. Whatever connected device you’re making – phones, laptops, cars, even fridges – they all need apps, and the best apps invariably come from third party companies. If your device isn’t supported by the leading apps, it’s already dead. Look at the fuss Nokia’s press team (quite rightly) made this week about new support for Instagram on its Lumia phones.

Developers focus on supporting the most popular platforms first, and they hate having to create multiple versions for fragmented OS markets. They also tend to develop for the latest hardware configurations and hope there’s not too much performance degradation on older kit.

Apple has already said that it will continue to pull its desktop and mobile OS products closer together, and you can already see the similarities between Mavericks and iOS 7. How long before the differences vanish? Not just yet (Microsoft is still trying to pull off that trick), but it is possible.

“What’s most important to us is seeing Mavericks in as many hands as possible,” said Craig Federighi, Apple’s SVP of software engineering, speaking at his week’s press event. “We want everyone to have access to all our best features,” added CEO Tim Cook

The move to a free OS signals Apple’s continued focus on the hardware and its ability to support the latest and best software and services. Last year, Cook foreshadowed this week’s news when he said; “The one thing we do, which I think no one else does, is integrate hardware, software, and services in such a way that most consumers begin to not differentiate anymore. They just care that the experience is fantastic.”

And so we come to the send part of this story’s headline: why should telcos care?

Apple succeeds because it works hard to be the best at selling desirable experiences. Don’t dismiss “experiences” as yet another nonsensical marketing word, I would argue it’s not. It knows it can’t be the best at everything (despite several doomed ventures into new territory) and so it makes sure that what it does is to provide the best platform on which to use other people’s best-in-class services. Want design software? Use Adobe Creative Cloud. Want social media services? Use Facebook and Twitter. But if you want to maximise your use of these services and products, then you need our hardware (and obviously the operating system).

I own a phone, tablet and computer (yes, all Apple) and stick to a 2-3 year replacement schedule. The amount of money this costs me is about the same as my connectivity contracts over the same period; in other words, my mobile service and my broadband service. Without this connectivity, my devices are pretty useless. Yet when I compare the reliability and quality of my hardware with that of my connectivity, there is a huge difference. For example, my advertised 68Mbit/s FTTC broadband (PlusNet) gets no better than about 35, often falls to under 10 in the evenings, and crashes completely at least twice a month. My mobile 3G service (Vodafone) falls to GPRS in the centre of town and coverage ends completely when I venture a mile up the road. Are these fantastic experiences? No, and I’m not alone in having these problems. We’ve come to expect them and put up with them, but we shouldn’t.

If my hardware performed like my connectivity it would have been returned to the shop at once and replaced. Yet we put up with variable connectivity and often are locked into fixed term contracts with no ‘try before you buy’ option.

So why aren’t more telcos working to ensure that their connectivity experiences are fantastic? Why is there no Apple of the telco world? Why hasn’t one telco decided that it will forego the quest for the biggest market share and instead decided to be the aspirational telco choice for consumers and businesses, with a service performance quality that a sufficient minority of people will pay a premium for? Of course, quality service provision depends on a quality network first.

Connectivity provision is what defines a telco. Forget the stigma of being a dumb pipe provider and the desire to move into smart pipes; it’s all about connectivity. Why are some telcos so desperate to develop new messaging solutions for example, to compete against the so-called OTT providers? Why are some telcos spending a small fortune on content creation to compete with satellite and media companies? Why aren’t more telcos focusing their spend on improving their basic service – connectivity?

Content needs software, software needs hardware, and increasingly today hardware needs connectivity. Disney makes some fantastic films (content), Netflix makes a fantastic viewing service (software), Apple makes a fantastic tablet (hardware), yet absolutely no single telco or service provider in any country appears to stand out as offering the most fantastic connectivity. Why not?

Yes, there’s a huge amount of work and money involved in creating hyper-efficient connectivity networks. It costs, and those costs will have to be passed on to the users. But is that a bad thing? If any telco has done research into this possible strategy and found that it will never work, then please do share with us all.

Of course the analogy is not so simple, but neither is it so different. By ensuring that its hardware automatically runs the latest and best operating system at no extra cost, Apple can be confident that it now offers an extremely good platform for both developers and users. Making Mavericks and future OS evolutions free is an essential component in this strategy. It clearly doesn’t want to have the largest installed base of users, or sell the most hardware, but it wants to be seen as the best – and the compensation for not chasing market share is to retain its high margins. Assuming its strategy works in the long term, of course.

Telcos still struggle with churn; they still struggle to find the magic ingredient that will lock customers into long-term relationships. Perhaps they need to take a closer look at their core services.

Incidentally, Microsoft’s Windows Pro 8 OS costs $199. Last year, Microsoft earned $19.23 billion from the Windows division, with 65 per cent of that coming from licensing its operating system to OEMs. That’s orders of magnitude more than Apple will lose from giving away its OS for free, so don’t expect Microsoft to follow suite (at least, not yet). The latest version of Windows though has a mere 8 per cent adoption rate among Windows users – the older XP and Windows 7 are still the dominant platforms with a combined 77 per cent market share. That’s not good news for developers, who struggle to devote time and resources to legacy system support.

It’s a return to old thinking. Apple used to hand out free upgrades routinely until the launch of Mac OS 8 in 1997. You know, not all old ideas are bad ideas.

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