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Apple’s Moat Just Got a Lot Wider

I have to admit I was not able to get anything done on Tuesday when Apple released its new iPhone, Apple Pay and Apple Watch — absolutely nothing. Like millions of others, I was glued to my iPad watching Tim Cook do a two-hour Apple infomercial. (And unlike any other infomercial, I watched it twice.) The interest must have been greater than even Apple expected, as its website simply could not handle the traffic and kept crashing. A lot of viewers must have been sleep-deprived Chinese; it was 1:00 am in China, and Cook’s keynote was simultaneously dubbed in Mandarin. Apple’s emphasis on China makes a lot of sense, of course: The country is Apple’s biggest growth driver, with 4G just being rolled out there.

The release of the new iPhones was important for Apple in the short run — it desperately needed to introduce larger phones to battle Android handsets. Both the 4.7- and 5.5-inch phones looked terrific. However, the fact that Apple introduced two sizes may have an interesting consequence: Consumers will need to hold the actual phones to figure out which one fits them best. Online orders will likely be lower than usual, while traffic to Apple Stores will explode over the next several weekends (by the way, that will benefit other mall retailers). However, what is now known as the Apple Watch is really important for the company in the long run. Apple’s competitive advantage lies in its ecosystem, as its software allows you to easily connect and communicate with other Apple users.

But this competitive advantage — Apple’s moat — has gotten narrower and shallower as non-Apple apps that work across all platforms have gotten better and better. For instance, Facetime is successfully threatened by Skype, Viber and many other communications apps. Also, iTunes became less and less relevant as music streaming services such as Pandora and Spotify emerged. Escaping from the Apple ecosystem is easier today than it was a year or a few years ago. A strong brand, familiarity and ease of use are still advantages that clearly set Apple apart from its competitors, but the company has a weaker hold on you than if it made products that made switching painfully difficult.

Apple is very much aware of this fact, which is why it is introducing seamless integration of iDevices and Mac computers through its new iOS 8, which is being released next week, and OS X Yosemite, coming later this year. Soon, when you are working on your MacBook Air and get a call on your iPhone, a caller ID will flash on your computer screen, giving you a choice of answering the call on either device. Or if you start composing an email on your iPhone, you will be able to continue writing it on your iPad or MacBook.

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Apple's manifesto has always been about connectivity with ease. From it's earliest days while battling Microsoft and all of the Windows debacle & crashing epidemics to present day where they have finally bypassed their competitors, who have always benefited from Apple's progressive vision and found ways to copy and bastardize it for their own profit. I love Google and Samsung products, but they are not the visionaries that Apple has always been and have never been able to follow up with all things connectedness such as Apple. From Ipod to Apple Pay, they may have been a little slow at times, but they have always come through with the goods which have been adopted by the worldwide culture.

Sep 15 2014 at 11:32 PM EST

jamesko
 

I love Apple phones. I have had both Android and Iphone and prefer the Iphone. I am going to buy the new phone but will wait till I can hold one, which by the way you were wrong on, the pre-orders have been through the roof. As for the watch, I am afraid they have a long way to go. In my mind it is about as ugly as you can get. For a company that is known for sleekness, I feel, they missed the boat on the watch. I hope the next generation gets much better. As far as the payment system, I feel they have a bunch of catching up to do with others already in the field. And last, about watching with the children giggling and laughing, bout as cool as it gets isn't it !!!!

Sep 15 2014 at 7:01 PM EST

Jim
 

Your making it sound like Google has to play catch up with apple pay when NFC payment has been there for years. The problem is the not a lot of retailers and have really updated their point of sales system to accept NFC payments.

I think one thing with Apple is that they have following that will buy anything they sell and think its the most innovative thing and start to use it. This causes a lot of of awareness and hype that awareness can cause retailers and companies to back the technology even more.

Have you really tried any of the watches, cause iphone sounds pretty much just the same as the others but with a bad battery life.

Sep 13 2014 at 12:09 AM EST

chamber
 

Hello mr. Katsenelson, really insightful article! Which do you think are the barriers to entry for Apple´s (new) competitors like Paypal if they decide to introduce a payment system for Android devices that makes use of similar safety/encryption mechanics? They already have an established payments network and they could offer integration to their existing Paypal accounts. That is, based on information available, and possible competitive moves, do you think that the Apple ecosystem would be able to protect the future business value of Apple Pay?

Sep 12 2014 at 12:43 PM EST

Thanos Pasias
 

Google too is about integration of watch, tab, phone, chrome. They too have NFS payments, any screen size you want. Android is as slick as iphone. Plus "free web apps". I don't see who'd still pay Apple's premium. Now, if Apple would seriously incorporate encryption and renounce spying, THAT would differentiate them!

Sep 11 2014 at 3:02 PM EST

jonathan gunter