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Can Apple’s vertical integration work for others in the mobile space?

Iphone

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It is no secret that one of the keys to Apple’s mobile success is its vertical approach. While other companies are hoping to accomplish similar results with their own integration strategies, this may not be a workable solution for all.

Apple maintains tight control over the hardware, software and related services for the iPhone, iPad and iPod touch, which is one of the main reasons why it is able to deliver a superior user experience that consumers crave.

While complaints from various stakeholders often abound over Apple’s tight control the truth is that the company is wildly profitable in mobile and, as a result, other companies appear to be increasingly trying to mimic its vertical approach.

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“Vertical integration is a really hot topic and for an enhanced user experience it is becoming increasingly important,” said Malik Saadi, principal analyst at Informa Telecoms & Media, London.

“The industry has learned about the experience of Apple,” he said. “If Apple is very successful and providing a superior user experience it is because of their vertical approach to offering that experience.

“A number of plays envy Apple for their vertical ecosystem and they want to mimic that system.”

Higher-end devices
Samsung is trying something similar with plans to launch a mobile ad exchange and efforts to beef up its app store and a strategy to build the majority of its hardware in house.

Huawei is also doing more manufacturing in house, with its flagship devices being powered by its own processor code.

The trend toward verticalization is most apparent for higher-end devices, per Mr. Saadi.


The Samsung Galaxy S III.

“Samsung is now trying to deeply integrate and verticalize on premium devices such as the S III series,” said Mr. Saadi.

“The whole idea with deeper integration is to provide advanced users with a superior experience and you cannot afford to do that without ownership of the hardware to integrate with software,” he said.

“This is a trend mainly in a segment where user experience is a key differentiator.”

The problem is that not all the companies in the market today can afford a vertically integrated strategy because it requires significant investments in hardware and software.

The reason why Apple can afford to do it is because the company has only three devices in its portfolio while some other hardware makers produce a wide array of devices in an attempt to offer something for everyone.

This is also why Samsung and Huawei’s integration efforts are focused on their high-end devices exclusively.

“Apple is targeting a high-end segment of the market and that makes integration very easy for them,” said Mr. Saadi.

“When you start thinking about addressing a number of different segments with different hardware, integration becomes difficult because you are targeting different types of hardware with a single OS then optimizing the hardware for a different experience,” he said.

Continued innovation
Another challenge for vertically integrated companies is the need to continue to innovate across all of the elements of the ecosystem. If the company falls behind in one area this can jeopardize and bring down the entire ecosystem.

This is what is happening at Research In Motion, which has failed to stay up to speed on the software side of its business and, as a result, is losing customers for its hardware.

“RIM was initially a vertical company,” said Mr. Saadi. “Because they are using an OS that is old and the next generation won’t come out until next year, the whole hardware business is struggling.

“That struggle means they will sell fewer devices and then their market will collapse,” he said.

“I doubt that with the little cash balance they’ve got that they can sustain innovation across all parts of their vertical system.”

For companies such as Google and Microsoft, which are software companies first and foremost, they are also pursuing verticalization by linking their operating systems with mobile services such as app stores, search, maps and more.

In Google’s case, the fact that its software is open source facilitates providing an enhanced user experience without having control over the hardware because Android can be easily integrated in hardware makers’ devices.

Hardware investments
Increasingly, it appears that Google and Microsoft may be considering integrating software more tightly with hardware as well.

Google recently unveiled the new Nexus 7 tablet, which is available on the Google Play store for $200, and the focus is clearly on providing a device that is optimized for Google Play.

The company has also acquired handset manufacturer Motorola Mobility.

Microsoft is also taking moves to offer a more integrated experience, having also announced its own tablet recently.

For Microsoft, because it takes time for devices enabled with the latest version of its software to come to market, a tighter integration between hardware and software may be looking more appealing.

This is one reason why Microsoft has partnered with Nokia. However, the results so far have been disappointing in part because the two companies are not speaking to consumers with one voice.

“Lumia devices are really fantastic devices but they are not selling well,” said Mr. Saadi.

“That hardware software integration is going to be more difficult to achieve unless they invest like in hardware and become another Apple,” he said.

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York

Associate Editor Chantal Tode covers advertising, messaging, legal/privacy and database/CRM. Reach her at chantal@mobilemarketer.com.

 
Related content: Manufacturers, Apple, Samsung, Huawei, Google, Microsoft, vertical integration, Informa Telecoms and Media, Malik Saadi, mobile marketing, mobile

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