Two Risky Strategies Could Threaten Apple's Long-Term Survival

Two Risky Strategies Could Threaten Apple's Long-Term Survival

http://www.technewsworld.com/story/Two-Risky-Strategies-Could-Threaten-Apples-Long-Term-Survival-82536.html

By Rob Enderle
Sep 28, 2015 5:00 AM PT
One of the ironies of my technical career is that when I first went to work for a tech company, I specifically wanted to work for a firm that was breaking the mold -- not representative of it. So, in my initial interview, I was concerned that IBM was going to buy the firm because it was the mold at that time.

I was promised it wasn't, and that there was a contract that said it couldn't. Then, six months later, it did.

IBM nearly failed six years after that, largely due to two strategies Apple now has embraced: vertical integration and lock-in. As a result, I'm very sensitive to these strategies -- especially, to their negative potential. Given that the huge breach Apple experienced last week could be connected to one of them, I figure it's time to speak up.

These strategies have their positive side -- they can make a company dominant and incredibly profitable over the short term. However, they can lead to behaviors that are company killers. They nearly killed IBM, which once was a far larger and more diverse company than Apple is.

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Vertical Integration in a Hostile World

A company becomes vertically integrated when it controls all of the components that go into its product. When Tim Cook handled Apple's supply chain, he was one of the company's greatest assets. By writing incredibly aggressive contracts, Apple was able to get most of the benefits of vertical integration without actually owning the underlying technology.

However, with processors it has been drifting toward vertical integration, and its ARM processor design is Apple's own.

The problem is, as powerful as the company is, it doesn't have the R&D budget for processors that a processor company like Intel or Qualcomm does. The end result is likely to be inferior to what the other vendors can do.

We saw a touch of this when Apple was on Power, IBM's processor. IBM, even with all of its mass, just couldn't keep up with Intel on devices. One of the first things Steve Jobs planned to do was to take Apple to Intel.

We saw the same thing with Nintendo and Sony and their game consoles. They went from the IBM Cell processor to AMD, which was willing to take the x86 technology and adapt it to their needs.

The current example of this problem occurred last week, when Apple was massively breached in an ironic set of circumstances. The irony was that the breach originated in China but the hackers used a technology that the CIA apparently had developed.

Increasingly, it is looking like our own government is our biggest security problem -- specifically the agencies that are missioned with keeping us secure -- and it's getting kind of old.

For the type of ARM problem that led to the Apple breach, there's only one fix currently available in the smartphone market -- and it's over at Qualcomm, which is the company virtually every other large cellphone company uses for core technology.

The solution will ship until early next year on Qualcomm's 820. When it does, it will be capable of securing phones from this class of exposure, and it should make Android phones far more secure than iPhones as a result.

Given that the breach was caused by legitimate developers being tricked, and that the resources used apparently came from both the Chinese and U.S. governments, it seems unlikely that Apple can mitigate these problems alone. That raises the specter of next year's new iPhones being the only premium phones vulnerable to attacks like this. That likely would bar them from any place where security is a concern. (I don't know about you, but for me, security is a concern right now.)