Thoughts On The Apple-IBM Partnership & Amazon's Rough Week

The big news this month was the announcement that Apple and IBM have partnered up to deliver better enterprise solutions to large corporations. Essentially IBM will be selling iPads and iPhones with custom apps to help deliver complete enterprise solutions to big business. These devices will include IBM cloud services, a new enterprise focused Apple Care and all the solutions you need for security, analytics, etc. This is apparently putting the best of both companies together – Apple can focus on making great hardware and operating systems, while IBM can focus on enterprise solutions and IT support. While this all sounds wonderful – especially for the apparent 98% of Fortune 500 companies that use iOS devices even though Apple provides sub par solutions for big business – it’s a lot easier said than done. 

Apple can claim that this will be a partnership, but when have we known Apple to give up control of anything? They’ve created a closed operating system that doesn’t allow for user changes, they control what apps are released in the App store, they controlled the global prices of e-books, but now they will allow another company to sell their devices with alterations? Aside from Apple having control issues, I think they are underestimating how difficult of a task this will be. They are asking IBM to design and develop specific applications and security features for an operating system it didn’t build. Will these devices need a customized rollout for each big company? What happens to employees that follow BYOD – bring your own device? Will their phones need to be altered or replaced? I think that Apple and IBM have a long way to go before this partnership is feasible - this announcement is primarily meant as a scare tactic.

I’m sure as soon as they announced this, all the analysts were going crazy trying to figure out who this would hurt the most. Already there were some journalists saying Microsoft would lose its hold on enterprise or that Blackberry’s revival was doomed. Blackberry doesn’t seem too worried – CEO John Chen’s response was to say that the partnership was like “when two elephants start dancing”, whatever that means. Lots of noise, no results? The partnership has certainly started speculation about Blackberry potentially collaborating with another company, with Dell being one of the names thrown out there. As for Microsoft, they’ll be just fine. While they may not be winning on the mobile front, the majority of businesses still use PCs, even if they may not have upgraded to Windows 8. 

However, an interesting point was made by the media. Will Apple and IBM do anything to combine their ‘computer selves’ – Siri and Watson? What kind of outcome can we expect if they do? One of the funniest things mentioned by the media was the fact that businesses are struggling with the complexity of managing big data and that maybe there can be greater insights if they are available on the ‘easy to use iPads and iPhones’. Maybe they think Apple can magically make big data simple enough for everyone to use – good luck with that.

I want to end off by talking about how Amazon has had a rough week. They announced that they lost $126 million this quarter, even though they had a 23% increase in revenue. They’re investing so much in new products and services that they’re simply spending more than they make, even if they continue to make more and more. Investors are starting to get antsy, especially because Amazon announced that they are expecting to lose $810 million next quarter, but CEO Jeff Bezos is trying to explain that it’s about the long haul. Of course investors want to see a return on investment but Amazon just isn’t that kind of company. Bezos has a huge dream and wants to continue expanding – especially now that Chinese giant Alibaba (which is bigger than Amazon and Ebay combined) is trying to get into the U.S. market. I think Bezos is right when he says that this is not the time to slow down – although i’m not sure if there will ever be a time for slowed growth.

As a side note for those avid Twitter/Amazon users, you can now buy things without leaving Twitter. You just sync your two accounts, reply #AmazonCart to any tweet containing an Amazon link and when you wander back to Amazon the item will have already been added to your cart. I’m not sure how useful this will be to most of us, but it’s certainly the start of an interesting trend. 

Apple's Sphere of Influence

Apparently Apple has such a large impact on the world of business, that just the rumour of it releasing a new product is enough to stop competitors and consumers in their tracks. The iPhone 6 is supposedly the most anticipated iPhone ever – maybe because everyone figures that after a couple years of upgrades they must have come up with something new by now. Consumers are said to be holding off on buying new smartphones because they want to wait and see what Apple will release. Apparently the phones that have launched recently are selling below forecast and experts say that the upcoming iPhone could be hurting competitor’s sales by 10-20%. For me, this just demonstrates what brand power can do for a company – they don’t even have to release the product, just talk about it.

Competitors are also holding off on releasing new models because they don’t want to compete directly with Apple. If they didn’t want to compete with Apple, they shouldn’t have entered the high end smartphone market. I’m curious to see how long it takes other companies to realize that it’s all about brand name – at this point the phones are all virtually the same. By buying an iPhone or a Nexus (Google) or a Galaxy phone (Samsung) or anything else that’s out there, you’re telling the world something about yourself. Each brand needs to represent something specific, to help customers tell their story to the world.

The last aspect of the market that Apple’s potential new phone is affecting, is the supply side. With most top component makers busy trying to fill Apple’s orders, other companies are worried they’re won’t be enough product for them. Many smartphone companies go to the same sources for their components, including screens, chips, batteries, etc. These companies are backlogged trying to make enough iPhone 6’s for Apple’s supposed launch in September. According to rumours, we’re going to be seeing a 4.7” iPhone 6 and a 5.5” iPhone Phablet.

Continuing with the theme of Apple affecting everyone around them, they are currently in a dispute with Sharp – who makes the displays for iPhones. All of the output from particular factory in Japan goes to Apple, who also owns a large chunk of the production, and Sharp wants to buy it back so that they can make screens for other companies as well. This is due to the fact that Apple’s demand varies drastically from quarter to quarter (think about how much higher the demand for screens is during the couple months before a launch, during a launch, and directly after a launch), and Sharp wants to make sure it’s facilities are always get maximum use. They’re apparently offering $293 million – but Apple has one condition. They are insisting that Sharp doesn’t sell displays to Samsung, which eliminates a huge potential customer for Sharp.

My last Apple affecting the industry story has Apple on the defensive. Nuance Communications, maker of the Dragon Speaker software, is one of the most advanced speech recognition companies in the world. It is also the company that is behind Siri, Apple’s voice recognition software (and a company that my mom worked for!). Recently Nuance has run into financial troubles and is potentially up for sale. One of the first companies to show interest, is Samsung. This creates an interesting situation – would Samsung then own Siri in some capacity? Nuance is currently valued at $6.1 billion (twice what Apple paid for Beats), but if it is purchased by another company if would presumably put Apple in a similar situation to what they did to HP when they purchased Beats (HP has exclusive rights to Beats which end after 2014 so they are putting Beats on almost every laptop they are making for back to school – they are allowed to continue selling these devices until the end of 2015). Maybe Apple will use its immense influence (and some of that $150 billion cash pile) to retain Siri and avoid this problem altogether.