Apps provide ISVs and their hardware partners with a powerful method of closely coupling durable and non durable components of what we have referred to as a “razorblade” product development strategy. With computing systems effectively locked down, as they are for smart phones and tablets, which are, effectively, closed systems that run on a reduced instruction set computing (RISC) set of features, vendors have located a compelling method of producing revenue from durable and non durable components of these systems. In fact, Apps that are specific to operating systems (OSs) are entirely comparable to the coffee pods that are required for a single brew coffee system marketed by Green Mountain Coffee Roasters, Inc — Keurig®. We think that the companies producing these products are after the same level of enormous profitability that this product from Green Mountain Coffee Roasters, Inc. has produced.
Of course, not all market participants are proceeding with the same level of methodical dedication to a profit objective. Consider, for example, Google’s Android system. In fact, as Darcy Travlos pointed out in an article published on August 22, 2012 on the Forbes web site, Five Reasons Why Google Android versus Apple iOS Market Share Numbers Don’t Matter, “Google gives away its Android operating system in order to have real estate on mobile devices and, therefore, ubiquity is critical for Google to deliver ads. On the other hand, Apple makes money on every iPhone and iPad it sells, even before an ad is delivered to the device” (quoted from Ms. Travlos’ article, for which we have provided a link). In fact, as Ms. Travlos so aptly concludes, Google’s purpose for engaging in this smart phone market with, effectively, a closely coupled App component, has much more to do with expanding the application of its click ad electronic promotion product to a new market place, than it does with extract profit from both ends of a razorblade product marketing strategy. Again, as Ms. Travlos points out, Apple’s intentions are quite another matter. In fact, Apple is realizing enormous revenue from the sale of the durable component, while tightly managing participation in the App marketplace.
In fact, Apple has innovated this razorblade product model. We think that Apple is using the non durable component — Apps — to drive more sales of iPads and iPhones, which amount to the durable component of these products. As the Apps attract more users, more iPads and iPhones will have to be purchased by new customers. As well, compelling Apps will require that customers continue using these smart phone and tablet devices. We think, further, that Microsoft® has studied all of this very closely. Stay tuned as they try to apply the same principles to legacy office computing as they roll out Windows® 8 and Office® 8, which will both have their own App stores.
© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved