Background
Apple Inc. (NASDAQ:AAPL)’s iPhone, introduced in 2007, caught the smartphone competition flatfooted. While smartphone OEMs scrambled to create the operating systems and hardware needed to match the iPhone’s robust touch interface, Apple captured valuable smartphone market share.
With the launch of the iPad in 2011, the situation was the same – Apple gained significant tablet share, while the competition played catch-up.
Today, with competitors’ improvements in operating systems and hardware, the difference between Apple’s and the competitions’ user interface has narrowed. And while Apple Inc. (NASDAQ:AAPL)’s integrated app ecosystem continues to provide Cupertino with some competitive advantages in mobile, the commoditization of mobile UIs looks to be putting pressure on Apple’s industry-leading margins.
iOS 7: Rebuilding the Competitive Moat
With the launch of iOS 7 later this year, Apple Inc. (NASDAQ:AAPL) looks to achieve, once again, a significant competitive advantage via the look and feel of its new UI. And just as importantly, Apple may find their competitive advantage to be sustainable, given the difficulty the competition will face replicating software and hardware required for an iOS 7-like UI.
Software
The best way to explain iOS 7 is to consider the difference between looking at picture of a fish (iOS 6) and gazing into an aquarium (iOS 7). Apple Inc. (NASDAQ:AAPL)’s iOS 7 uses complex software effects, such as stacking and layering, blurring, and natural movement to create a three-dimensional, immersive experience. Content no longer slides off screen – it morphs and reshapes within a space. Objects move and shift perspective naturally – turning, bouncing, sliding, and colliding.
While the incorporation of sophisticated motion and depth into iOS 7 is intended to delight users, it is also meant to inspire developers to move into a new phase of app development.
While critics may deride this major change in the iOS look and feel as “gimmicky”, I suspect Apple’s dynamic interface will inject a level of fun and wonder into the iPhone that existed at its launch. Fun should never discounted in mobile, as it increases user exploration, discovery and value.
Hardware
Like the original version of iOS launched in 2007 – the boundary pushing software for iOS 7 requires extreme hardware specs.
Only the most sophisticated (and expensive) GPUs can handle the graphics incorporated into the iOS 7 user interface. In addition, Apple Inc. (NASDAQ:AAPL) for the first time, has added a full physics engine into iOS 7 support natural object movement. As a result, Apple has substantially increased both the cost and complexity involved in mimicking Apple’s new operating system.
Headaches for the Competition
The success of iOS 7 could be profound.
Most of Google Inc (NASDAQ:GOOG)‘s Android-powered phones and tablets can’t replicate the iOS 7 experience. While high-end Android phones and tablets could theoretically render an iOS 7-like experience – the vast majority of Android phones and tablets are low-end and mid-tier products. The Android smartphone and tablet OEMs in this space don’t have, and can’t afford, the hardware and modified software specs required for a dynamic, iOS 7-like UI.
The lack of a competitive Android solution across pricing tiers could force more Android manufacturers to focus their efforts on the lower-end of the smartphone market – which could reduce the value of Google Inc (NASDAQ:GOOG)’s Android search users – Low-priced smartphones appear to attract “light” computing users who are simply looking for a “better feature phone,” making them less likely to search and purchase products on their mobile device. The potential risk to Google would be additional erosion in Google’s “cost-per-click” rate for its ads, which has been trending down since the fourth-quarter of 2011.
In addition, iOS 7 could kill Research In Motion Ltd (NASDAQ:BBRY). Steep price reductions for Blackberry’s flagship smartphone four months after its launch, the platform’s continued loss of market share, and significant delays in previous operating system upgrades all point to Research In Motion Ltd (NASDAQ:BBRY)’s tenuous position in the smartphone market. If the majority of high-end smartphone users demand dynamic UIs, it’s not unreasonable to question the Research In Motion Ltd (NASDAQ:BBRY)’s ability to survive, given the time and resources the company would need to push through another major OS update.
Apple Inc. (NASDAQ:AAPL) can also further differentiate its iPhone and iPad models. Mobile products using the older A4 chip (including iPhone 4 and the anticipated lower-priced iPhone) will require some of iOS 7’s graphics functionality to be constrained. The result will be another point of differentiation between Apple’s older, lower-priced models and its newer, higher priced smartphones.
Finally, app developers will need to focus more time on iOS 7 apps, and less on the competition. At the risk of appearing dated, existing iPhone apps will need to be quickly modified to incorporate the look and new features of iOS 7. Also, the dynamic interface of iOS 7 can’t be replicated on web browsers — putting pressure on web-based developers to create native apps for the iOS 7 ecosystem. What’s more, iOS 7’s new features, including natural movement and 3D effects, will likely attract additional attention as developers race to exploit iOS 7’s new capabilities. The result? More developers spending more time on iOS 7 apps, at the expense of the Android, Windows 8, and Blackberry 10 mobile operating systems.
Foolish Bottom Line
Apple Inc. (NASDAQ:AAPL) has two goals for their new mobile operating system. First, reignite the wonder and excitement users felt following the introduction of the first iPhone. Second, create a technology moat between Apple and the rest of the mobile competition. Foolish investors should closely track user reaction for iOS 7, since wide appeal for iOS 7 could support company margins and increases in Apple Inc. (NASDAQ:AAPL) iPhone and iPad market share.
The article iOS 7: A Nightmare for the Competition? originally appeared on Fool.com and is written by Bill Shambllin.
Bill Shambllin owns shares of Apple and Google Inc (NASDAQ:GOOG). The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). Bill is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
