Your comment goes to the heart of what makes a good company, and the natural cycle of hubris, defeat, and redemption that is just well, life, but which is felt more intensely in tech markets.

re Apple. “Steve Jobs and Apple seem to take delight (and have a fairly impressive record of success) in taking on established markets and changing the game,” you write. Agreed, that is the established narrative. But as someone who followed them closely during their years in the desert, the 1990s, I don’t think is altogether true.

What markets have they done this to? I would say 2 only — the personal software and micro-computer industry (where they ended up losing to MSFT in the end) and the music industry thru iPod. That’s it. They’ve been around for 30 years and managed what you say their modus operandi is just twice, or only really one and a bit times. The only reason they didn’t go the way of Commodore was blind luck, fanboy devotion, and MSFT being under antitrust attack.

Remember PowerPC? Newton? That iTV box?As many projects have caved as have done well. They also tend to swing for the fences, to try and take control over entire tech ecosystems, and NOT to license technology, which works great if it works, but means disaster when it does not. They are incapable of collaborating. iPod was like a Black Swan product, whose effect was intensified with a music industry ripe for disaggregation. They were thus also lucky in their enemies.

iPhone v 1 was a swing for the fences, which failed. They suddenly got a bit more humble, involuntarily, with iPhone v 2. This gives them a chance to do well.

They are not lucky in their enemies this time round, rather they are going up against entrenched big pocketed bastard companies who revel in kicking everyone on the goolies while they are down, like Nokia and Samsung. If they don’t spend R&D efficiently they will goddam make sure they spend enough of it inefficiently to get the job done. Ask Taiwanese DRAM players what they think about Samsung. With RIMM they face someone as clever and innovative as AAPL is. They can still make it but lets not get gaga about their chances here.

What I think they should do is get out of phone HW altogether. License their OS to anyone who wants it. They would then totally clean up. But they won’t it is too “nice” an approach.

I cannot disagree with your characterization that the current handset market is one of scale, and current downloads are a crappy business. But Steve Jobs and Apple seem to take delight (and have a fairly impressive record of success) in taking on established markets and changing the game. This is what makes him and his company so disruptive and dangerous to entrenched market participants.

My sense is that Jobs believes there is substantial unmet demand for more sophisticated products and services in the mobile market (convergence with mobile computing, superior human factors, etc.) than the current giants with their slash and burn scale model have not been able to satisfy.

Also, referring to your more recent post, I do not necessarily agree that ramster’s comparison of Nokia with its giant R&D spend to General Motors is unsound. In contrast, I rather think the mobile phone/computing device/doohickey market could very well develop into one that looks much more like the automobile market, which is highly differentiated and which sustains a great number of differentiated, highly profitable niche companies. In fact, it is the GMs of that world, which focus on the mass market, which seem to have most of the problems now.

Finally, I cannot disagree with your better-educated opinion of Nokia’s R&D prowess and effectiveness, but I would caution you with the example of big pharma. There you have a record of vast companies spending gajillions of dollars/euros/simoleons on R&D with dramatically decreasing effectiveness over time. It seems that in that market, at least, there may be strongly diminishing returns to scale in R&D spending. Could that not also be the case in parts of the mobile device market?

Anyhoo, I just thought I’d give you and your commenters fresh material to rip into, if you are so inclined.

Look at music players. There’s only one reason that I own an iPod: iTunes. Not the store, the application (I’m a strong believer in stealing my music). The other options for managing my music on a PC suck so much that I’d rather overpay for iPods rather than buy something from Sony or Creative. The fact that iPods are pretty cool helps.

Look, I loathe Steve Jobs and Mac fanboys as much as the next guy but you’ve got to admit that Apple has wrapped its head around the device/application integration space in a way that makes everyone else look like a bunch of drooling toddlers. My recent experience picking up a Nokia N95 ($650 without a contract…Jeebus!) and trying (and failing) to surf the web doesn’t cast Nokia as much of an application genius, regardless of their handset juggernaut ways.

With the iPhones, Apple extends their ap-fu into web surfing, GPS navigation, etc. That’s going to be enticing to a pretty decent sized niche…which leads to the question of scale that you mention. It strikes me that when a few hundred million handsets are being sold per year, a niche market can still hit numbers that would be considered mass market in any other space (e.g. 10s of millions of units/yr).

The traditional handset model works off SCALE. Offering apps as a sideline is Steve Jobs’ (I hope he is OK BTW) attempt to recreate his failed recurring revenue model. App store is an untried business model. Perhaps it won’t (probably won’t) work, would be a big shift in user behaviour to pay lots of money for stuff to load on their handsets. Some do, to be sure, but is mostly teens downloading fart ringtones, and am not sure this is an aspirational segment for Apple.

So, unable to depend on that high margin revenue stream, Apple has to keep its margins up by spreading its costs across as many units as possible. Hence mass market. It’s not automatically a disaster, as I (not bloody Newmark, OK) write:

“. . . it (Apple) has a window to build some scale. At the same price as an HTC, hell, I’d buy a 3G iPhone. I can finally see it taking off. But it’s just a window.”