The Main Driver of Apple’s Success Has Become Its Biggest Liability
Apple Chief Executive Tim Cook has turned his company into a juggernaut on the strength of its integrated “walled garden" of gadgets and services. It’s a strategy that has churned out enormous profits—and yet it’s increasingly a problem for the company. Apple’s hardware business is showing weakness, with sales of some devices leveling off and others declining.
To shore up its revenue, the company is increasingly dependent on its growing services offerings—subscriptions, commissions on sales in its App Store and the like—and is now in a position where it must defend and try to increase that revenue at all costs. In the long run, this strategy could backfire. Apple’s walled garden is unusually comprehensive, even by the standards of the industry.
It’s not just the collection of gadgets it sells. It’s the fact that they are all integrated—in terms of both their hardware and software—that makes it very difficult for Apple customers to use devices outside of it, or switch to a competing ecosystem altogether. It has, in the words of regulators and economists, high switching costs.
Apple aggressively regulates this garden to ensure its profits, but its tactics are increasingly angering other companies and regulators, who are pushing back with growing force. Apple’s response risks only angering them further. In some ways, the company may be backed into a corner, in that it increasingly depends for its profits on its services business, which is in turn dependent on this closed system.
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