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Rivals can imitate Apple's product strategy, but not gold fever

Google and Microsoft can make a phone that rivals the quality and fit and finish of an Apple product. What they can't manufacturer is long lines of people waiting to get their new iPhone or iPad.

Apple CEO Tim Cook chats with fans after he stopped by the Apple Store in Palo Alto, Calif., Friday morning for the iPhone5S launch.

Following the introduction of new iPhones, Apple trotted out its executives for interviews with USA Today and BusinessWeek. What did we learn? Chief aesthetician Jony Ive likes to design cups in his spare time but won't say whether they have handles or not. Well coifed software engineering chief Craig Federighi is known as "Hair Force One."

But in between the cleverness and stock answers about how great collaboration is at Apple, how lovely translucency is, and how the products are born out of getting it right rather than doing something new, CEO Tim Cook offered a news nugget: He's not worried about low-cost competitors, the Android pack eating Apple's lunch, or giant rivals adopting Apple's product strategy. And he explained why.

Cook characterized the lower-cost smartphones and tablets competing with Apple products as the "junk market." He was responding to critics who believe that Apple should have delivered a $300 phone, rather than the $549 iPhone 5C.

"There's always a large junk part of the market," Cook told BusinessWeek. "We're not in the junk business. There's a segment of the market that really wants a product that does a lot for them, and I want to compete like crazy for those customers. I'm not going to lose sleep over that other market, because it's just not who we are. Fortunately, both of these markets are so big, and there's so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business."

Cook also hammered on the fragmentation of the Android platform. Unlike Apple's total control of its platform, Google makes Android free and modifiable by device makers. Users often don't have the latest version of the operating system, given that each Android device maker needs to test and verify a Google Android update on its flavor of Android before releasing it to users.

"And so by the time they exit, they're using an operating system that's three or four years old. That would be like me right now having in my pocket iOS 3. I can't imagine it," Cook said. When Apple ships an update, every user can download the new version, and they do. Nearly 30 percent of Apple customers downloaded the just released iOS 7 within 16 hours of its availability.

He added, "It will show up for people that no longer have access to certain apps. It will show up in security issues because if you're not moving your customer base to the latest version, then you have to go back and plug holes in all of this old stuff, and people don't really do that to a great degree."

But fragmentation hasn't held back Android from dominating smartphone sales around the world. In addition, Google has figured out ways to work around the Android fragmentation issue via Google Play Services, which automatically updates Google-powered features such as Maps APIs, location APIs, authorization services, Google+ and Games APIs. Continuous updates to Google's apps and Google Play Services helps ameliorate the fragmentation problem that plagues the Android platform.


Even Ive joined in on the critique of rivals, in this instance targeting makers of phones laden with features that fail to meet his exacting quality and ease of operation standards. "We didn't start opportunistically with 10 bits of technology that we could try to find a use for to add to our features list," Ive said. He pointed to the Touch ID fingerprint scanner on the iPhone 5S as an example of Apple's meticulous attention making a feature "effortless and simple."

Apple may be losing market share, but not its strength. The overall market for smartphones and tablets is growing, and Apple continues to hold a solid percentage of the market and its healthy gross margins. The company can survive very well as a niche player selling premium products, as it has with the Macintosh, which lately holds a less than 10 percent share of PCs but rakes in close to half of the profits for the category.

But what if the most heavily armed, well funded, influential tech companies, in addition to Samsung, decided to follow the Apple formula, controlling both the hardware and software? Google, which purchased Motorola Mobility in 2011, and Microsoft, which announced it was purchasing Nokia's device business for $7.2 billion, are clearly headed in that direction.

"Everybody is trying to adopt Apple's strategy," Cook acknowledged to BusinessWeek. "We're not looking for external validation of our strategy, but I think it does suggest that there's a lot of copying, kind of, on the strategy and that people have recognized that importance."

But taking down Apple a notch will take more than just a great product. Google's Moto X smartphone didn't phase Apple's iPhone business. CNET found that the screen quality and storage capacity lagged competitors but that the Moto X's "superbly compact and comfortable design, whiz-bang voice controls, and long battery life make it a worthy Android contender."

Thirsty queuers outside Apple's flagship London store in Covent Garden enjoy complimentary coffees. Nick Hide/CNET

Apple tends to stand alone, whereas Android and Windows devices contend more against their own kind. Google and Microsoft, or Samsung, can make a phone that rivals the quality and fit and finish of an Apple product. What they can't manufacture is the long lines around the block of people waiting to get their new gold iPhone.