Yesterday, Apple blocked Palm Pre smart phones from accessing iTunes. The Pre smart phone has been able to access Apple's on-line music store since it went on sale in early June, but apparently Palm didn't have a formal deal with Apple. This is bad for Palm, and for Pre users, but it's also bad for Apple. Apple is holding onto their integrated solution just when the market is about split into segments, and explode!
But of course this is not the first time Apple has been in a leadership position and lost it.
In 1980, Apple controlled 50% of the emerging PC market and had dominate mind share. Over the next 15 years they became a niche player, not because IBM entered the market, but because they clung to an integrated solution while the exploding market split into segments (chips, PC chassis, peripherals, operating systems, applications and more) with different players in each segment.
Today, Apple has dominate mind share and significant market share in on-line music with iTunes and the iPod devices, and in smart phones with the iPhone and the iPhone application store. Apple has captured the hearts and minds of people around the globe and gotten real money from at least tens of millions of wallets. A big reason for their success has been Apple's complete integrated solution that provides a seamless experience. There is no doubt the iPhone is the best device for mobile Internet access and, in part, that's because Apple controls everything about the user interface (even while opening application programming to hundreds of thousands of 3rd parties).
But the market is just beginning. Our mobile devices are where PCs were in 1980. As this market explodes, it's going to break into segments, with specialists in each segment. Already, a half-dozen application stores have been announced, each hoping to trump the iPhone application store. MP3 players abound, particularly in Asia. Indeed, most youth in Asia do not have smart phones (iPhone or otherwise) and their music players do not come from Apple.
Apple could leverage their leadership in iTunes, iPods and the iPhone to define the future market segments and dominate at least one segment. Indeed, with internal functional separation (separate profit and loss units), they might aspire to dominate two or three segments. But if they stick to the integrated solution which won them their fame, they will repeat what they did with their 1980 PC leadership ― fritter it away and end up a niche player once again.