Catch the Wave, Control the Supply

Apple’s classic market share, small but significant, has always allowed it to catch technology waves before other vendors. The Airport is a perfect example of that. The PC reference platform is a much more immovable object than Apple’s platform. This is one reason why it has been to Apple’s advantage to keep the hardware platform closed.

If a handful of vendors are struggling to get their industrial standard to catch fire can get Apple opportunity to build momenteum. While I don’t know if Apple managed to control the early supply of 802.11B components (though I suspect so) I have read that Apple managed to lockup the early supply of the tiny disks found in the iPod. I personally think thats 80% of why was able to gain such a huge lead and dominance in that market.

This tactic often backfires for Apple. All thru the 1980s and 90s Apple would regularly have a product success followed by an inablity to supply the demand they had created. That risk is built into the tactic. It can also backfire when the emerging standard fails to catch fire; the portable friendly PowerPC is an example of that.

Managing your supply chain is a contracting problem, among other things. So Apple can be seen to occationally announce that they have signed long term supply contracts with vendors for key breaking edge components, for example flat screens. Such announcements should be viewed the lens of inter-firm signalling; particularly the signals about where momenteum is building for this or that standard or component.

Of course if this tactic works perfectly then other firms wake up to discover that they can’t get components needed to compete. They get testy. Here’s a story about how other firms are looking for regulatory relief after Apple locked up most of the supply the leading edge flash memory used in the iPod nano.

There is a difference, an important one, between a this tactic’s use by a company with a small but significant market share and it’s use by a company that totally dominates a market. In the first – small but significant – case the firm is playing a high risk disruptive role that can reshape the market. In the second – large and dominate market share – the firm is consolidating and leveraging it’s control over the market. The first is healthy, the second just reenforces the existing monopoly.

Leave a Reply

Your email address will not be published.