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Another Perspective

It's The Apps, Stupid

IBM and Apple are best friends these days.  They are working together to get businesses to provide their employees with iPads and iPhones along with IBM tablet applications and cloud services.  IBM is going to do the marketing, including the sale or leasing of mobile devices to its end users.  Support will be more complicated.  Apple will serve as the primary outside support provider through its remote-only AppleCare service; IBM will be the onsite support provider.  It isn't clear what role will be played by the teams that currently support users' computers, which usually run Windows.

tablet forecast
Neck and Neck
iOS and Android are running neck and neck
in the race to capture the tablet market

There is little doubt that Apple's phones and tablets are held in high regard by most businesses and their employees.  But in settings where a business expects its employees to bring their own devices, that high regard may be strictly academic.  Android devices hold more than 80 percent of the worldwide market for smartphones.  Android tablets are selling about as fast as iPads, and if an observer views Amazon's Fire tablets as part of the Android base, it might turn out that Apple commands a market share that is closer to a third than a half.  And that's not the whole picture.  In both phone and tablet markets, Microsoft is trying to build a significant presence.

It's an uphill battle for Microsoft, but in the business world it is hard to count out the company that owns Office.  On the other hand, when it comes to mobile device apps--until now bought through online stores rather than IBM sales reps—Microsoft is far behind Apple and Android.  It even lags Amazon, which is scrambling to make its app store the equal of the two leaders.

mobile phone market
Off The Hook
Mobile phone users who once might have felt only an iPhone
was top quality now are more likely to buy an Android model
that is less costly and comparably featured

IBM has tried to compete in the PC apps world and has usually done poorly.  Its most visible (and exceptional) success is Notes, an email client IBM has enriched quite a bit over the years, and its related server, Domino.  The Notes client is practically invisible outside the business world, but in shops with IBM i systems and IBM mainframes, there are quite a few successful installations of Notes and Domino.  IBM offers Notes clients for iOS and Android, but they are not as visible (and not as popular) as the Notes client for Windows.  As IBM puts its emphasis behind suites of iOS applications, it will have to reckon with Apple's Mail app or alternatively find a way to persuade business users to adapt apps that include an integrated email client.

The whole process may get pretty complicated if the IBM business customer happens to base its email on Microsoft Exchange servers and Outlook clients.  Apple's built-in Mail app works pretty well with the Microsoft mail services and so, too, we believe, does the mobile Notes client for iPhone.  But the situation is starting to look like one that will be made difficult for IBM and trusting customers by the fragmentation of email services.

If the email aspect of enterprise mobile computing can become tricky, imagine how confusing things will be for IBM business customers whose employees use Android or Windows phones.  Getting non-iPhone mobile users to swing over to Apple devices won't be easy.  If they constitute half the target user population at a business, which can be the case, IBM might have to consider offering Android or Windows support alongside iOS support.  That probably wouldn't sit too well with Apple, which wants to use the IBM connection to squeeze Android and Windows out of the business world.

If the opportunity sought by Apple and IBM is challenging in the enterprise and SMB segments in the United States, imagine how much more difficult it will be overseas.  In India, where the majority of IBM's software developers live and work, Apple phones are relatively scarce, luxuries IBM's well-paid employees can afford but which are far too costly for business users who work for IBM's customers in India's industrial and services segments.  A similar situation exists in China, a big market with a huge appetite for mobile computing, and in Brazil, too.

tablet forecast
Tablets Outrun PCs
Next year unit sales of tablets are likely to pass sales of all PCs,
putting Windows and thus Microsoft at risk

The phone industry is scrambling to develop smartphones cheap enough to attract users in the developing world, and right now the leading operating system in that realm is Android.  To pick one example, Lenovo, which owns the Motorola mobile device business, is trying to build its business by offering Android phones that sell for a lot less than its premium models.  The most elaborate Motorola phones retail for $500 to $700 apiece, but the best-selling Motorola models cost much less, about $200 per unit retail for a midrange phone and about $120 for an entry model.

Top executives in the BRIC countries can afford Apple phones and tablets, but middle managers that IBM and Apple will want to serve if their business apps are to become worldwide products may not be able to afford Apple products, not even the relatively more economical low-end Apple models.  And if IBM and Apple dismiss or defer this issue for now, hoping to focus on end users in the USA and EU, they may be able to pick up some business.  But they are unlikely to persuade multinationals that their offering is affordable.

tablet base
Big Base
Not only are tablets selling well, but they are persisting,
creating an installed base that is expected to pass
the billion unit mark during the next few years

Moreover, as businesses try to bring the power of mobile computing down through their organizations, all the way to factory employees, retail personnel, food servers, and the like, an offering that starts with a mobile device costing several hundred dollars is going to be a tough sell.  Today an unlocked iPhone 5S costs about $550, an iPhone 6 runs about $640, and a large screen iPhone 6 Plus with a full load of memory sells for $850.

The Apple devices are great phones, but not at all practical for many of the people Apple and IBM will want to reach if the really are offering apps and support to tie whole enterprises into a connected bundle.  And if their offerings only make economic sense for well-paid big shots, the odds of success start to look pretty bad.  That leaves the Apple-IBM team with only one course of action: If they want to force iPhones and iPads loaded with IBM apps and hooks into IBM cloud services into business customers, they have to find a way to get the business customers to buy the hardware as well as the software for all their employees, and particularly for employees who receive modest pay.

The upshot might be a set of offerings that include leases on mobile devices.  IBM's credit arm could buy a heap of iStuff and put it out on, say, three-year leases.  IBM's imaginative bean-counters could probably find a way to put suitable residual values on the leased phones and tablets, thus making it possible to structure the deals as operating leases.  But IBM never was a major force in PC financing, an activity at which Dell and HP seemed to do okay.  So it remains to be seen how IBM deals with the financing aspect of its plan, if indeed financing plays the significant role we expect.

One would think it might have been easier for IBM to just develop a set of apps and offer them in iOS and Android and Windows and Fire versions through the OS vendors' app stores.  But IBM doesn't seem to have the courage to go on its own.  Nor has it explained just what Apple really brings to the table other than probably giving IBM some pretty good wholesale prices for hardware and support.

We're looking forward to next year when we can finally see the actual results of the romance between Apple and IBM.  We sure hope it produces a lot more than a stack of press releases.

— Hesh Wiener December 2014

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