by Jean-Louis Gassée

There are two ways to interpret the equation above.

Doomsayers will sing the licensing blues. By refusing to license the operating system—iOS, in this case—the iPhone will drown in a sea of Android smartphones. We’ve seen it before: Apple is repeating the mistake that allowed Windows clones to scuttle the Mac.

Others, such as yours truly, see the iPhone—or, more properly, its pole position in the smartphone race—as a perfect illustration of lessons learned from the Mac’s struggle to find breathing room in the PC industry.

We know how the first reading of the equation continues. The Mac had immense promise, a much better personal computer than the 16-bit clone of the Apple ][ called the IBM PC. But Apple’s arrogance beleaguered the platform. Instead of following the Microsoft model—focusing on software and letting licensees create a prosperous ecosystem—Apple repeatedly nixed Mac clones and was marginalized, with the Mac market share sinking as low as 2%.

The iPhone is equally promising and, the argument goes, just as equally destined to a marginal role. Like the original Mac, the iPhone has inaugurated a new era, and will ultimately see others dominate the market.

This is a resilient meme, one that gives rise to regular kommentariat pieces predicting trouble for Jobs and his company. Last October, a New York Times piece asked: Will Apple’s Culture Hurt the iPhone? Just last week, a Fortune columnist joined the herd and declared ‘2011 will be the year Android explodes’.

Unsurprisingly, others tore the “closed = marginalization” formula apart. The new smartphone world isn’t a replica of the PC industry, the analogy doesn’t apply. John Gruber argues here that the real race is in reducing the cost of monthly agreements: A “free” Android smartphone versus a $99 or $199 iPhone won’t make much of a difference if the monthly plan costs $80 to $100. Another observer, whose nom de plume is Kontra, thinks we’ll reach a different kind of duopoly where Android will get the volume and Apple will make all the money. See “The Unbearable Inevitability of Being Android, 1995”. And take a look at this great piece felicitously titled “Fragmandroid: Google’s mad dash to Microsoftdom”.

I have my own set of questions about the Mac’s “failure”.

First, shall we agree that Microsoft “open” model is the exception rather than the rule? How many other examples of the Microsoft platform licensing model, with its caveats, prohibitions, and insistence on fealty, do we see? Have we forgotten that Microsoft’s methods led to a conviction of being a monopolist?

Second, there is the Mac’s rebirth. Last year, its US market share approached 10%, with a 90% unit share in the $1k-and-greater segment. For the past five years, Mac unit sales have grown faster than the PC industry.

Even more important: profits. HP is the leading PC manufacturer, with quarterly revenues in the $10B range and 5% operating income. Apple makes only a third of HP’s PC dollar volume per quarter—but with an operating income in the 30% to 35% range. (More details in this May 2nd, 2010 Monday Note.) We’ll have numbers for the October-December quarter in a few days. We’re likely to see a continuation of the dual rise of Mac market share and profits. In the meantime, Apple, for its sins, has been punished with the highest market cap of all high-tech companies, close to $300B.

This could be a blueprint for the iPhone’s future: smaller market share, bigger profits.

Back to the equation and my own interpretation: Applying the lessons from the Mac’s troubled beginnings.

When the Mac came out, it showed immense promise. The execution wasn’t flawless and it suffered from several important shortcomings—the lack of a hard disk, next to nothing in the way of application software compared to the PC. Steve Jobs tried—and tried hard—to get Lotus, Microsoft, and Software Publishing (of PFS: fame) to write apps for the Mac. In a pre-introduction Sales Conference in Honolulu in 1983, we were treated to a mock Dating Game where Mitch Kapor, Bill Gates and Fred Gibbons pledged to date the Mac, to write applications for the new wonder-PC. Ironically, the only “date” that produced anything helpful was Gates with Excel and Word. This was in exchange for a UI licensing agreement that produced no end of trouble.

“Never again.” This must have been Steve Jobs’ motto when, in 1997, he finally assumed undisputed leadership of the company he had co-founded. From then on, Apple was going to control its own future.

Fast-forward to the iPhone: It has the polish the early Mac lacked, it has the support of Apple’s own retail network, it has rid itself of the carriers’ mucking around with handsets and content distribution and, thanks to the iTunes infrastructure, it has its App Store, giving it a huge lead in the breadth and depth of available applications. Not everything works flawlessly but it has been an amazingly well organized campaign that has taken the establishment by surprise.

The result? A fundamentally different situation: While the Mac struggled from day one, the iPhone immediately took the prize.

So, will Android ultimately win, just as Windows prevailed?

My own guess is we’ll get to today’s version of the Mac vs. Windows wars, only faster and better. Faster meaning the iPhone skipped over the Mac’s early struggles. Better means profits. While Android clones proliferate and race to the bottom, iOS devices are likely to retain a substantial share of consumer dollars. Today, Apple reaps close to half of all smartphone profits, (see this Asymco post). That dominance probably won’t last, but in a sea of Android clones, Apple is likely to remain the most profitable smartphone maker. And this is without considering the other devices the iOS platform will power: tablets, iPods, Apple TV…

JLG@mondaynote.com

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