Qualcomm’s Critical Appellate Court Win: Contrasting The Apple and Qualcomm Future Worlds

This week Qualcomm won their critical appeal on the FTC litigation that Apple instigated. And it was a decisive win given the Appellate Court didn’t send any part of the case back to the judge that tried the case – they vacated her biased judgment. I believe that judgment was predicated on a false (think fake news) claim that Apple manufactured to change the world from the one we are in now to one where Apple was far more dominant. That world, similar to the one IBM mistakenly tried to create before its collapse in the early 1990s was, I believe, not only problematic for users, but problematic for the U.S. Technical dominance, and would have resulted in the same dire outcome for Apple as it almost did for IBM. 

I think it is interesting because I’ve lived through both worlds and the pain that resulted in IBM when it had to shift from a lifetime employment company to an employment-at-will company while I was working there. The trauma for IBM’s customers, employees, and investors was pronounced, and it not only led IBM to disavow the model Apple is using but made me want to work to avoid that model every time it shows up. 

Let’s contrast Qualcomm’s model, which has to do with technology sharing and standards, with the older model that IBM used to have and companies like Apple and Oracle champion today. 

Lock-In vs. Standards, Open Source and Customer Focus

In some ways, comparing these two models is a little like comparing democracy with a dictatorship. If run optimally, a dictatorship and Apple’s model can be more efficient. This result is because it eliminates competition and customer choice. If the company stays focused on customer satisfaction, it can provide a far more effective result than a more democratic solution. 

The dominant company provides a limited line of products, and you go to them with all your needs. With lock-in instead of problems with trying to figure out if Microsoft, Google, Dell, HP, or Lenovo are where your solution resides, you call Apple and Apple fixes your issue. 

The problem results when the market saturates because companies and executives are measured on revenue growth. The hard way to get that growth would be to continue to innovate and run the risk that customers don’t find your new offering compelling enough to replace their old product. And if that old product is good enough and you are doing a great job maintaining it, both things the customer would want, your revenue dries up, and no one gets a bonus. 

At IBM, when it was 90%+ of the market, they decided to kill Quality Control in my division and then start charging for product fixes as the related product quality dropped. New offerings were focused increasingly on fixing old problems that IBM itself created rather than anything that carried the product forward, leaving the company open for an attack from the outside that was more innovative and nearly took the company out.

Qualcomm’s model provides a baseline of technology for a low fee that anyone can use. Competitors can develop their technology without a license, and it will still interface with the ecosystem that Qualcomm has helped create. It is less efficient because there are many redundant vendors. Still, these vendors, competing with each other, remain focused on the customer’s needs because those customers can easily switch vendors if those needs are met and help keep prices and margins low. 

Now in Apple’s world, 5G doesn’t exist yet nor do foldable or dual-screen solutions. But for those that have Android phones, those advances are available today, and you can pick from a wider variety of form factors, prices, and colors based on your unique needs. In short, in Apple’s world, you conform to them; in Qualcomm’s world, the phone OEMs conform to you. 

Apple’s model focuses Apple on increasing wealth, and clearly, it has been very effective in doing that. Apple is valued at something like 10x what Qualcomm is valued. But it leads to a revenue/margin-focused trap that increasingly alienates customers once saturation is reached or market growth stalls. 

Apple hasn’t had anything exciting or innovative since the Apple Watch, and they even screwed that up because they wanted to lock it to the iPhone rather than let it range between platforms as they did with the iPod, iPad, and iPhone. The Apple Watch is arguably the best Smartwatch, but you have to have an iPhone to get it to work, raising the price of entry for a non-Apple user significantly and unnecessarily. Still, it results in more revenue and profit for Apple than otherwise might be the case for a single purchase. Jobs learned this the hard way with the iPod, and Tim Cook missed that meeting resulting in a far less customer-focused company than was the case while Jobs was still CEO. 

But given Apple’s success under Steve Jobs was connected mainly to his allowing his product to interoperate with Windows, it also eliminates the chance the Apple Watch will become as influential as the iPod, iPhone, and iPad were. No matter how good it is, it can’t evolve to anything more than an iPhone accessory. And given the devices’ obvious health benefits, that decision was not in the customers’ best interest. 

Wrapping Up: Qualcomm Win Critical to Our Mobile Future

Competition is a critical part of innovation. Yes, eliminating it can result in higher efficiency, but it grants too much power, and people will abuse power. The relevant saying is that “power corrupts, absolute power corrupts absolutely” (this is an interesting link if you want to understand the why behind this saying) and the Lock-In strategy Apple uses results in near-unlimited power. Apple is now faced with multiple anti-trust and related customer litigation problems that competition would have prevented. This outcome is because whey you know customers can easily switch, you are far more likely to focus on keeping those customers happy while, if those customers are locked in, you don’t care about satisfaction only making more money. 

Qualcomm’s model assures there are more unusual devices like the Microsoft Surface Duo and Samsung Galaxy Fold, that vendors focus more on what you want to get to stay with them. Firms are successful more because they care about you than they are effective at making your money theirs. Thankfully Qualcomm won because what would have resulted had they lost wouldn’t have worked for us, and ironically, likely would have led to Apple’s eventual failure, much like a similar model almost did to IBM.