Can Anyone Compete With Apple?

Sep 18, 2012
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Yet again, demand for Apple's latest smartphone has been huge. Presales for the iPhone 5 broke previous records with two million units in one day, and the debut comes right after Apple's victory against one of its main competitors. Last month, a jury in California ruled that Samsung must pay $1 billion for violating a number of Apple patents in many of its smartphones. These phones operate on Google's Android software. And analysts expect more lawsuits in the future.

On PandoDaily.com, Farhad Manjoo wondered whether anyone can now compete with Apple or about ways they could compete. If you have questions for Farhad about the mobile phone business, give us a call. 800-989-8255 is the number. Email: talk@npr.org. You can also join the conversation at our website. That's at npr.org. Click on TALK OF THE NATION. Farhad Manjoo joins us now from a studio at Stanford University. He's technology columnist for Slate.com and a contributor to PandoDaily.com. And nice to have you back on TALK OF THE NATION.

FARHAD MANJOO: Hi. It's good to be here.

CONAN: And which of these two tectonic events is more important do you think?

MANJOO: I think that the release of the iPhone 5 and the kind of blockbuster sales that that Apple is expected to have over the holiday season, that's more important, especially to kind of Apple's bottom-line in the short run. I think over the long run, though, the lawsuit and Apple's resounding win in the court, it's going to cause some of its competitors to kind of rethink their position. I mean, they have been - especially Samsung, have been doing really well by releasing phones that, especially two years ago, were very, very close to the iPhone. And now, they're going to have to change some of their features to differentiate a little bit more from the iPhone.

CONAN: Yet, you in one of your pieces, I think, at pando.com, take us back to 2007, 2008 and say Samsung made the right decision.

MANJOO: Yeah. I mean, so when the iPhone came out in 2007, it was, you know, it was like a hurricane going through the mobile phone market because it really changed the way consumers thought about their phones. These were no longer phones. They weren't devices that you just use to communicate with other people, but they were - the iPhone showed that people wanted to have basically a computer device that runs apps and does other things in their pockets. So all of Apple's rivals had to respond to that in some way. You know, some of them decided to kind of ignore the iPhone. That's what Research in Motion did with its BlackBerry.

CONAN: And looked what happened to BlackBerry now.


MANJOO: Right. Exactly. So some of them ignored - so, you know, the BlackBerry is basically dying now, and that's what happened with Nokia too. And they pretended that it didn't - the iPhone sort of didn't exist. And other companies like Palm, which is no longer around, tried to kind of leapfrog the iPhone and try to do something better, but that also proved really difficult because it seems like people just wanted the iPhone. So Samsung was one of a few companies that decided, you know, we're just going to make something that's very much like the iPhone.

They competed on price, and they tried to offer features that were close to the iPhone, and that worked. What's remarkable is that of all of the competitors to Apple, all of the Android competitors to Apple, Samsung is the one that has made the most profits over the last few years, and they've done it by releasing phones that, you know, according to a jury at least are - were, you know, imitations of the iPhone.

CONAN: And now, aren't they on the hook, though, for, what, at least $1 billion?

MANJOO: Yeah. It's at least $1 billion, and it could be up to three times that if Apple gets its way and convinces the judge to increase the damages. But if you compare that to how much money Apple - Samsung has made in the last three years, it's something like 20 billion in profits since the iPhone came out with its Android devices. That's, you know, it's not a big deal. It's sort of a small tax on, you know, for...


CONAN: Three billion dollars in pocket change, for example. Yeah.

MANJOO: Right. I mean, the smartphone market is huge, and Samsung has made tens of billions of dollars in profits in that market. So the small fee that it might have to pay for violating patents is not a big one in the scheme of things.

CONAN: But might they not also have to pull some product off the shelves? And now, either redesign their phones or pay a licensing agreement with Apple, which would not be cheap.

MANJOO: Yes. So one of the consequences of this lawsuit is that they may have - they may be forced to remove some products in different parts of the world. That kind of defends on courts everywhere else - where they'll have to remove products. And then in the future, their products will have to remove some features that the jury found were too much like Apple's. I think they'll be able to do that.

I mean, they'll - the features that we're talking about generally are small things. They are, like, things like slide to unlock. The way that you unlock the - your iPhone. Or there's a particular way that the iPhone scrolling interface worked that Samsung won't be able to copy anymore. But they won't be huge changes that people are likely to kind of think of as, you know, big differentiators in the smartphone market. And all the while, Samsung has, you know, emerged as the number two player, so it will be able to kind of keep that position in the market.

CONAN: And it's got a certain reputation as the number two maker and as an innovator in its own right.

MANJOO: Right. Mm-hmm.

CONAN: All right.

MANJOO: Yeah. I mean, it's - copying at first kind of work as kind of a short-run plan for Samsung. And now, you know, according to many people, if you look at their newer phones, they're genuinely innovative. Some people like them, you know, more than the iPhone.

CONAN: Well, Farhad Manjoo is with us from Stanford. And we're talking about the colossus of Cupertino, now the largest and most valuable cooperation on the planet, Apple, and, well, how is it going to be difficult to compete with them now? 800-989-8255. Email us: talk@npr.org. And Al is on the line with us from Minneapolis.

AL: Hi. Good afternoon. Great program. I have a question I'd love to hear the answer for. How can a company patent a rectangle with curves? I mean, what does that say about how messed up our patent system is? I mean, I've been in IT for a while. I was for a while, I should say. And I've seen some really questionable patenting going on. And it seems as IP - this IP battles are nothing - I mean, there are companies out there just existing for IP. I mean, our patent system seems like it's just fubar, but no one wants to take it out and straighten it up. What's your thought?

CONAN: Farhad?

MANJOO: Yeah - no. I mean, I agree with that. I think many people in the technology industry would agree with that. That, you know, you can now - a regular part of inventing things here in Silicon Valley or elsewhere in the economy is that you kind of patent every tiny thing that you come up with. You know, like it's kind of inconceivable that when they - when Apple was coming up with the iPhone, they patented things like the - just the way that the scrolling works, like a very small feature that I think in the past, you know, engineers and designers wouldn't have thought to patent. And the problem - I mean, the reason they do that is because it's really valuable. I mean, it's a way to defeat competitors. It's a way to gain an upper hand in the marketing and keep that place in the market. And no one - none of the companies wants to kind of unilaterally disarm, right?

So I think that many people in the tech industry want a different kind of patent system, but kind of - they don't want to be kind of the first company to decide, we're not going to, you know, play this patent game because they kind of have to.

CONAN: Let's go next to Leslie. Leslie on the line with us from Denver.


CONAN: Go ahead, please.

LESLIE: Hello. My question is along the same line. How and why wouldn't Samsung go back to an appellate court and say, look, moving the screen wide or small with your fingers is as necessary as moving a cursor as in other operating systems. I mean, it's something that shouldn't be patented.

MANJOO: Samsung made those arguments in, you know, at the (unintelligible).

LESLIE: Say it again.

MANJOO: Samsung kind of made some of those arguments in the trial, and the jury didn't quite buy them. Now, there is an appeal, and I guess, we'll see whether the, you know, whether the judges are more accepting of that argument. But it's - I mean, I think one of the questions here is whether these patents should have been granted. And that was, you know, part - a big part of the trial and a big part of - kind of the larger discussion about patents in the tech industry. But I think that if you get passed that, it's sort of clear that some of Apple's rivals have violated those patents, at least according to, you know, what this jury said.

CONAN: And a lot of people say that the real target here is not necessarily Samsung, though that's on the way to the bigger target, which is Google and Android.

MANJOO: Right. So what happened here? I mean, one of the things that we know Steve Jobs was really annoyed about is the way that Google created a rival operating system to his iPhone - to the iPhone's operating system and then gave it for free to cellphone manufactures around the world. And, you know, Steve Jobs, at least according to his - Walter Isaacson's biography, was bent on going after Google and Android.

And so the way - I mean, their initial strategy and what they've kind of pursued in courts around the world is to go after these third party companies that make phones using Google's Android operating system. They've also sued Motorola, which is a company that Google has just purchased. So that's the closest they've come so far to going after Google directly. They haven't given any indication that they're going to go after Google directly, and it might be enough for them to just go after the device makers. But certainly, that's an option for Apple.

CONAN: Our guest is Farhad Manjoo, who's the technology columnist in Slate.com and a contributor to PandoDaily.com. We're talking about the Apple suit against Samsung and the new Apple iPhone 5. You're listening to TALK OF THE NATION from NPR News.

There was also something you wrote about, that Apple has so conditioned our thinking about what an iPhone - well, a smartphone is supposed to be that even a superior competitors can't compete against it.

MANJOO: Yeah. I think that, you know, one of the things that we've seen recently is that a lot of iPhones competitors have gotten much better. And now - it used to be, you know, like a year ago, two years ago, that if you chose any alternative to the iPhone, you're mostly doing it because you were settling. Like, you - perhaps, you couldn't get the iPhone on your, you know, cellphone carrier or maybe you just didn't like Apple, and so you're going to go with Android. But now, it seems like if you choose any other phone kind of in the iPhone's class, you're not settling. They're just as good as the iPhone.

But one of the things that, you know, one of the reasons that Apple is kind of stays ahead is that it has this cultural cache. I mean, has this - people have this idea that the iPhone is the best phone on the market. And it's going to be hard for rivals to kind of beat that impression. That, you know, that's why all app developers want to create stuff for the iPhone. It's because it's at the top of the, you know, at the top of the market, and there's no foreseeable way rivals see to kind of kicking it off the mountain yet.

CONAN: Let's go to Chris. Chris is on the line with us from Claymont, Delaware.

CHRIS: How you guys doing?

CONAN: Good, thanks.

CHRIS: I am - first of all, before I say (unintelligible), I'm an Android fanatic, so I want to get that out of the way. I wanted full disclosure. What do you think Apple's next move is? From what I'm seeing in the marketplace is that they're really much producing a lot of the same thing, like their producing the same phone. They're changing it - just notice the way they charge a little bit more money or - get people excited. Android market, as far as the phones, are making very significant leap as far as stability of the operating system, as far as features offered, as far as power of the processor. And they're taking, from what I've seen, a very larger share of the market than they used to take. So - and I've actually converted some of my fellow colleagues who are dyed-in-the wool Android - or iPhone users. Now, they own Androids because they can kind of see the benefits of the system, so to speak. So what would you see as the next step for Ap - what would Apple need to do to kind of, like, stop the momentum, so to speak?

CONAN: And, Farhad, you were less than enthused about the iPhone 5, incremental rather than a leap.

MANJOO: Yeah. I mean, I think I was in the same - a lot of tech pundits like myself had this opinion about the iPhone, which is that it didn't blow us away about the new iPhone. I mean, it's a little bigger. It's faster. It looks really good. It's really light. People like it, but it's not in - it doesn't sort of stand head and shoulders above the market the way that the first iPhone did. On the other hand, I think it's unreasonable to expect that of the iPhone at this point.

We will see, I think, for the foreseeable future kind of - these kinds of incremental updates. I think that's because there may not be as much room for innovation here, in the smartphone market, as there was before. You know, maybe it's just be that you can just make them thinner and lighter and faster for a while.

The other thing is that I think Apple's sort of main target with the iPhone is to just expand the market. They see the market for smartphones around the world is growing by a huge amount, especially in developing countries, in places like China. There's this huge market of people who don't have smartphones who are going to move to smartphones, and Apple's goal is to get them onto the iPhone. And the way it's doing that is by creating - by offering the iPhone on more wireless carriers around the world, in more places and then by significantly reducing the price of its devices.

So one of the things they did this year and it's been doing for a while is it releases the new iPhone. And then the previous versions of the iPhone, it keeps selling those at lower prices. And so this creates - so now, there are, you know, you can get the iPhone 4, the iPhone 4S and the iPhone 5 at different price points. It creates a kind of an iPhone for everyone, and that's Apple's, you know, that - what they want to do is kind of make the iPhone available for people at all income levels and kind of make it the dominant phone. And they're still making money on those phones, even if they're selling them not for very much.

CONAN: This is from Keith in San Rafael: Not so long ago, everyone wondered if anyone could ever compete with Microsoft, and before then, if anyone could compete with IBM. Success breeds arrogance, and Apple's behaving a lot more like Microsoft these days. I think someone will eventually find a way to compete, possibly by developing their tablet in a more innovative way and that will have impact on the phone market that shares the same operating system.

So, no empire is forever, I think, is what he's reminding us.

MANJOO: Oh, that's probably true. I mean, Apple has been at the top for six, seven years, maybe a little longer if you want to count the days that of the iPod. It, you know, it looks right now that its dominance will continue for at least the next few years, but we can't really say what's going to happen after that. That's what's so exciting about the tech industry.

CONAN: Farhad Manjoo, thanks very much for your time as always.

MANJOO: Thanks a lot.

CONAN: Farhad Manjoo, technology columnist at Slate.com and a contributor at PandoDaily.com, where his piece, "Copying Works: How Samsung's Decision to Mimic Apple Paid Off in Spades," ran last month. There's a link to it at our website. Go to npr.org. Click on TALK OF THE NATION.

Tomorrow, Political Junkie Ken Rudin and the fallout from the 47 percent. That's tomorrow on TALK OF THE NATION. I'm Neal Conan, NPR News in Washington. Transcript provided by NPR, Copyright NPR.