Apple’s Moat Just Got a Lot Wider

in FP: Latest/Stock Analysis

I have to admit I was not able to get anything done on Tuesday when Apple released its new iPhone, Apple Pay and Apple Watch — absolutely nothing. Like millions of others, I was glued to my iPad watching Tim Cook do a two-hour Apple infomercial. (And unlike any other infomercial, I watched it twice.) The interest must have been greater than even Apple expected, as its website simply could not handle the traffic and kept crashing. A lot of viewers must have been sleep-deprived Chinese; it was 1:00 am in China, and Cook’s keynote was simultaneously dubbed in Mandarin. Apple’s emphasis on China makes a lot of sense, of course: The country is Apple’s biggest growth driver, with 4G just being rolled out there.

The release of the new iPhones was important for Apple in the short run — it desperately needed to introduce larger phones to battle Android handsets. Both the 4.7- and 5.5-inch phones looked terrific. However, the fact that Apple introduced two sizes may have an interesting consequence: Consumers will need to hold the actual phones to figure out which one fits them best. Online orders will likely be lower than usual, while traffic to Apple Stores will explode over the next several weekends (by the way, that will benefit other mall retailers). However, what is now known as the Apple Watch is really important for the company in the long run. Apple’s competitive advantage lies in its ecosystem, as its software allows you to easily connect and communicate with other Apple users.

But this competitive advantage — Apple’s moat — has gotten narrower and shallower as non-Apple apps that work across all platforms have gotten better and better. For instance, Facetime is successfully threatened by Skype, Viber and many other communications apps. Also, iTunes became less and less relevant as music streaming services such as Pandora and Spotify emerged. Escaping from the Apple ecosystem is easier today than it was a year or a few years ago. A strong brand, familiarity and ease of use are still advantages that clearly set Apple apart from its competitors, but the company has a weaker hold on you than if it made products that made switching painfully difficult.

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