What it is: Vertical integration is when a company controls the entire product as opposed to working with multiple partners.
Back in the early days, the battle between the PC and Macintosh was resolved fairly early. The PC won with MS-DOS and later with Windows. Back then, everyone thought that Microsoft had the most successful business model of licensing the operating system and allowing multiple partners to make money selling PCs. The logic behind this business model was that both Microsoft and PC manufacturers were making tons of money as long as people kept buying PCs.
During this time, everyone thought that Apple had the wrong idea of trying to control both the hardware and software. As proof, they pointed to the far fewer number of third-party hardware and software that worked on the Macintosh. This created a vicious cycle as fewer people wanted a Macintosh if it had less software and accessory support, so fewer companies bothered supporting the Macintosh if it had so few people using it.
Then something happened. Apple created the iMac and started selling Macintosh computers again. Windows PCs still far outnumbered Macintosh sales, but Macintosh sales were slowly climbing for the first time in a long time.
Then Apple started selling the iPod and followed that up with their iTunes store. Now you could buy Apple hardware to listen to music purchased from iTunes. The iPod was perfectly designed to work with iTunes, and with iTunes becoming the largest music retailer on the Internet, sales of digital music downloads boosted sales of iPods.
When the iPhone came out, it was a closed system. Then Apple opened up their app store and created a new source of revenue while giving others a chance to make money from the growing iPhone market. When Apple introduced the iPad, the app store continued growing in popularity, making developers rich. This attracted more developers, which indirectly attracted more users because they wanted to use devices that could access the App Store.
Apple’s control over the hardware and software is something Microsoft is finally starting to mimic. With their Surface Pro tablet hybrid and their Surface Book laptop, Microsoft is starting to sell hardware and software, essentially competing with their own partners. However, this vertical integration of hardware and software means optimized hardware and software.
Now everyone thinks that Apple’s business model is the one to mimic, but only because it’s currently working. Yet the real problem isn’t which model works (they both work) but which product offers the best customer experience.
In the old days, PCs offered the best customer experience because they were far cheaper than Macintosh computers and offered much greater support. Today, Macintosh and other Apple products offer the best customer experience because the operating system isn’t clogged with bloatware and Apple Stores provide free technical support instead of forcing you to call a support line and turn yourself into your own computer technician.
People don’t care about the business model of a company. They care about themselves and who offers them the best customer experience. Ultimately it boils down to customer experience and that’s where the PC world has fallen apart.
PC manufacturers start out by sabotaging their PCs with bloatware that slows the computer down right from the start and inconveniencing the customer. Then if you need help, you’re forced to call a technical support line that’s outsourced to keep costs down for the PC manufacturer with little regard for how the customer experience might be. So with bloatware and outsourced technical support, PC manufacturers are giving customers the work customer experience possible.
The real secret of success isn’t copying Apple or Microsoft, but in providing the best customer experience possible. It’s expensive and time-consuming to do it all yourself, but that’s what makes competing against Apple so difficult. Most companies can make similar products to Apple, but they can’t duplicate the customer experience that Apple provides.
Microsoft’s latest attempts to make and sell Surface Pro tablets and Surface Book laptops is an attempt to sell premium PCs that avoid bloatware and provide technical support through Microsoft Stores. It’s definitely a step in the right direction for the PC world since it’s far better than relying on third-party companies like Dell or Hewlett-Packard that install bloatware and outsource technical support.
Still Microsoft has a long way to go to catch up to Apple, but at least they’re trying. The same can’t be said for others like Dell, Hewlett-Packard, Samsung, and others who copy the look of Apple products but lack the customer experience to go along with it. Until another company decides to focus on the customer first and their own profits second, Apple likely won’t have any serious competition for a long time to come.