iOS 7: A Nightmare for the Competition?

Bill is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

iPhone and iPad users will no doubt delight in the lively, dynamic look, feel and functionality found in Apple's (NASDAQ: AAPL) revolutionary new mobile operating system, iOS 7.  Apple investors, however, are likely to find their delight in the problems Apple's competition will face if they try to duplicate the iOS 7 UI.

Background

Apple's iPhone, introduced in 2007, caught the smartphone competition flatfooted. While smartphone OEMs scrambled to create the operating systems and hardware needed to match the iPhone's robust touch interface, Apple captured valuable smartphone market share.

With the launch of the iPad in 2011, the situation was the same - Apple gained significant tablet share, while the competition played catch-up.

Today, with competitors' improvements in operating systems and hardware, the difference between Apple's and the competitions' user interface has narrowed. And while Apple’s integrated app ecosystem continues to provide Cupertino with some competitive advantages in mobile, the commoditization of mobile UIs looks to be putting pressure on Apple’s industry-leading margins.

iOS 7: Rebuilding the Competitive Moat

With the launch of iOS 7 later this year, Apple looks to achieve, once again, a significant competitive advantage via the look and feel of its new UI. And just as importantly, Apple may find their competitive advantage to be sustainable, given the difficulty the competition will face replicating software and hardware required for an iOS 7-like UI.

Software

The best way to explain iOS 7 is to consider the difference between looking at picture of a fish (iOS 6) and gazing into an aquarium (iOS 7).  Apple's iOS 7 uses complex software effects, such as stacking and layering, blurring, and natural movement to create a three-dimensional, immersive experience. Content no longer slides off screen - it morphs and reshapes within a space. Objects move and shift perspective naturally -  turning, bouncing, sliding, and colliding.

While the incorporation of sophisticated motion and depth into iOS 7 is intended to delight users, it is also meant to inspire developers to move into a new phase of app development.

While critics may deride this major change in the iOS look and feel as "gimmicky", I suspect Apple's dynamic interface will inject a level of fun and wonder into the iPhone that existed at its launch. Fun should never discounted in mobile, as it increases user exploration, discovery and value.

Hardware

Like the original version of iOS launched in 2007 - the boundary pushing software for iOS 7 requires extreme hardware specs.

Only the most sophisticated (and expensive) GPUs can handle the graphics incorporated into the iOS 7 user interface. In addition, Apple for the first time, has added a full physics engine into iOS 7 support natural object movement. As a result, Apple has substantially increased both the cost and complexity involved in mimicking Apple's new operating system.

Headaches for the Competition

The success of iOS 7 could be profound.

Most of Google's (NASDAQ: GOOG) Android-powered phones and tablets can't replicate the iOS 7 experience. While high-end Android phones and tablets could theoretically render an iOS 7-like experience - the vast majority of Android phones and tablets are low-end and mid-tier products. The Android smartphone and tablet OEMs in this space don't have, and can't afford, the hardware and modified software specs required for a dynamic, iOS 7-like UI.

The lack of a competitive Android solution across pricing tiers could force more Android manufacturers to focus their efforts on the lower-end of the smartphone market - which could reduce the value of Google's Android search users - Low-priced smartphones appear to attract "light" computing users who are simply looking for a "better feature phone," making them less likely to search and purchase products on their mobile device. The potential risk to Google would be additional erosion in Google's "cost-per-click" rate for its ads, which has been trending down since the fourth-quarter of 2011.

In addition, iOS 7 could kill BlackBerry (NASDAQ: BBRY). Steep price reductions for Blackberry's flagship smartphone four months after its launch, the platform's continued loss of  market share, and significant delays in previous operating system upgrades all point to BlackBerry's tenuous position in the smartphone market. If the majority of high-end smartphone users demand dynamic UIs, it's not unreasonable to question the BlackBerry's ability to survive, given the time and resources the company would need to push through another major OS update.

Apple can also further differentiate its iPhone and iPad models. Mobile products using the older A4 chip (including iPhone 4 and the anticipated lower-priced iPhone) will require some of iOS 7's graphics functionality to be constrained. The result will be another point of differentiation between Apple's older, lower-priced models and its newer, higher priced smartphones.

Finally, app developers will need to focus more time on iOS 7 apps, and less on the competition. At the risk of appearing dated, existing iPhone apps will need to be quickly modified to incorporate the look and new features of iOS 7. Also, the dynamic interface of iOS 7 can't be replicated on web browsers -- putting pressure on web-based developers to create native apps for the iOS 7 ecosystem. What's more, iOS 7's new features, including natural movement and 3D effects, will likely attract additional attention as developers race to exploit iOS 7's new capabilities. The result? More developers spending more time on iOS 7 apps, at the expense of the Android, Windows 8, and Blackberry 10 mobile operating systems.

Foolish Bottom Line

Apple has two goals for their new mobile operating system. First, reignite the wonder and excitement users felt following the introduction of the first iPhone. Second, create a technology moat between Apple and the rest of the mobile competition. Foolish investors should closely track user reaction for iOS 7, since wide appeal for iOS 7 could support company margins and increases in Apple iPhone and iPad market share.


Bill Shambllin owns shares of Apple and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure