Apple’s Verdict: Flattery Has a Cost but Creates Opportunity
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
While imitation may be the purest form of flattery, it came with a $1 billion price tag for Samsung Electronics in the form of a jury award to Apple (NASDAQ: AAPL) for the violation of six patents. In a hearing set for next month, a federal judge will determine if the financial penalty will be accompanied by a U.S. ban on the infringing products. If the jury award sticks, and even more so if the ban is granted and enforced, the cost of doing business in the smartphone arena will increase. There is no mistaking that the real target of the patent infringement case was Google (NASDAQ: GOOG) and its Android ecosystem. Since its introduction, Android has unseated Apple’s iPhone as the top-selling smartphone environment available. The verdict is a win for Apple on this battlefield.
As the largest verdict awarded this year, and the fourth largest ever in a patent case, the decision and direct repercussions will be thoroughly dissected. The two factors that are not likely to be as carefully considered, however, are likely the most important: what is the real cost to consumers and who, if anyone, will really benefit from the decision. Each of these questions will take longer to play out, but these are the issues that will ultimately give the verdict meaning.
The Cost to Consumers
In a nearly $300 billion industry, there is more than enough sample size to draw statistically supported conclusions. The first of these is very direct: Android is outselling iPhone for a reason. The specifics differ from consumer to consumer, but some of the top motivators include:
- Android has greater flexibility, meaning users can customize features to a greater extent
- Android is available on 4G or LTE networks already
- Android offers greater price flexibility for devices
- Android supports flash and other things Apple does not “approve” of
- Android devices offer extra batteries
- Android devices do not require the purchase of expensive adapters to run peripherals
- Android offers more options, allowing more personalization; iPhones offers two colors
As a personal disclosure, I own an iPhone so I am not simply an Apple critic taking shots; Android has a host of advantages, just as iPhone does. The takeaway from the above list is that consumers are choosing Android as an active decision, not simply as a cost decision or because, as once was the case, their carrier does not offer iPhone as an option.
If the current wave of top-tier Android devices is banned, there will be more losers than winners. While Apple will certainly pick up a contingent of smartphone consumers currently in the market for new devices, others will become lifelong anti-Apple shoppers. Americans have a tendency to blindly punish any company that aggressively limits their choices; many of these consumers will likely take the attitude “if you want my business, build a better phone, don’t make it impossible for me to pick something else.” This approach somehow feels like cheating.
To be clear, patents exist for a reason, and the enforcement of patents is equally a part of the American ideal; a person should be able to reap the rewards of his or her own ingenuity. There is a razor thin line that exists with the consuming public between protecting one’s idea and infringing on that same consumer’s ability to make a choice between competitors. The way that Apple manages the public face of the verdict may be more important than it believes.
Potential Victors
While Apple is the most obvious beneficiary of the verdict, there are a few other companies that may reap more subtle rewards. As Microsoft (NASDAQ: MSFT) and Nokia (NYSE: NOK) prepare to launch the next-generation Windows Phone, any Android vacuum in the market may allow the partnership to gain important penetration. The Windows Phone design is distinctly different from either Android or iPhone; if choices become more constricted subsequent to the launch, it may pay big dividends.
As the true impact of the verdict continues to play out, Microsoft may further benefit as other device makers look to expand product offerings that are clearly differentiable from iPhone. One of the advantages that Android has enjoyed is its diverse use across multiple hardware manufacturers. As these companies look to protect themselves from fates similar to Samsung’s, a warm reception for the Windows Phone may drive more companies to adopt this OS as an option.
The last, and perhaps the most unlikely, beneficiary of the verdict may be Google itself. While Android obviously suffered a blow from the decision, Google has a history of growing beyond its setbacks. With a base of fans that has outpaced Apple’s, the company may use this as an opportunity to make design improvements that challenge Apple even more. Where Android has been viewed by some as a different, but similar, alternative to Apple, if Google goes back to its R&D department and creates something fresh, it may turn out that Apple has picked a fight it would have been better off avoiding.
Overview
While it is hard to envision how this verdict will play out both in the courts and in the market, fewer choices for consumers is never good. Particularly in technology, walking the line between protecting one’s intellectual property and appearing to be whining can be a challenge. If Apple does not manage this situation with care, it may have created an opening for a variety of competitors to gain valuable market share.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Nokia. 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. If you have questions about this post or the Fool’s blog network, click here for information.
