The Ecosystem Wars

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

Once upon a time, the battle for product supremacy was fought in marketing.  Those that won the hearts and minds of consumers also won the battle for their hard earned dollars.  Companies fought their campaigns one product at a time, one commercial at a time, one sale at a time.  These battles were fought over your minty-fresh breath, silky-shiny hair, all-day protection, hugs the road, and cooks perfectly every time, act now, limited time offer, don’t delay. 

A Line in the Sand 

These days, at least in the digital arena, these battles are increasingly fought for your ecosystem.  The digital giants are determined that there can be only one!  The dukes of the digital divide would like nothing better than to lock you into their digital ecosystem so that the costs of switching become so high and so inconvenient that they will win your future business by attrition or apathy.

The concept of the digital ecosystem is still in its infancy.  This gives investors the opportunity to determine which of these digital warriors will be victorious in constructing the dominant ecosystem, thereby creating an incredible investment opportunity.  There may be one or several winners in the skirmish for your digital domicile.  One thing is likely certain:  The winner will likely provide a superior investment opportunity.   

Firepower

The first shot across the bow was fired by Apple (NASDAQ: AAPL), with the introduction of iTunes, the now infamous digital music store.  Apple bucked the trend when it was still cool to pirate music and gave the rest of the world another option.   

The introduction of iPhone and the iPad further established the flanks in Apple’s ground campaign.  The so-called “Halo Effect” has helped Apple take that hill.  The Halo Effect is defined as customers who buy an iPod or iPhone, become converted by their ease of use, and subsequently buy additional Apple products up to and including Mac computers.  Consumers can download and utilize apps from the app store and music and movies from iTunes.  Now, you can buy all your music and movies in one place, store them and replay them on a variety of iDevices, take pictures, video conference with friends and family, use you iPhone or iPad to control your Apple TV, re-charge them on your Mac and back up everything in the cloud.  Did I mention the iPhone also makes phone calls? 

The first digital ecosystem was born.  The seamless integration and interaction of this ecosystem of products and services is extremely seductive and beguiling, diminishing the ease with which customers can switch to competing ecosystems. 

<img height="311" src="/media/images/user_13085/smartphone-apple-ecosystem_large.jpg" width="508" />
 

Image courtesy of Calvin College

Sure, you've probably heard this all before, but do you think Apple is the only digital diadem wanting to control your ecosystem?  Think again. 

Taking on All Challengers 

Google (NASDAQ: GOOG) desires your ecosystem as well, and seeks to use the same tactics it used to gain share in the phone market.  Google developed the Android operating system, released the code to handset makers at no cost, and in so doing, became the worlds leading smartphone platform.  These are Google’s snipers in the ecosystem wars, picking off market share from the likes of Apple. 

Their plans for world domination don’t stop there.  In addition to smartphones, Google’s Android operating system powers a host of tablets and now a TV.  Google’s recent rebranding of their Android Market into Google Play came with the addition of movies, TV shows, books and magazines designed to compete with iTunes.  Google expects to use customer loyalty and their pervasive operating system to create their own halo effect, and lure you into an ecosystem ambush. 

<img height="363" src="/media/images/user_13085/google_ecosystem_large.png" width="499" />

Image courtesy of Ebuntu

Another Front 

Microsoft (NASDAQ: MSFT) is a late entrant to the ecosystem front, but don’t believe for a minute that this puts them at a disadvantage.  In addition to their ubiquitous Windows operating system, Microsoft has sleepers in nearly 58 million homes, just waiting to become an ecosystem.  The XBOX 360 forms the basis for Microsoft’s assault.  They recently brought in reinforcements in the form of the Surface tablet based on their Windows 8 operating system.  Add the Lumia 900 series of phones, developed by Nokia (NYSE: NOK) for Microsoft, and the combination of Mr. Softy and Nokia have the beginnings of their own ecosystem.

 

<img height="335" src="/media/images/user_13085/nokia-microsoft-announce-partnership-to-build-a-new-ecosystem_large.jpg" width="533" />

 

Image courtesy of BSN

Battle Lines are Drawn 

This image, created by Shane Snow and courtesy of Gizmodo, is more than two years old, but provides a compelling illustration of the battle lines in the Ecosystem Wars. 

<img src="/media/images/user_13085/google-v-microsoft-v-apple-550x413_large.png" />

End Game 

Forrester analyst Charles Golvin put it best: (These companies) “all aim to translate customers' investments--of money, information, personalization, and social connections--into a gravitational field of loyalty so powerful that few customers will ever attain escape velocity.”

Currently, Apple has the advantage in this digital conflict.  However, with Google and Microsoft/Nokia entering the fray, this advantage could erode quickly.  What say you fellow Foolish investors?  I have my money on Apple with a small position in Google as a backup.  Who do you think will take the day?

These companies are the major combatants in the ecosystem wars and it is too early to declare a winner, but make no mistake:  you are their prisoner of war!

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Danny Vena finally succumbed to the Apple ecosystem and owns shares of Apple and Google. 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.

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