Catallaxy Files

There is a fascinating battle going on between Apple and Google. They were once very close – until a year or so ago Google had a couple of people on the Apple board. Now they are arm-wrestling for control of the next generation in consumer electronics.

The new battlefield, where most of the action is happening, is mobile – phones and tablets and whatever else they invent next. (I don’t think Stephen Conroy got the memo about that). Apple has built a walled garden. You can only use the  iOS operating system on an Apple product and you must buy apps for it through the iTunes store. The iTunes store won’t accept apps that compete with its own products.

Google’s mobile OS, Android, is open source. Anyone can put it on a mobile device without charge and modify it. The Google Apps Market will list just about anything.  Android has got the support of most phone manufacturers, other than Nokia and Blackberry. There are now many more phones being sold with Android than with iOS.

Apple has long believed in a walled garden. It is said that Steve Wozniak. who invented the Apple II and was the real technical brain behind Apple at the start, left after a dispute with Steve Jobs over that. When Jobs rejoined Apple in 1997 it had licensed its desktop OS to a few other companies. Jobs quickly bought back those licences.

Tim Wu’s book The Master Switch tells the story of information technology in the US, staring with the Bell system and the telephone. He traces what he calls “the cycle”. A technology starts out open – anyone can get into the business – and eventually one business or a small cartel gets control. This has happened with telephones, radio, TV and films, he says. Those in control fight to keep out competition – capture of regulatory agences often helps – and try to stop any disruptive technology that would change the game. I had not realized that FM radio was developed for RCA but RCA managed to stop it for nearly 20 years because of its near-monopoly in AM.

History never repeats itself exactly but all this is fairly similar to the Apple/Google battle.

I have no idea how it will play out. I used to be an Apple fanboy and still use several of its products. But Google is doing more interesting stuff. I’ve just bought a Google phone (Nexus S) and find it great fun. Not as elegant as my wife’s iPhone but I think it is pushing the technology faster.

The game might change if Jobs’s leave from Apple is permanent. Apple depends on a regular flow of innovative products from its own stable. Google is more a facilitator for other’s innovation. Jobs has been so dominating at Apple that it is quite possible that there is no one with his enterprise to take over. Plants don’t grow under the shadow of large trees and all that stuff.

Another thing I became convinced of after reading The Master Switch is that the government-owned NBN is very dangerous. Governments can rarely resist the temptation to fiddle in markets and with the NBN the government will have a big and very costly monopoly to protect.

If I am right and mobile is the next frontier, what’s the bet that the government won’t be in a hurry to allow LTE? It is already being installed in major cities in the US but is not even close here.

I have ordered the new iPod Touch. OK, I am a sucker for new toys. I did not buy an iPhone because I don’t use a mobile much but I am fascinated by all the other stuff..

When you order something through the Apple online store, you get an email telling you when it will be shipped. Now, Apple does not carry much stock in Australia and online orders are supplied from the factory in China. My Touch was shipped from Suzhou, a large city in Jiangsu Province not far from Shanghai. I believe that most iPods are assembled there by Wintek, a Taiwanese company which also makes the touch screens for Apple and other companies.

My Touch left Suzhou on Saturday, was shipped from Pudong airport (Shanghai) yesterday and arrived in Sydney today. I can trace all this through TNT which does the shipping. I guess I will get delivery tomorrow or Wednesday.

The reason I am interested in all this nerdish stuff is that I once understood the science of physical distribution fairly well. I learnt that, for good customer service performance, you should keep inventory in a warehouse as close to the customer as possible. That cost extra inventory, because you had it spread over the country, but it meant you could satisfy customers quickly and minimize lost sales due to out of stocks. The calculations behind this  were beyond my mathematical ability but I understood them enough to ask the right questions.

So you still see large warehouses on the outskirts of cities supplying supermarkets and other stores. And a lot of large trucks on the roads. Distribution costs are (under the old rules) minimized if you could do the long line-haul in bulk loads and break bulk as late a possible in the chain.

I also understood that with valuable goods it sometimes was worthwhile to do distribution from a central warehouse.

Apple’s distribution would have made no sense to me then. My Touch is shipped as a single item, under its own consignment note, from the factory to me. My guess is that it has never sat in a warehouse – it comes straight off the line into the distribution pipeline. It travels by the most expensive way possible – as a single item by air and then by courier. And still I reckon that distribution is a fairly small part of the cost of the product.

Obviously Apple are not dumb so they have carefully optimised the system in a way I would never had understood when I was shipping products around the world.

Containerisation was the first very big efficiency improvement that made much international trade possible. The distribution of information digitally and relatively inexpensive air cargo are making the next leap possible.

Apologies to those bored out of their brains by this (you could have stopped reading). I began thinking about it while thinking over regulatory reforms and infrastructure that will make these things even smoother. The NBN is really not very important in this. I’ll bet if you asked Apple they would tell you that an NBN is well down the list. But I hope someone cleverer than I am is thinking about what can be done to make all this smoother.

Or perhaps someone is thinking about how they can regulate it.