Jul 14, 2008

Contractor or Architect?

A recent Wall Street Journal article draws an intriguing contrast between Sharp Electronics, the Japanese maker of liquid crystal displays, and Apple, Inc. Sharp, the Journal author says, is becoming a vertically integrated manufacturer, whereas Apple is doing just the opposite, outsourcing all of its hardware fabrication. (See “Sharp Focuses on Manufacturing”).

So, is it smarter to be like Sharp, the 'integrator', or like Apple, the 'architect'? The Journal’s comparison, neat as it appears to be, is a red herring. It assumes that Sharp and Apple are both manufacturers in the same sense, when they aren’t really. By the nature of its product set, Sharp is betting on conventional 'old school' manufacturing. LCD’s are pure hardware, or 99% so. Apple, on the other hand, is more 'new school' solution developer. Granted it’s the programmer sitting right at the hardware interface. But at their business ends, the iMac, the iPod, and the iPhone are all about sexy, exciting new interfaces and software.

Stylish looks aside, what makes an Apple an Apple is innovative functionality, innovation. And what makes Apple a great company is something deeper – an almost uncanny focus on customers, knowing what they want better than they do. Aside from the success of Apple’s products, remember what it’s accomplished with its Apple Stores and its daring, if not entirely successful, gambit to get some of the recurring revenue stream on the iPhone.The real distinction between Sharp and Apple isn’t integrating versus outsourcing. It’s the direction they choose to look. Sharp’s head is turned upstream. Apple’s points downstream toward the end consumer.

Both companies root their strategies in technology bets, but Apple’s has a more solid grasp of the new playing field and where winners in the consumer electronics marketplace are staking out their territory.

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