In my post about Sun Microsystems from yesterday, I alluded to a decade-long trend of commodization of hardware, pointing out that Sun failed to reposition itself away from the narrow hardware focus.

Today, we are learning that Apple is beefing up its hardware capabilities, looking to start designing its own chips.  Today, they are supplied by a third party.

Why would they? Don’t they know that hardware is a commodity?

This is a classic decision point of buy/make or outsource/insource. Here is why the chosen direction makes sense for Apple:

  • microprocessors are not the Apple’s final product, so commodization does not matter at all;
  • the potentially higher price of a chip will be eclipsed many times over by the revenue generated by new device functionality made possible by precise customization;
  • there is a potential for shortening the time to market metric,  due to improved communication between the hardware group and other functions (software, sourcing, design, etc);
  • reduced “seepage” of ideas and innovation to rivals;
  • continuos improvement of chipsets becomes possible because, unlike with vendors, there is no meter running. Tinkering is inherently important to technological innovation;
  • and finally, strategically, hardware is important to Apple because all of its products are unique in their own way.

So, based on my experience in consulting on strategic decisions, I think it makes sense for Apple.

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