Today’s fast-changing digital landscape has made envelopment a popular business strategy, especially among tech companies. Envelopment is a strategy where a company uses its existing assets (such as their customer base, technology, or brand image) to offer new products or services and expand into different markets. Companies often bundle these new products or services with their existing products to provide additional value to consumers. When envelopment is executed well, it can result in the company capturing a significant share of the market. This is because network effects and economies of scale come into play, increasing the value of the product or service offered and simultaneously decreasing its costs. However, this may cause companies to become too powerful and engage in monopolistic behavior, leading to fewer choices for the consumer.
An example of how envelopment can lead to monopolistic practices is Apple. Apple has created an interconnected ecosystem of products and services. Owning more Apple devices adds more value to the user experience, while also making it difficult for the user to switch to one of Apple’s competitors. Some examples of services Apple offer across its devices are:
- iMessage and Facetime- these services are available exclusively on Apple devices and create a unique communication experience for users.
- iCloud- the cloud allows users to save and sync data across their Apple devices. This makes it difficult for Apple users to switch to non-Apple products.
- Apple pay- this digital wallet is exclusive to Apple products and is synced across Apple devices.
- Apple music- your entire music library is synced across your different Apple products.
As users buy more Apple products and become more integrated in its ecosystem, the switching costs of moving to a competitor become extremely high. The exclusivity of Apple’s services (ex. AirDrop) locks consumers in and limits their choices in the long run, as they are stuck within the Apple ecosystem. As Apple got more popular, it has been able to lock-in a larger consumer base through this strategy, giving the company close to monopoly power.
While Apple’s envelopment strategy has bee successful, it has increased consumer dependence on the Apple ecosystem and limited competition in the industry. These practices have attracted regulatory issues for the company. The European Commission [1] investigated Apple’s App Store policies and found that the company was evading competition by limiting app choices for consumers and placing restrictions on developers. One example is the banning of music streaming app developers from informing iOS users about alternative, cheaper music subscription services available outside of Apple Music. The EU Commission found that such unfair practices present in the Apple environment created unfair trading conditions where the interest of iOS users were negatively affected. Such policies by Apple led iOS users to pay significantly higher prices for Apple subscription services (such as Apple Music).
Apple’s example highlights how envelopment strategies when used to expand the consumer base of platform or digital firms can lead to monopoly-like power. This power often comes at the cost of consumers, who may be given fewer choices at higher prices, and third-party vendors, who may be charged extra. Apple’s case study has highlighted the need for tighter regulatory restriction on digital companies with this kind of power in the market. This would allow consumers to have more choice and marketplaces to have more competition.
References:
[1] European Commission – European Commission. (2024). Press corner. [online] Available at: https://ec.europa.eu/commission/presscorner/detail/en [Accessed 18 Sep. 2024].
[2] Renascence.io. (2024). How Apple Elevates Customer Experience (CX) Through Ecosystem Integration. [online] Available at: https://www.renascence.io/journal/how-apple-elevates-customer-experience-cx-through-ecosystem-integration#:~:text=Apple.
[3] The (2024). Looking at the Apple monopoly – Technique. [online] Technique. Available at: https://nique.net/opinions/2024/03/29/looking-at-the-apple-monopoly/ [Accessed 18 Sep. 2024].
[4] Reddy, R. (2021). The Apple Ecosystem explained. [online] Mac O’Clock. Available at: https://medium.com/macoclock/the-apple-ecosystem-explained-c9dd6d00ec95.
I like your blog, mainly because of the large number of examples you use to explain your reasoning.
I was still wondering what type of envelopement this is, in my opinion I would say it is a Conglomerate envelopment since they do not have direct reasons to move into these industries, except for strenghtening their own position. Would you argue the same?
Lastly, I agree with the fact that Apple has done some monopolistic things, mainly to ensure they stay ahead of the rest. In the article I thought to read somewhat negative perspective on Apple, to play devils advocate, they have been the company making the first real privacy move in which each app from now on has to ask whether they can track your information, potentially also harming their own usage or input of data on their users. What do you think of this move, or do you see this as another way to increase their power? if so how?
Kind Regards,