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Is Apple's Momentum Sustainable?

Software is the key to this hardware firm's success.

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The list of once-great consumer electronics companies is long. Brand loyalty is largely dead, forcing hardware manufacturers to compete on features and price each product cycle. This makes it difficult to sustain a leadership position. Temporary advantages are easy to identify--namely the number of available applications and first-mover advantage on tablets. More relevant and meaningful to a sustainable competitive edge is how a firm applies software to establish user switching costs that will pull customers from one generation of devices to the next. The heart of Apple's (AAPL) strategy is to create a bond with the user that transcends device cycles.

The mobile phone market is full of cases where a dominant position proved fleeting. Motorola (MMI) hit a home run with its RAZR product cycle, but after a couple of years, it stumbled. More important, there was nothing that compelled RAZR customers to purchase the RAZR2, so they didn't. One stumble at Motorola was enough to send customers fleeing to competitors.

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Michael Holt does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.