Most of Apple’s money comes from recently invented gadgets. More than two-thirds of Apple’s revenue comes from product types that didn’t even exist five years ago (iPhone and iPad). And 78% of Apple’s income is made by products unimaginable just ten years ago (throw in iPod and iTunes).
That means, in order to stay on the same growth curve in the current decade, Apple will have to invent product categories as new as the iPod, iPhone and iPad were, right?
The new products were part of a killer strategy Apple came up with in 1997. Apple will dominate the future by sticking to the strategy, not by trying to invent more product categories.
Apple became the most valuable company in the world twice this week, trading places briefly with Exxon Mobil. But Apple and Exxon aren’t even in the same league in terms of coolness, greatness or any other ness you want to throw at it. One company sells flammable muck sucked out of the ground to be converted into air pollution, and the other makes the MacBook Air, the most perfect computer every built.
Apple used to be a big loser. I mean that literally. Some 14 years ago, Apple had been losing money year after year. The conventional wisdom was that it’s glory days were in the past.
The PCs wars were over. Microsoft had won. Attempts to invent new platforms, most especially the Newton platform, had failed. The company was in a pickle. If it tried to be unique, it would remain a shrinking, minor fringe company. If it sold out and tried to be more conventional, it would be destroyed by more efficient conventional competitors.
Apple was not only a loser, it seemed that there was no possible way it could win. It was a relic from the 80s, a minor footnote in the history of computing.
The lowest point in the company’s history came in 1997. Out of desperation, Apple forged a new partnership with Microsoft in which that company invested $150 million dollars in Apple in exchange for a promise by Apple to offer Internet Explorer as the default browser on Macs, and other promises. Apple needed the money. And the partnership.
Apple had sunk so low in 1997 that they were willing to try anything. So out of sheer desperation, they promoted Steve Jobs from “advisor” to “interim CEO.”
Jobs, no longer just a visionary loose cannon, had become a skillful leader. The whole experience of being driven out of his own company, and building a new company from scratch, taught Jobs to be the complete visionary dictator he was born to be.
Jobs packed the board with loyalists, unceremoniously deleted entire product lines, and re-structured the company around a breathtaking, new, long-term vision.
The new vision was to transform Apple from a computer company to a content appliance company. No, THE content appliance company. No other company had or currently has the same strategy.
Apple clearly devised this strategy in 1997. That’s when the “Think Different” advertising campaign launched. That campaign broke all the rules for positioning computing products. Instead of “buy this, it’s faster, cheaper, runs more software,” the pitch was: “aspire to genius, we’ll give you the tools to create.”
So while Microsoft sees itself as a company that makes software, Dell a company that makes hardware, Google a company that sells advertising and HP a company that provides turn-key business solutions, Apple would obsess over content — big products for creating it; all products for consuming it.
Of course, Apple products are multi-purpose devices, useful for communication, business, doing taxes and other purposes. But the content creation and consumption would be the company’s laser beam focus and the centerpiece of the Mother of All Winning Strategies.
Apparently Apple noticed in 1997 that nearly all the ways that people consumed content sucked. Hard.
People were paying $12 to $18 per CD for music, then carrying around massive CD players to listen. Television was always horrible. Cable TV services were (and are) clunky, non-intuitive and expensive. Car radio never had anything good on. Books and magazines were expensive and wasteful.
Apple could see that new digital technologies, combined with the Internet, could fix what was broken in content consumption. But Apple could also see that the various content industries would fight to prevent needed change.
People talk about the iPod, iPhone and iPad as merely new gadgets that Apple invented, which succeeded because they were appealing consumer electronics devices. But you can’t really understand why they were all so incredibly successful unless you view them in the context of the content strategy.
While Apple’s competitors were focused on building devices, Apple was focused on transforming how people interacted with human culture. The iPod was created to use digital media and the Internet to fix what was broken about audio content. Likewise with the iPhone, the iPad and Apple TV.
The theme with all Apple’s new products in the last decade has been to use digital technology plus the Internet to fix what’s broken about how people consume content. And likewise with Macs and MacBooks — Apple has improved those products by fixing what was broken about both the consumption and creation of content.
And that’s why Apple is done creating whole new platforms. There will be nothing in the coming decade equivalent in newness to the iPod, iPhone and iPad.
Apple’s full line enables the company to fix what’s broken about all the major ways people consume and create content.
I do believe Apple will offer a TV set at some point. But they can’t claim to have invented the TV set. It’s not a new gadget platform in the same way as, say, the iPad is. A better TV is not the same as inventing the TV.
The important point is that Apple absolutely does not need to keep entering whole new businesses like it did with iPod, iPhone and iPad in order to continue growing and dominating.
The iPod, iPhone and iPad didn’t make Apple billions because they were new, high-quality gadgets. They were that, but they enabled the company to improve content consumption in places where people would be consuming content anyway.
Apple needs only to continue to perfect the platforms it already offers. For example, Apple will continue to add touch-friendliness to Macs. Look for all-touch iMacs and all-screen MacBooks (where the keyboard is a screen) in the next five years. Yes, Apple will continue to innovate brilliantly. But those innovations will be improvements to existing lines, rather than the creation of all-new lines as represented by the iPod, iPhone and iPad.
Apple’s continued growth will come from growing marketshare, new markets and new revenue models. The iOS platform, in fact, is the likely model for all future business.
On the iOS platform, Apple makes money from sales of the integrated hardware/software appliance. Then it takes a huge cut of all third-party app sales. Then it takes a cut of all content downloaded to the device. It makes money selling advertising that will be displayed on the device. It will make licensing revenue from desperate competitors who copy the device.
Apple will continue to grow revenue by rolling out this model more completely to desktop and laptop devices, and also television.
And Apple will be happy to leave the low-margin, high-maintenance businesses to sucker… I mean competitors. The PC clone vendors, the Chinese tablet makers, the Korean cell phone makers — Apple will let them claw at each other for near zero-margin hardware sales.
Apple is the most successful company in the world because Apple has the greatest business strategy ever devised: Fix what’s broken about creating and consuming content.
Apple invented three radically new gadget platforms in a single decade. But those inventions were only means to an end. Those inventions inserted Apple into all the major ways people consume content.
Now that Apple has product lines that offer the best experience for creating and consuming content, both on the desk and on the go, no further product lines need to be added.
The invention of whole new gadget categories at this point would mean Apple was trying harder for smaller markets, for the fringe, for the periphery.
And that’s something Apple hasn’t done since 1997.