Submitted by “These days it’s hard to find a pundit willing to question Apple’s long-term prospects or the calls of its famous CEO, Steve Jobs. After all, Apple’s fortunes have been on the rise for nearly a half-decade now, and they seem to be only gaining steam. That is, unless you’re Clayton M. Christensen, the Harvard professor and author of the seminal 1997 book ‘The Innovator’s Dilemma’. Christensen, who more recently wrote ‘Seeing What’s Next: Using Theories of Innovation to Predict Industry Change’, isn’t willing to jump on the Apple bandwagon just yet. As well as Jobs & Co. is performing now, Christensen fears that success is built on a strategy that won’t stand the test of time.”
Apple is embracing industry standards. They’re creating proprietary implementations of those standards in many cases, but that’s no less than what others are doing. Certainly if one thinks that creating proprietary solutions is bad, Microsoft is not the obvious usurper.
The major difference between the iPod and the past PC history is the fact that the iPod is a consumer device – it’s a brand. That’s something Apple’s competitors will just never have. As far as they’re concerned it isn’t simply a case of creating a beige little matchbox to play music on and waiting for some economies of scale, which they think they have, to materialise. It’s a bit more complex than that. It’s a bit like BMW’s ability to stack them high and sell them expensive.
One thing, and only one thing, that Apple could do is to license their format to others as a revenue booster as well as still selling iPods and stuff over iTunes – which people are always going to do. They wouldn’t actually lose any money either, because all they’d be doing is growing the market as well as creating a new revenue stream. If they did that then it would blow what any plans Microsoft has for Windows Media, and any threat, clean out of the water. They might as well give up if that happened, and we’d start hearing some pretty desperate and funny things coming out of Redmond.
And proprietary strategy?! Come again?
They wouldn’t actually lose any money either, because all they’d be doing is growing the market as well as creating a new revenue stream.
Unless you can seed, germinate, or translplant a market, then it is not something that you can “grow.”
Unless you can seed, germinate, or translplant a market, then it is not something that you can “grow.”
You don’t know what the word grow means then.
Why predict industry change, when you yourself are a force of change? If not necessarily the creator, at least the popularizer, thus shifting change to your will (like the iPod for portable mp3 players, iTMS for legal online music downloads, and OS X for desktop UNIX).
Not sure whether Thom is going to link to it separately, but its a summary of some analysis of margin trends and product migrations at Apple:
http://www.forbes.com/technology/free_forbes/2006/0130/043.html
Makes interesting reading in conjunction with the above.
The question is about sustainability.
That said, no-one can deny that the turnaround has been very impressive, and the reinvention of the company around consumer electronics positively brilliant.
Not sure whether Thom is going to link to it separately, but its a summary of some analysis of margin trends and product migrations at Apple:
http://www.forbes.com/technology/free_forbes/2006/0130/043.html
Makes interesting reading in conjunction with the above.
The question is about sustainability.
That said, no-one can deny that the turnaround has been very impressive, and the reinvention of the company around consumer electronics positively brilliant.
That was a good read, and I do think it’s relevant to the article. You’ve hit the nail on the head with the issue of sustainability.
A lot of people assume Apple will stay on top because the iPod dominates; the economic reality is that Apple is making less and less return on the iPod but will have to spend more and more innovating to keep that lead. It’s much harder to sustain a market leading position than to achieve it, and to discount the impact of competitors like Microsoft, Sony et al. is reckless. Apple can maintain their lead, they’re just going to have to work awfully hard to do it. So then it remains to be seen how much of a market sweetheart Apple will remain when their margins start dropping further even in the face of increasing revenue.
Personally, I don’t think Jobs was out to create a consumer revolution with the iPod; at launch, there was no Windows iTunes client available, the strategy originally was for the iPod to become a media extension for the Mac, not a market in and of itself. He also stated that he had no intent to include video capabilities in the iPod (despite the fact a few high-end competitive products did) because he didn’t see a market for it, yet here we are. I think the iPod became a runaway success, moreso than Apple anticipated, and I think their strategy with it has actually been reactionary to stay on top rather than revolutionary. Not that there’s anything wrong with that, they certainly did an amazing job of capitalizing on it, but I do think Jobs is given a little more credit for his visionary status than he necessarily deserves. iPod was a gamble, and I suspect it paid off beyond what anybody would have expected.
Time will tell how long Apple stays on top. The iPod wasn’t revolutionary, it was evolutionary but it was shredwly marketed and brilliantly designed. What remains to be seen is what Apple has under their sleeve tomorrow, and the day after. Their competitors won’t stand still.
I won’t write them off arbitrarily, they can certainly be a creative and innovative company, but I won’t look at them through rose-colored glasses either and assume they can do no wrong.
Just my 2c.
This article galls me particularly. I love the self-congratulatory “Gee, we’re the only one’s that see this coming” bit at the end:
“It takes a lot of guts to take on an icon like Steve Jobs, but Apple admirer Andrew Neff of Bear Stearns lowered his rating from a buy to a hold in mid-December.”
Since this rating dink he gave Apple, their stock is up 18.5%, they have announced ripping past street revenue estimates by about $1B and iPod sales estimates by about 2-3 million units.
Furthermore the article incorrectly states that:
“But once you turn down the hosannas on the music player, you are left with a company with no hammerlock on the technology (Creative holds the patent to the interface for MP3 players) and no unique operational advantages (such as Dell’s made-to-order computers).”
Wrong on both counts. First it is highly unlikely Creative will prevail on the patent issue. Second, while it may not be considered an “operational” advantage, it certainly is a “market leader advantage” to be able to lock up the supply of the basic parts (flash memory for example) at prices lower than anyone else can buy it for. Finally, Apple does have something…a growing (at a rate of about 3 million per day) installed base of music that will only play on iPod (or iPod-compatible…should that ever be something Apple allows) devices. They are in the process of establishing a legal digital music standard. Once that is locked, they can feel free to license Fairplay to all comers and take a small little “tax” on every single digital music player sold on the market (much like Microsoft does with PCs and operating systems).
“They are in the process of establishing a legal digital music standard. Once that is locked, they can feel free to license Fairplay to all comers and take a small little “tax” on every single digital music player sold on the market (much like Microsoft does with PCs and operating systems).”
Gosh, won’t that be wonderful? I can hardly wait!
Er… who will it be wonderful for?
The major difference between the iPod and the past PC history is the fact that the iPod is a consumer device – it’s a brand. That’s something Apple’s competitors will just never have. As far as they’re concerned it isn’t simply a case of creating a beige little matchbox to play music on and waiting for some economies of scale, which they think they have, to materialise. It’s a bit more complex than that. It’s a bit like BMW’s ability to stack them high and sell them expensive.
If you want to make an iPod killer for the masses, you don’t necessarily have to make it more functional, you just make it shinier. And you’ve also got to have an online service with an app that’s better than iTunes. This shouldn’t really be too difficult, because even though iTunes is currently the best ‘jack of all trades’ media app I’ve seen, it’s really not that good. It has all the basics down and is extremely easy to use, but some power users such as myself get frustrated by its lack of functionality. If I’m buying songs off ITMS (which I don’t do very often), I’ll use iTunes long enough to burn the songs to CD, and that’s about as much as I want to do with it.
Edited 2006-01-14 20:27
Indeed. It does seem to me odd that all these companies who want to produce “iPod killers” seem to have made no attempt at software.
It seems obvious to me that you’re never going to get such a good “overall” experience with an MP3 player hooked up to Windows Media Player as you do with iTunes & an iPod.
Personally I can think of plenty of improvements I’d like made to iTunes, but the whole thing still provides the better overall experience.
It seems obvious to me that you’re never going to get such a good “overall” experience with an MP3 player hooked up to Windows Media Player as you do with iTunes & an iPod.
Personally, I’m just happy with an mp3 player that works as a UMS device. My file manager (Directory Opus) takes care of about 90% of mp3 management needs, and I have an open source tag editor to take care of the rest.
People are not buying ipods because they are shiny little things, but it’s one of the most intuitive mp3 player out there more over it’s a brand. The price difference between ipod and it’s competitors is not much, so might as well get an ipod. Well if you could buy a BMW/ Porche at the price of a Toyota wouldn’t you. Apple has got it right with the mp3 players atleast and the ipod shares speak for themselves.
Edited 2006-01-15 06:09
Yes, just ignore this author; he is trying to mix some wrong ideas with good ones.
Apple Market Cap now is above Dell (above 70 Billion) for the first time; and they don’t seem to loose it. Apple will bring new products to the market and it will shock the world like ipod did; Just wait for their new products.
I have to agree. Although I have never owned an apple product I don’t think I have to, to understand how well positioned Apple is these days.
Steve Jobs himself said it before. Apple stopped innovating after he left the company and that was the problem. I guess he proved his point.
I’m not a huge Apple fan, but I’ll say this. There is an important point being missed here: Right here, right now, Apple is making shovels of money. By law, that’s it sole purpose in life. It is winning the current game.
The prediction is based on the fact that the game will change, and assumes that Apple won’t change its strategy. Does he know something we don’t? The turnaround Apple has seen shows that it has a few people willing to think strategically and make serious decisions (eg transition to OSX and transition to Intel). There is no evidence that the current Apple management will not act strategically when needed.
My $0.02.
Edited 2006-01-14 20:49
It think that the author needs to remember that we now have a 20 year history of Microsoft “Innovation”. And, because of that No Sane Person wants to pick a Microsoft solution against a competitor.
Do we want our IPod’s crashing? Nope.
Any competitor who wants to compete needs to come up with something completely different, not based upon a microsoft framework. That will cost money.
It’s possible someone will take over Apple’s lead.
It’s just not probable.
Apple has to keep innovating to keep selling iPods. Palm is a good example of a company that had a great product, saturated the market, and failed to innovate. I don’t see Apple following those footsteps.
As to desktops: Apple is the past, MS is the present, and Linux (or something still invisible on the radar) is the future. This prediction (if true) fits in with the interview’s theme of a move toward more open standards.
Edit: punctuation
Edited 2006-01-14 21:59
I read the interview, and I am surprised that Christensen would analyze Apple so clearly, and yet comes to such a wrong conclusion. He says Apple’s normal and succesful mode of operation is by introducing cool and innovative new products. And basically, he says if Apple continues to do so, it will be succesful.
And yet, he thinks Apple won’t be succesful if it continues to bring cool neew products to the market? Is this an example of someone not seeing the tree of the wood?
Ok. The article is right on many things – this … i give it to it’s author. It’s the first article i’ve seen giving (indirectly) credits to all those hidden-behind-the-scenes Apple-engineers that have done so much to give a positive meaning to personal computing (unlike some other also well known software company).
But it’s exactly this point that the very same article understimates later on. It takes a long to time to sink a ship like Apple. Especially when it has such a strong vision in it’s ranks and such a skilled leadership. Apple didn’t go down when things where much worst (remember?) and things currently suggest that it’s also a company with a CEO who generally knows how to handle success and enjoys the trust and respect of many respected people both in, as well as out of Apple. And yes, Apple will keep on innovating and innovating and innovating. Again and again and i see nothing wrong with it. Excuse me but I see nothing wrong with a company that innovates in such a healthy way – something that is no more and no less than what any company should do in a competitive environment. Apple is a survivor and one of the toughest ones around too. This is what these guys *do* and they are here to stay. For good.
Off topic, but Disruptor did you say you were using a 13 year old iBook? That’s quite a feat given they were released in 1999.
Doh! You are right. I am so embarrassed. `13′ … where did that come from? What was i thinking anyways!? Short-circuit there I guess. Sorry. Next time i will remember to drink some coffee when i am posting late at night.
History will not repeat in this case because this is nothing like the situation Apple was faced with in the PC market. Apple NEVER had 80+ market share in the PC market. In the digital music market they do. They are selling 3 million songs per day that ONLY play on their iPod iTunes combination.
Why on Earth should Apple change anything right now? They could drop 30% market share and still be the biggest player by far. Then they could rethink licensing or subscription. There’s no hurry on this.
Apple did what they always do – made the whole solution. Hardware, software, services. It’s how they do it and for this particular application, people love it.
The main article suffers from (typical) poor analysis and (as a result) faulty conclusions.
The situation here is completely different than the PC market in a number of ways:
1. (As a previous poster already pointed out) Apple NEVER, EVER had anywhere near the marketshare they currently have with iPod. Not even in the ballpark. That alone makes the comparison flawed.
2. The markets are vastly different. Consumer electronics vs. personal computers (largely sold into corporations).
3. The assumption that the “disintegrated” model (OS from one company, hardware from another)…vs. the “integrated” model is “the” model for other markets is simply false (and downright stupid and/or naive). In fact, quite the opposite appears to be true in most markets.
4. The players have changed, grown and learned. Perhaps Steve Jobs more than anyone.
5. Apple could license Fairplay if it needed to, and I predict it eventually will as their iPod margins deflate to the level that they would get with license fees (per unit sold of course).
None of this means that I happen to think Apple is infallible on the iPod…but most of the analysis and pundit-think I have seen going around on their projected downfall is based on sloppy, naive, simplistic and short-sighted analysis that boils down to nothing more than…”Well, they screwed up with the Mac, they’ll do it again with iPod.”
Quote: “Well, they screwed up with the Mac, they’ll do it again with iPod.”
Personally I find this point very interesting because the pundits think (based on this quote) that Apple is just handed opportunities (instead of creating them), thus they have the golden recipe for success but they always end up messing it up – while it is the exact opposite –
Apple, throughout its history has not been handed the golden recipe for success – they created and MARKETED the products of this recipe! Of course there are examples (and examples of where they messed up)
Examples:
Apple I and Apple II models – big boys (like IBM) said “micro computers! hah! who will buy them?” – well… apparently people were interested! Jobs, did a great job in increasing the hype for these machines and they sold great!
Apple III – How they messed up – they bought in the MBAs that has no clue what was going on instead of thinking of the in-house talent that they had!
Macintosh – It’s history is up and down, here they borrowed a failed recipe from XEROX and they ran with it spawning a lot of imitators in the field. Of course with the various changes in management the product suffered and recouped based on the skills of the various managers – now that Steve is back it seems to be doing better
Newton – Another Apple “first” Digital Assistants existed before the newton, but they were by no means a golden recipe for success (if you build this people will buy it). Because of bad marketing though, product conflicts and canibalization it ended up in the graveyard – but look at the newton’s features 6 years ago and look at PDAs now.
iPod – DAPs existed before the iPod, no golden recipe existed though. Apple took a concept, made it slightly better (of course depending on your personal point of view it could be worse or phenomenal) and marketed the heck out of it – and created a complimentary buying service for it, something that did not exist back in the day for the other DAPs.
This brins us to the present. With comments, like the one that I started with, not only do these pundits think that Apple does not have the marketing and technical wits to pull things off, but they expect apple to not learn from past mistakes
…the ability to make money migrates to whoever controls the performance-defining subsystem.
In the modular PC world, that meant Microsoft…
Anyone who thinks Microsoft makes a ‘performance-defining’ subsystem is smoking crack. . .
Edited 2006-01-15 09:00
Did you consider the possibility that the author wasn’t taking about technical merit? He might have been talking about business performance and the ability to dominate the standardized PC market. For all the dislike for MS’s products you got give them credit for totally dominating the OS market.
You’d never know it from some of the reactions in this thread, but the articles are actually a fairly balanced and positive appraisal of Apple’s situation and prospects. I would urge everyone who is interested to read them for themselves.
There are unfortunately a small number of fanatics here for whom, if you are not cheering at the top of your lungs, you are booing at the top of your lungs.
Some of us are saying, nice play. Very nice play. Now lets see the team move up to the 50 yard line.
Defining performance doesn’t necessarily imply defining good performance, you know?
What this guy is saying there is simply that, in the PC world, between Microsoft and Intel, they define what performance of a generic box is. They control the architechture, the key points that everyone else has to adapt to.
That is his point, not that either Intel or Microsoft are the state of the art in performance.
Of course it could be argued that that was a while a go, that now you have others such as AMD and Linux which could define alternative chances for the industry to develop on. But that’s a whole other story.
The problem with Christensen’s views is that he is trying to extrapolate the future of a large company doing many different things from the performance of a single product. Yes, eventually mp3-players and the software that drives them will become cheap-as-chips stuff that anyone can do. By that stage, however, Apple could and should have moved into many other activities, helped by the boost the iPod has given – streaming video, phones, Intel Macs, whatever.
Second, Christensen seems to underestimate the boost that the iPod has given to Apple. The iPod has made Apple quite a lot of money. Possibly more important, though, it has turned Apple into one of the world’s most desirable brands, gving the company reach way beyond the traditional IT sphere. Even if the iPod effect turns out to be relatively short-lived, Apple now have some enormously powerful leverage without which establishing new markets and new products would be a great deal harder.
Any corporation would kill for this kind of opportunity. Christensen is being way too pessimistic and his analysis is too narrow, imho.
i hate to admitt this but it may be that we have only seen the start of the apple growth.
why? because it will be simpler then ever to create a single game disc that can be used for both mac and windows then ever before.
that in combo with the currently very strong brand name that apple have after the ipod success, and it may well be able to take back the home desktop.
the office desktop will be a diffrent beast however as there is the active directory challange to tackle. a nicely configed network of windows clients and servers, with exchange and active directory acting as glue, is a impressive beast to behold.
if anything, the future will be interesting
“During the early stages of an industry, when the functionality and reliability of a product isn’t yet adequate to meet customer’s needs, a proprietary solution is almost always the right solution — because it allows you to knit all the pieces together in an optimized way.
But once the technology matures and becomes good enough, industry standards emerge.”
Why then is Photoshop and the PSD document format so popular? It is still a proprietary document format made for proprietary image software.
The same applies for Microsoft Office. Again, the document types are all proprietary; yet it is the most popular office suite out there and has been for years.
Of course there are proprietary products, and of course they last. He’s not an idiot. He’s talking about packaged systems. An example would be cars, with their own special fuel, wheels etc. Or cameras with non-interchangeable, proprietary lens mounts and film formats. Or proprietary audio – hifi – formats, linked players, amps, speakers that will not work with anyone elses.
What he’s saying is that there is a recognisable progression in these things. In the early stages of the market, you offer better service by being proprietary and controlling all the elements of the product.
Sound familiar at all?
Then in the later stages, this becomes a disadvantage, because the market matures, components get standardised, and there’s no performance advantage is being proprietary, but there is a cost penalty, and consumers move to the open options.
Sounding more familiar?
The challenge, for a company which succeeds in the first phase, maybe even defines and kickstarts the market, is to recognise the point at which it needs to open its architecture. If it does it right, it loses share, but it keeps its position in the larger market, by supplying part of the solution. If it refuses, it finds itself marginalised by no one particular supplier – but by people who package off the shelf components to offer better, cheaper solutions.
Its what happened. Happened to Sun and SGI as well. This is why we have MS today. Apple forced the customers there, and to Dell. They were going to go non proprietary, ie to open hardware, and Apple would not meet that demand, so someone else did.
Whether it will happen to iPod I have no idea. The market may be quite different. But its a more plausible argument than you’re giving the guy credit for.
He is saying, two to three years from now, this is how it will not be: There will not be one supplier with 90% market share, who will only sell music from his store if you use his software, and will only let you play music from his store on his players. That, he is saying, is how it will not be.
We’ll find out together, but I think he’s going to be right. What remains to be seen is whether Apple will manage the transition better this time.
“We’ll find out together, but I think he’s going to be right. What remains to be seen is whether Apple will manage the transition better this time.”
See…there it is again…this statement betrays the underlying pressuppositions that Apple has ever had a situation like this one. They haven’t, period.
“betrays the underlying pressuppositions”
Huh? Doesn’t “betray” anything. I’m saying straightforwardly enough that Apple has been here before. Not in respect of market share – market share with the Mac was never as high as the share of the music download market – but yes, has been here before in terms of the choice, on whether, when, and how to open up as a market evolved away from the proprietary closed solution.
Flunked it last time. This time, we’ll see. Christiansen thinks they’ll flunk again. I’m agnostic but interested.
If you doubt about whether they flunked it last time, look up the last ten years revenue numbers by the way. Then compare them to those of the other suppliers. No, won’t post a link. Will be too upsetting!
“I’m saying straightforwardly enough that Apple has been here before.”
And you are wrong. Where they are with iPod isn’t even close to where they were with Mac (or even Apple II).
Market for PCs is totally NOT the same as market for consumer electronics. It is totally different. PCs was and still are tools and they sold like such. However, iPod, new iMac (which slowly mutates in Apple Home Entertiment Center) – they are for entertiment and guess what – people are ready pay for that if it’s well made, good looking, actually working and doing what customer wants to do.
And there is little horror for Dell too – because of that, people start see value in good design and start to buy it. And it is what Apple actually wants – and other companies fears, because they have no expertise in this field.