Marketing: Where Does Apple Go from Here? – Macintosh market share continues to decline, but the iPod and iTunes are hit products. Where does Apple Computer’s future lie? An interview with HBS professor David Yoffie.
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He seems to have a pretty solid grasp on the main problem: by having their own platform Apple has to match the R&D expenses of the rest of the industry. While they’ve made some smart moves recently, in terms of building on Open Source foundations to reduce their costs, it still becomes difficult to compete. Their difficulty is that they will need to execute on a higher and higher level just to keep up.
He also keys in on an important note: return to investors. Apple has been a very rocky ride in terms of behaving as a company that makes its shareholders money.
bq. Take Apple’s return to investors. Yoffie says that if you invested a dollar in Apple in 1992, it would be worth $.79 today. The S&P 500 over that same time would be worth about $2.75, or more than three times your Apple investment. “Now, obviously, the company is doing much better since Jobs returned to the CEO job; but having said that, it has not yet reached the value that it was in the early 1990s,” Yoffie points out.
I especially like his comments on the return of Steve Jobs to Apple.
Steve was spectacularly good at getting the company highly focused in his first couple of years. He got rid of a huge number of product lines. He streamlined the operations and he bet on a very small number of products. The combination of the early success of the iMac, the booming marketing in 1998 and 1999, and the streamlined cost structure allowed Apple to generate cash very quickly. So Jobs’ first great attribute was extreme focus.
Number two; he went back to creating sizzle and real brand substance, which Apple had lost under (Michael) Spindler and under (Gilbert) Amelio, neither of whom were marketers. They were both engineers’ engineers, and they didn’t have the kind of marketing sizzle that (John) Sculley had or that Jobs had before Sculley. He brought back the brand value that really had been gone.
The third thing he has done is that for the very first time Apple has a non-Macintosh product (the iPod) that has promise. Apple has tried many times, from the Newton to the Pippen, all of which failed. For the very first time they have created a new product category where there is a prospect of earning a real return.
The problem with the premium brand strategy seems to be that it will become harder and harder to successfully pull off. What’s needed is an economic solution, not a “cooler product design.” History seems to have shown that the winners economically are those who innovate on business strategy, not new products.
I continue to be interested in the reluctance of business oriented analysis that declares that Apple cannot succeed, period. Many, such as Prof. Yoffie, provide different reasons and statistics in detail. Most of the professor’s information is correct, but not all. What is interesting is that many conclusions are focused on issue that are not backed by the facts presented.
Your conclusion that is will be “harder and harder” to make a premium brand strategy successful. Apple is over 20 years old and still making a profit with this strategy. Where are the facts that support this conclusion? The assumption appears to be based on a shrinking market share, period.
While we have suffered through a very deep recession in computer technology spending, Apple’s share has shrunk. This is a natural occurance due to their premium price perception. Apple’s new relationship with IBM will soon provide ample room in the price/performance category to outpace typical desktop PCs. Even Microsoft is utilizing IBM’s PowerPC chips in their next X-Box.
Added to this advance in hardware perfomance will be IBM’s push for Linux on their PCs running the same PowerPC chips. As IBM’s muscle advances desktop software packaging running on Linux, Apple will be able to take advantage of the simple porting of the same software to run on their BSD Unix. I expect that IBM will be successful in thier Linux effort in expanding it’s desktop applications and management issues.
You can also expect the cluster computiing applications of Apple’s servers to make inroads into government and enterprise applications. Many Pharmacutical firms are intested in Apple’s new cluster and software package. I also expect them to replace SGI products in the next two years. The article and the professor completely ignored this targeted advance on the server market with markedly cheaper and more powerful products. Of course, it would have made their conclusions more difficult to maintain.
A couple quick reactions to Yoffie’s article: (1) Building a company on products with relatively short life cycles can be a terrific business strategy—assuming enough products—because it encourages both flexibility and resilience, like woven rope. (2) I have wondered if Sony isn’t Apple’s major competitor going into the future, not Microsoft. Nice to hear that Yoffie sees Apple’s design as superior. (3) Apple thrives on brand attraction; Microsoft, on brand dominance. If so, then Apple’s greatest fear is failure to innovate; Microsoft’s, failure to intimidate. Which company would you rather work for?
Please keep in mind that David Yoffie is associated with Intel!
While I don’t agree with all of HBR (or anyone’s) review of Apple, I do think that Apple’s premium strategy is becoming increasingly difficult. The biggest reason I would say this is more a question of network effects than anything else. As more people use Windows based computers, it becomes easier and easier to do so. The hardware is supported. The software and games comes out there. Services support it. Your friend down the street can help you work things out.
The more companies develop for Windows, the more Apple has to produce on its own, and the more “little difficulties” build up which might cause people to switch to Wintel. While I love my ibook, I use my PC almost as much, and it was much cheaper. The hottest selling segment of the market right now is $400-600 and Apple’s lowest new item is in the $900 range. While I might be willing to spend more, I can think of many people who would rather use the $400 to go on vacation, or save for college, or something.
Here’s what I agree with: In the long run, the old phone company model, selling services on subscription, is a better business model than selling gizmos with big price tags. Apple must battle continuously against price slide on its products—as must Dell. (Dell does this by cutting quality; Apple by selliing quality.) Microsoft, on the other hand, is moving into the background, away from creating moments where its customers must make big buying decisions, toward securing micropayments on its services from everyone who uses their software and, perhaps, the internet itself eventually.