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Understanding Apple’s Formula For Success

As a professional analyst covering the PC and CE markets since 1981, I have watched closely how these markets have developed and how various companies, such as Apple, have come from obscurity to one that now dominates in the tech market.

While the following observation is not new and can be applied to inventions probably since the beginning of time, it is even more apropos in our digital age.

Everyone is familiar with the saying, “Necessity is the mother of invention”. Most inventions come from someone seeing a need and creating a product or service that meets that need. More importantly, inventors pretty much drive much of the world’s commerce as individuals and companies apply various levels of R&D to an idea and use that to invent new products and bring them to market.

In various conversations recently, I have heard both Apple backers and detractors bemoaning the fact that Apple seems to be at a crossroads, and saying Apple needs to invent something new to get its luster back.

This is probably a harsh assessment in that Apple is still making record profits and, while their stock has taken a hit, Apple still has over $200 billion in the bank and spent $18.7 billion in R&D in 2020 with, I am sure, plans to continue to create and develop new products and services in the future. They have been doing this well since 1984; their model for success continues to work for them.

However, asking Apple to invent something new suggests that those asking do not understand Apple’s formula for success. It’s one they repeat with every product they have brought to market since their beginning, starting with the original Apple I. Apple did not invent the PC ( that came from Micral in 1973), and it was Eddie Robert’s Altair 8800 introduced in 1974 that brought the first commercial PC to the market.

The Apple I came from Steve Wozniak’s lust for wanting his own Altair but not having enough money to buy one. So he created his own and, along with Steve Jobs, made a business out of his version of a personal computer. But it was what Apple did with their PC over time that put Apple on the map. With every generation of the Apple I, II, and III, and eventually the Mac, they brought innovation to the design, OS platform, and related applications.

Their approach is to innovate around an existing product and make it better and tie it to a broad ecosystem of software and services. For example, they did not invent MP3 players but put their innovative design, easy to get music via downloads, and an ecosystem of software and services to it — Apple owned the portable music player market for over a decade.

That same approach was also applied to the iPhone. While not first to market with a smartphone, Apple innovated around the concept, created the iPhone, and introduced pocket computing to the world.

When Phil Schiller, then VP at Apple, showed me the iPhone in a meeting when it was launched, he put the iPhone on the table and asked what I saw. It was not turned on and I said it was a nice piece of glass. Then he turned it on and it came to life and told me the magic was in the UI and software that made the iPhone much more than just a “piece of glass.”

The radical design of the iPhone helped create a multi-billion dollar market for them and many others. Smartphones now are the number one way people gain access to the internet around the world.

Apple took the same approach with tablets with the introduction of the iPad in 2010.

Apple did not invent tablets. In fact, I started testing various tablets as early as 1989 with the original GRiDPad.

But Apple did make them better and also created a billion-dollar market for tablets. They are the leader in enterprise-based tablets and are still a highly preferred supplier of tablets for consumers around the world. Apple did not invent smartwatches, but here too, they have created what seems to be the best of breed and the best-selling smartwatch and a product that adds billions of dollars to their bottom line.

Given that Apple likes to reinvent products and markets, what new opportunities will Apple focus on that could take advantage of this successful formula?

Now that AR/VR seems to be the next big thing, some Apple aficionados are asking, “Where’s Apple’s AR/VR strategy?” Some even worry Apple will be too late given all of the activity from Oculus, HTC Vive, Sony Playstation VR, Samsung, and others.

But if history is our guide, Apple will watch how this market develops and, at the right time, and when the right technology is available, bring out an AR/VR solution that will most likely be superior to anything on the market outside of what is at the ultra high end.

With AR Kit and AR apps on the iPhone and iPad, they have already laid a great foundation that, eventually can be used in their AR/VR glasses when they come to market. And when they do, I suspect they will create the gold standard for smartphone-based AR/VR headsets with supporting apps and services and, even if late, they could end up with the lion’s share of the market as they have done with the other products in their line.

No doubt Apple will keep this same MO as they study and work on any type of autonomous vehicle should they bring one to market.

This does not mean Apple will not invent something new in the future. But Apple has become a master of innovating around new products being introduced by others that show promise but, in their early stages, are not enough to create or drive a large market for them. If that product does show it has commercial legs, Apple enters that market and do what they do best — create a great new device with a better UI, develop an SDK so developers can create great apps and services for it and then spend millions of dollars marketing while making it part of the broader ecosystem of products they offer their customers.

My bet is Apple keeps up its successful formula for innovating around new products and categories and that is what will continue to drive Apple’s growth in the future.

What do you think?

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