Apple's internal conflict and inertia

Let’s be honest.

Modern Apple (2007+) was only initially about superior hardware and software solutions. Many things, such as App Store or Touch controls, contributed to the success of the first iPhone, but that competitive advantage was quickly nullified by an excellent play of Google (which turns out to be pure struck of luck, but that is a subject for a completely different post).

Figure 1: Phones in the Product phase appeal to customers through the power of Apple brand, which feels very exclusive.

Very quickly, a large ecosystem of Android phone producers created solutions that were ahead of what Apple could singlehandedly deliver. So Apple turned to branding and exclusivity, and as years were passing, the Brand played a bigger and bigger role in driving the sales. The focus on the exclusivity reached its peak probably when Apple announced $5,000 monitor which did not include a stand sold separately for $1,000.

Figure 2: The brand today is more important than technical solutions.

Apple knows it is a dead end. It cannot increase the prices without an end, and notable murmuring during the stand introduction, technical problems of MacBooks and perceived lack of novelty suggest the brand is getting weaker.

So, Apple is trying to enter the services space.

Figure 3: Apple enters a mature service market.

Entering a mature service market is not easy. It takes a lot of effort to convince users to change their habits.

Figure 4: Apple is a new entrant in a quickly maturing market.

However, winning in a mature market is not entirely impossible if one have some advantages, such as a good, existing relationship with customers, so the up-sell process could be quick and effective.

Figure 5: A natural up-sell is almost impossible for Apple.

As the Figure 5 shows, the natural up-sell is almost a closed path for Apple. It was too exclusive, and relying only on hardware users would seriously limit the target audience for Commodity services. So Apple is slowly opening up for non-Apple hardware.

There is an internal conflict between the scale needed to make services profitable and the exclusivity required to sustain emotions associated with Apple devices. This conflict is not easy to manage:

  • if you open too quickly, your iPhones will loose a lot of value
  • if you open too slowly, you will not win in the services space.

I do expect that this type of challenge is conflict driven, and inside Apple, there are two fractions that are fighting with each other - the older but still mighty Product people who has a lot of past successes, and emerging Service people who seem to understand that Products in this space are about to disappear.

The most notable takeaway is how Inertia limited Apple moves. There is very little that could be done without jeopardising the brand, so Apple is very likely to stay on the existing course and exploit its deteriorating image for as long as possible.

The challenge for my readers - look at Apple TV. Figure out what competitive advantage it has (with the exception of the brand), and what is necessary to make it successful. Then estimate what are the chances Apple will do that. It might be a dead duck already ;-).

Hi Chris,

Thanks for mapping this out.
I’m not sure I agree with you, though.
Apple has built a reputation as town planner, seeing the value of something
and then bring it to the masses, while maintaining an aura of exclusivity
Think iMac, iPod, MacBook: they all became the benchmark for their categories.

But exclusivity never has been the only factor

For the phones, Apple has first leaned hard on their superior UX,
the integration with desktops
then on the quality of the apps on their platform.

Today Apple is betting on more horses to keep their brand valuable.
Privacy, for instance. That’s something their main competitor can’t offer.
Or a better way to handle payments and credit cards.

So there is probably more at play.

Apple’s platform market share is large enough to launch profitable services in Music, News and TV
And since they give away memberships with new hardware, the services become an attractive feature when you choose your new phone.

It’s the game telco’s have been playing for years. The value of the bundle is percieved to be higher than a set of unbundled elements.

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There’s possibly something else at play. Building on top of content distribution channels – some similarities to Apple CarPlay.

In this case it would be premium Apple AR/VR devices and content (and some B2B content)

VR definitely needs to be considered, it’s a very good point. I just wonder whether Apple needs to play in the commodity streaming and aggregation right now. The VR adoption will be equally difficult with and without the platform, unless the hardware becomes ubiquitous. Despite that, having a platform is definitely a plus if you want to enter AR/VR at some point in the future.

An excellent point. I have just looked up the number of iPhone users (ca. 700m in 2017), and it is really a significant number. Yet, what Apple has to achieve, is to convince those users to switch from whatever subscription they are having right now to the Apple service. Data about this processes efficiency will be very interesting to me.

Had been meaning to chime in here for a while… :slight_smile:

Apple has problems upselling?! That would be news to me. All they ever do is bind you deeper & deeper into the ecosystem, starting with the initial device “premium” perception.

They originally brought back people from Napster to paying for music on iTunes LOL

Not as much ‘problem with executing upsell’ but rather a problem where being to successful with upsell dilutes the brand.