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Apple's segmentation strategy, and the folly of conventional wisdom

Ten years after an iPod powered rebirth, Apple's run continues unabated.

Conventional_Wisdom-Oxymoron.pngThere is a myth, more of a meme actually, about the ‘inevitability’ of commoditization. It is a view of the world that sees things linearly, in terms of singularities, and the so-called “one right path.”

In this realm, where commoditization is God, horizontal orientation (versus vertical integration) rules the roost. How else to define consumers, not in flesh and blood terms, not as spirits that aspire to specific outcomes, but rather, as a composite set of loosely-coupled attributes.

This mindset is compelling because it is simple and familiar, but it also leads to blind obsequiousness.

Historical edifices are held as indelible fact. “It’s Microsoft v. Apple all over again.” “There has to be one absolute, dominant leader.” “Open will always prevail — and should prevail — over proprietary systems.” “Market share matters above all else. Even profits.”

There is one small fly in the ointment to this ethos, however, and its name is Apple. (For a historical perspective on tech industry architectural orientation, check out “Waves of Power” by David Moschella.)

Apple’s gaudy performance relative to its industry peers

The following inconvenient facts must be an affront to the horizontal, commoditized, open, market share zealots. Apple has launched three major new product lines since 2001: the iPod (October, 2001); the iPhone (July, 2007); and the iPad (April, 2010).

The company’s stock is up 3,000 percent since the launch of iPod, 125 percent since the launch of iPhone, and 20 percent since the launch of iPad.

In that same time period, the major devotees of the loosely coupled model — Microsoft, Google, Intel and Dell — have been, at best, outpaced by Apple 6X (in the case of Google dating back to the launch of iPod) and at worst, either been wiped out (in the case of Dell) or treaded water (in the cases of Microsoft and Intel) in every comparison period.

Apple-Performance.png

Let me go a step further and make the forceful assertion that in the red hot mobile computing segment (inclusive of smart phones, media players and tablet devices), anything that Nokia, RIM/Blackberry and even Google Android are doing is simply orthogonal to Apple’s iOS-based device play (iPhone, iPod touch, iPad). Checkers to chess.

That is why it’s laughable that the latest meme du jour, “The Apps Lifestyle” — and believe me, it is a lifestyle — is ridiculously framed as a trend of the multi-vendor “cell phones” segment. Why? The clear-cut truth is that Apple’s iOS device platform is the staging ground of the Apps Lifestyle, something that ~90-percent of iOS device owners “get” to the point of it being intrinsic, assumed and embedded.

By contrast, maybe 15 percent of non-iOS device owners embrace The Apps Lifestyle, or even know what it means, and that’s probably being generous. Yet, this composite translates to 29 percent of all users (according to Pew Research Center).

How can you not confuse the tail with the dog, with that kind of framing?

The folly of conventional wisdom

Mobile-Handset-Share-Profits.pngTherein, lies the problem with conventional wisdom. Namely, that it’s conventional. It doesn’t think outside the box in terms of strategic imperatives, like building differentiation, growing margins or defensibility.

That explains why the top three mobile handset unit sales ‘leaders’ (Nokia, Samsung, LG) are outselling Apple in raw units an astounding 23.5 to 1, yet for all of that effort, combined they are garnering only 82 percent of Apple’s profit level.

Is it surprising, then, that the reward for achieving such distinguished leadership was for the CEOs at two of those companies (i.e., Nokia and LG) to get fired?

Let me net it out for you: Customers buy outcomes, they don’t buy attributes, and they certainly don’t pay a premium for it. Whether you love or hate Apple, recognize that they are an exemplar of this truth.

Analyzing Apple market segmentation strategy

In the real world of building products and attacking market opportunities, market segmentation is the process of defining and sub-dividing the aggregate, homogeneous market into addressable, targeted needs and aspirations buckets. Buckets that are in turn, thresholded by demographic, psychographic and/or budgetary constraints.

Market segmentation strategy enables a company to drive complete, unified product solutions that are harmonious with messaging, customer outreach, and channel strategies for selling and supporting customers.

In this regard, Apple’s product strategy is a study in market segmentation. Versus merely trying to stuff a product, burrito-style, with as many different features as possible, they target specific user experiences, and build the product around that accordingly.

Consider the recent iPod event in September, where Apple completely rebooted the iPod nano, rolled back the iPod shuffle to an earlier interaction model, and majorly forked the iPod Touch in a way that also speaks to iPhone positioning.

Mind you, each of these efforts represent major strategic iterations of successful products, not reboots of failed ones, so it speaks volumes about how the company thinks about its users, their workflows and corresponding segments.

Moreover, it underscores the integral-ness of continuously re-calibrating on the definition of the situation; not merely doing more for the sake of an added bullet point or to support a desired price point.

Does Apple have a perfect crystal ball on these things? The history of the nano and the degree of iteration of this generation’s shuffle, suggests that no, in fact, they don’t always have a perfect read. But make no mistake: While they may not always be right, they are never confused or haphazard in their approach, and that is the hallmark of sound market segmentation strategy.

Apple segmentation from iPod shuffle to MacBook

As such, the chart below is an attempt to logically organize Apple’s product line so as to better understand the company’s approach to market segmentation:

Apple-Segmentation.jpg

So what does it all mean?

If (in football terms) we are now entering the second quarter of the age of mobile computing, it helps to see the continuum of connected devices from the perspective of their means of mobility; namely, whether they are wear-able, pocket-able, bag-able or portable.

Similarly, the diverse set of device input methods that Apple embraces — from physical buttons, keyboards and mice to multi-touch and tilt — provides a window into the types of use cases and workflows that they are optimizing around.

Further, when you see how Apple has used its vertical integration of the iPod media player and the iTunes marketplace across all of its devices to create a billing relationship with 160 million consumers vis-à-vis simplified discovery, purchase and distribution, it provides a window into how they’ve facilitated a market segmentation approach that is simultaneously harmonious and discrete.

In the harmonious bucket is the way that iOS-based Apps and their corresponding “ecosystem surround” directly overlay on top of iTunes and the iPod media player. This approach is no doubt a business school study of how companies can marry strategy and tactics across product lines and product lifecycles.

Ironically, it is the holistic approach that has given Apple the ability to be judicious in its implementation of differentiating hardware components at the display, phone, camera and video capture level.

Want the best build quality device that Apple makes? Get the iPhone 4. How do we know this? While the iPod Touch has recently received iPhone 4 pixie dust, in the form of a camera, HD video recording and a retina screen, the build quality is a step below the iPhone 4, which feels like a jewel box forged by a craftsman.

To be sure, the iPod Touch is beautiful and solid, but its screen is slightly diminished in effect, and the camera is intentionally hobbled. In other words, while Steve Jobs himself may refer to the iPod Touch as the “iPhone without the phone,” in truth, the functional segmentation keeps it a step below the iPhone.

Now, this is completely logical when you consider how much more expensive the iPhone is. Pricing (and margins) that are hidden from the customer via carrier subsidies.

That is also why recent analyst data that suggests that the iPad is “cannibalizing” low-end MacBook sales — versus simply swallowing the low-end Windows PC and netbook segments for lunch — is dubious at best. If you own an iPad and a Mac, you know two things:

  1. The iPad targets a set of “jobs” that are not dependent upon keyboards and mice, but there are plenty of jobs for which a tablet is an unsatisfying replacement for a traditional computer;
  2. Apple doesn’t make low-end MacBooks, or similarly hobbled devices, for which an iPad would represent a practical alternative.

But then again, as I’ve stated before, Apple is a rare bird, pursuing non-linear, high-orchestration, high-leverage strategies. Exactly the type of complex storyline that is easily dismissed by simple-minded analysts, investors, competitors, media and the like.

Keep that in mind the next time you come across a story citing “Apple” and “inevitable” in the same context.

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  • fredo

    So what is your point, other than “Apple are fantastic”?

  • http://www.thenetworkgarden.com Mark Sigal

    @fredo, my point is that conventional wisdom is typically wrong; namely because it doesn’t deal with any level of complexity in strategy, and that market segmentation strategy is core to understanding a differentiated, but targeted, approach. And, yes, that Apple is a supreme case study of this ethos because they have done it across multiple product lines over a decade – and their market performance relative to their counter-peers proves the point, thereby disproving conventional wisdom.

  • daugherty

    Curious about the pie charts–exactly the same ones used by Phillip Elmer-DeWitt after his corrections. They are attributed to Canaccord Genuity and IDC, but PED posted that he created the charts from info provided. What’s the true story?

  • frac

    Mark, a very good read.
    I am also reminded of the maxim ‘knowing the price of everything and the value of nothing’. Apple users do and have known for many years that value outweighs price. The value in Apple products lies in(to name just a few) seamless integration, reliability, user friendliness, service, design and elegance, cachet, ‘it just works’ and a host of intangible things that only Apple ‘gets’. The momentum just keeps on growing with 50%+ of buyers being new to Apple products, who, almost to a man or woman, swear ‘once you go Mac, you never go back’. This is a very dangerous trend for traditional manufacturers.

  • Carmen Uncese

    Thank God there is at least one other thinking person watching Apple. The pure volume of ignorant commenters and articles is legion. If I had the nickel, instead of Microsoft and their lot, for every regurgitated line of ignorance I’ve heard and read I could buy a continent for my personal use.

    I’ve given up trying to explain Apple products to the unwashed and simply tell them they will understand once they own an Apple product, even if they will never understand why they feel the way they will about it.

  • kevin

    The iPhone was launched on June 29, 2007, not July 2008.

  • http://www.victorpanlilio.com Victor Panlilio

    @fredo – the author’s point is summarised in the article title. Did that somehow elude you?

  • Vik

    I would add that the iTunes store for anyone (2003) is another major product that is the engine for iOS. It isn’t regarded as a product but it effectively is THE underrated reason why Apple has a coherent go to market strategy in mobility and media.

    Also, I think there may be an error in regards to the iPhone launch which was in 2007.

    I agree with your article completely.

  • http://fortune.com/apple20 Philip Elmer-DeWitt

    Those do look a lot like my pie charts, Mark. How about some link love?

  • Digger

    I love it when I need to pull out my SAT study guide just to understand the convoluted language in which you are trying to explain that Apple builds products that are artistic experiences in themselves, rather than utilitarian tools.

  • Canuck

    You had my attention until you wrote “think outside the box”, a phrase used exclusively by conventional thinkers.

    We’re all brilliant when we predict what’s already happening — it’s obvious now that Apple was the thought leader in mobile Internet from 2007 up to at least the beginning of 2010; five years ago it was RIM, and five years from now, who knows? Microsoft might even come back from the dead (a horrible thought, but stranger things have happened: look at Apple’s resurrection this decade).

    This year, the iPad was a big hit, but the iPhone 4 disappointed, barely innovating compared to previous major iPhone releases (and actually falling behind some Android phones), suggesting that Apple might be running out of creative energy on the smartphone side. As of September 2010, though, Apple is still the one to beat in the tablet market — I predict that they’ll own that market for at least two years, until Android tablets mature enough to give them real competition.

    As for the iPhone app market, it’s as hot among developers and investors as the Facebook app market was two years ago, and, I suspect, just as shaky from the developers’ point of view.

  • http://www.thenetworkgarden.com Mark Sigal

    @daugherty and @philip, these are absolutely charts compiled by philip so I have plugged link into section on profits to philip elmer-dewitt on same topic. my bad.

  • http://www.thenetworkgarden.com Mark Sigal

    @frac, totally agreed. thanks.

    @Carmen, if I had a nickel for every article predicting the demise of Apple, I would have a lot of nickels. ;-)

    @kevin, doh. no idea how I screwed that one. AAPL up 125% since launch of iPhone, vs -14% $MSFT, -6% $GOOG, -20% $INTC, $56% $DELL. Have updated the text, and need to plug in updated graphic.

    @Vik, hopefully the article captures the importance of iTunes as a common platform from which a whole lot of Apple leverage is derived.

    @Digger, my goal is to educate as well as inform. Just remember to thank me when you ace the SATs. :-)

    @Canuck, thanks for the counter-perspective. Time will tell, and you are absolutely right that Apple’s seat at the head of the “adult table” is hardly guaranteed. That stated, three discrete product lines that are game-changers is pretty darn impressive relative to ANY peers, don’t you think?

  • Kerry NZ

    Note for your table: MacBooks have a camera and video capture built in.

  • Michael

    “their market performance relative to their counter-peers proves the point”

    Hmmm…you’re comparing the meteoric rise of a former also-ran who created a whole new set of product categories with the relative stagnation of a group of companies who were already dominant in their markets.

    Does it shock you to learn that companies with negligible market share have more room to grow than companies at the top of their fields? Examples happen in every sector fairly regularly. (Netflix vs. Blockbuster? Krispy Creme vs. Dunkin Donuts? Hell, even Microsoft vs. IBM?)

    Avoid embarrassing yourself further; avoid stock analysis.

  • Max

    Fredo, your comment does a wonderful job reinforcing the author’s point, as follows:

    “Exactly the type of complex storyline that is easily dismissed by simple-minded analysts, investors, competitors, media and the like.”

  • Lomipeau

    Mark,

    It was a pleasure to read your well written, thoughtful review of the tech market!

    I’ve used a Mac since 1989 and am constantly amazed at how many “analysts” have shoveled their opinions about Apple’s prospects, products,and future without a clue or understanding of what makes Apple (or Apple’s consumers for that matter) tick.

    Great post, thanks!

  • http://www.thenetworkgarden.com Mark Sigal

    @Kerry, it’s a somewhat artificial distinction on my part, but the camera and video on MacBook is incorporated in a way that you wouldn’t likely use it as a camera to take external shots or to record external sequences. It’s pretty much relegated to capturing pics and video of a user sitting in front of their mac. By contrast, the video recording on iPhone and iPod touch replaces the need for a separate device, and the photo capabilities on iPhone accomplish same. In fact, Apple’s decision to hobble iPod touch camera I see as a clear segmentation decision.

    @Michael, since I “obviously” chose the wrong comparison companies, who should I have chosen, in your opinion?

  • fredo

    I don’t mean to be a troll here, but in what parallel universe is Apple considered a failure? By definition their stock price is an indication of conventional wisdom. Every blogger on the planet raves about them and most consumer tech companies are trying to emulate them.

  • http://www.thenetworkgarden.com Mark Sigal

    @fredo, I just did a three second search on Apple “claim chowder” and here are a few links:

    iPod hoopla fails to convince buyers (February, 2010)
    http://www.retrevo.com/content/blog/2010/02/apple-ipad-hoopla-fails-convince-buyers

    Why Microsoft’s Zune scares Apple to the core (September, 2006)
    http://www.computerworld.com/s/article/print/9003718/Opinion_Why_Microsoft_s_Zune_scares_Apple_to_the_core

    iPhone’s long-term future bleak (April, 2010)
    http://www.macworld.com/article/150904/2010/04/iphone_prediction.html

    These types of stories are legion, and around these stories are plenty of analysts providing stock predictions to support.

  • http://phlogy.com John

    Apple has done incredibly well, and I would put that down to having so much covered with itunes. The fact that you can now get all your content, whether it be movies, music or apps, for all 3 of these devices, is a huge boon for all Apple devices. Do not overlook the importance of making it easy for people to get content, this is what the others are missing, as well as Apple’s finesse.

  • http://concurrentmedia.com Paul Sweeting

    Two points: 1) It’s remarkable how much value Apple has created from other companies’ failure. Would “it just works” be as valuable or unique a selling proposition if it were not for the fact that products built on other (generally open) ecosystems do not?

    2) More critically, it’s not quite correct to suggest that commoditization has played no role in Apple’s strategy or success. It’s real genius has been its ability to reverse the normal commoditization dynamic. Apple’s insistence on pricing iTunes music downloads at 99 cents lowered the overall life-time cost of using an iPad, allowing Apple to keep the price of iPad’s high. In effect, it commoditized the music to add value to the device. It then captured the lion’s share of the value in the ecosystem through higher prices on the device. That’s the inverse of the normal pattern for playback-only devices. Typically, content costs remain relatively high while the devices get commoditized, allowing content owners to capture the larger portion of the value in the ecosystem.

    Apple was able to do largely the same thing in the mobile phone market. It commoditized the wireless service (expressed in this case not by the pricing of the service but through forcing AT&T to allow Apple to maintain a separate subscription relationship with the user) while keeping the price of iPhones at a premium.

    It’s now trying to do the same thing again in video, introducing 99 cent rentals for commercial-free TV episodes. Apple hasn’t quite pulled it off yet, but I wouldn’t bet against it.

  • http://www.thenetworkgarden.com Mark Sigal

    @Paul, I think that you are using commoditization a bit too broadly (I would disagree that that Apple has commoditized wireless service), but I think you are Dead-On that part of their strategy is to take elements that were scarce, expensive and bundled, and make them surplus, cheap and un-bundled, so as to enhance the value of their offering. Both iTunes and the App Lifestyle are solid examples on that front.

    Also, to your point, there is nothing endemic to the loosely coupled approaches that precludes doing a better job on design, integration and user experience, save for cultural and organizational blind spots. Many, if not most of these companies, are incredibly silo’d across business units.

    Great feedback.

    Mark

  • AdamC

    What a load of rubbish.

  • ChuckO

    I’m sure this was not by accident but iPad sales can only “cannibalize” Mac sales so much as you need a Mac to initialize the iPad and back it up, etc. It would also work in the other direction where if you want an iPad but don’t have a Mac well then…

  • AlfieJr

    very insightful article. the one other crucial factor tho in Apple’s strategy is the dramatically superior – unique even – customer service offered by Apple’s retail stores. real people to help, hands on, anytime. real ‘test drives’ before purchase. on the spot immediate warranty replacements. comes-with-purchase set up services. the very real costs of all this are of course included in the prices of Apple products, but no one is nickel-and-dimeing you at any time. no one is hustling to “upsell” you on monetized services like in an AT&T, Verizon, or Best Buy store (although AppleCare and MobileMe are available if you want). this is the “human” part of the Apple ecosystem that all the geeks (because they are dedicated DIY’ers) fail to grasp how important it is for consumers.

  • Tim F.

    ChuckO: simply NO. Firstly, a PC can initialize/sync an iPad just as well as a Mac can.

    And, secondly, requiring a Mac or PC to sync with is not a deterrent to Mac cannibalization insofar as cannibalization requires an initial desire/intent to purchase a Mac being replaced by a purchase of an iPad as it (sufficiently) fulfills the same (or more) needs that initially caused a consumer to desire a Mac. Continuing to have or use a Mac or PC and/or needing to buy a new Mac or PC is, in no way, a measure of cannibalization.

  • spinoza

    “This year, the iPad was a big hit, but the iPhone 4 disappointed, barely innovating compared to previous major iPhone releases… suggesting that Apple might be running out of creative energy on the smartphone side.”

    Having owned all iPhone models, I can say without hesitation the iPhone 4 is a classic Apple upgrade: evolutionary and still striving toward perfection. It’s an incomparably more capable device than the original iPhone, though most all the same functional characteristics are the same. Apple is successful with its product runs precisely because it avoids throwing out what it has done so well in order to superficially “wow” customers by attempting “home runs.” This is what other American companies typically do (think Detroit), and it’s a tribute to Apple that they have avoided this.

    Besides, the iPhone 4 is flying off the shelves, Apple can barely keep up with demand, and for good reason: it’s the most remarkable piece of technology I’ve owned in my some 30 years of computing.

  • jmmx

    I hate to follow the crowd – but how refreshing to see a truly intelligent and insightful article. Bravo.

    As for those who gripe about your using the english language…. well – I will refrain.

    I would (at the risk of seeming bookish) quibble with you on your use of “singularity.” I believe you use it in exactly the opposite sense that I typically would. To me a singularity (see below) is a point at which things diverge radically from the (previous) norm. As such, Apple’s introduction of the iPod, iPhone, & iPad (perhaps even iMac to a lesser degree) THESE were the singularities that began a whole new direction in things.

    Perhaps you were thinking of linearities or single-mindedness.

    Otherwise – great piece. Thank you

    Respectfully,

    jmmx, pdx

    =====

    singularity |ˌsi ng gyəˈlaritē|
    noun ( pl. -ties)
    1 the state, fact, quality, or condition of being singular : he believed in the singularity of all cultures.
    • a peculiarity or odd trait.

    2 Physics & Mathematics a point at which a function takes an infinite value, esp. in space-time when matter is infinitely dense, as at the center of a black hole.

    3 ( the Singularity) a point in the future (often set at or around 2030 A.D.) beyond which overwhelming technical changes (especially the development of superhuman artificial intelligence) make reliable predictions impossible.

    Apple’s stock price beginning with iPod might be a singularity a la #2 if you just compress the chart a wee bit. :)

  • Chris

    @Chuck,

    I’m an Apple person through and through. But you don’t need a Mac to own an iPad. iTunes does the trick, on Windows or Mac.

  • disposableidentity

    @Michael, you could have said that by 2005 Apple was an established, dominant player in their field — with almost the entire music player market. Instead of stagnating, they parlayed that into a dominance of smartphone and tablet markets.

    What would MS or Google have done? Exactly nothing. Neither company can make anything from their monopoly positions. Crazy!

  • JB

    Wow. I’ve been following the whole apple / android thing for a while and am constantly amazed at the endless drivel written on both sides of the argument.

    A lot of this article seems sound except for the one key takeout relating to the tech itself. Apple tech is good, but it doesn’t just work (I take great pride in counting the number of crashes I witness during presentations on macs its about 40% if you are interested) and it isn’t light years ahead of its competition.

    Its good stuff and possibly / probably the best kit on the market, and priced as such (although if you truly understand your whole point re segmentation and match that to the sales of Android you will be forced to admit that they have delivered a better strategy in terms of unit sales… which = larger numbers of customers making that particular brand choice: – I notice, btw that the fanbois have had to find new metrics to claim superiority with now, in this instance a very clumsy analysis of stock price).

    Here is the reality. Apple is a genius company….. at marketing.

    Tablets are not new, apple did not invent them, apple did not find the magical technical way to make tablets work. What apple did is build the magical way to market the tablet.

    The ipod was not invented by apple either.

    “Apple has a reputation for building its hardware and software entirely in-house and not partnering with outside companies. That didn’t hold true for the development of the iPod.

    The iPod was based on a reference design by a company called PortalPlayer (no part of NVIDIA), who had created a prototype device using an embedded operating system.

    Also in an uncharacteristic move for a company widely known and respected for its user interfaces, Apple didn’t design the first iPod interface, contracting with a company called Pixo (now part of Sun Microsystems) for that work. “

    http://ipod.about.com/od/understandingipodmodels/a/invented-ipod.htm

    They didn’t half market the hell out of it though.

    “Let me net it out for you: Customers buy outcomes, they don’t buy attributes, and they certainly don’t pay a premium for it. Whether you love or hate Apple, recognize that they are an exemplar of this truth.” – Mark Sigal

    This, this is where you are totally wholly wrong and it is your blindness to your wrongness that makes you such a wonderful apple puppy.

    You have actually taken the key axiom of branding marketing (that people buy brand attributes AND PAY A PREMIUM FOR THEM), inverted it and applied it to the strongest brand in the modern tech sector. That is so obtuse it is stunning.

    My god do people buy attributes. Attributes are what make a difference between commodity products and branded products. Do you really think on pure usage and functionality alone an iphone @ £500 has 2.5 times the delivery of a phone at £200 ?

    I’ll answer for you (because I know your brain has just told you the answer is yes) NO. NO. NO.

    Its good but its not that good. The difference that you are buying for that additional £300 are the attributes of owning Apple. It sends signals about you (ie not belonging to the great unwashed as one of your posters suggested) it segments you into a club you like being in, and you know what, if thats how you want to spend your money and it makes you happy then fine. But please, for your own sake (sorry i mean my sake – and I’m kinda talking to all of you apple evangelists), realise what it is that makes them so good…it will be so much easier to read what you have to say if it isn’t pushed through the delusion you have.

    You really shouldn’t be so proud of the way Apple has blinded you to a rational analysis of the modern tech market.

    They are good, hell they have produced great business results. But the difference of opinion that we hold is that I believe their genius is in getting you to believe that your brand choices are purely rational whereas I know they are almost entirely emotional. I’ll finish with my favourite joke (currently)

    Q. How do you know if someone has an iphone ?

    A. They’ll tell you

  • spinoza

    “Here is the reality. Apple is a genius company….. at marketing.”

    This is the now standard rejoinder for people skeptical of Apple’s success.

    “What apple did is build the magical way to market the tablet.”

    You obviously have no hands-on experience with tablets. I’ve owned several going back to the 1990s, and including two Toshiba Windows tablets, and what Apple has done with the iPad has nothing to do with marketing, my friend. They weren’t the first–Steve Jobs has openly said this on a number of occasions–but they were the first to actually deliver on the promise.

    “I take great pride in counting the number of crashes I witness during presentations on macs its about 40% if you are interested.”

    You clearly are living in some kind of nightmarish Anti-Apple Universe. I work with Macs all the time–my own Mac is a high-end, dual display setup running CS4 and several other professional packages–and I can’t recall the last time I’ve seen a Mac crash.

    With all the core electronic devices I own–computer, smartphone, tablet, MP3 player–I have gone the path of having owned several previous generations before getting an Apple product, and I can say without hesitation that their design and technology are heads and tails above the rest.

    That you would attribute Apple’s success to “marketing” tells me a lot about your own acumen and abilities regarding technology. You actually demonstrate nicely this blog author’s point–you’re a prime target for commodity-driven (i.e. cheap) computing.

  • frac

    @JB
    With respect, you’re so puffed up with your own cr*p, you can’t see the wood for the trees.
    ‘Tablets are not new, apple did not invent them, apple did not find the magical technical way to make tablets work. What apple did is build the magical way to market the tablet.’
    LOL, that’s the exact line of blind thinking that the OP explained in depth and at great length. Blind, because your anti-Apple bias sees only price as the most important factor which in turn prevents you from ever questioning your deeply held prejudices.
    I’ll keep it simple:
    ‘It just works’ whereas the previous iterations of tablet computing were expensive, heavy, reduced functionality cludges with the battery life the size of a gnat’s bladder.
    But then I know that won’t cut it for you since you’ll be counting presentation failures as a metric to measure hardware quality so please answer this – if Apple hasn’t produced anything new or original with the iPad, why are the worlds computer and phone companies blindly rushing their own ‘me too’ copycat products to market?
    If that doesn’t satisfy you, please explain why high-end Android phones are priced to match the iPhone which you say is over-priced. If Apple’s product, for which they developed, in-house, iOS plus iTunes and the App Store is over priced, where does that leave the similarly specced Android phones whose makers have had to do no such costly development other than slapping a free os onto commodity equipment. Hmmm… sounds like Android price gouging to me.

  • JB

    @Frac

    Touchy little prick aren’t you.

    I did not at any stage say that Apple was overpriced.

    In fact what I said was “Its good stuff and possibly / probably the best kit on the market, and priced as such”

    I also didn’t say that Apple had not produced anything new with the ipad, I said they were the first to market it successfully. I did say they didn’t invent the tablet, which is true, but fundamentally different to what you thought you read.

    If you and your kind would just demonstrate some decent reading skills it might be easier to have valuable discussions with you.

    The kind of blind thinking I like pointing out is exactly the cr*p that your kind spews whenever you think your revered brand is being criticised.

    Lets put it another way,if you weren’t emotionly involved with your ipad / iphone / ipod /Apple then you wouldn’t have rushed to send an emotional reply to me that began with the angry words “….With respect, you’re so puffed up with your own cr*p”

    No. here’s the thing. All of the best and most respected and revered brands in the world are expensive. Part of the appeal is the expense, part of the precieved value is the demonstration of how ‘cool’ ‘rich’ ‘worldly’ and ‘connected’ you are becasue you have the ‘best’ kit.

    I’m only pointing out why Apple is so successful. You are the one assuming, incorrectly, that I am knocking Apple and their products.

    I’m not. I’m knocking idiots like you that really really can’t see the wood for the trees. You people get up my nose largely because you can’t see the bleeding obvious when its spelled out clearly for you and then come back throwing out insults.

    What is wrong with Apple being so good at marketing FFS ?

    To answer your question, why are the other manufacturers following Apple with tablets ?

    Simply because Apple, via the ipad, has broken the marketing hoodoo on tablets and built the demand for these products. Look, its a great product, I never said it wasn’t, but if any other company had brought it to market it would not have been as successful. Why ? Because Apple have a huge base of customers who have totally bought in to the brand appeal of Apple and forked out a bunch of money based on that appeal.

    I’m guessing you probably still won’t understand what I am saying but if you want to ask a question to help clarify your understanding please feel free. I’m pretty happy to help out.

    In other contexts (the 160m payment details meme) you guys are pretty happy to value this reality as a positive, so why not now ?

  • JB

    Are you busy typing your angry reply Frac ?

    Quick, quick, people might think you are an idiot if you don’t type faster….. :)

  • Steven

    Mark,

    I would submit that one might include the Intel iMac on the list of monumental new product launches by Apple. Obviously, iMac was not a new product, per se, but the Intel processor was a major new direction, not just technically, but from a philosophical standpoint as well. “Think Different” took on a different meaning, and the ability to run Windows re-defined what it meant to be a “switcher.”

  • http://www.thenetworkgarden.com Mark Sigal

    @disposableidentity, great point. So easy to dismiss or minimize the difficulty to execute in vertical strategies and get the piece parts right, as Apple has. To have done it in three different product lines over such a long period is even more amazing when you compare it to what the competition has done in innovation, creating new lines of business, margins, etc. during this same period.

    @JB, the Apple’s just a good marketing company (they are a GREAT marketing company) assumes a decade of lemming-like consumers willing to pay high margins, especially in the worst economy since the depression. At a certain point, even cult-like marketing gets you only so far, so Apple is a LOT more than great marketing, although they ARE great at that.

    @Steve, I don’t include iMac for the simple reason that Apple is playing in a segment that they will never win, there is a well-established, well-anchored competitor, and that segment (PC) is largely homogenous in orientation, which mitigates the ability of Apple’s vertical approach to truly change the game. That stated, I love my iMac.

    Mark

  • frac

    @JB
    Wow…. Pot Kettle Black
    Emotional much?
    Over and out

  • Bruce Geerdes

    I don’t think the iPod Touch’s camera was “intentionally hobbled”. To put the iPhone 4′s camera into the iPod would’ve required it to be quite a bit thicker.

  • Jeff

    So basically, if a company sells a product that people want. Actually charges enough to make a profit then builds on the product, they will make money and have brand loyalty. To bad all the geniuses at Dell didn’t learn this in “bidness” school. If they had, they wouldn’t end up in race to the bottom where they turn around and say, “Wow we got us some market share, by the way, we are broke”

    Great article, to bad most of the “best and brightest” in the tech industry won’t get the point.

  • Josh G.

    @JB — re: Apple being great at marketing — it begs the question, are MS, HP, Dell, BlackBerry etc unable to afford world class marketing? Don’t want it? No agencies understand the secrets of marketing that Apple apparently does?

  • His Shadow

    AdamC

    What a load of rubbish

    Let me guess… You saw something negative about Android and got your panties in a twist.

  • James

    @JB People like you who do not “get” Apple, (and incidentally there’s no shame in that – we all like different things), always try to explain Apple’s success as marketing genius. As well as Mark’s reply, with which I agree, I do not actually understand where this genius lies. They commission very good commercials, but so do Honda, and nobody attributes their success to that. As for the rest Apple’s secret mojo is a three point strategy.

    1 Develop it in total secrecy until it is ready for market.

    2 Reveal a working shipping model at a press conference

    3 Have it for sale as soon as possible

    If that is genius, then you are Captain Obvious JB. Curious that nobody else can copy it.

  • http://blahg.blank.org/ Doctor Memory

    Ah, the conjoined-twin memes of “Apple really just does marketing” and “Pixo/Portalplayer really invented the iPod.” Rarely have so few facts been assembled to so little import.

    You know what else Apple didn’t invent? The potentiometers inside the clickwheel, the ARM CPU, the digital-analog converter, the digital signal processor, the DRAM chips in the iPod’s memory buffer, the LCD screen, the the 1.8″ hard drive, or the lithium-ion battery. Newsflash: not even a heavy R&D shop like IBM uses only or even mostly its own parts in products that bear its name. That’s not how the world works: you license or acquire what you can, and build only what you can’t buy, unless you really think you can build it at a substantially lower cost or higher speed.

    What Apple did do was the heavy lifting of putting all of those parts together, cramming them into a package that was both functional and aesthetically pleasing, with an interface that your grandmother could instantly pick up and use. If you think this was anything less than a major engineering effort, I submit that you both do not remember the state of the PMP market in 2001 (major players: the Diamond Rio and the Creative Nomad– remember them?), and have no concept of how product development actually works at a technical company.

    (And I’m sorry, but if the “apple products are a social signal” theory held any water, then every douchebag in the world would be carrying a Nokia Vertu.)

  • http://Http://loewald.com Tonio

    The idea that Apple is “just a marketing company” is one of the oldest memes around, and was never even remotely true. Apple made its first billion or so by creating its own floppy drive controller for a tenth the price of any rival product (and if you used a C64 floppy drive you’ll know it was also faster and more reliable). Today, Apple is selling iPhones and iPads at margins its competitors envy and prices they can’t compete with. A company that can produce superior hardware and software at higher margins than its competitors is by definition a better engineering company than its competitors.

    Next you’ll claim Apple’s “just a software company”.

  • onny

    “Let me net it out for you: Customers buy outcomes, they don’t buy attributes…”

    “In this regard, Apple’s product strategy is a study in market segmentation. Versus merely trying to stuff a product, burrito-style, with as many different features as possible, they target specific user experiences, and build the product around that accordingly.”

    I believe you are spot on with the above statements. Then, however, you lay out the segmentation in mostly standard feature/product chart. This is not an attack, but rather a thought that perhaps these types of charts are inadequate (misleading?) when it comes to thinking about segmentation.

    I think that the “mobility” category makes the most sense. Why? Because it is based not on the product attribute, but the user capability. Media player, is, therefore, a pretty bad attribute. Perhaps it should be “listen to audio content”/”listen to audio content and watch video content on a small screen (casual video content?)”/etc. Instead of “crappy” camera, perhaps the iTouch has a “Facebook camera” and the iPhone has a “Flickr camera.”

    In this section I think out loud and ramble! Perhaps it will spark some thoughts for you guys though…
    Your chart is much better than just tick/no tick, but perhaps we need to push further (or perhaps escape from the table format). Words like iOS and MacOS are helpful shorthand for sticking a bunch of features into a box of reasonable size, and, for the purposes of this article, highly descriptive. But let’s say you are working for Apple and were looking at such a chart. It wouldn’t be a helpful prescriptive tool at all–you would have to have some sort of mechanism by which you could describe capability to you could figure out what capability segmentation to move to in the next generation.

    In summary, interesting article, but conventional wisdom chart. I’m wondering aloud how we can visualize segmentation the way Apple thinks about it. Thanks for giving me something to mull over!

  • http://blahg.blank.org/ Doctor Memory

    James, above: it’s also worth remembering that Apple commissioned plenty of awesome, brilliant commercials and print ads back during the plague years of 1989-2002. All the Madison Avenue glitz in the world couldn’t convince more than a handful of suckers to buy a IIsi or a Performa 472whatever.

    Handwave all you want about marketing, social positioning or packaging, but Apple’s return from the dead has been first and foremost a return to making products that actually have a truthful value proposition. Absent that, they’d have nothing.

    (Secondarily, the comeback was about a jawdropping reversal from “pathological” to “industry-leading” in terms of supply-chain and logistics management. Seriously, if there were a Nobel prize for this sort of thing, Tim Cook would have one.)

  • Alex

    @JB: where are the pre-iPad tablets that were great products as opposed to clunky vehicles for Windows Tablet Edition?

    Apple isn’t just a marketing company. The iPad isn’t massively successful just because Apple marketed it well. The reason the iPad is so successful (especially with first-time Apple buyers) is that it works as expected. The UI is designed for the way the user will interact with it, rather than having touch added on as an afterthought.

    Other manufacturers are following with iPad clones because there is a viable alternative to iOS in Android, it is free, and Apple has shown two of the key features to making a tablet usable: first the iOS touch-based UI, second the huge bezel which everyone was poo-pooing at launch day.

    The App Store makes the device even more compelling, but would not have worked if the device itself wasn’t usable for clearly defined roles. Microsoft has clearly demonstrated this through multiple releases OS Windows Mobile where they thought people could use a WIMP interface through a touch-only device.

    Again, it is not just marketing and legions of Apple otaku responsible for Apple’s expanding market and profit share.

    Android is being pushed out on the principle that cheap and “open” wins over better. We’ll see how that goes, but from my perspective the market is clearly shaping up into Mac vs PC yet again – more specifically, Apple playing the Apple vs Nokia/Samsung/RIM playing the Dell of the mobile devices market..

  • http://www.thenetworkgarden.com Mark Sigal

    @onny, that’s a fair take. The basic construct that I work around in thinking about segments and users is the Jobs, Outcomes and Constraints model, where a user “hires” your product or service relative to specific outcome goals and constraints.

    Hence the goal, was to capture the elements and outcomes that facilitate mobility, but the representation was fairly conventional, so guilty as charged.

    I had a whole section on how segmentation suggests future directions that Apple is heading towards, but at 1500 words, I didn’t feel that I could ask more from readers than I already have so I killed the last section. Appreciate the thought process.

    Best,

    Mark

  • Steko

    Actually I think you’ve understated the stock increase since iPhone “launch”.

    It “debuted” Jan 07 and the stock ran up over 60% between then and the street date in late Jun 07 where your chart begins.

    Spot on piece though.

    JB:
    “if any other company had brought it to market it would not have been as successful. Why ? Because Apple have a huge base of customers who have totally bought in to the brand appeal of Apple and forked out a bunch of money based on that appeal.”

    Circular logic. Maybe they have a huge base of customers who have totally bought into the quality kit they’ve previously purchased from Apple, the tremendous customer service, etc.

    If Apple was “all marketing” you’d see little repeat business because people would be disappointed with the product once they got home and it didn’t look like the burger in the commercial. Instead Apple customers are among the most sastisfied and they go back and get more. QED.

  • http://capital2.capital.edu/admin-staff/dalthoff Dave Althoff

    Perhaps we could say that Apple’s important difference is that they base their product segmentation not on a punch-list of features, but on distinct use cases. It seems to me that this is what Apple does that differentiates them from the rest of the business: they design their product based on what [they think] their customers want to do with the product.

    And it’s genius. Wireheads care about specifications and features. Customers care about doing stuff…not just any stuff, but *their* stuff. After all, what good is a feature you never use?

  • Martin

    Apple’s top skill here isn’t marketing – it’s customer experience. Yeah, they’re quite good at marketing and design, but it’s customer experience that is really clinching the deal.

    Apple Stores are the highest revenue retail operation out there. The majority of staff that Apple has added in the last 10 years are retail staff. The stores are brilliantly designed and located and do precisely the opposite of almost every other retail experience. They don’t apply any of the retail tricks to encourage people to buy. They focus on browsing and exploration. When other retail operations are trying to minimize the number of staff, Apple maximizes theirs. Go to a typical mall with an Apple Store half an hour before closing on a weeknight. Odds are, there will be as many staff working the Apple store as every other store in the mall combined. The stores are designed to make you happy to be there, not to extract money from you (which they actually do better than any other store out there).

    Apple invented the means to easily sell content for $.99 and still turn a profit. Nobody else has really dialed online sales in as well as Apple (Amazon is pretty close). Consumers’ tolerance for shopping administration is proportionate to the cost. If it takes 3 minutes to buy something for $1, they won’t buy. This is what enabled the apps lifestyle by taking the Windows Mobile experience of doing a credit card transaction online for $15 or $20, syncing an app from your computer to the phone, and turning it into a simple search, click, and $.99 goes on your credit card. Rather than have a handful of apps, some users have a hundred, and developers are making money hand over fist. Microsoft could have done that years earlier by just applying some good business thinking and not terribly difficult programming. Neither marketing nor technology brought it about.

    You can buy an iPhone online and activate it at home through iTunes because Apple has seamlessly integrated the carrier contract into the phone buying process. No need to waste time going into a store or dealing with a sales pitch (though you can still do that if you’d prefer). Apple also basically eliminated intrusion into the devices by the carriers. No need to get your carrier to unlock your Bluetooth, or to force you to get your ringtones through their dedicated store at 3x the cost of buying the song itself.

    There are many, many such examples of ways that Apple has made the customer experience that much more pleasant, that much easier. Ultimately, that’s what is driving the recent success of the company. When everyone else is trying to wipe out the customer experience to cut costs in a misplaced effort to boost profits, Apple is going all-in on the customer experience to draw customers in and is simply refusing to play the cost race to the bottom except in those areas where they have superior ability to compete on price. (Apple designs and builds one phone per year, with a minor variant. Motorola designs and builds between 50-100 per year. Who do you think is getting the economy of scale benefits from their engineers, designers, programmers, manufacturers, etc?)

  • Josh in NZ

    According to this site: http://www.tabletpcreview.com/default.asp?newsID=1331 The most popular tablet PC in January 2009 was the HP Pavilion tx2500z

    Now lets compare:
    iPad http://www.youtube.com/watch?v=6JPTaoDwOz4
    tx2500z http://www.youtube.com/watch?v=Ph5YO7GIg-c
    [just two youtube searches, feel free to find better vidd if you like]

    Okay. done? Now, do you want to reassess that “apple did not find the magical technical way to make tablets work” statement?

    I’ve seen people using the iPad in retail stores. They are not standing there completely absorbed because of marketing.

  • http://iakttakelser.com Morten Jacobsen

    Brilliant!

    I’ve tried to explain the superacy of iOS to friends for years, just to see they goes and buy an Android phone, telling me it technologically superior. And I could cry for my friends, not being able to experience the dawn of “The Apps Lifestyle”. Well they assure me the Android has enough, but when times goes, they are not using for neither twitter, facebook, google docs or whatever.

    So I’m trilled by your article. So express my thoughts and feeling regarding this matter much better than myself.

    I’ve a question for you however. In trying to clear my mind on what I choose to call the “touch-mobile-cloud”, I’m writing a series on post on my blog at http://iaktta.nu. But now going to write the last post, including Apple TV, the touch-mobile-cloud doesn’t fit. “Apps Lifestyle” is better, but it’s not perfect. Be warned however, there are 9 earlier post, and only the last one which cover my passion accounting, may be up to your standard.

    So, I will be eagerly waiting for a discussion on you, on what we should call this new world of mobile IT based (90%) on iOS. I have your blogs in my newsfeed, so I just take the time and – wait ;)

    /mortjac

    D

  • http://iakttakelser.com Morten Jacobsen

    Paul Sweeting: Your notion “It’s real genius has been its ability to reverse the normal commoditization dynamic.” on songs, GSM and now trying on TV shows, are very clarifying.

    And reading the comments, well just half of them up to now, many of the talk about iTunes a central hub. I’ve thought about changing my MacBook to something more powerful, just to have iTunes working better. If that is a common behavior, then iTunes really drives the whole eco-system. Wow!

  • Janne

    @JB: “Here is the reality. Apple is a genius company….. at marketing. “

    Ah yes, the old “Apple is successful because of marketing”-argument… At no point is it possible that the success comes from products that people actually want to buy and use?

    By claiming that Apple’s success is all about marketing implies that Apples products are more or less identical to competing products. Well, they are not. Case in point: Macs vs. PC’s. All PC’s run OS made by Microsoft, Macs run OS created by Apple. Only Apple (besides some small niche-players) offers a computer that does NOT run Windows.

    “Tablets are not new, apple did not invent them, apple did not find the magical technical way to make tablets work. What apple did is build the magical way to market the tablet.”

    So, you are basically saying that iPad is essentially identical to TabletPC’s, only difference is that iPad has better marketing? Excuse me, but that’s bullcrap.

    Tablets before iPad were basically laptops with touchscreens. iPad was the first device that was designed to be used with fingers, it ran OS and UI custom-made for that use. It had about 2-3 times better battery-life than those other tablets had, and it cost less, while having less weight. It was first tablet that actually had some DESIGN behind it, as opposed to just being a glorified laptop.

    How about PMP’s before iPod? Well, you had few choices. Either you bought a flash-based player that held dozen songs, or you bought a HD-based player that was big and heavy.

    This was available before iPod: http://en.wikipedia.org/wiki/File:Creative_Nomad_Jukebox_%28DAP%29.jpg

    Are you SERIOUSLY claiming that owning and using that thing is identical to iPod? And may I remind you that those devices were not tied to software that ran on the computer. And they used USB 1, so moving songs there took ages.

    Oh yes, it must all be about marketing… It couldn’t possibly be about the product…

    What about phones? I have used smartphones for a long time, even before iPhone. And guess what? They were crap. Using the internet on those was clumsy and awkward and you only did it if you absolutely had to. iPhone was the first phone that actually had a browser that was USABLE! Hell, I do most of my web-browsing with my iPod touch, since the browser is so good that I do not feel the need to take out my laptop for web-browsing.

    Want to know what Android looked like before iPhone was released? Well, here are some prototypes:

    http://www.embeddedflash.com/wp-content/ti_android_prototype.jpeg

    http://www.techchee.com/img/google-android-prototype-181207.jpg

    Basically glorified Blackberrys. And by your logic, identical to the iPhone, right? Since Apple is about marketing. not products.

    Fact is that iPhone caused a HUGE revolution in cell-phones. And reason for that was that not only was it so much better, it was also different. It was the first smartphone that was not crap. Google saw that, that’s why they changed Android from Blackberry-wannabe to iPhone-wannabe. Even Microsoft is changing the Windows Mobile

    But again, I guess that’s just marketing. After all, iPhone was practically identical to Windows Mobile, Blackberry and Symbian, right?

  • http://www.technovia.co.uk Ian Betteridge

    @JB: The “Apple is really good at marketing” meme has been doing the rounds for so long that it has become a truism, but having following the company (including as a journalist, professionally) since 1995 I can tell you that it’s really only partially true. Yes, Apple IS good at marketing, at least in the sense of producing great quality advertising and ensuring that the other marketing it does (which is actually very little compared to any other company of its size) is of high quality. But implying, as I think that you do, that the success of its products is primarily down to marketing is simply wrong.

    There’s a phrase in the marketing community (which I’m now part of) called “putting lipstick on a pig”, and it’s basically a description of what marketing can’t do. If the product isn’t any good, no amount of marketing can save it. If the product isn’t a world-beater, no amount of marketing can make it the number one product in its category. Even in product categories which are quite generic (like, say, cola) if the product doesn’t taste good, no amount of marketing will make people buy it. Brilliant marketing, like, say, the Pepsi challenge, can only get people to try your product. They’ll never come back if it isn’t of high quality.

    I’m glad, therefore, that you acknowledge that Apple’s products are “good stuff and possibly / probably the best kit on the market, and priced as such.” Given this, I don’t think your other points actually make much sense. To look at a few of them, point by point:

    “Tablets are not new, apple did not invent them, apple did not find the magical technical way to make tablets work”

    Of course, tablets are not new. I spent a couple of years using an Acer Tablet PC as my main machine, and it was great for the time. But what Apple did with the iPad was brilliant: Make a tablet where the focus was always on simplicity, not simply adding features. Pay attention to the details, so that the product is very well thought-through. Look for ways to “surprise and delight” the user, as often as possible.

    These are not, as you say, some “magical technical way to make tablets work”. What they are is hard work, attention to detail, and good design. Design is not the same as technology, something that’s often forgotten by technologists.

    Then there’s your point on the iPod, that it was “based on a reference design by a company called PortalPlayer”. This is partly true – but I’d recommend you read Steven Levy’s book “The Perfect Thing” for a more rounded view of the iPod’s genesis. The “reference design” didn’t include a hard drive, for example, which was one of the key parts of iPod’s early success. The scroll wheel, another important part of the design, was all Apple – in fact, it was dreamed up at a meeting between Jobs, Phil Schiller and Jon Rubenstein.

    “You really shouldn’t be so proud of the way Apple has blinded you to a rational analysis of the modern tech market.”

    JB, perhaps you should consider this: Your obvious view of Apple as solely a marketing company has blinded you to a rational analysis of why customers buy products. They don’t do it because marketing makes them – as a marketer, I wish that was true! They buy them because they meet their needs, and they promote them because they fall in love with them.

  • Andrew Sheridan

    http://radar.oreilly.com/2010/09/apple-segmentation-strategy-an.html

    Very astute analysis and is something I have always had difficulty in getting across to those who think the Windows 95% market share verses Apple’s 5% is the end all and be all benchmark to show how successful a company is. More to the point, the assumption that low market share means failure. The reality is that one go-to-market strategy (horizontal) as measured in one singular way (market share) does not mean the profit ratio is going to be the same as for another go-to-market strategy (vertical). That’s why even in the PC space, Apple’s share of the profits for computers above the $1000 mark is significantly higher than it’s market share ratio. 

    Going back to the mobile space, it clearly does not matter if Android surpasses Apple in the number of units sold. In fact it is inevitable. The fact it will have taken half a decade to do so is something Google and companies won’t be advertising when talking up Android’s successes.  Again, the profit share of not just Apple in terms of iOS devices, but from all companies who prefer to cater to Apple customers I would bet is significantly higher than for Google’s Android. Most of the friends I know who have Android based phones either don’t buy many apps or pirate them. I am not saying all Android users are this way inclined but that’s my experience of friends who own them.

    AS

  • Jean-Denis Muys

    @JB

    I have an iPhone 4 and I tell no one. I even chose a phone case especially with the intent to hide which phone I have.

    My reason to choose an iPhone vs any competing product is solely on what I want to do with my phone and what I want my phone to do.

    I won’t claim that everybody has the same purchase criteria, but claiming that [most] iPhone owners choose it as a fashion item is pure bullshit.

    I will leave your other “insights” stand together with that one.

  • DaveyJJ

    “The iPad targets a set of “jobs” that are not dependent upon keyboards and mice”

    Precisely.

    This is also Clayton Christensen’s contention that people buy products because they “hire” them to do specific jobs. The iPad is a perfect example of lowering the barrier with a simple device to help me complete jobs I want to get done without having to use a bigger or more complex device.

    I bought an iPad to have a small, light, device I keep in my lap that has tremendous battery life (far better than any laptop or notebook) that allows me to quickly an efficiently tweet, surf, watch movies, read, play casual games, email, and keep the household budget on target.

    Could I do all that on a laptop? Sure. As efficiently and simply? Nope.

  • Tim

    “they are garnering only 82 percent of Apple’s profit level”

    And if you use funny angled 3-d pie charts you can make it look like only 40 or 50%!

    Next time I suggest angling them more, and perhaps adding some skew. I bet you could make 82% appear as small as 25% with only a little effort!

  • Andre Friedmann

    If I recall correctly, fifteen years ago or so, before returning to Apple, Jobs said in an interview that if he was Apple’s CEO he’d milk the Mac for all its worth and get going on the next big thing. If by “milk the Mac” Jobs meant to maintain profits and diversify into exciting new communications and entertainment technologies, then he’s delivered. Big time.

  • Jack Bresland

    “Moreover, it underscores the integral-ness of continuously re-calibrating on the definition of the situation…”

    It’s clear to me you know what you’re writing about, and I appreciate the thinking you’re doing here. But damn dude. This is some loosy-goosy prose. You need an editor.

  • samwight

    JB wrote:

    “I did not at any stage say that Apple was overpriced.”

    But he did say:

    “Do you really think on pure usage and functionality alone an iphone @ £500 has 2.5 times the delivery of a phone at £200 ?
    I’ll answer for you (because I know your brain has just told you the answer is yes) NO. NO. NO.”

    …which sounds like he said exactly that. Three times. In caps.

    JB wrote:

    “I also didn’t say that Apple had not produced anything new with the ipad,”

    But he did say:

    “Tablets are not new, apple did not invent them, apple did not find the magical technical way to make tablets work. What apple did is build the magical way to market the tablet.”

    … which sounds like he said exactly that. OK, the ipad’s not really magic, but the intent of that sentence is surely that Apple succeeded without innovating.

    The truth is, Apple *did* find the technical way to make tablets work. And now every other company is copying them. Not the marketing. The technology.

    If Apple’s success really were all marketing, that would reflect even more poorly on Apple’s competition, than if it’s all innovation. Marketing, by its nature, can’t be hidden, so it should be easier to copy.

  • Pete

    Good article Mark,

    Stylistically, a bit heavy on the academic vocabulary, but thought provoking nonetheless.

    I think you may be overlooking one of the reasons why Apple has had the three major successes you name. Namely that, before they look at market segmentation, they look for markets in need of disruption.

    Apple’s greatest strength is in what markets they don’t compete. As you point out, Apple is not interested in markets where the existing products “don’t suck” (to quote Steve Jobs.) Before they entered the “tablet” market, they looked at it and realized that “tablets” wasn’t the market and that tablet manufacturers were actually underserving the “slate” market. So Apple entered the “tablet” market with the iPad which has now got people wondering if there even IS a “tablet” market.

  • Pete

    Good article Mark,

    Stylistically, a bit heavy on the academic vocabulary, but thought provoking nonetheless.

    I think you may be overlooking one of the reasons why Apple has had the three major successes you name. Namely that, before they look at market segmentation, they look for markets in need of disruption.

    Apple’s greatest strength is in what markets they don’t compete. As you point out, Apple is not interested in markets where the existing products “don’t suck” (to quote Steve Jobs.) Before they entered the “tablet” market, they looked at it and realized that “tablets” wasn’t the market and that tablet manufacturers were actually underserving the “slate” market. So Apple entered the “tablet” market with the iPad which has now got people wondering if there even IS a “tablet” market.

  • Zeke

    Finally, an analyst doing real analysis. Nice work, Mark, this should be required reading for MBAs and all the hi-tech marketing wannabees out there.

  • http://brucefwebster.com bfwebster

    Thought I had seen those charts already. :-)

    And, Mark, your point is dead on. I made the same point (commodity vs. proprietary) to my wife Sandra (though in vastly less detail) just a few days ago. Apple’s strategy is high-risk/high-reward, and it probably would not succeed without Jobs’ OCD attention to design and detail, as well as his ability to get the very best out of his people (though usually using them up in the process).

    I should point out that Sandra, though not a technologist, is a true power user and gets more out of her iPhone and iPad than I do out of mine. ..bruce..

  • Westech

    Two comments:

    One: In the ‘normal’ evolution of a product, innovation is used to maintain differentiation and expand market position. Only when innovation slows does price become the major factor and the product becomes commoditized. Innovation often ceases not because there is no more innovation possible but because the companies involved can’t think of what and how to innovate. What sets Apple aside is their ability to innovate even as volumes expand. With all the talk of the Android Open System I fail to see anybody other than Apple really innovating. They are all copy cats trying to compete on price and an occasional feature.

    Two: The reason market share is important is that the company with the greatest market share normally has the lowest costs and makes the most money to reinvest in the business in innovation, marketing, etc. We know that Apple makes the most money and I believe that Apple has by far the lowest costs.

  • notamarketer

    JB: “Here is the reality. Apple is a genius company….. at marketing.”

    They’re good at it, but I wouldn’t say “genius”. A big part of that is making products that people want in the first place. The greatest marketing department in the world couldn’t make some products a success. Apple’s marketing department actually has it pretty easy because the products are pretty good.

    “Tablets are not new, apple did not invent them, apple did not find the magical technical way to make tablets work. What apple did is build the magical way to market the tablet.”

    Really? What other tablets are there? All the other “tablets” I’ve seen actually make it to market are netbooks with touchscreens. I know of nothing else larger than 4″ with a touchscreen and no keyboard. I know of nothing running an OS with a UI even designed for a touchscreen, much less using one exclusively.

    As for tech, it uses an ARM chip. That alone can improve battery life quite a bit. I’ve seen prototype netbooks using ARM chips (bragging about battery life), but no shipping netbooks (or tablets) using them. (Of course, it’s apparently no silver bullet: the not-yet-shipping Samsung Android tablet uses an ARM chip but despite having a screen half the size of the iPad gets 30% *worse* battery life.)

    “The ipod was not invented by apple either.”

    From what I’ve seen, it was only the third portable music player on the market that used a hard disk drive to provide reasonable amounts of storage, so while it wasn’t first, it was pretty close. It was certainly the first one that would fit in my pocket! So if you define the category broadly as “things that play music”, no, it wasn’t first (Mozart had them beat by centuries). If you define it as “digital music players that hold all my music and are small enough to carry with me wherever I go”, it was the first.

    I think the distinction is between “invention” and “innovation”. It’s true Apple didn’t *invent* most of the core technologies used by their products, but they were the first to *ship a product*. That’s not marketing. That’s shipping the #$@*% thing.

  • bowerbird

    mark said:
    > Historical edifices are held as indelible fact.
    > “Open will always prevail — and should prevail —
    > over proprietary systems.”
    > There is one small fly in the ointment to this ethos,
    > however, and its name is Apple.

    perhaps one other small fly in that ointment — amazon.

    tim o’reilly said this:
    > Unless Amazon embraces open e-book standards like epub,
    > which allow readers to read books on a variety of devices,
    > the Kindle will be gone within two or three years.
    > http://www.forbes.com/2009/02/22/kindle-oreilly-ebooks-technology-breakthroughs_oreilly.html

    that was 18 months ago. yet kindle seems to going strong.

    -bowerbird

  • gavinsox

    Great post and great read. Apple is a gadget company. Problem here is you have to come out with more succesful gadgets to sustain continued growth and success. Apple is also a very high risk investment. Steve Jobs is the company. He is the real genius behind Apple products. Steve is also suffering from pancreatic cancer. What is Apple without Steve Jobs? How safe is an investment in Apple?

  • Jeff C

    I seem to vaguely remember Steve Jobs making the point on his return to Apple (and I’m paraphrasing) that Microsoft had already won the business-machine war, so Apple would concentrate on the lifestyle computing segment. People pointed and laughed at the turtle-necked guy with the small zealot fan base. But not only did he recognize and exploit the market that “sucked” (as a previous poster mentioned), he leveraged it so hard that the competition is still unable to catch up.

    What I find interesting is how, in the span of a decade-and-a-half, Jobs has wedged Apple back into the business segment through completely different devices and an evolutionary approach. First the iPod played music at work—and helped transport files for home use. Then the iPhone became the only phone suitable for creatives but equally sought by enterprise-using sales-guys whose Blackberrys looked paleolithic by comparison. Now the iPad is showing up in workplaces that are less sedentary yet highly educated (hospitals, colleges, etc).

    So, when the author mentions “Checkers not chess” and discusses the best way to reverse-engineer a segmentation analysis that we’re all still trying to decipher, I can’t help but feel this was all part of Jobs’ master plan some 15 years ago.

  • Martin

    “Steve Jobs is the company. He is the real genius behind Apple products. “

    Seriously? So all the other Apple employees suck and are redundant?

    Apple’s culture was set by Steve, sure, but it’s Apple’s culture now, not Steve’s. Tim Cook will run Apple not unlike Steve should Steve leave. Apple won’t jump into the unprofitble netbook market should Steve leave. They won’t strip out employees from their stores and pack them full of shelves to stock more product. They won’t turn out a new cellphone model every other week just because that’s what everyone else does.

    Apple has an overall formula for success. There are a few areas where they are struggling – cloud, developing software at a rate demanded by a growing customer base – but the principles that made the iPad successful are the ones Apple learned with the iPhone and the iPod and they’ll be applied to the next products whether Steve is there or not.

    It’s really quite insulting to Apple’s employees and executives that so much credit is heaped on Steve’s shoulders. Yeah, he’s been a great CEO, but seriously, he’s not designing the products. He’s not writing code. He’s not laying out stores and picking retail locations. He’s not writing the ad campaigns. He vetos. He vetos a LOT, and his other executives also veto a lot. That’s his genius – he says no to distractions, to not-ready products, etc. That can’t be replaced by the right person? Please.

  • http://www.thenetworkgarden.com Mark Sigal

    Thanks everyone for the great comment flow, for picking apart the topic from multiple angles and for getting through my funky word usage (at times).

    I do, however, want to give one final spotlight to the reader comments on Apple’s customer experience and support.

    While Apple products are definitely imperfect (over the years, I have had failed logic boards, hard drive failures, software corruptions, etc.), it’s when things go wrong that they seem to shine most.

    It’s the fact that their stores are not full of bullet-point spewing dunderheads (think circuit city, comp usa), as contrasted by the complete lack of anything even remotely similar in the consumer electronics realm.

    Executing retail stores, executing high touch support, not nickel and diming customers when things go wrong and STILL maintaining a high margin business speaks to how much this company does right, IMHO.

    Even more so in the age of algorithm.

    Enjoy the weekend!

    Mark

  • Bob S

    Tremendous insight into Apple’s unique product plan.

    Could you comment on the process you employed and the time it took you to arrive at your conclusions? I ask because other analysts try to compare Apple to other tech companies to arrive at predicted outcomes. You show those comparisons aren’t appropriate.

  • http://exacteditions.blogspot.com/2010/10/apples-segmentation-and-service.html adam

    Some suggestions about the implications of this assessment of the Apple profile for media owners

    http://exacteditions.blogspot.com/2010/10/apples-segmentation-and-service.html

  • Kataphusin

    Sorry, I couldn’t read and understand it. Your MBA jargon is impenetrable. I would much appreciate a translation into English.

  • http://disruptivetechnologydt.wordpress.com/ LBJ

    @Mark Sigal Wow with all of these comment, including this great article, I think people forget just how fun it is to use these products. For all of the poo pooing about iTunes being bloat-wear, I couldn’t think of using another piece of software to handle my music, movies, tv, photos, apps and books. I am part of the Apple lifestyle, however I think I started off in a unique way. I bought a AppleTV, that led me to my iPod (Classic, Mini V2 and Nano V2) that led me to invest in a MacMini, that got me to my iPhone and will finally have me plot down on a iPad for XMas. I don’t think of myself as a fan boy but I really enjoy using these products. I don’t have to drink the kool-aid and I feel I’m probably not alone. My wife finally understands why we have airport expresses in three rooms in our house and with the new AirPlay, things just got a lot cooler. I just enjoy the fact that Apple makes nice products that work and I have fun creating and consuming stuff on them. I’m sure another company could do what Apple has done..but I haven’t seen them yet.

  • Nice Guy

    Dominating a market share is also relative. It’s the segment of market share you want to dominate. Android may eventually dominate the total market share of mobile users, but it probably won’t dominate the market share of users willing to pay for quality mobile devices. Apple targets the market share where there are margins that will support their business model. That’s the real difference. What’s the point of having the largest customer base if the customer base is unwilling to spend for your product?

  • http://www.alljewishlinks.com Marshall

    While it may be fun to argue over open vs. closed or iOS vs. Android or any of the recent this vs. that.. I challenge anyone to use an iPhone4 and then use any Android device, Nokia device or Windows Mobile device and then not want to go back to the iPhone4. Sure, maybe there is a small % of uber-geeks who will based on the ability to do this or that small thing, but for the majority of users it’s a no brainer – iPhone4 wins.

  • John

    What an incredibly pretentious and grandiose style of writing. Even if there is useful material in this article it is buried amongst the most self-important pseudo-academic prose I have come across.

    It is, of course, understandable to those of us with well-developed vocabularies (and with the required ‘marketing’ plugin) but why make it hard work for the reader when a simple bit of plain English would do just fine? Just take a look at those opening paragraphs, pick them apart, could you have setup the piece more succinctly? Yes, by some degree.

    Every verb is given an adverb and an additional qualifer; every noun a selection of peculiar adjectives. With healthy and judicious editing, this article could have been about a third of the length and – consequently – a sight more impactful.

    Please, please, please have faith in the strength of your argument and the quality of your research such that you do not have to dress it up in layer-upon-layer of pretentious business jargon.

  • http://www.comradity.com Katherine Warman Kern

    Hallelujah! Someone in the tech world is using the words “segmentation strategy”.

    Now we just need the media business to get it.

    Then the market can start growing.

    K. Warman Kern
    @comradity
    http://www.comradity.com

  • hozo1

    very intelligent discourse on strategy and why Apple leads the pack … it is about outcomes and benefits, not features … Apple understands and actually cares about user experience which separates them from the majority of tech companies who care about technology .. I must agree with Carmen, i gave up explaining Apple … experience their products, understand their connectivity and customize the product to YOU … you don’t get it until you do it

  • Viswakarama

    What most analysts don’t get is that Apple provides an Integrated Usable Functionality in its offerings that the the majority of end-user population needs and understands. These analysts are the proverbial blind men trying to describe an elephant by touch.

  • http://www//thenetworkgarden.com Mark Sigal

    @Bob S, my perspective comes from a bunch of years in retail real estate, followed by startups building: Apple networking gear; infrastructure platforms and social media services (one of which lead to an exit to Apple).

    Layer on to that, my current focus on Unicorn Labs, an iOS Apps, Games and eBooks maker.

    Plus, I have written over 50 articles on the company. I feel like I have a 360 degree perspective that’s been shaped over time.

    Cheers,

    Mark

  • http://www.imajez.com imajez

    There’s been a lot of hoo-ha back and for about how Apple are great at marketing and those who claim it’s not the advertising that makes Apple’s success.
    There seems to be some confusion as to what marketing actually is and it is not just advertising. Good marketing determines the actual product needed and is not just the font used in the copy of back page magazine ad. So yes, Apple’s success is pure marketing and there’s no doubt that Apple are the current world leaders in marketing.

    Besides Apple’s advertising is near ubiquitous, it’s on the back of magazine, on billboards, on premium TV spots and the adverts are very good [if a little economical with the truth at times and outright lies at others] and they have a huge influence on consumer spending. They certainly out advertise everyone else in the business, there seems to be more Apple marketing [outside of IT magazines] than all other IT companies. The iPod was a good device, not the first or arguably the best at the time, but it was the first MP3 player to get such a massive advertising campaign as far as I recall.
    MS barely seem to advertise in comparison. And when they do it is usually awful.

  • http://www.imajez.com imajez

    @ Mark Sigal
    You said “Plus, I have written over 50 articles on the company. I feel like I have a 360 degree perspective that’s been shaped over time.”
    I’d be more interested in what articles you have written other than centred on Apple, to determine if you have a rounded or biased view.
    I find the more I learn about everything, the less clear cut things are.

    Don’t forget Apple’s history in computers where they had a closed ecosystem that was better than their competitors, yet due to the open nature of their rivals and their not just selling to elite end of market, Apple became a minor player and nearly vanished. It could easily happen all over again with Android replacing the PC.

  • Pete

    Wpw what a tortuous read!! I can’t decide whether “circumlocution” or “pomposity” best fits…. is simple clarity so beneath us now?

    Although I must admit the most mangled thinking is actually in the comments section… and I’d almost bet money that the dolt JB is somehow related to that Sylvester person on Silicon Investor who (justly) got banned from the Apple thread for being a belligerent bozo.

    – Pete

  • Edward

    Apples are the beamers of the IT world, nice, but not everyone can afford one

  • djkazaz

    The argument that apple products are sold mainly on “outcomes not attributes” i.e what they do not their branding/image etc, because apple’s sales have accelerated in the recession is completely groundless.

    The majority of luxury brands have continued to accelerate throughout the recession: Luis Vuiton, Rolex, Burbury, none have lost sales or revenues and most have also raised prices ~15%.
    This is partly because their core clients are less price sensitive and affected by the recession and partly because there is a mid level income segment that continues to make emotional purchases as “shopping therapy” against the recession blues.
    Mid-tier brands are the ones that have suffered.

    Now I’m not saying that the “it just works” philosophy is not a key driver behind apple sales – clearly it is. But the argument is flawed. Clearly a large number of their sales are purely driven by emotion as is made obvious by the reactions of apple fans to criticism of the products. It’s like someone insulted your nice designer suit.

    I do own apple products, as well as competing ones and I usually do buy “outcomes”, but I’m in marketing so it doesn’t affect me as much. It does mean I’m less enamored of their products than other consumers. I think that a substantial portion of their customers do buy the brand.

    I know lots of iPhone users in particular who don’t know how to do anything at all with their phone, except take the occasional picture and use it to check mail once in a while.

    Not that there’s anything in the world wrong with that. If the brand makes you happy, than that’s a good purchase.

  • http://www.transolveltd.com Tolu

    great article!

  • Jon.T

    Fascinating article. And just as fascinating comments..

    The two comments made by ‘JB’ sum up very nicely what has been a common thread of opinion by those people who have said anything and everything to dismiss, demean, and deny Apple any legitimacy or acknowledge any success other than that which helps suggest it is due to mystique (as the FT has recently) or its cult status, as just two examples. .

    You have to wonder if they are that stupid that they believe these things, or if they are simply unhappy promulgators of misinformation for whatever purpose.

  • EricE

    Found it late but a great article that is even more true today than when originally written.

    @ djkazaz
    “Now I’m not saying that the “it just works” philosophy is not a key driver behind apple sales – clearly it is. But the argument is flawed. Clearly a large number of their sales are purely driven by emotion as is made obvious by the reactions of apple fans to criticism of the products. It’s like someone insulted your nice designer suit.”

    Or how about people who have used and enjoyed Apple products purely on their ability to meet their requirements far better and with far less fuss than competitors products are tired of people like you and putz’s like JB telling them they are “falling for Apple’s marketing” and implying that it’s style over substance.

    Nope – that couldn’t be it at all. It’s all “religion” /rolleyes

    Seriously, I can’t believe people like you have the guts to peddle the same crap over and over and over again. Unsurprisingly JB didn’t return after getting so thoroughly spanked – especially by Apple’s market success. Passing market cap of even Exxon (if even briefly) is the ultimate repudiation of your and his “religion” arguments.