Apple has been very fortunate; it’s been able to introduce a few of these into the world. In 1984, we introduced the Macintosh. It didn’t Just change Apple it changed the whole computer industry. In 2001, we introduced the first pod, and it didn’t Just change the way we all listened to music it changed the entire music industry. Over the coming years, the product unveiled that fateful day would indeed proceed to change the entire smartened industry. A few years after that, the pad would Jumpstarted the tablet renaissance, after the first tablet movement fell flat because the segmented value chain failed to deliver a compelling product.
As unique as Apple has been in its ability to create so many revolutionary products throughout its turbulent history, it’s also unlike other companies in that Apple shows no fear whatsoever in actively destroying its greatest successes of the past. For this reason, Apple will again predictably destroy its greatest product when the time is right. But to really illustrate this point, we have to go all the way back to 1984… Back to the Mac In the early days of computing, arguably before computers were really considered “personal” on a mainstream level, interfaces were largely text-based command lines.
Back then, computers used operating systems like DOS, which required users to be familiar with specific command prompts or risk running into the dreaded syntax error. Even the Apple II used a textual interface. Needless to say, this computing paradigm was far from approachable for the average consumer, which is why personal computers were largely a niche product at the time. Apple would soon develop and launch the Macintosh in 1984, with its revolutionary graphical user interface, or GU’, heralding a new era of truly personal computing with a user- friendly interface that the average consumer could learn to use.
Original Macintosh GIG-Jell. Source: Wakefield. Guise had already been implemented in industrial computers (such as at Xerox PARA, where Jobs first saw a GU’), but this was the first time a company put a lot of weight into widespread consumer centralization. A few years later, Microsoft would release Windows, which featured a GIG-Jell. The rest, as they say, is history. Of course, Microsoft’s rise to ubiquity is well-documented, as is Apple’s flirtation with Steve Jobs returned to Apple in 1997 and reinvigorated the company with the Imax, things began to turn around.
The Mac became a great product again, even though it as relegated to single-digit market share figures and the company was in the midst of a multilayer turnaround http://www. Fool. Com/free-report/stock-advisor/apple-will- destroy-its… Tama I. RCA=sides itxt0900025 Page 1 of 9 under Jobs’ second tenure. In many ways, the Mac was the first modern PC with a GU’, and has always defined what a PC should be. Only in relatively recent years has Apple’s PC market share begun to climb meaningfully. The company is now into double-digit territory in the U.
S. Market. Yet Apple is the biggest champion of the “Post-PC” era, a term widely popularized by Steve Jobs. Although that hasn’t stopped Apple from continued development and innovation in Macs, even though its importance to overall financial results continues to decline. Source: SEC filings. Fiscal quarters shown. As Apple expanded into music players, smartness, and tablets, the Mac has not only taken a back seat to those product categories, but it has become a clear victim of a secular trend that Apple is largely responsible for cataloging.
The smartened and tablet markets are only where they are today because of Apple, and combined they exert incredible downward pressure on PC sales through the form of lengthened upgrade cycles and outright centralization. With current CEO Tim Cook’s predictions that the tablet market will soon eclipse the PC market, the Mac’s future prospects are muted. Apple was fully aware that the mobile revolution would add to Mac centralization, yet it has no qualms contributing to its downfall. The Mac isn’t the only victim of Apple’s self-centralization…
The Rise and Fall of the pod Apple’s second big breakthrough product was the pod, which revolutionized the portable music player market. Much of this success can also be attributed to launching the tunes Music Store, which allowed users an easy way to legally arches digital music, an important distinction since piracy was rampant at the Page 2 of 9 The pod became another category-defining product that helped catapult Apple’s brand image Just four years after Jobs’ return during the company’s darkest days.
The device proved Apple’s capability to design a product that consumers didn’t know they wanted but would eventually find it hard to live without, cementing Jobs’ status as a visionary leader. Since Apple was able to quickly grab and maintain more than 70% market share of music players, Apple’s brand became synonymous with music devices and even Apple’s iconic headphones became a pop culture phenomenon. Apple has long described the “halo” effect that it observed after launching the pod. Since the pod and Mac were integrated so seamlessly, pod sales helped boost Mac unit sales as consumers prefer devices that work well together. Pods and Macs are complementary products, and as such they helped sell each other. There was simply no threat of centralization here. The pod was absolutely a great product that shifted the broader music industry by setting the standard for digital distribution and demonstrating that music player interfaces didn’t have to be overly complicated. It spurred a string of entrants into the music player market hoping to grab a piece of Apple’s success, including Microsoft’s Zone, among many, many others.
The pod’s financial importance was steadily rising and peaked at 40% of TM sales. This was coming from a product category that had previously lacked leadership and all of this revenue was entirely incremental upside. However, that all changed with the phone, and then later with the pad. You could even argue that the pod is the perfect example of Apple’s self-centralization, since the phone and pad are definitive substitutes for the music player. By incorporating pod functionalities directly into phones and pads, declining pod sales were simply inevitable.
If we consider the pod business in dollar terms, it’s not surprising that pod revenue peaked Just six quarters after the phone’s launch. Revenue pulled back and began to stagnate, and then plunged shortly after the pad’s launch. Yet, despite the fact that the pod is now merely 3% of sales, Apple continues to pod Anna recently received complete (and expensive from manufacturing and cost curve standpoints) industrial redesigns. When it comes to internal resource allocation, http://www. LOL. Com/free-report/stock-advisor/apple-will-destroy-its… Ma I I. RCA=sides itxt0900025 Page 3 of 9 most companies follow strict policies that send development dollars to the biggest revenue generators. Apple bucks this trend and keeps upgrading the pod, even though the average MBA student would probably look down on the practice. It was always inevitable that multifunction smartness would eventually replace single-purpose music players. As the dominant music player vendor, Apple had the most to lose from this transition but that didn’t stop it from fully embracing the smartened.
The market positioning is very different from in PC’s, where Windows PC’s have more to lose from rising mobile adoption. The pod was easily Apple’s greatest product for many years, but Apple didn’t even hesitate to crush one of its most successful businesses. That said, Apple doesn’t always need to come up with new product categories to demonstrate its propensity to cannibalize itself… Keeping It in the Family Even within product families, Apple has shown it doesn’t simply rest on its laurels. The company has shown a penchant for moving down-market at times in order to broaden its appeal and user base.
This is also an anomaly in many companies, since most executives and investors balk at the idea of voluntarily putting downward pressure on average selling prices and margins unless absolutely necessary. As the pod gained popularity, Apple subsequently introduced the pod Mini, pod Shuffle, and pod Anna, all of which targeted lower price points and led to a precipitous drop in its average selling price (ASP). The pod Touch was launched shortly after the phone, but by then there was no hope of the pod’s ASP ever reclaiming its former glory.
Those smaller pods couldn’t serve as complete substitutes for full-featured pods tit greater storage capacity, since this was before the days of cloud storage and alternatives to flagship pods and some centralization would occur. That didn’t stop Apple. The most recent example of the same strategy comes with the pad Mini. Apple positions the pad Mini as very much an pad alternative, making sure it has all the same features of the larger model but Just packed into a smaller form factor. This fact virtually guarantees a high level of centralization, and Just one quarter after launch Apple posted a meaningful decline in pad ASP.
Apple isn’t perturbed by this cline, even if Wall Street is. Http://www. Fool. Com/free-report/stock-advisor/apple-will-destroy-its.. Tama I I. Patter RCA=existentialistic Page 4 of 9 Speculation continues to swirl that Apple is preparing a similar move with the phone. Thus far, Apple’s phone strategy has been to gradually move older generation models down, but that may change this year if Apple launches a fresh phone model targeting mid-range price points. This will naturally push phone ASP down, but the upside will be increased adoption and unit sales.
Once again, some centralization of the flagship model is expected. Once again, this once isn’t stopping Apple, in part because the company has figured out the key to successful centralization… The Key to Successful Centralization Over the past few decades, Apple has demonstrated a unique willingness to sulfanilamide its greatest products, starting with the Mac and then with the pod. Right now, the phone and pad are unarguably Apple’s greatest products. The phone made capacitive touchstones interfaces the norm, while the pad continues to define and lead the tablet market.
If history repeats itself (which it has a tendency of doing), Apple will eventually crush both the phone and pad. Make no mistake: This outcome is inevitable. About how or when this will happen, or what product Apple will devise to do the dirty deed. The most possible new product categories that Apple may soon enter are smart watches and smart TV’s, which would seemingly be complementary devices rather than substitutes and thus not be a direct threat to the phone and pad. TREND TRACKER: IS TV Dead? Every year, growing numbers of Americans are “cutting the cord” on the cable TV providers… Paving a vulnerable $2. 2 trillion industry up for grabs. As we speak, tech giants like Apple and Google are battling for control. But three surprise companies may be the real victors in this behind the scenes TV takeover. Find out who they are before all the profits dry up! Page 5 of 9 However, the smart watch notion represents an entirely new frontier of technology in wearable computing, a broad category that could threaten smartness. Eventually, the phone and pad will become as financially unimportant as the Mac and pod are today, even though that day is many years away.
The important thing for Apple is that it’s been able to undermine its previous successes in a way that keeps it at the forefront of evolving trends in consumer genealogy. This is the key to successful centralization: Apple’s sole focus is simply to create great products. So long as Apple is able to continue executing this task, centralization becomes an afterthought. Tim Cook has said that once centralization becomes a determining factor in choosing which products to pursue and which not to, a company has already lost sight of what’s really important: the customer.
One of Steve Jobs’ favorite quotes came from hockey legend Wayne Greeter: “l skate to where the puck is going to be, not where it has been. ” Jobs also always said it was better for Apple to cannibalize itself instead of waiting for a rival to do so. That’s how Apple stays a great company. To learn about more quality companies like Apple, keep reading. Get 10 More stock Picks FREE I hope you’ve enjoyed this special report as much as we enjoyed preparing it for you. Of Motley Fool Stock Advisor. As you may know, it’s our passion at The Motley Fool to help individual investors build lasting wealth with the very best investments.
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