A co-worker of mine forwarded a link to this absurd little article the other day in the Wall Street Journal by Holman Jenkins. The main point seems to be: Apple’s stratospheric success is primarily due to lock-in to its ecosystem, and for a variety of reasons, that lock-in advantage will disappear, and with it, Apple’s success. Considering this, I actually have to wonder what the credentials are to become a writer for, of all things, The Wall Street Journal. It has to be more than the ability to come up with snarky metaphors like “Apple’s Roach Motel,” right? How much does Jenkins really understand about business in general, and in specific, Apple‘s business?
Because Apple isn’t merely successful. It’s arguably more successful than any company today. That’s in terms of real things like revenue and profits, rather than the increasingly worthless metric of “valuation” (although it continues to flirt with having the highest valuation in the world as well). The main reason Apple is in this position is that there is no main reason why Apple is in this position. Apple does just about everything right. This should be obvious and its endlessly frustrating that it’s not to more people in the business press. Among the most important things Apple does right are the following:
Make great products - Apple spends lots and lots of time refining the ever-lovin’ crap out of everything it decides it important enough to develop. Apple absolutely doesn’t release anything until it’s ready. And by “ready” they generally mean “awesome.” This may not sound like a really “business-y” thing to say. But if you read enough about the state of business in America these days (and by “these days” I mean the last 30 years or so), you realize that a lot of companies—technology companies and others—would be doing a lot better and making their customers a lot happier if they’d spend more time simply making the best product they can than what they currently do: figuring out “new revenue streams,” “capturing market share,” etc. Sometimes I don’t understand how it is that so many business people don’t see that this is the tail wagging the dog. Well, actually, I do understand it. But that’s a story for another day.
Innovate - Just about any technology company will claim that it innovates. But for Apple, it means not being afraid to “cannibalize” existing profit centers in order to release the next new, revolutionary thing. In fact, it’s their willingness to do this that has enabled them to “cross the chasm.” iPod touch (and to a certain extent, iPhone) cannibalizes the traditional iPod. iPad cannibalizes laptops. As long as they continue to do this, they will not remain imprisoned by the declining profits of whatever it is that’s making them money at the moment. They’ll always have their eye on whatever the next thing is because 1) that’s what people will want and 2) that’s where the high profit margins are.
Build a valuable ecosystem - Although Jenkins conflates the two, this is not the same as lock-in. You can have a thriving ecosystem without depending upon lock-in. All iTunes songs are DRM free, for instance (I can play them on any device). And I can easily play (and store and manage) music purchased just about anywhere on my iPhone and through iTunes on my Mac. I can also read Kindle or Nook books on my iPad/iPhone. The reason their ecosystem has been such a plus up until now (in the tablet space) is that nobody else out there (except now for Amazon with the Kindle Fire) has an ecosystem at all. People don’t buy a tablet for what it is. They buy it for what they can do with it. And what people want to do is buy and listen to music, read books, watch movies (in addition to basic things like read email etc.). Nobody buying an Android tablet (again, with the exception of the new Kindle Fire) could even do any of those media-centric things well at all. Yes, Apple certainly does use lock-in all over the place, but the success of their ecosystem is based on much more than that.
Sell products, not people - Apple makes the vast majority of their profits from sales of hardware (and some software), not revenue sharing from iTunes music/movies or Apps, and certainly not selling people’s personal data as does Google, one of their main competitors. This may not seem important to the success of Apple’s business, but in the software and hardware business (which is what we’re actually talking about here) I believe that it wards off a certain kind of corporate cognitive dissonance that happens when the people that pay your bills (advertisers) are different than the people who buy or use your software and hardware. In any decision a company like Google has to make—from how to layout the UI of a page or screen, to what products and markets to pursue (think Google+)—Google needs to balance the needs of its actual customers, the advertisers, with the people who will be using its products, you and I. And there is simply no way that you and I are going to get the same kind of attention that we would with a company such as Apple, that gets all of its money selling products to us, and having to please us to get our money. And so, because Apple can maintain its laser focus on the people who pay the money for its products, it can do a much better job figuring out how to execute well on the first three items on this list.
Dominate the supply chain - How come nobody yet has been able to sell a tablet with comparable specs for less than the iPad? Because Apple has figured out the way to deliver great products without needing hundreds of different (and thoroughly confusing) configurations and models in a product category. This means, for the most part, they use the same parts across just about all of whatever item they’re selling. Then they can buy enormous, predictable quantities of the exact same part and get deep discounts. And their new CEO, Tim Cook, used to run their supply chain operation. So that discipline’s not likely to leave the company any time soon.
Market flawlessly - Let’s not forget probably one of the best marketing organizations in the world.
And this is not a complete list. It leaves out things like their retail excellence and their company culture.
So looking at Apple through a much wider lens, it becomes obvious that for a company with Apple’s operating principles and goals, the ecosystem is not, as Jenkins would have it, merely a way to lock in customers. The ecosystem delivers actual value to customers—and that’s been Apple’s main focus for the past 15-plus years. Because of this focus, Apple still has so much going for it in so many different areas that it’s unlikely to be seriously threatened in any existential way by the mere erosion of its lock-in advantage.