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Steve Jobs, Apple and Innovation

I also agree.

The main thing that was wrong with Apple over the last few years was ****ing motorola.

Motorola made Apple loose a _LOT_ of it's pro-line customers. It's only just managing to get them back with final cut pro and the G5.

Another problem was (and is) what I call the 'Joe Average' problem. Joe Average walks into a computer store. Joe sees a Dell PC with a flat screen monitor, 2.4ghz CPU (it's celeron and its crap, but he doesn't know) and 256mb 'intel extreme' graphics. He can get all of this for $699, and Dell will throw in a free color printer too.

He then walks down the isle and sees an iMac. It looks better than the Dell, but it costs $500 more. He then looks at the CPU speed and it's only... 1.25ghz. He thinks this is half as fast as the Dell.

Feeling smug, he thinks that all that money is going to the good looks and not to a good computer, so he walks out with the Dell, thinking hes got a great deal.

Sadly, this is what is happening ALL the time. Apple's high pricing and low CPU speeds will lock it out of the market.

However, if Apple can get some 'wow-factor' CPU speeds (aka the G5) then it will start making real inroads. Dell knows the bottom of the market has fallen out for the desktop PC price wise and also the notebook market is starting to do the same.

Apple needs to take advantage of it and hit microsoft and dell where it hurts while they are down. People are more than happy to spend $1000 on a good machine, and the Apple machines are great. But the CPU speed problems are really holding potential customers back, sadly.
 
Originally posted by aldo
I also agree.

The main thing that was wrong with Apple over the last few years was ****ing motorola.

Motorola made Apple loose a _LOT_ of it's pro-line customers. It's only just managing to get them back with final cut pro and the G5.

Another problem was (and is) what I call the 'Joe Average' problem. Joe Average walks into a computer store. Joe sees a Dell PC with a flat screen monitor, 2.4ghz CPU (it's celeron and its crap, but he doesn't know) and 256mb 'intel extreme' graphics. He can get all of this for $699, and Dell will throw in a free color printer too.

He then walks down the isle and sees an iMac. It looks better than the Dell, but it costs $500 more. He then looks at the CPU speed and it's only... 1.25ghz. He thinks this is half as fast as the Dell.

Feeling smug, he thinks that all that money is going to the good looks and not to a good computer, so he walks out with the Dell, thinking hes got a great deal.

Sadly, this is what is happening ALL the time. Apple's high pricing and low CPU speeds will lock it out of the market.

However, if Apple can get some 'wow-factor' CPU speeds (aka the G5) then it will start making real inroads. Dell knows the bottom of the market has fallen out for the desktop PC price wise and also the notebook market is starting to do the same.

Apple needs to take advantage of it and hit microsoft and dell where it hurts while they are down. People are more than happy to spend $1000 on a good machine, and the Apple machines are great. But the CPU speed problems are really holding potential customers back, sadly.
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If Joe's requirements are email, surfing, word processing, number crunching and other basic computer tasks and his new $699 Dell can do that for him without breaking a sweat--why isn't that a 'great deal'?
 
Perspective from a new iMac owner

I just got a new iMac after having a Dell the past 4 years and I can truly say that while the cost was "high" compared to the low end entry models, I never felt ripped off buyinf the iMac.

In fact, after using this for about 4 days I can only wonder why more people are not using these machines.

I had an Apple IIc way way back and since then had worked on various PC clones. My first impression on the iMac is how NICE it is.

I like working on it and there's a logic to it that seems to be missing from the PC market.

Now when it comes to the article I think the author has really over simplified the problem here.

Do you really want to position your product in a low margin high volume market segment when your true product differentiation comes in the form of quality?

Trust me, I'll be telling ym friends about the apple experience for awhile and wouldn't hesitate to suggest starting out with an eMac which is reasonably priced.

I chose the iMac cause I needed something a bit more powerful and also because my wife wanted a computer that wasn't so honking big. When she saw the iMac, she loved it. Now that she's using it, she loves it more.

Keep on innovating.
 
regardless, price DOES matter to consumers, and it's arrogant and naive to think Apple couldn't be hurt by being more expensive. In the end it'd be nice if it was about as expensive as the median AND kick ass, not super expensive and kick ass.
 
Thats why they're called ANALysts.....

When it comes to anything creative they havent got a clue....money is not everything...Apple's interest in computers and the user experience is as much about intrinsic value as about monetary 'value' that all the clueless twits talk about...Why do we climb mountains time and time again? Why bother with art and design? Why go to the moon? All these things have an experiential value that goes beyond money...especially where creatives using Apple's products are concerned. As long as there is a creative segment of the market there will be an Apple...peace.
 
Originally posted by Photorun
regardless, price DOES matter to consumers, and it's arrogant and naive to think Apple couldn't be hurt by being more expensive. In the end it'd be nice if it was about as expensive as the median AND kick ass, not super expensive and kick ass.
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-Photorun

Apple isn't more expensive, they just don't have a low-end.

And let's face it, there's very few of us discussors here who are interested in a $500 box - if we didn't make it ourselves.
 
The article says that ipods are only compatible with itunes. Does this matter now that ipods and itunes are available for PC users?

Also, can't you play anything on an ipod as long as it's one of the industry standard formats (mp3, wav, etc.)? It doesn't matter where you get it.

They also failed to mention that ipods are the third most requested christmas gift in the electronics category this year after DVDs and video games (not one specific DVD or game, all of them). Despite their higher price they are still vastly outselling the competitors.

http://biz.yahoo.com/prnews/031216/dctu054_1.html

It seems to me that, with the ipod at least, Apple is doing a pretty good job marketing and distributing. Or maybe people are just starting to prefer quality and originality over cheap knockoffs.
 
Originally posted by patrick0brien
-Photorun

Apple isn't more expensive, they just don't have a low-end.

And let's face it, there's very few of us discussors here who are interested in a $500 box - if we didn't make it ourselves.
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exactly, apple isnt aiming at the people who just want to check mail and browse the web. getting those computers that cheap involves cutting many corners. but with the ipod apple wont be cutting corners with these new ipods, they will simplly be ipods for the rest of the world who dont have a gazillion songs or at least 300 bucks to spend. this will be a very smart move for apple. only people they wont have ipods for are those who need more than 40gb.

iJon
 
Originally posted by drewmcd24
The article says that ipods are only compatible with itunes. Does this matter now that ipods and itunes are available for PC users?

Also, can't you play anything on an ipod as long as it's one of the industry standard formats (mp3, wav, etc.)? It doesn't matter where you get it.

They also failed to mention that ipods are the third most popular christmas gift this year after DVDs and video games (not one specific DVD or game, all of them). Despite their higher price they are still vastly outselling the competitors.

It seems to me that, with the ipod at least, Apple is doing a pretty good job marketing and distributing. Or maybe people are just starting to prefer quality and originality over cheap knockoffs.
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no it doesnt matter at all becuase for the regular consumer, itunes is going to be the best option for anyone, way better than the musicmatch crap they used to offer.

iJon
 
More Choice? You are missing the point.

Very well written article. However it is not the first time these kind of arguments are made about the iPod business model:

"Still, Apple may have learned these important lessons only partially, and too late. The iPod works only with the iTunes service, and has a $0.99 fee-per-song pricing structure. Dell/Musicmatch and Napster offer consumers more choice. "

I beg to differ, kind of... Anyone that assumes that an owner of a music player is going to fill it up with 10000 or more songs from a music store is a pothead. That's the only case in which these kind of arguments make sense. Any of those players are mainly used to play mp3's and as such they are all much alike. The fact that one can also play .acc files while others also .wma makes almost no difference. From that point of view the iPod has the adavantage mainly because it offers a better user experience (thanks to its superb design and to iTunes). It is however, in my opinion a fragile edge. Overtime Dell will put its act together and improve the design and experience of its player and even get a nicer piece of software. By then I hope Apple had improved the iPod to be still ahead of the game.

Regarding the issue of innovation as a good business, I believe Jobs and company understand that innovation is not a ticket for success and that it might at most be the only way to maintain their actual base. That is why they are trying to get the brand as close to as much people as possible. I believe Apple's retail efforts (and exposure like the Pepsi Superbowl deal) are maybe their only and last resource to try to lure Wintel and non-initiated users.

Mr.E.
 
Originally posted by Sir_Giggles
Market share, well duh means a bigger share of the market which means more revenue for Apple. The more money you make, the better your chances of survival in a really tough economy.

If another great depression were to happen tomorrow, Apple would not survive.

Apple was once on the razor edge of going insolvent, and even a misstep like the Cube would put Apple on the chopping block so it's always important for Apple to always try to gain marketshare, and honestly the only way I see them doing that is making computers cheaper so more people can buy them.

No one has ribbed Apple about releasing cheaper iPods, but to get to their rumored $99 price point, expect to see reduced features or even a lower level of craftsmanship. Only on Jan 6 will we see what he has, but it wouldn't surprise me one bit to see how the iPod is built. You can tell Apple is serious about dominating the music market with their aggressive advertising, and now aggressive pricing.

Yet somehow, when it comes to computers, we are so adamant that they be built like swiss watches (and priced to match ~ yes I know that is debatable too). That's great and all, but the mass of employees working at their computer stations could care less if their CD is slot or tray loading, or if its made of plastic or forged aluminum. Apple isn't going to make any headway selling to already converted Apple fanatics, they need to appeal to an employer's bottom line. Apple doesn't have to build really junky machines to achieve a lower price point, just innovate on Dell's strength of logistics.

Apple sold some 6.4 billion dollars worth of hardware and software, yet their net profits are only in the millions. I don't know about you but that is staggeringly bad. Even though they are making money, they are not thriving. I'd like to see Apple prosper.
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Apple has never been close to going under yet. They have not had any debt and they could lose money for ten years at the rates they were losing it and still survive.


More revenue does not equate to more profits. That only happens when your margins are high enough to cover costs. If your margins are too low for the type of business you run then that is a problem.

Apple and Dell have approx the same R & D budget but Dell has about 6 times the revenue. Thus Apple has to have larger margins than Dell to cover the costs of R & D.

In the past 2-3 years when Apple went from $8B in rev down to the low of $5.3 they had to cut staff and shut down locations. Reorganization costs a lot of money and usually impacts the bottom line. That is now over and they can return to 27-30 % gross margins and look toward 7-10 net profits in years ahead. The past quarter Apple had net revenues of approx 2%. The next Q I bet that the net Revenue will be 4% or better. Apple right now has traction on its side.

Producing low cost products or loss leaders as they are called is only good if you can switch the buyer to the higher brand. How many low end systems does Dell actually sell. Go to their site and ask for a suggested system and you never get near the low end. Bait and switch on the net . Real neat. Very few buy the low end system.


Apple is finally learning that each part of the business must become profitable on its own to survive. That is why you here about the stores , the enterprise channel the software etc all going to ward profitability.


Bad numbers on $6.4 B in sales? Any profit is not a bad number. Just look at Nortel , Luscent, JDS Uniphase and such if you want to see bad numbers. Bad quarters occur in troubled times but when you come out of it strong then you will get back to good margins.

IMO Apple right now is on the road to much better things. It may take 2 or 3 Q's to get complete traction but it will happen.

The iPod may or may not a vehicle that drives the business but the G5 and G6 will be along with a greatly expanded product offering both from themselves and from 3rd parties.

looking for 450,000 G5 sales in Q1 ... a record high end Q

Portable sales up 5%

700.000 iPods ...

Good revenue from MAC OS X

Increased Software Sales...

New enterprise sales..

Good traction at higher Ed

Lower iMac and eMac to education and consumers

More peripheral sales..

Stores become profitable...

No real staggering announcement at macWorld SF..

Stock price to double by Mid Feb before a pull back on softer Q2 data .

By June release of G5 PB and super fast G6 desktops with new IBM's new software compiler being a big hit with developers.

Stock starts to gain traction again could hit $50 per share in August (with a PE ratio of about 80)...assuming no major world events occurs before then.
 
Re: Innovation is critical

Originally posted by shadowself
In my estimation innovation is critical.

Sure Apple's products cost more than Dell's. Apple spends three to four times as much as Dell on research and development and Apple sells fewer items and has much smaller over all revenues.
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Hey! That's not quite the whole picture. In one hand Apple invests more in R&D, but a lot of that transforms in to the price of OS. In other hand Dell gives big amounts of money away to Microsoft for OS licences. I once calculated, that Apple gets nowadays their OS cheaper than any PC-maker buying OS from Microsoft. One can wonder, where does the scale momentum go. Answer is simple - it goes in to the Microsoft's 80% margin.
 
A well written article. Critques apple without undercutting its accomplishments. They may never never have a huge dominance in the market, but rest assured, they will continue to have 100% of the industry innovation.
 
Originally posted by MorganX
As a matter of fact, I believe Jobs said he didn't want everyone to own a Mac, didn't he? He was satisfied with high margin, low volume, small market willing to worship him and make him rich.
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Not quite. In he's first period at Apple, Steve was speaking a lot about a computer in every home, every school, everywhere. I'm sure he didn't mean IBM by saying that. You have to see that old video when Steve introduced Mac in 1984. It was almost like spitting in IBM's face. Nowadays a hope for every computer sold being Mac in any forseeable future is just insane. Apple has to grow market leader first.
 
Where Apple was once one of the most profitable companies in the category, its operating profit margins have declined precipitously from 20% in 1981 to a meager 0.4% today, just one-tenth the industry average of 2%.
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I'm not sure I can trust someone who can't do basic maths.
 
Since Apple's now got a competent CEO let's hope Apple remains ahead of the pack instead of being trampled over. Go Steve.
 
I'm afraid I didn't have time to read the thread, but I don't think that Steve wants to own the market. He's a good economist, and I think is very comfortable with a "minority" position in the computer world - a position known for its unparalleled quality, style, and gravitass. People who claim that Apple's innovation strategy isn't a successful business model are just totally missing the point. The thing I love about Apple computers is that they are a constant competitor. They are the underground subclass that is *always* rebelling. It gives us a kind of patriotism that is a hundred times better and more secure than a "reliable business model", pshaw!
 
Article errors

I noticed a few errors in the print version of the article. One was corrected, one was removed:

1. The print version mentioned that some thought Apple lost out in market share because it didn't license it's OS in the 1970's. Try the 1980's. But this does not appear in the online article, except a weak reference to licensing.

2. Xerox PARC being notorious for not having made any money at all. A myth. The laser printer has made Xerox quite a lot of money.

3. The print version of the magazine mislabeled the G5 as a 64-Gigabit processor. Corrected in the online article.
 
Re: Re: Steve Jobs, Apple and Innovation

Originally posted by patrick0brien
-Bzzzzzt!

This is why Venture Capitalists should not teach economics.

Economics 101: Equilibrium between supply and demand of a product facilitates micro and macroeconomic growth.

Management is simply keeping the finger on it.

I will agree with his other point that Apple has consistently not had a low-end to garner market penetration. The other boys do.

Of course, this factor is what leads some short-term thinkers into believing that Macs are more expensive.
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Michael Porter is not the be and end all of economics my nescient friend! While low cost products to facilitate market penetration, a cheap product can also destroy a brands sence of worth especially in todays capatalistic economic hegemony. Then again perhaps I'm constrained by a bounded rationality because odly enough I agree with you! hehe, sorry festive fun. just thought it was nice to see someone writing about economics and strategy for a change and wanted to jump onto that train too!!

Jason
 
all that i can say is this i used pcs i now use Macs. I like the Mac I enjoy using the Mac and they seem to have lasted a long long time.. Fingers crossed they go the whole nine yards and go for a 100 years if not longer... good on em i say
 
market share vs mind share

It is an interesting thing that apple, for the first time in many a year, has a product that crosses into the general consciousness.

For a company that, for its computers, has such a small market share, it gets an awful lot of attention, especially now in the case of the iPod, but do you remember the coverage of the ill-fated cube? It was everywhere. But no-one bought it.

I seem to remember one of the Business Week regulars, who writes "Byte of the Apple" defending his space, and justifying why there was a regular column for a small computer manufacturer. His argument was simply that if you want to see where the industry is heading, look at Apple. First to come up with a mass-market user-interface, first to remove floppys, first to come with CDs, first to promote wireless, first to bring out a working music store which convinced the big five to come on board, and so on.

Maybe Apple is like some government think tank, that publishes policy papers, that others then implement.

Apple's mind share is still out of all proportion to its market share. And in some ways this must both delight and bother the company. I'm sure there is some management rule book that says that visibility is all, but in our case, it somehow, isn't (yet?) enough.
 
Mindshare, branding, perception

Economists who don't consult their marketing friends are quite blind to reality.

Remember the "PET ROCK?" Let me explain to the less than 30-set here @ MacRumors. In the mid 70's a novelty company decided to sell a gag gift known as a "pet rock." It was literally a smooth rock from a quarry in a nice cardboard box with a 1 page "owner's manual" in which directions for training you rock to "sit" and "stay" were explained. They sold for a few bucks.

This company marketed their cute little gag and sold MILLIONS of them. Let's look at what conventional economics would tell us about this.

Rocks are everywhere. A dumptruckload on your driveway of literallly hundreds of thousands of units would cost you about $100 from your local quarry. Let's say it's a small load, only 100,000 rocks. That means each one costs you 1/10th of a penny. Heck, just walking along the roadside and picking one stone up costs you absolutely nothing. The laws of supply and demand would indicate that this should drive the price down unless demand rose to meet the supply. Well a few million pet rocks sold, but nothing close to the kind of demand necessary to make rocks more expensive--not to mention that the control of the supply of rocks is nonexistent. They're everywhere.

The pet rock phenomenon makes absolutely no sense apart from marketing, but behold what marketing could do here. By using clever packaging and a great sense of humor, these guys were able to convince millions of people to buy a rock and it's packaging (probably no more than $.05 for the whole thing--I'm sure shipping it cost tenfold more than making it) for $5 bucks or so.

There were dozens of mp3 players before the iPod, for less money. Sounds stupid to enter that market, right? Not if you create a product people perceive as clearly superior to the rest, and above all else, perceive as "cool" to own.

The PC crowd who are on the commodity model supply & demand marketing merry-go-'round all think Apple will die with its tiny market share. Too pricey, too exclusive, doomed if they don't sell millions of cheap units for razor-thin margins. Like they are forced to do.

WRONG. Apple sits on a huge cash reserve war chest and defines itself and its own market, thereby sidestepping the price-gouging cutthroat PC world almost completely. They sell productivity, ease of use, stability, asthetically beautiful design, and a good user experience overall. As long as people continue to value these things, Apple will thrive.

I hope Apple NEVER sells an iPod cheaper than $199 or a CPU cheaper than the current eMac. Keeps perceived brand identification of quality high, profits high, R&D money flowing, and keeps resentment/buyer's remorse for those who purchased pricier iPods in the past lower.
 
Economic Growth

There is the philosophy in business that companies have to grow, grow, grow to be considered successful. I don't agree.

If Apple's innovation causes them to make a profit each year, but they fail to capture any greater share of the market, have they failed?

No. Not by a long shot. If that money is being returned to investors and being used to further innovate then they have been successful.

Not only that, but by innovating they are contributing to the computing industry as a whole.

Now if they innovate and end up loosing money and going out of business, then they haven't been successful. But then not only Apple has lost, the computing industry as a whole has lost. This includes the consumer.

If a consumer makes purchase decisions solely by the price tag that's fine. But they should be aware that it will crush innovation and quality.

Personally, I will continue to support companies such as Apple that continue to innovate and pay close attention to quality and the details of the overall consumer experience.
 
Market share, shmarket share. Steve Jobs' prime objective as CEO -- as is the prime objective of all CEOs -- is to enrich their shareholders. Nobody gets on Porsche's ass because they only have 5% market share. Apple is profitable, they have little or no debt and much cash on hand. Jobs flies around in a G5 (the plane, not the computer). In some cases, you actually can get rich building the best mousetrap, not just the cheapest one.
 
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