What Really Scares Apple’s Competitors

by Tim Bajarin   |   August 20th, 2012

I was recently talking with some of Apple’s competitors and they gave me some interesting feedback on how they feel about Apple. The first thing they told me is that they really respect Apple and find them to be very important to the industry in general. And to a company, they feel an exceptional team of leaders runs Apple and they fully expect Apple to have a leadership role in PCs, tablets and smartphones for many years, even with Steve Jobs out of the picture.

But when I asked them what they actually fear about Apple, their answer was interesting. I had expected them to say things like Apple has great industrial design. Or their $117 billion cash position gives them a huge advantage over all competitors. Or even that since Apple owns their hardware, software and services, they can make them work together seamlessly, which also gives them a huge advantage over competitors.

But the consensus from those I talked to about what really scares them about Apple is the fact that Apple sees the future and then creates products that people want even if people do not know they want them. This has befuddled them for 15 years or since Steve Jobs came back in 1997 to rescue Apple. Most of the OEMs create their products along a more evolutionary timeline. They create new desktops, laptops, smartphones and even tablets with the idea of just making them faster and better looking.

But Apple takes a very different line of attack. They approach their future products in two ways. The first thing they do is to look at an existing product and find its flaws. Then they redesign it around what they believe consumers want and then tie it to advanced software and services to eventually create complete solutions. This is the cause of Apple’s competitor’s first fears about Apple and having to compete with them.

For example, first thing they did this with was the iPod. Apple did not invent MP3 players. But they looked at the early versions and realized its flaws. The first generations of MP3 player designs were less than interesting and the process of getting music on to them was difficult. So they figured that they could add their industrial design magic to it and build an ecosystem of software and services that made buying and playing music and eventually video simple to do so that today they still own 70% of the MP3 player market. After 11 years on the market they still don’t have a serious competitor in this space.

They did something similar with the iPhone. They did not invent smartphones, but they reinvented them with the iPhone and have made this smartphone one of the most popular in the world today. Of course, this market is so big that competitors came in very quickly and thanks to Android, the competition for smartphones is fierce. But Apple led the way and continues to be a most important competitor.  I fully expect their new iPhone 5 to set sales records when it comes out in Sept.

The iPad followed a similar path. They did not invent tablets. In fact, Microsoft was the lead player in this space until Apple reinvented the tablet with the iPad in 2010. But here again, Apple applied great industrial design to their tablet, tied it to their ecosystem of hardware and software and currently maintain a 70% market share in tablets.

But there is a second way Apple approaches the market that really strikes fear in them. Steve Jobs had what has often been called a “gut feel” for what consumers wanted in a tech product and would envision them years before the products would even come out. When I met with Steve Jobs the second day he came back to Apple in 1997, Apple was in deep financial trouble and we now know they were about two months away from going bankrupt. I asked him how he would save Apple and he told me that he would focus meeting the needs of their core customers and then added that he would focus on industrial design.

The idea of industrial design being important to saving Apple was foreign to me and I really could not see how that would work. But two years later he brought out the candy colored iMacs and reset peoples thinking about what a computer could or should look like. Then he focused in creating all-in-one Mac’s and made sleek design key to this and all of his next generation laptops.

Apple also saw the future of laptops well before the competitors and added their industrial design magic to the MacBook Air. Now, five years after the MacBook Air first shipped, the PC competitors are just now bringing out similar types of ultra thin and light laptops called Ultrabooks.

It is this anticipation of what people will want in a tech product and Apple’s ability to not only see the future and then create the products people want even if they don’t know they want or need them that makes life difficult for those who compete with them. Even while the rumors fly about Apple’s next major reinvention, which most likely will be the interactive TV experience, it would not surprise me if the folks at Apple have peered into their crystal ball and are working on something really cool in some area of technology none of us have even thought of today. Having to live with this type of threat from Apple is what keeps their competitors up at night and always looking over their shoulder as Apple leads and they are forced to follow.

Tim Bajarin

Tim Bajarin is the President of Creative Strategies, Inc. He is recognized as one of the leading industry consultants, analysts and futurists covering the field of personal computers and consumer technology. Mr. Bajarin has been with Creative Strategies since 1981 and has served as a consultant to most of the leading hardware and software vendors in the industry including IBM, Apple, Xerox, Compaq, Dell, AT&T, Microsoft, Polaroid, Lotus, Epson, Toshiba and numerous others.
  • RepV

    Great article. This is exactly why Apple has been great. Even with details articles like this, Apple haters will still blindly bash Apple. It is the fact that no one can compete with iPods (70% market share still), iPhone, iPad, MacBook Air and now the new MacBook Pro with Retina screen but yet haters get inline to bash Apple.

    Most haters often talk about how Apple locks down their devices while others allow more open systems and in reality these folks rarely upgrade or customize their so-called “OPEN” phones or systems because you really can’t do much to a smartphone or laptops these days. These haters are so hateful that most of them have never or refuse to touch an Apple product but they seem to claim they know alot about Apple through their bashing.

    So is it jealousy or stupidity? Maybe a little of both. Haters will always be haters.

  • Rich

    Steve Jobs said that when Apple was designing the iPhone, they observed that (according to him) “everybody hates their phone.” This statement mystifies me because (1) why would a supposedly intelligent industry design products that everybody hated, (2) if the phones were so bad, why did they sell in such large numbers at that time? Nonetheless, Jobs said that Apple created the iPhone by removing all the features that people were so negative about, and the huge popularity and influence of the resulting iPhone suggests that Jobs’ assessment of the users’ feelings about phones in 2007 was correct. Pretty interesting.

    • steve_wildstrom

      The reason everyone hated their phones is that the phone makers regarded the carriers rather than the end users as their customers and let the carriers dictate design. This, for example, is why Wi-Fi didn’t appear on Windows Mobile, Palm, and BlackBerry handsets until long after it was technically feasible. Apple designed a phone for users and forced it on carriers. The rest is history.

      • FalKirk

        “The reason everyone hated their phones is that the phone makers regarded the carriers rather than the end users as their customers and let the carriers dictate design.”

        I think there were other equally important reasons, but you’re spot on in your analysis. Content creators think the TV cable carriers are their customers. Microsoft thought IT was its customer. Google thinks the advertiser is the customer. Your customer dictates your focus and your priorities.

        • Rich

          Content creators think the TV cable carriers are their customers? Who pays the cable carriers? The people with set top boxes on their TVs. Microsoft thought IT was its customer? Who pays IT? The customers of the company using the IT. Is this really so difficult for CEOs to figure out?

          • steve_wildstrom

            The customer that matters is the one you believe you have to please. In the case of wireless before Apple, the carriers were the absolute gatekeepers (or “orefices, as Steve Jobs famously put it) of what phones could be on their network. For Microsoft, it started out as the consumer/SMB, became enterprise IT, and now may be swinging back to the consumer. Apple has always known it was the consumer.

          • FalKirk

            Rich, for example, if you’re a wholesale, the retailer, not the end user is your customer. They they ones who choose to buy and pay for your product and they’re the one you have to please. This is the norm.

          • Rich

            I’m sorry, it may be the norm, but I think it’s a mistake. As Steve Wildstrom pointed out above, before 2007 the phone makers regarded the carriers rather than the end users as their customers. What was the result? “Everybody hates their phone.” Then Apple came along, designed their phone not for the retailer but for the individual who was actually going to use the product, and sold it to the retailer, AT&T. What was the result? A runaway best seller and a lesson for the industry: don’t design your product for the retailer; all he’s going to do is pass it on to the end user. Design it for the person who will *use the product.*

            Apple has demonstrated three times, with the iPod, the iPhone, and the iPad, that this approach will outsell your competition by a large margin. And I need to emphasize that these products were not designed to please the retailer, and that Apple’s products are not sold only through Apple’s own stores, but through lots of retailers. Apple’s method seems totally logical and right to me.

          • steve_wildstrom

            Ownership of the customer is the critical issue. Pre-iPhone, if you asked a U.S. phone customer what sort of phone she had, she’d probably answer Verizon or AT&T, not Samsung or LG or Motorola. But iPhone owners have always known they had Apple phones. Apple stole the customer from the carrier.
            I’m drifting off-topic, but this is going to be a critical issue WRT Apple TV if Apple really tries to make it an alternative set top box. Its negotiations with the cable carriers will be very, very difficult because the MSOs rightly fear going the way of the wireless carriers and losing their customers to Apple. Have you ever asked anyone where they get their TV service and have them answer Motorola or Scientific Atlanta? That could well change with an Apple box.

          • jl9840

            Cable carriers and IT departments are considered the customers because they’re the ones that actually pay content creators or Microsoft, not the actual users.

            One of the main advantages of Apple’s vertical integration of hardware, software and retail store is that that the person paying for the product is the same as the person using the product.

    • jfutral

      The cell phone industry is/was a prime example of an industry succeeding despite itself. There wasn’t a cell phone maker or carrier around that wrote software for the end user. Like the computer industry, software was a necessary evil for the user to interact with the hardware.

      And similarly this is why Apple is making new inroads into the enterprise, based on the end user (BYOD), not the IT departments.

      Joe

  • FalKirk

    First, great article.

    Second, I’d like to build my comments off of the Henry Ford quote: “If I’d asked my customers what they wanted, they’d have said a faster horse.” This is just an analogy, because the reality is slightly different.

    What I think makes Apple great is that while others are trying to make faster horses, Apple is making Model-T’s. There’s nothing wrong with making a faster horse. But the speed of a horse can only be improved so much. Model-T’s were very rough when they first arrived on the scene but their upside potential was practically unlimited.

    Similarly, Apple didn’t really re-invent the phone. That would have been like making a faster horse. What they really did was create a pocket computer (Model-T). The old smartphones were phones that did a little computing. The new smartphones were computers that just happened to make phone calls.

    Apple is a great company and they have a lot of up-side left. But one has to wonder if it takes that creative spark that Steve Jobs had in order to make the jump from the horse to the Model-T and from the Treo to the iPhone. Only time will tell.

  • jfutral

    Additionally, seems to me, based on what little I’ve read, they design based on what _they_ want (and when Steve was still around, ultimately what he wanted) with a lot of paring down after the brain storming. If they thought in terms of what the “customer” (like everyone else seems to do) wanted they would have ended up with the Homer Simpson car.

    That ability to say “No” is what most everyone else in the industry severely lacks as much as anticipating customers.

    Joe

  • krabbie

    Having to live with this type of threat from Apple is what keeps their competitors up at night and always looking over their shoulder as Apple leads and they are forced to follow.
    This insight is what the competition is DOING, that being rubbernecking instead of innovating. Good article and last line.

  • http://www.facebook.com/people/Jack-N-Fran-Farrell/100002337622505 Jack N Fran Farrell

    If Apple has a thin MacAir ready for Google Fiber driven Gbits/sec Wifi it will sweep the business market. ICloud business Apps plus synched and secure (@Gbits/sec why not 512 bit encryption) tablets, phones, desktops all work together.

  • http://jmmxtech.wordpress.com/ jmmx

    Again, great article. I particularly appreciate the fact that much is from the mouths of the competitors.

    Interestingly, I posted an article that overlaps well with your thoughts. I would appreciate your opinion.
    http://beta.fool.com/jaans/2012/07/22/understanding-apple-2-success-o-v-f/7443/

    Regards.

  • pawhite524

    At the risk of being overly reductionistic the common thread in the responses Tim Bajarin has acquired might be summed up as: Apple’s DNA.

    If you rank order the possible fears of Apple’s competitors I believe Mr Tim’s presuppositions would be present but the the most fearsome is the eloquently stated answer he has represented here. From what I have witnessed and read their biggest fear is Apple’s DNA.

  • samp1800

    GOOD JOB! I loved reading that.

  • SockRolid

    Great post, Tim. I’d add that Apple’s 400+ million active iTunes Store accounts (as of September 2012) are another terrifying force that Apple’s would-be competitors are facing. And that army of iTunes Store users is possibly the biggest incentive for some of the incumbents in the TV industry to get on board with Apple’s next-gen TV concept, whatever it will end up being.

    Re: ‘Steve Jobs had what has often been called a “gut feel” for what consumers wanted in a tech product…’

    Yes, but that instinct for success came in the same package along with pet projects that failed. For example, the Power Mac G4 Cube. And how much of Steve’s “gut feel” was inspired by Jony Ive’s work? I’d guess that Ive’s contribution has been substantial.