Why Apple is Immune to Disruption

It remains my conviction Apple must be analyzed in isolation to their perceived competition. Many smart people fall into the trap of believing the rules of the game apply to Apple in the same way they apply to its competitors who make products in the same categories. I don’t believe this is true. Which leads me to believe Apple is immune to disruption.

One of the core results of a successful disruption is a business model change must occur. Since Apple’s existence, it has yet to be forced to change its business model. A key observation must be made that, other than the MP3 player market, Apple has never truly been the market leader. Apple has chosen to go after premium customers in every category they compete in and have not strayed, nor been forced to stray, from this strategy. Apple’s mission stems from the objective to create the best products on the market, whatever that product or segment may be, target the most profitable customers, then repeat the process by creating new categories of products, or reinventing existing ones. This is possible because Apple has strategically decided that, in order to make the best products, they must control the cornerstones of the product experience. These include the hardware and specific components within the hardware like the SoC, the software with iOS and OS X, retail to ensure the best product experience, and an evolving set of services to tie the whole ecosystem together. What all of this leads to is a highly differentiated experience that dramatically stands out from the competition.

Disruption theory is based on the assumption that this integrated model is the most successful in the early stages of a technology. It admits that owning all the pieces of the experience are necessary to make the experience more uniform and thus more easily adopted. It goes on to assume those more modular solutions will eventually be on par with, or close enough to, the experience but will beat the integrated player on price. What gets left out of this equation is the differentiation still available with the integrated player. Where I believe this matters is in pure consumer markets.

Consumers behave differently when it comes to purchasing products. They are more nuanced, often less logical and pragmatic especially when it comes to purchases that are extremely personal or emotional. Because of this, a premium market will always exist in every category of product in pure consumer markets. Cars, fashion, food, tech, etc. I’d argue no competitor for premium customers in any of these categories is subject to disruption. Disruption theory does not take into account the premium buyers values when choosing products. The theory assumes many things, but one is a predictable and somewhat pragmatic buying mindset. More specifically that all buyers will be using the framework of price and performance.

But consumers are subtle and they often buy products for more than just price. The reason markets such as automotive and consumer packaged goods can support dozens of options is for this exact reason. There will always be a segment of the market that will favor the types of premium experiences throughout the ecosystem Apple offers. The real question is how large?

Unquestionably, the higher the price of the product the smaller the total addressable market. More importantly, the higher the price, the less often the product will be replaced or refreshed. PCs are held on to for an average of three years. TVs an average of six years and cars an average of nine years. Technology products priced between $50 and $199 have a higher chance of of quicker refresh rates. This is what makes the iPhone so central to Apple. No product exists today has both the total addressable market, and in some markets, heavy subsides allowing expensive hardware to be sold for much lower prices. It is also a reason I feel it is inevitable Apple offer a mid-range priced phone eventually.

But what being the subject of disruption implies is the incumbent must adjust their business model. This, I maintain, is what Apple is immune to. On the sole basis that, in pure consumer markets for technology, there will always be a large customer base willing to pay more for a premium experience. Thus Apple does not need to alter their business model to compete on the low end of the price spectrum.

What will have to happen is Apple will have to address growth by driving more value and capturing more revenue per unique individual or group. The other way to address growth will be to continue to invest and develop parallel and complementary product categories while maintaining the same strategy to own the high end — thus owning the most profitable customers.

Focusing on owning the most profitable customers is a core tenant of Apple’s strategy. It is one their vertical integration is uniquely designed to accomplish. Their focus on building the best products and experiences is also in line with this strategy. It is a sustainable strategy. One immune to disruption. Lastly, and perhaps more interestingly, owning the most profitable customers is extremely difficult. Apple’s culture, philosophy, mission, and vertical integration puts them in a unique position to own the most profitable customers. In a later Insider Analysis, I will tackle this subject as well.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

26 thoughts on “Why Apple is Immune to Disruption”

  1. I basically agree with the article, except that you don’t have to dismiss Disruption Theory to explain the consumer market.

    All you have to do is expand the “jobs-to-be-done” and include emotional, social or status related jobs. For example, a jobs-to-be-done for iphone could be to show off financial well being, good taste or simply being compatible with your friends. Because these are not technical features, technical progress will not cause newer products to overshoot customer expectations in these aspects.

    Looking at it this suggests that Apple’s strength at the high-end is even more robust.

    1. Agree. However, what I am probing at is whether disruption theory can be applied to Apple in the first place.

      1. I think of Apple as a satellite in orbit.

        My understanding below.

        Disruption theory describes the equivalent of the law of gravity. The satellite surely feels the forces of gravity, but because it is moving forward at a very fast speed, it manages to stay in orbit.

        Likewise, Apple definitely feels the force of Disruption theory. However, they manage to constantly innovate in features and design so that customers always lust for them. They constantly manage to raise the bar of being “good enough”. Touch ID for example; you didn’t think you needed it until you experienced it, and then you can’t go back. This is their velocity. This is how they manage to stay in orbit.

        Any other company that cannot innovate as fast, or can only innovate in gimmicks that consumers don’t really want, will be pulled down by Disruption theory.

        Any object that flies, be it rockets, satellites, airplanes, birds or small insects, feels the full force of gravity. They are just capable of defying it.

          1. Your point about Apple moving forward at a fast speed to stay in orbit. I called that velocity. I view Apple as pragmatic, doing what works best, solving problems in practical ways. Apple also uses an excellent formal design process. Finally, Apple executes the manufacturing side very well. Which leaves us with pragmatism + design + execution = velocity. I think pragmatism, design, and execution are key factors which propel Apple forward.

    2. > emotional, social or status related jobs

      Is there any example of something similar to disruption in industries that target such things(like fashion, automotive, etc) ?

      1. Since emotional, social / status heavy jobs-to-be-done are not driven by Moore’s Law-like rapid improvements, disruption in these industries is expected to be much less frequent. You would probably have to go back at least a few decades and even maybe centuries.

        Although I am no expert, I’m pretty sure that apparel and automotive industries have had their disruptive innovations. In automobiles, my understanding is that the Japanese automakers disrupted Detroit. Detroit was focused on large “gas-guzzlers” with quite unique designs, but which were disrupted at the low-end by Japanese small & efficient cars after the oil-shocks of the 1970’s. As Disruption Theory suggests, the Japanese thereafter moved up-market with their higher production quality. This caused a lot of agony in Detroit during the 1970-80s.

        In apparel, I really don’t know. It’s likely that innovations in synthetic fibers like Nylon in the 1930s caused some disruptions (obviously, it disrupted the silk industry), but I really don’t know.

        I think it’s a bit more complex then this, and I might have to write a follow up comment.

        1. Naofumi, BTW disruption is not neciessarily about moore’s law, but about finding places to compete where the incumbent don’t have the motivation to fight you and with time improving and posing a risk (but that might be too late).

          For example , amazon mayday might be a great offer , but an expensive one , that when even selling a $650 phone , amazon only have little margin on.

          It’s hard to see apple to compete with that.Assuming that’s a good offer , that could easily pose a risk to the iphone among segments who seek the iphone because of it’s simplicity.

          1. BTW disruption is not neciessarily about moore’s law, but about finding places to compete where the incumbent don’t have the motivation to fight you and with time improving and posing a risk

            Of course. The thing about Moore’s Law is that it is so rapid. That’s why it quickly causes tech products to evolve to the “good enough” state very quickly which means that they become susceptible to low-end disruption. Other markets are also disruptable, but it often is a slower process.

            As for Amazon Mayday, I’m not familiar with their proposition or the quality of their service. Many other companies that have invested in inbound marketing and support. There are also many outsourcing and even offshoring solutions. Apple has also greatly improved their call support since Job’s return (at least in Japan). As far as I understand it, Apple has both the motivation and the resources to provide great call support (they could even use outsourcing if they wanted to), and hence it is unlikely that call centers will be a sustained competitive advantage for Amazon.

          2. > Moore’s law

            True , Moore’s law did enable a much faster rate of disruptive innovation.

            > Apple has both the motivation and the resources to provide great call support

            And yet amazon is the first offering video support(in their tablets) , which got really good responses. And nobody copied it.

            It’s all about profit margins. Assuming both amazon and apple are equally cost effective at such support and that the phones sell at similar prices(due to subsidies) , since amazon has almost zero profit margins on the phone , it might have the money to invest in such service (and benefit elsewhere) , while for apple making a phone for no profit doesn’t make sense.

          3. The iPhone has very high profit margins, even by Apple’s standards. If providing a Mayday-like service would help them sell a substantially larger number of phones (or help them defend their current position), I don’t think that Apple would hesitate to lower their margins for it.

            The problem as I see it is that Mayday has not helped Amazon sell Kindle Fires. As far as I know, most speculation points to the recent Kindle Fires not selling well at all.

          4. > help them defend their current position), I don’t think that Apple would hesitate to lower their margins for it.

            But that’s the crux of the innovator’s dilemma – companies unwilling to decrease profits to defend their position. Why should apple behave differently ? I don’t think they did this in the past.

            > Kindle Fires not selling well at all

            That might be true. But it’s intended to be sold to tech laggards, so it would be fair to wait a bit longer before we judge it , no ?

          5. But that’s the crux of the innovator’s dilemma

            I don’t think so. The Innovator’s Dilemma describes a tendency for companies to preserve current profits but that does not mean they always will. Neither is the will to preserve profits the only reason why companies are disrupted.

            But it’s intended to be sold to tech laggards, so it would be fair to wait a bit longer before we judge it , no ?

            Maybe. But then, wouldn’t it be the case that Apple would wait to judge it?

          6. > wouldn’t it be the case that Apple would also wait to judge it?

            And if it’s judged zero margin but successful, what than ? But let’s agree not to agree on that point 🙂

  2. After giving myself a brief, likely poor, Wikipedia education on “disruptive innovation” (just to keep the terms straight, they mean slightly different things in business circles), I wonder the following:

    Disruption can occur from within an ecosystem or from external paradigms.

    A good internal example would be broadband versus dial-up. It happened freely within any given platform and the underlying mechanisms were provided by the OS or third parties. You did not need to change your platform to enjoy broadband and displace dial-up. Internal disruption within Apple is not possible without Apple’s knowledge and blessing. Thus Apple is very well protected “from within”.

    The easiest external disruption are what smartphones their predecessor PDA’s did to feature phones, or what cellphones did to landlines. Here’s they only angle from which Apple is even slightly vulnerable. A new innovation from someone else displaces what they are doing.

    1. That was exactly why they introduced the iPhone in the nick of time, just before iPods were about to be disrupted by phones that could also store quite a bit of music (not that those phones were otherwise any good, mind you).

      Apple undoubtedly has great people looking into disruption issues, and what’s more important, they have the management/company culture that allows them to address these threats in a long-term way. Addressing these threats in a short-term way (correct in short-term but damaging in long-term) is what allows incumbents to be disrupted.

      As important is the fact that they didn’t slap on PDA functions on an iPod (at least, not in a serious way). Instead, they took the time to make something completely new.

  3. …it is inevitable Apple offer a mid-range priced phone eventually.

    How about a Beats branded phone?

  4. Apple makes products geared to markets in which no one else can compete other than to make cheaper knockoffs.

    1. I think the Surface Pro 3 competes just fine in the markets that Apple’s products compete in. It’s a great product that will hold its own

  5. It will be very hard to disrupt Apple so long as computer technology interaction is the same

    I suggest you guy to read Ben Analyst about Apple which is exactly what have been thinking before going to hard on the Apple is Immune to Disruption kumbaya that sound too fanatic for my taste

    http://stratechery.com/2014/daily-update-apples-strengths-weaknesses-opportunities-threats/

    Ben Thompson on Apple THREATS
    What is more concerning in the long-long run is that Apple has benefited greatly from the ever more personal nature of computers: the more you touch something, the more important is the experience of using it, which of course is Apple’s forte. The problem, though, is what happens if our primary interaction with computers moves beyond touch? Imagine an interface akin to the movie “Her” that is based primarily on voice. That interface is ultimately a cloud interface, and as discussed Apple would be at a major disadvantage.

    Bigger picture, as I have been writing in recent weeks, there is a fundamental bifurcation between Apple and Google’s vision for the future. The latter is focused on computers doing a better job than humans at an increasing number of things; the former on augmenting human activities. I suspect Apple is closer to the expectations of most people, but their downside for being wrong is also much greater than Google’s.

    1. That interface in Her is still years away. Many years. By the time we get there , there’s a good chance Apple’s cloud service / machine learning capabilities will be up to par.

      For all the criticism they get, Apple’s cloud services have been getting better every year since the introduction of iCloud in 2011. I use iCloud all the time. & like it.

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