Apple Sits Atop The Stack

On November 26th, I wrote an INSIDER article entitled: “Is Apple Pay The New iTunes?” (Subscription required.)

A foundational premise of that article was that iTunes did not, and now Apple Pay does not, directly challenge the existing incumbents in their respective categories but, instead, seemingly worked with the existing industry participants. In business theory terms, Apple sat atop the existing “stack”. However, in doing so, iTunes, and perhaps Apple Pay too, ended up disintermediating several incumbents and marginalizing others. Benedict Evans seems to think that this is not just a one-time thing but is, rather, Apple’s modus operandi:

Apple tends to disrupt non-tech markets by adding a new layer to the value chain – a new end point. Not by competing with existing layers. Hence, no Apple MVNO, record label, payment network… TV service? ~ Benedict Evans (@BenedictEvans) 9/24/14

Let’s explore that idea.

With the iPod/iTunes combo, Apple did not compete directly with the existing participants in the music stack. They built stores, but they did not build music stores. They did not create physical media. They did not create albums but they did break albums into their constituent parts (songs). The did create MP3 players which competed with the then existing CD players. Yet, for the most part, they did not create speaker based music playing devices.

In the end, however, the result of the iPod/iTunes revolution was to cause music stores and physical media to disappear and the album and music players to all but disappear. Apple was able to compete against their competitors but their competitors were unable to compete back. To use a military analogy, Apple took the high ground where they were able to shell their enemies without their enemies being able to return fire.

The most interesting disruption comes from attacking an industry from what looks like an irrelevant angle. ~ Benedict Evans (@BenedictEvans) 9/13/14

Benedict Evans provides us with other examples of where Apple DID NOT compete directly against the entrenched incumbents:

(Apple) didn’t buy or build a record label and it didn’t hire A&R guys. It didn’t buy a mobile operator or create an MVNO. It never bought movie or TV rights, and it hasn’t created a new payment platform. It is partnering with Chase and Visa, not competing with them. ~ Benedict Evans

There are at least two reasons why Apple doesn’t compete directly against incumbents. First, the incumbents compete back. In military terms, competing against the incumbents is like attacking a well-defended enemy fortification. You’re attacking them where they are strongest.

A second reason why it is generally unwise to compete against incumbents is because while they are good at what they do, you, as the newcomer, are not very good at what they do. It is better to compete where you are strong and the incumbent is weak — or even better, nonexistent.

Apple is not in the business of disrupting everything. They’re in the business of disrupting what their DNA allows them to and their DNA is not about being bank, it’s not about being a mobile operator. ~ Horace Dediu

Instead of competing directly against the “stack”, Apple sits atop the stack and inserts a layer between the incumbents and the customer. This is no mean feat because the incumbents are already trying — and failing — to close any gap between what they provide and what the customer actually wants and uses.

For example, Apple Pay is built upon NFC which is not new technology at all. The only thing new about Apple Pay — from the customer’s point of view — is that it takes a four step process and reduces it single step. Yet this makes all the difference. It is often the last, seemingly small, incremental step, that adds massive value to the already existing product or service.

Moving from three or four steps to one wave of the phone is only the last 10% of the problem, but of course it’s the 10% that takes 90% of the effort and makes all the difference in consumer adoption…. ~ Benedict Evans

I think one of the reasons why Apple is misunderstood and under appreciated by some its critics is because those critics do not recognize the value added by this last, little step. To them, a one-step process is only minimally better than a four-step process. To the consumer, however, it’s the difference between jumping a gorge and comfortably and securely walking across a bridge over that gorge. And to the average consumer, that’s all the difference in the world.

Waterfall in Oregon

What Apple seems adept at doing in creating a highly integrated product that takes that one last step that massively multiplies the usefulness of the existing product to the masses.

Published by

John Kirk

John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach. His love affair with computing started with his purchase of the original Mac in 1985. His primary interest is the field of personal computing (which includes phones, tablets, notebooks and desktops) and his primary focus is on long-term business strategies: What makes a company unique; How do those unique qualities aid or inhibit the success of the company; and why don’t (or can’t) other companies adopt the successful attributes of their competitors?

9 thoughts on “Apple Sits Atop The Stack”

  1. Please forgive me for commenting on my own article but just after I posted the article I ran across an interesting statistic. In June, Apple revealed that 83% of iPhone 5S users were using the fingerprint scanner. The fingerprint scanner is a great example of a seemingly insignificant incremental improvement that is actually extremely significant from a user experience perspective. The difference between punching in a 4 digit number and placing my finger on the home button is almost nothing in terms of time and almost everything in terms of experience.

    For many, existing products are like a ladder that is missing the first rung. They’re not willing to take the trouble to climb that ladder until that rung is added.

    1. What makes this relevant and significant to security is I can have the option of leaving my credit cards at home. If someone mugs me and takes my phone, it is still very unlikely they will be able to use it to use my Apple Pay, even if they can access my phone’s contents before I wipe it. That may still be less an issue in other countries than the US. not sure how contact-less CCs function more securely than a regular CC for online shopping.

      Joe

    2. The difference between punching in a 4 digit number and placing my finger on the home button is almost nothing in terms of time and almost everything in terms of experience.

      Tech geeks will never understand this point which is why they are continually astonished by Apple’s success in hardware. A tech geek probably scoffs at the 4-digit password and uses a 32-digit password!

    1. John’s list may be different from mine. Not counting “get out phone/wallet” or “see the confirm payment display” as steps:

      Remove card from wallet, tap terminal with card, enter pin/show ID, put away card, done

      Compared to Apple pay: touch the home button, done.

      I am aware that there are systems where one does not need to enter a pin or show ID (which makes the card a three step process), but they are insecure and thus not comparable to Apple pay, which uses two-factor authentication (your phone plus your fingerprint).

      1. I’ve been using Softcard on my phone at Staples and Office Depot. Do you believe they make you sign? Kind of defeats the purpose. I suppose I should boycott them! 😉

    2. True Customer Story!

      Not Contactless, but New Chip Cards at Sams:

      They replaced old cards with new chip cards at Sams. This happened 4 months ago. About 2 months ago, I was taught how to //insert// my card and leave it inserted while self checking out. This took 3 personal ‘trainings’ with people waiting and a total of 5 minutes total, delaying the line behind me. (I also was delayed about 12 minutes in total as I watched others fiddling with the chip inserter.)

      After training I successfully used the procedure twice and it misfired twice. Three weeks later the card chip option was turned off and I was retrained (once) to ignore the chip thing and just swipe my chip card as we used to.

      It’s been two months and we haven’t gone back to using the chip inserter method. One battle for convenience and security lost.

      Sams and Walmart are part of the MCX alliance which is denying Apple Pay access.

      (Place your own conclusion here.)

    3. “Since when paying with a contactless credit card was a 4-step process?” – Kenny

      First, let’s not be pedantic. The term 3 or 4 steps was applied to many things, not just contactless credit cards.

      Second, I don’t exactly know why, but I do know that contactless credit cards have not taken off. Apple pay had more users in 4 days that contactless credit cards had in their entire history.

      Whether it be with contactless credit cards or digital devices, the point remains the same: Convenience is harder to create than most observers think and more valued by customers than most observers realize.

  2. Benedict Evans seems to think that this is not just a one-time thing but is, rather, Apple’s modus operandi:

    I agree. Not only did iTunes do this but also iBooks Author, iMovie and Garageband are intended to do the same thing. Apple intends to disintermediate all media creation.

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