Apple’s Grand Strategy

John Kirk / October 24th, 2013

Grand Strategy

Grand Strategy is not about winning the war, its about winning the peace. It’s not about destroying your competitor, its about preserving who you are. It’s not about moving toward a destination, it’s about knowing what your destination is.

Too many countries and too many companies lose sight of their Grand Strategy in their desire to win the war. They forget why and what they’re fighting for.

The fact that Apple started Tuesday’s event with a repeat of the video shown during their WWDC event clearly demonstrates that they have a Grand Strategy and that they are determined to be guided by that strategy first, and foremost.

Some pundits seemed to miss, dismiss or ignore the importance of that video. In doing so, they’re missed, dismissed and forfeited their chance to understand Apple.

Strategies

— Microsoft makes its money by licensing software to hardware manufacturers.
— Apple makes its money by selling hardware to end users.
— Google makes its money by attracting your attention with free services and then selling your attention to advertisers.

If you were Apple, what could you do to enhance your strengths while weakening or negating your competitor’s strengths?

Strategy #1: Focus on the user experience.

It’s perfectly fine not to care about quality. What’s not perfectly fine is criticize those who do care about quality for seeking it out and enjoying it.

Strategy #2: Give away your software in order to make your hardware more valuable and your competitor’s software less valuable.

AAPL’s business model is hardware. Giving away a free OS is a natural step. Puts even more pressure on MSFT though. ~ Sameer Singh (@sameer_singh17)

Strategy #3: Make your platform so valuable that your competitors will feel compelled to put their services on your platform.

I destroy my enemy when I make him my friend. ~ Abraham Lincoln

Campaign

Apple is very consistent. Worth remembering that in ’01 they bought SoundJam (which was $50), renamed it iTunes and gave it away for *free*. ~ Carl Schlachte, Sr. (@carlsuqupro)

Make Software Free
— Make all Operating System software free.
— Make all Consumer software made by Apple free. (iWork — Pages, Numbers, Keynote — iLife — iPhoto, iMovie, GarageBand — iTunes Movie Trailers, iBooks, Maps, Find my iPhone, Podcasts, Keynote Remote — 20 apps in all.)

I estimate the drop in OSX and iLife/iWork prices means about $450 million foregone software revenues for Q4. ~ Horace Dediu (@asymco)

Folding reporting Software into iTunes now makes sense: Software revenues were going to go to zero. ~ Horace Dediu (@asymco)

Make The Look And The Feel Of The Software The Same
— Update (almost) all Apple consumer software;
— Make (almost) all Apple consumer software available across all screens (iPod Touch, iPhone, iPad, Macs and Apple TV).

Make Online Software Cross-Platform
— Create on-line versions of on-device software;
— Make on-line versions free;
— Make on-line versions of the software look and feel like the on-device software.
— Make on-line software collaborative.

No iCloud account required to open Pages files? Nice! Collaboration? Very nice! ~ Joseph Thornton (@jtjdt)

iWork collaboration means … I’ll never have to open Google Docs again! ~ Rene Ritchie (@reneritchie)

Unify Hardware
Almost all new iPads & Macs are:

— Retina Screen
— 64 bit

“The iPad is 64 bit. Windows is, by and large, still 32 bit. Enough said.” ~ Ben Bajarin (@BenBajarin)

— A7

Apple’s messaging of the A7 in iPad: desktop-class architecture. No desktop needed. ~ Ben Bajarin (@BenBajarin)

— M7
— Lightening Cables (except iPad 2)
— Touch ID

Lack of fingerprint scanner in iPads points against it being an ecosystem play. Convenient in phones, not needed in tablets. ~ Benedict Evans (@BenedictEvans)

I respectfully disagree. There is not a doubt in my mind that the next generation of Apple tablets AND notebooks AND desktops will have Touch ID. Why? Many reasons, but one is that Touch ID is a habit. Once people get used to it, they’ll want it everywhere.

Unify Software

By making the operating systems free, and by extending updates as far back as practicable, Apple is doing its very best to remove fragmentation and consolidate their devices on the latest operating system versions.

Apple’s free software is the ultimate fragmentation fighter. ~ Harry McCracken (@harrymccracken)

Target Usage & Engagement

“Usage share is what’s important to us.” ~ Tim Cook

Apple is not after total share, they’re after meaningful share. If a tablet owner isn’t using their tablet, they’re of no use to the platform. And if they using they’re tablet but not engaged in activities that strengthen the platform, they’re of no use to the platform.

“Tim Cook says Apple has sold 170m iPads and iPad usage is 81%.” ~ Ed Baig (@edbaig)

Eighty-one percent of the usage share. Now THAT’s meaningful share.

Themes

1) Apple showed an incredibly strong commitment to the Mac. While others are looking for a PC exit strategy, Apple is making it clear that they’re all in.

Apple didn’t get the memo that Apple killed the PC market. ~ Jay Yarow (@jyarow)

If you still had doubts that Apple thinks notebooks still have a role to play just look at the line up & the price points they now have. ~ carolina milanesi (@caro_milanesi)

2) Apple made it clear that they are committed to the tablet as a category. They literally mocked those who make tablets that are PCs and PCs that are tablets. Anyone who thinks that the iPad lines and the Mac lines are ever going to unify really need to give the matter another think.

3) Apple made two pricing moves that show that they feel they are totally alone in the premium tablet space.

First, they dropped the iPad Mini by $30 (to $299), rather than the traditional $100 dollars, then they INCREASED the price of the Retina iPad Mini by $70 (to $399).

Second, instead of dropping the price of the iPad 4 to $399, they retained the iPad 2 and at $399.

Apple has a total lock on 10″ tablets. Question is the smaller cheaper space. ~ Benedict Evans (@BenedictEvans)

Those two moves make it abundantly clear that Apple thinks it is dominating that sector and that they don’t need to make price concessions.

Wondering if Apple was thinking about the weakness of the Android tablet offer when it priced the mini. Limited competitive pressure. ~ Benedict Evans (@BenedictEvans)

Further, by offering the iPad 2, instead of the iPad 4, as the low cost large screen iPad, Apple is pushing buyers up market to their higher quality and higher priced iPad Air.

Apple may not have a lock on the 7-8 inch tablet space, but their pricing indicates that they have a lock on the PREMIUM 7-8 inch space and – so far as platforms and profits go – that’t the only space that matters.

Apparently Apple is not worried about the competition. Instead, they think that the competition should be worried about Apple.

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?
  • Yatin

    Correction :

    Apple raised iPad mini price by 70 $ not 60

    • FalKirk

      You know, I had $70 and “corrected” it to 60. I need to get more sleep.

      Thanks for the heads up. Fixed.

  • Greg Lomow

    Excellent article.

    “Not THAT’s meaningful” should probably be “Now THAT’s meaningful”

    “totally along in the premium tablet space” should probably be “totally alone in the premium tablet space”

    • FalKirk

      Fixed and fixed. Thanks.

  • Idon’t Know

    I think they just can’t scale enough right now to put Touch ID on everything or else they would.

    • FalKirk

      I agree. I think they would LOVE to have Touch ID on all of their new iPads. Next year – for sure.

      • Space Gorilla

        And an iPad Pro with a larger screen next year as well I think. Seems natural, iPad Air, iPad Pro.

        • unhinged

          Not to mention the Mini, with correlations to the Mac.

          I think that’s why the iPad 2 is still being sold and the iPad 4 has been dropped: they’re upgrading the iPad 4 assembly lines to deal with the Air and Pro versions.

          But I disagree that the Pro version will have a larger screen – I think it would be too unwieldy. It will be interesting to see what actually happens.

          • isitjustme

            It will be great to have a pro version aiming at the pros who are on the go editing photos and movies.

            I am not surprise a FCPX is in the pipeline for iOS.

            Yes, they need to increase the memory first but then who knows where they are bringing us to with mobile computing.

          • steve_wildstrom

            Serious video editing on the iPad will require more than just more memory. First, it would require a LOT more memory since frame-editable HD formats typically require about a gigabyte for every ten minutes and scratch files take a lot of space.

            Second, it’s hard for me to see how you could do serious video work without a real user-accessible file system. When assembling video, an editor typically needs access to lots of video and audio files to assemble into a single movie. iOS as it exists can’t provide that.

            The new iPad has plenty of processing power, but the OS is not up to the job in current form. That’s why there are still Macs and soon, new Mac Pros.

  • mhikl

    I remember discussions at T•P on Apple bringing out cheaper iDevices for the dollar challenged. I though scrimping on apps and functionality might be a path to take. Wrong!, as usual.

    Instead, Apple has gone the road ‘inclusivity’ as far as possible by choosing the iPad 2. Amazing choice and for the competition, who understand this, terror must reign in boardrooms.

    I am curious how long Apple can continue to update the iPad 2’s iOS, or even if this matters.

  • surya

    well done article! really like how you structured it. thanks for posting! It will be interesting to see if Samsung warrants a mention in this kind of analysis in the next 3-5 years.

  • DarwinPhish

    Keeping the iPad2 around suggests that 1-2 years ago Apple made commitments to some major purchasers (e.g. school boards) that they would continue to offer the iPad2 for quite some time. I guess the commitments were with regards to price and the 30 pin connector. They still offer it to the public to offer a lower point of entry but and to make the Air an easier up-sell. I could see them keeping the iPad 2’s alive for another 2-3 years.

  • Gary Brockie

    Great piece.

    Since Steve Jobs returned to Apple the company has been secretive but I have never seen them as deceptive. What they do present to the public seems to in the end reflect what they say. All of the things that Apple executives say to analysts, the public, and the press track how they really operate.

    The Designed by Apple in California video is a perfect example. The clueless brush this off as Apple giving the impression that they are better than other tech companies. Apple’s consistently excellent products already demonstrate that! Apple is simply trying to assure those listening that although Steve Jobs is gone, Apple still crafts their products in the same way they did when Steve was their leader.

    I also think that Apple is implying that by focusing on how end user experience first instead of being first to market, market share, or profits that those other things will take care of themselves. This is the message that Carl Icahn is not interested in.

  • aardman

    Perhaps a trivial point, perhaps not. But Apple did not make Mac OS free, they made Mac OS upgrades free. You step back and what you see is that they want as little fragmentation as possible in their smartphone, tablet, and desktop/laptop lines. Or following Steve’s metaphor, in their motorcycles, cars, and trucks.

    The goal is pretty obvious: ubiquitous computing achieved through 1) the cloud and 2) apps that allow you to move midstream from iPhone to iPad to Mac without missing a beat. Nobody matches Apple’s ability to offer the full breadth of devices, it’s an advantage they are aware of and are pushing as far as they can.

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