Clay Christensen’s Disruption Theory has been subjected to severe criticism this past week. If one’s aim is to criticize the predictive power of disruption theory, one of the best ways to do it is to point out Clay Christensen has consistently been wrong about Apple.
Christensen’s Apple Predictions
— In a January 2006 interview with Businessweek, Christensen predicted the imminent demise of the iPod. ((“During the early stages of an industry, when the functionality and reliability of a product isn’t yet adequate to meet customer’s needs, a proprietary solution is almost always the right solution — because it allows you to knit all the pieces together in an optimized way.”
—
“But once the technology matures and becomes good enough, industry standards emerge. That leads to the standardization of interfaces, which lets companies specialize on pieces of the overall system, and the product becomes modular. At that point, the competitive advantage of the early leader dissipates, and the ability to make money migrates to whoever controls the performance-defining subsystem.” ~ What Clayton Christensen Got Wrong)) Didn’t happen.
— In a June 2007 interview, again with Businessweek, Christensen reiterated the iPod was doomed and further predicted the iPhone would not be successful. ((The iPhone is a sustaining technology relative to Nokia. In other words, Apple is leaping ahead on the sustaining curve [by building a better phone]. But the prediction of the theory would be Apple won’t succeed with the iPhone. They’ve launched an innovation that the existing players in the industry are heavily motivated to beat: It’s not [truly] disruptive. History speaks pretty loudly on that, that the probability of success is going to be limited. ~ What Clayton Christensen Got Wrong)) REALLY didn’t happen.
— In a May 2012 episode of the Critical Path with Horace Dediu, Christensen again announced his pessimism about the iPhone. ((Christensen’s second concern is that although integrated approaches in technology can be quite successful for a period, in the end modular approaches to technology always defeat integrated approaches. Christensen said:
—
“The transition from proprietary architecture to open modular architecture just happens over and over again. It happened in the personal computer. Although it didn’t kill Apple’s computer business, it relegated Apple to the status of a minor player. The iPod is a proprietary integrated product, although that is becoming quite modular. You can download your music from Amazon as easily as you can from iTunes. You also see modularity organized around the Android operating system that is growing much faster than the iPhone. So I worry that modularity will do its work on Apple.” ~ What Clayton Christensen Got Wrong)) Really, really, really didn’t happen.
So, Is Disruption Theory Wrong Or Is Apple The Exception That Proves The Rule?
Well kinda sorta both. As I discussed yesterday in Disruption Corruption: What Disruption Theory Is And What It Isn’t, when Christensen created Low-End Disruption Theory (as opposed to his other theory: New Market Disruption) he may have focused a bit too much on business buyers and not enough on consumers. Business buyers tend to make cold, hard, rational decisions that over value cost cutting and devalue the end user experience. Consumers tend to make warm, soft, emotional decisions that under value long term costs and over value experience. As I put it yesterday:
We never desire strongly, what we desire rationally. ~ Francois De La Rochefoucauld’s
The PC Was Made For Businesses. The iPhone And iPad Were Made To Be Loved
The old, pre-Nadella Microsoft wouldn’t have know a warm fuzzy emotion if it had smacked them in the face. And when IT departments were the primary consumers of PCs, this served Microsoft well. As Microsoft’s near 95% market share attested, Microsoft was the near ideal company to make a product that appealed to the sensibilities of IT departments. Nearly everything about the PC played to Microsoft’s strengths.
However, as PCs became smaller with the introduction of notebooks and then became WAY smaller with the introduction of phones, Apple’s design strengths became more and more important. First, consumers purchased iPods from Apple, then they purchased iPhones from Apple, and then they started to insist the computer equipment they used at work be as good as the computer equipment they owned at home. IT departments — Microsoft’s unassailable bastion — were blindsided and the Bring-Your-Own-Device (BYOD) movement wrested power away from IT and put it in the hands of the less rational, less penny-pinching, more emotional, end user.
If Microsoft was the ideal company to sell PCs to IT departments, then Apple may have been the ideal company to appeal to the sensibilities of consumers. Why? Because Apple prioritized the end user experience above all else.
The Innovator’s Dilemma
If you’ve heard this story before, don’t stop me, because I’d like to hear it again. ~ Groucho Marx
Let’s recap. Disruption theory eloquently explained why great companies that worked hard to serve their best customers ended up over serving — and over charging — the vast majority of the remainder of their customer base, thus making it possible for challengers to steal those customers away with products that seemed to be only “good enough” but which were, in reality, great in some way that really mattered.
The incumbent is faced with a dilemma – an unsolvable problem, as it were. If they maximize product benefits for their best customers and maximize product profits — which after all, is their job — they lose in the long run as hungry startups steal their low-level customers and, eventually, their mid-level customers with disruptive “good enough” products.
(A) strategy that seeks to maximize revenue and profits – i.e. the sort of strategy at which Ballmer excelled – necessarily precludes the creation of significant new products. ~ Ben Thompson
The Innovator’s Impossible Solution
There is always an easy solution to every human problem—-neat, plausible, and wrong. ~ H. L. Mencken
The innovator’s solution is unbelievably simple and simply unbelievable:
- 1) Invent the future…before your existing competitors — and the competitors that don’t yet exist — do; and
2) Prioritize future profits over current profits.
Even if it were possible to predict the unpredictable and create a disruptive product within one’s own company, it’s tantamount to committing suicide to do so. I mean, what’s the point? Who wants to create a disruptive product that destroys the profits of an existing cash cow and replaces it with a seemingly inferior product that doesn’t generate nearly as much profit as the old, highly respected and highly valued product did? That’s just crazy talk.
The Innovator’s Dilemma, Redux
And that’s why it’s a dilemma — there are simply no good solutions, only choices between equally bad alternatives.
Steve Jobs’ Attempt To Resolve The Innovator’s Dilemma
Do not go where the path may lead, go instead where there is no path and leave a trail. ~ Ralph Waldo Emerson
In order to overcome the Innovator’s Dilemma, Steve Jobs created a radically new way to run a company, structuring it entirely differently than any large company of the 20th century. Apple put the customer at the center of their business. Profit is viewed as necessary, but not sufficient.
We believe that we’re on the face of the Earth to make great products, and that’s not changing. ~ Tim Cook
Apple’s primary objective is to make a great product, to build the best, to delight the customer and provide a great experience. Apple reinvents existing markets by making the user experience easier, richer, and more pleasant. Each time, they begin at the beginning and start with the user’s experience first, then drive back through their infrastructure to make that a reality.
You know, we want to really enrich people’s lives ~ Tim Cook
Apple absorbs the complexity and presents the simplicity. They’re obsessed with details and sweat the small stuff so the customer doesn’t have to.
We try to make tools for people that enable them to do things that they couldn’t without the tool. But we want them to not have to be preoccupied with the tool. – Jony Ive
If it disappears, we know we’ve done it. ~ Craig Federighi
The Expected Result: Fanatical Customer Loyalty
If user experience is Apple’s number one priority, it should come as no surprise Apple generates fanatical customer loyalty.
Innovation
Design is where Apple products start,” writes Lashinsky. “Competitors marvel at the point of prominence Apple’s industrial designers have. ‘Most companies make all their plans, all their marketing, all their positioning, and then they kind of hand it down to a designer,’ said Yves Behar, CEO of the design consultancy Fuseproject. The process is reversed at Apple, where everyone else in the organization needs to conform to the designer’s vision. ‘If the designers say the material has to have integrity, the whole organization says okay,’ said Behar. In other words, a designer typically would be told what to do and say by the folks in manufacturing. At Apple it works the other way around.”
Fanatical Customer Loyalty
A satisfied customer is the best business strategy of all. ~ Michael LeBoeuf
Apple’s customers love Apple. For some reason this baffles Apple’s critics. Apple’s critics are always referring to the ‘cult’ of Apple, or to Steve Jobs’ ‘reality distortion field’ or to Apple’s marketing prowess as if Apple has some mystical, Svengali-like power over their customers.
Why fall back upon supernatural explanations when the natural explanation so obviously explains the phenomenon?
If Apple’s first priority is the user experience, then OF COURSE Apple’s customers are going to be loyal to Apple. It’s not an enigma or some great mystery. Just the opposite. Apple’s high customer loyalty numbers are the logical and all-too-obvious result of Apple’s policies and priorities. Apple puts the customer first. Customers respond in kind. It’s that simple.
Appreciation is a wonderful thing: It makes what is excellent in others belong to us as well. ~ Voltaire
So What Does All This Have To Do With Disruption Theory Anyway?
Let’s re-review how Low-End Disruption is supposed to work.
(A)n integrated approach wins at the beginning of a new market, because it produces a superior product that customers are willing to pay for. However, as a product category matures, even modular products become “good enough” – customers may know that the integrated product has superior features or specs, but they aren’t willing to pay more, and thus the low-priced providers, who build a product from parts with prices ground down by competition, come to own the market. ~ Ben Thompson
Here’s why low-end disruption doesn’t seem to apply to Apple. Christensen was right when he said people aren’t willing to pay more for superior features or specs they don’t need. But consumers ALWAYS want and need a superior experience. And many of them are willing to pay top dollar to get it.
Conclusion
One of Clay Christensen’s great insights was that a business can OVER SERVE the vast majority of their customer base without even knowing they’re doing it. While over serving sounds like a great idea in theory, in practice it leads to massive disaffection as customers are made to pay for products and services they simply don’t want or need.
But here’s the thing — and this is the crux of the matter — while it is all too easy for a company to provide their customers with too many frivolous and unnecessary features and specs, it is impossible to over provide a great experience.
[pullquote]A company can not over serve their customers by providing them with too superior a customer experience[/pullquote]
Let me say that again. A company can not over serve their customers by providing them with too superior a customer experience. Too much is simply not enough. And since Apple is laser focused on providing the customer with a superior experience, the customer is not over served and Apple can not fall prey to Low-End Disruption.
Think of it as a game of Rock, Paper, Scissors. New integrated solutions beat old modular solutions. New modular solutions beat old integrated solutions. But superior customer experience beats new modular solutions. The theory is easy. It’s the execution of the theory that’s hard.
Excellence is never an accident. It is always the result of high intention, sincere effort, and intelligent execution; it represents the wise choice of many alternatives – choice, not chance, determines your destiny. ~ Aristotle
I recommend learning to use apostrophes properly. Otherwise a good read.
Thank you for pointing this out to me. I fixed what I could although I am sure there may be some that I missed.
Personally I’m always ready to learn, although I do not always like being taught. ~ Sir Winston Churchill
Kirk, I like the quips, epigrams, or is aphorism the royalty of pithy sayings?
I use them all the time. My classroom is strewn with them (by subject and theme, of course). The mind seems to appreciate the large idea, pegged to a quip, more quickly and is, thereby, more likely to remember it. The perfect quip can be used as a nudge to the grand idea and during exams I often see heads bobbing around the room looking for help from the walls.
Churchill and Groucho are my aphoristic spirit guides who seemed to spit them out like popping corn.
Punctuation is an art with a smattering of luck and often appears to beguile common sense. I’m reminded of a Beethoven story by our elementary music teacher: a very old man, bent over to the point of teetering to a fall, which we boys hoped we might witness. But we loved the old guy, he was so dramatic acting out Beethoven’s death scene which apparently took place during a lightening storm. He told us that one of Beethoven’s manuscripts had 18? small pieces of correction paper glued, one over the other. The eraser had yet to be invented. Someone had taken the time to peel each strip from the previous, keeping note of each change. The first and the last set of notes were identical. Writing is also a creative art and I think this little tale speaks well to the artistry of punctuation.
Thank you for your comment. I’m only a recent convert to aphorisms but, as you can tell, I’m hooked. I used to call them “quotes”, but aphorisms seems to be the word that best covers the field. Here’s one on grammar that I just love:
“Writing is an act of faith, not a trick of grammar.” ~ E. B. White
I like to get my grammar right and I’m embarrassed when I get it wrong. But the writing is the thing and I’ll gladly sacrifice any grammar rule if it makes my writing more understandable.
Kirk, E.B. White was one of my favourite childhood authors, and in feeble age as my eyes and brain begin to fail me, there shall I return.
I may be a sadist but I like having my spelling, grammar, punctuation errors pointed out. For one, I am a failing but undaunted perfectionist who misses my own errors, even when I am persistent. Might I add that The DED (hard stress on the E), Daniel Eran Dilger, shares the same affliction and he is forever being taken to task over at AI by self-appointed grammarians and wordsmiths. We read & re-read to check for errors but our flighty brains seem to ignore the trivial (finding such, insignificant I suspect) unless enough time passes and refreshed ‘little grey cells’ have forgotten what exactly we have written. 🙂 Another point The DED and I have in common is that we approach writing as some might poetry. Sense and sensibility (sensibility in the time of Austen’s book was closer in meaning to sensitivity) override stern facts of a Gradgrind in Dickens ‘Hard Times’ such as a carpet having a flower design for, according to the sensible Gradgrind, who ever would walk on flowers! Well, we run them over in muddy boots.
On aphorisms. They can be overused truths, facts (the child is father to the man) or just beliefs, be completely wrong but accepted as truths, or they can become golden gems so poignant as to being enrichments to our language. I love all sides; some give humour, others are droll or trite, yet other’s summarise poignantly. You are the poet laureate of the last kind. Me, I breakdance more on the other side.
The greatest weapon in my literary struggles to overcome error and for study and pondering is Dictionary, as provided by Apple. What used to take immoderate time on my old Oxford is accomplished in seconds with Apple’s little ruby though often I get off-track to study and relearn and ponder how a word might be mangled to enhance another meaning. Yet either way I glory in mistakes for from them new possibilities do arise.
My dad was a clever lawyer, too, and he always encouraged me to never fear error, for by errors great learning can accrue. Fear is an affirming close like the one used to end sentences.
My dad was a clever lawyer, too, and he always encouraged me to never fear error… – mhikl
Give me a fruitful error any time, full of seeds, bursting with its own corrections. ~ Vilfredo Pareto (of “The Pareto Principle” fame)
We are all full of weakness and errors; let us mutually pardon each other our follies ~ it is the first law of nature. ~ Voltaire
The problem with the Pareto Principle is that it’s only 80/20 right/wrong. 🙂
If I understand correctly, your conclusion is based upon the premise that businesses overvalue cost-cutting and hence make purchase decisions that favor the low-end disruptor.
Then how do you explain how iOS actually has a significantly higher market share in corporate relative to consumer? How do you explain how corporate PCs are not ASUS but rather Dells or HPs, or a while back, IBMs? How do you explain the old saying “nobody gets fired for buying IBM”?
Perhaps it’s because these business models are just that, models. They operate under a specific set of conditions and assumptions. And that is useful, but they are not at the level of natural law. They rely on human behavior, and thus, are fallible.
I’m sorry but I have trouble understanding your point.
What I am saying is that the assumption on which this article’s conclusion rests is subject to doubt. The conclusion is, disruption theory is applicable to B2B but not B2C because corporations overvalue cost-cutting while consumers don’t. I am challenging the assumption that corporations overvalue cost-cutting. I am not discussing theory or “laws” yet.
I’m talking about business models in general. To be at all effective, they operate under a very specific set of assumptions, by necessity incomplete, and they rely on human behavior (which is highly chaotic). That can make the assumptions no longer valid, at which point the model falls apart. They are not “laws of nature”.
I totally agree, but on the other hand, I applaud those who try to uncover tendencies and forces that allow us to better understand how markets evolve. Clay is a prime example of a person who has very genuinely tried to do this.
Although we many not reach the level of “laws of nature”, what we learn in the process will hopefully help humans make more informed decisions about businesses and markets, and still benefit mankind.
No question they have value, but we have to be real careful not to think of these as absolute truths. We need to check if the assumptions still apply and where the model could break down. It’s human nature to put too much faith in a “named theory”.
Of course.
What I am saying is that the assumption on which this article’s conclusion rests is subject to doubt.
Except it’s really not. What happened to the hardware manufacturers that served their “best customers” ever lower unit prices on PCs? Dead, dying, or out of the markets entirely to concentrate on the “high end” products in their business such as servers and the new mainframes. The customers for whom they cut their margins to nothing cared not a whit for from whom they were buying their commodity boxes because as long as they ran Microsoft software, the brand on the box was irrelevant. PC companies over served cost cutting and put themselves out of business.
I’ve carefully read your comment many times, but I think you missed the point. My point is about the B2B market compared to the B2C market. In other words, which doesn’t “care not a whit” more? Businesses or consumers?
To see this, the starting point is to look at how bottom-price vendors have penetrated the respective markets. Is Asus stronger in consumer markets relative to business markets, etc.?
(H)ow do you explain how iOS actually has a significantly higher market share in corporate relative to consumer? ~ Naofumi
Bring Your Own Device (consumer influence), App selection, lack or viruses, better corporate tools. I’m contending that cost-cutting is an over-weighted factor in corporate buying, not the ONLY factor in corporate buying.
“I think the premise that corporates overvalue cost-cutting is pretty weak. ~ Naofumi
If you say so, Naofumi, but I think what you’re really doing is trying to invalidate a general rule by pointing out various exceptions to that rule. I could point out millions of instances where the law of supply and demand is violated, but that doesn’t invalidate the general rule, which is a very strong predictor of human behavior. And I could point out millions of instances where consumer’s are are tight with a dollar and corporations pay a premium but I’m looking for trends that provide us with useful information, not theoretical absolutes that don’t.
Business buyers are not spending their own dollars and they’re often not using the products they spend those dollar on. And consumers are spending their own dollars and they are using the products they spend those dollars on. And if you’re in any way contending that there are no differences between business spending and consumer spending, then I think it is your premise that is — as you put it– “pretty weak”.
“How do you explain the old saying “nobody gets fired for buying IBM”?” ~ Naofumi
This is a great point, and I remember this well. IBM had such such a great reputation, that business buyers would pay a premium for IBM products even when lower cost alternatives would have probably better served the corporation’s needs. It’s all about incentives, Naofumi. The business buyer is naturally inclined to do what’s in their best interests. They want to spend the least amount of money possible, but they don’t buy the white-label products your refer to in your comment because it might jeopardize their jobs. And when they can buy a product with an IBM-like reputation that they can allow them to justify their purchases even IF those purchases fail, then they’re going to go with that.
“The business buyer is naturally inclined to do what’s in their best interests.”
Yes, and this is a key factor in how I get client work, because I’m most often the more expensive option. I connect with the person that can make the decision and my proposal focuses on making that person look like a hero within the company. I make sure they get all the credit for the work, the ideas, as much as I can. I don’t give a crap about getting any credit, I just care if their cheque clears. But what is obvious to me is that businesses make decisions in very odd ways.
Exactly. Not quite what you would call “rational” decision making.
Yeah, I haven’t thought too much about low end disruption, but it does seem obvious that any theory which is partly based on the results of business decisions cannot be applied to the consumer market. I also thought it was obvious in 2007 that the iPhone was a Mac in your pocket and would completely disrupt the existing mobile market. My first thought, as a Canadian, was “Blackberry is screwed”.
Just FYI
Clayton Christensen never framed his theory around business purchasing decisions. In fact, he often gives examples like transistor radios disrupting vacuum tube radios in the consumer space. Looking at Wikipedia, you can also see many example that are consumer oriented.
The assumption that low-end disruption is limited to businesses and is not relevant to consumers has nothing to do with Clay’s original work.
http://en.wikipedia.org/wiki/Disruptive_innovation#Practical_example_of_disruptive
The contention is that Clay did indeed make certain criticisms/predictions about Apple.
This article, the article by Ben Thompson referenced by this article, and much of the discussion here contends that these criticisms/predictions haven’t come true, and aren’t likely to, because: 1) all things being equal, there are differences that center around device purchasing decisions, and how mobile devices are considered and used in comparison to PCs; and 2) there are aspects of Apple’s business and products that are uniquely true of Apple (for example, “you can’t over serve when it comes to UX”).
In order to fully embrace all parts of Clay’s theory, and to recognize that it is indeed valuable and instructive, we have to reconciliatie why it might not apply to Apple specifically. There is no “assumption” here that “low-end disruption is
Iimited to businesses”.
No, the “assumption” is that there is something “different” about Apple; and that is a pretty easy assumption to make, all things considered. This is a conclusion that Clay should take on board, particularly considering all of Horace Dediu’s work.
I totally agree that a better discussion of why Apple seemly escapes low-end disruption is necessary.
Given that Clay is very busy with other matters and does not specialize in the PC or telecom industries, I agree that Horace Dediu seems to be the most qualified person in the blogosphere to do so.
His response to the debate over the validity of disruption theory. “The Ongoing Process of Building a Theory of Disruption” Clayton M. Christensen, 2006
I think he means that Clay provided sufficient answers in that article, 8 years ago. We, in the blogosphere, simply haven’t noticed it yet.
https://twitter.com/asymco/status/480346144913240064
There are some things in Clay’s article that Horace linked to, that explain why Ben Thompson’s and John Kirk’s approach makes me very uncomfortable.
Clay says in the article;
Hence anomalies contribute to the theory building process and strengthen the theory.
So what has Clay done to account for his earlier failure to predict the success of the iPhone? (From Bloomberg Business Week)
http://www.businessweek.com/articles/2014-06-20/clayton-christensen-responds-to-new-yorker-takedown-of-disruptive-innovation#p3
Clay is saying that he missed the iPhones success because he mis-framed the market. Not because the theory is wrong about consumers. Because of this anomaly that he had to resolve, the theory is now stronger because “who are you disrupting?” is now an important part of the investigation phase.
Does Clay’s explanation suffice? By re-framing the market, can we explain why the iPhone succeeded? If that is the case, there is no reason to discredit the theory itself, although we can say that even with a sound theory, predicting the future seems to be really hard.
I for one, accept Clay’s explanation. If we consider iPhones as a disruptive innovation against laptops, I think we can clearly understand why smartphones exploded.
What Ben and John have done is to take a single anomaly (Apple), discredit disruption theory in consumer markets as a whole, and create a new theory which states that consumer user experience cannot be over-served (with very few examples other than Apple despite making such a bold claim).
This is a rather drastic reaction to a single anomaly, and hardly the normal theory building process.
I do agree with you. I totally think the iPhone and iPad are disruptive of other categories (such as PCs) far more than they are given credit for. I totally applaud Clay too, for taking a second look at the iPhone; and I overstated or misspoke if I thought he had yet to take it on board.
To be fair to John Kirk and Ben Thompson, though, I think they were dealing with the “misuse” of the theory, if anything — particularly where one category is focused upon (phones or tablets), without looking at the big picture. In fact, if you don’t look at the big picture (and include tablets in PC data analysis, for example), but use “traditional” criteria and classifications, then how can anyone possibly examine “disruption” since by definition it is asymmetric?
So, if a pundit or author examines phones alone, they might conclude that the iPhone will be disrupted any day now, it’s just a matter of when, not if. In that context, at least, the two observations are helpful: you can’t over serve in the area of UX, and you have to consider the customer…
But, try to get into a dialogue that even the iPad is disrupting the PC – forget the iPhone! – and there is tremendous credulity and opposition from Wallstreet, pundits, the blogosphere, the news media, etc. Horace is pretty much a lone voice.
So, the battle is, as the articles suggest, more about how “disruption” as a term is being severely overused and misused as a pop-term, when perhaps “mere innovation” is all that is in view (and even views of “innovation” need some work).
Yes. Totally agree. I too enjoy the unfair comparisons by Horace and Benedict.
Another thing that I would like to add is the complexity that I observed during the recent slowdown in tablet (iPad) sales. There were a lot of explanations given by many people, some which I agree with, some which I thought were off the mark.
One explanation that I was particularly fond of, was that smartphones were disrupting tablets. Therefore, while tablets were disrupting PCs, at the same time, smartphones were disrupting both PCs and tablets. Few analysts had viewed the market in this light, and this suggests that the dynamics in the smartphone/tablet/PC market is extremely complex. Furthermore, this can even shift over the lifetime of a single product because the utility of these devices depends largely on software and services. Add the fact that smartphones are heavily subsidized and you can easily imagine how fiendishly confusing the market can be.
http://ben-evans.com/benedictevans/2014/4/25/ipad-growth
Given this complexity, it is not surprising that predictions are difficult. Even if disruption theory had been perfected, you can easily imagine how hazardous it would have been to see into the future.
Even more precarious is attempting to devise a new theory or an extension of a theory based on observations in this complex market. I would advise that theory building should be done in simpler markets where cause and effect can be more easily analyzed.
Thank you for all your many comments, Naofumi. I’ve enjoyed reading them. I think we agree much more than we disagree. It’s just hard to hammer out nuances in a comment section.
Again, thank you for taking the time to contribute. You’ve given me food for thought. And I can’t think of a much higher compliment than that.
It is the mark of an educated mind to be able to entertain a thought without accepting it. ~ Aristotle
I totally agree that a better discussion of why Apple seemly escapes low-end disruption is necessary. – Naofumi
I would love to have that conversation with you, Naofumi. Anytime, anywhere. 🙂
Sorry, but I’m not qualified to do that in any serious way. Maybe in a pub…
This is a very nice take on both the article and disruption theory, Kizedek. Thank you for taking the time to write it and share it with us.
Thanks for the info. I wonder if it is the value of the user experience Apple provides that is immune to disruption, or maybe not immune but certainly insulated. The Apple Network of Things is coming and this will serve to increase the value of the user experience. I don’t see how any low end offerings can match this value, so how can they ever disrupt Apple?
Horace Dediu of Asymco has just posted what I think is his final answer to this debate. And it’s a transcript of an interview of Clay circa 2004. I think I’ll just shut up now and suggest everybody read this.
http://www.asymco.com/2014/06/23/clayton-christensen-on-capturing-the-upside/
Seems like IBM is a perfect example of low-end disruption considering where they are today, even 15 years ago.
Joe
Yes.
Thank you. I’ll break up my response into parts. First part, iOS.
Your assumption is that low-end disruption focuses on B2B and is less applicable for B2C. For iOS, the low-end disrupter would be Android. If low-end disruption was happening in B2B but not in B2C, then we should be seeing higher Android market share in B2B compared to B2C. That is clearly not the case, and I asked for your explanation.
Your first explanation is BYOD. However, BYOD should reflect the Android/iOS share in the consumer market. BYOD does not explain why iOS share is higher in businesses.
Your other explanations, “App selection, lack or viruses, better corporate tools” are product features. In other words, you are saying that Android is not “good enough” for corporate use because they lack these features. Going back to disruption theory, a basic prerequisite for low-end disruption to happen is that the low-end product is “good enough”. Since you are saying that a basic requirement for low-end disruption is not satisfied, you should not be applying low-end disruption theory for the iPhone in the first place. At least, not until Android is good enough.
Going back to the original article, to explain the continued success of iOS, you have resorted to limiting the scope of disruption theory. You are saying that low-end disruption does not happen in consumer markets because the user experience cannot be overshot. To modify disruption theory without dismissing it in its entirety, you have suggested that the theory applies to B2B but not B2C based on some assumptions of business and consumer decision-making; assumptions which I find questionable at best.
My counter argument is that you are simply applying disruption theory in the wrong way. You are not seeing low-end disruption, not because the theory is wrong, but because the prerequisites for low-end disruption have not yet been met. No need to modify the theory; just take more care in applying it.
As for Apple, what they have been doing is to make sure that they innovate in meaningful ways that will “raise-the-bar”. By raising the bar, they can delay when “good enough” will kick in and hopefully prevent the prerequisites for low-end disruption from ever being satisfied.
“For iOS, the low-end disrupter would be Android. If low-end disruption was happening in B2B but not in B2C, then we should be seeing higher Android market share in B2B compared to B2C” ~ Naofumi
I disagree with your initial premise. I think businesses absolutely WOULD prefer to be using Android over iOS if Android met their minimum requirements, which it doesn’t. Security, viruses and privacy issues alone rule Android out. If Android were made “Good Enough” to compete with iOS then I think businesses would quickly move to it.
You make many other excellent points. I’m not going to respond to them for the sake of keeping the comment section readable. They absolutely do deserve responses, but not in this forum.
Second part. About the examples that I chose.
> Naofumi, but I think what you’re really doing is trying to invalidate a general rule by pointing out various exceptions to that rule
I am rather upset that you accuse me of doing this. The examples I chose are, I think, quite relevant to the topic. (corporate mobile market share, corporate PC market share, corporate IT decision making). Furthermore, we seem to be unanimous about the facts underlying these examples which is essential if we want to base a discussion around them (iOS being dominant in corporations, Asus not selling well in businesses).
I honestly cannot think of better examples to use.
Third part. About consumers spending their own dollars, etc.
> And if you’re in any way contending that there are no differences between business spending and consumer spending…
No, I am not saying that at all.
All I am saying is that you cannot unanimously assume that corporations overvalue cost-cutting whilst consumers over value experience. An assertion on which this whole article is based.
Some people may agree, but some people will not. At least the examples that I presented do not, on the surface, seem to support your assertion.
I believe that consumer and business purchase decisions are very different. But not necessarily in the ways that you describe.
“you cannot…assume that corporations overvalue cost-cutting whilst consumers overvalue experience” ~ Naofumi
I think you can. It’s just human nature. Business buyers are not spending their own money. Business buyers are rewarded and punished differently for purchasing successes and mistakes than consumers are. Business buyers are often not using the things that they buy. Consumers spend their own money and get the reap the benefits and the deficits of their buying decisions. There are enough differences there that I think it’s reasonable to conclude that business buyers undervalue experience and consumer buyers over value experience.
If there is evidence to the contrary, then I will change my position accordingly.
Fourth part. About IBM.
I totally agree with your description of this old adage.
The question is, is this a “cold, hard, rational decision that overvalues cost-cutting”?
I hardly think it’s apt to say so.
Buying IBM was a “cold, hard, rational decision” that saved the business buyer’s job. In other words, I’m not saying that the business buyer favors cost-cutting alone, I’m saying that he favors what’s in his best interests and discounts what’s in the end users best interests. If buying the cheapest makes him look good, he’ll do it. If buying IBM makes him look good, he’ll do that instead. What’s good for the end user is secondary to the business buyer and is primary to the consumer. That’s a not-so-subtle difference that leads to very different purchasing decisions.
I wouldn’t get too focused on the specific reasons business buyers make bad decisions, the larger point is businesses make decisions much differently than consumers. In my client work I do see the focus on costs, but it’s more than that, business orgs tend to be chaotic, there’s a lot of small p politics, groups working against each other, tons of inefficiency, most businesses are a bit of a mess internally, and out of all this you get decisions made for all kinds of weird reasons that often make little sense. Cost is a big one but it’s not the only one. Any theory which relies heavily on these resulting decisions is flawed and cannot be applied to the consumer market.
I totally agree that we shouldn’t focus on the rationales behind corporate purchases. We should focus on the results, market share figures, etc.
As far as I can see, figures do not support B2B favoring low-end entrants. It seems that it is harder, not easier for low-end entrants to penetrate B2B markets.
I think the premise of cost cutting is very strong but history changes the look of things.
It had been assumed that IT knew best what was needed or at least that the customer department certainly didn’t have a clue. Computer equipment costing millions (mainframe), hundreds of thousands (“minis”), or tens of thousands (micro servers) were part of the IT department cost center and reduced costs was a focus: h/w purchase, s/w purchase, and support personnel costs. IT could document costs and they worked with customers who might be able to define benefits that were almost always funny money benefits (i.e.. they were soft benefits unless the exec’s would swear by them).
The “nobody… IBM” was in the days that mainframes were the primary product 60’s, 70’s, 80’s and to a lesser extent the 90’s. Computer end users were getting stacks of printed paper and/or some dumb terminal usage (probably for data entry to get the information in to be printed out later for the higher order user department folks). The buyer was the IT department along with heavy finance involvement (IT was probably in Finance) because purchase tended to be in multi-million $ ranges. If your company had app’s on alternative platforms (Univac, GE, perhaps Dec, ??) a priority was to find an app that could be run on the IBM mainframe to minimize number of platforms being supported – read, reducing IT support costs (at least on purchase request though the actual reduction may never materialize) and as long as the new app was close the “user” department should be happy with it. Ie. “nobody…. IBM”.
Customer departments could at times force acquisition of alternative platforms but the victory tended to be of short duration. IT would then have a departmental goal to get rid of the foreign platform especially if they had to support it = reduce costs.
When “PCs” came on the horizon, it tended to be an Apple II in the accounting department running a spread sheet. Then maybe you got a pc with a word processor for your secretary. Then PC’s were about the same cost as a dumb terminal so now instead of a few pc’s the company was buying tens of them or even thousands of them and the most natural fit was to put IT in charge and again it became part of the cost center and therefore the objective that was the over riding “stated” goal was cost reduction… at least on the spreadsheets that went with the purchase request. Even the accounting department could no longer specify the machines that they wanted.
I’d not been involved in PC purchases but they had been driven by IT in most companies. At least this was true in large companies. The PC’s that went on the desks for clerks/tellers/service counters etc. were to be standardized. Thats why XP lasted as long as it has and when some more PC’s were to be purchased they would, at times, ask for something as close as possible to a 2 year old device to maintain standardization = reduce IT costs of maintaining the equipment. So Dell, HP and Lenovo (IBM PC esp. Think Pad) had an inside track for continued purchase. They also had built infrastructure for B to B purchases along with a sales force that supported IT to some extent or at a minimum bought the IT managers lunch on occasion. I’m not sure if ASUS has the infrastructure to support single purchases of hundreds of standardized PC’s to be delivered over a period of time.
iPhones and iPads were being purchased by the folks not in the IT department for their own and then they found business uses. The end user interested in the experience was the purchaser. IT wasn’t happy with it but the ability to force the “customer” departments staff to be happy with dumb phones or blackberries was lost quickly – initiated by execs, sales, marketing, or in other words folks that generated revenue not the cost center of IT. So for phones and perhaps tablets the end user is the customer and now cost cutting isn’t the focus for these products because it is a consumer led situation. Sales and marketing may even be allowed the option of a Mac on their desk but the servers are still IT’s game… unless the cloud has a customer app, or …
It has to be a frustrating time for IT. Glad I’m retired.
Thanks. If I understand you correctly, you are saying that corporate IT take a holistic view to costs, including maintenance and even free lunch :-).
Then the question is, does this make it easier or harder for low-end disrupters?
My take is that it makes it harder.
Yes, but it is hard regardless. You have to offer something quite different that competes asymetrically along different lines of competition, but in retrospect feels like it was the natural progression. Like the iPad in place of a better netbook.
Just some new feature, or doing something better in some way doesn’t really cut it.
This is why it is a bit of a laugh that Apple is valued so low, as though it constantly overserves and anyone can come along and disrupt it any day now. As though Apple has only ever been really lucky, and it is someone else’s turn to get lucky. All the complaints about the features of Apple devices just completely miss the boat.
Maybe Apple is not over-serving. Or in other words, maybe they are constantly redefining the market to the effect that their products become the new baseline.
Maybe Apple is … constantly redefining the market ~ Naofumi
Yes, I have heard many say that while others are selling a smart phones, Apple is selling an ecosystem is a different product than a mere smarphone. I’d like to write about that.
Really interesting article. Thank you. I learned a lot of about some of the terms being flung about in the business tech world.
Thank you, klahanas. Very kind of you to say so.
Spot on. Great article. Not to detract but to add: The user experience we want is a form of play. See carse finite and infinite games.
See Horace Dediu, Transformation of Business and Society through Technology.
Just watched it. Thank you for the heads up.
“Business buyers tend to make cold, hard, rational decisions that overvalue cost-cutting and devalue the end user experience”
I’d put this in a slightly different way, business buyers tend to make poor decisions. In the client work that I do I see this all the time, the decision that is acted upon is the one most can agree on, not the best decision. So of course any theory based on ‘business decisions’ is inherently flawed.
“Apple puts the customer at the center of their business.”
So true, and it’s amazing that this is viewed as radical. A lot of companies say ‘customer first’ but I don’t see many actually doing it.
“But here’s the thing — and this is the crux of the matter — while it is all too easy for a company to provide their customers with too many frivolous and unnecessary features and specs, it is impossible to over provide a great experience.”
Yep, exactly right. Well said.
“I’d put this in a slightly different way, business buyers tend to make poor decisions.” – Space Gorilla
I think that’s ungenerous and tends to ignore human nature. Business Buyers do what’s best for them and while that may sometimes lead to perverse decisions, they are decisions that are logical and justifiable when viewed in context.
Similarly, consumers make some of the most bizarre choices imaginable when viewed from the outside, but when seen from the individual customer’s point-of-view they are wholly consistent with that consumer’s incentives and frame of reference.
Business buyers are not different from consumers because they are different, but because they are rationally reacting to different incentives. From the outside, we often don’t like the decisions made by businesses or by consumers but if we were subject to the same incentives they were, we would almost certainly find ourselves making similar decisions.
For the purposes of disruption theory, the important thing to understand is whether lower-cost, but good-enough, is consistently viewed as better. Look around your home and you’ll see that it just ain’t so. As a rule, we don’t buy the lowest cost goods or anything close to the lowest cost goods when we buy for ourselves.
I agree that business buyers are making what they feel are good decisions, and that consumers can make bizarre decisions, but on balance I see consumer purchasing decisions as more ‘pure’ or ‘true’, if that makes sense.
I should be clear, I don’t mean to say business people are idiots, it is the construct in which they operate that causes poor decisions to be made. I work with a lot of non-profit orgs and this issue tends to be even worse with non-profits. The best idea, solution, decision, often does not win.
Agreed. It’s all about incentives. When the incentives are perverse, the decisions produced are perverse.
The purest buying decision is made by the individual. They decide, they pay, they receive. As soon as you change any of those variables, things start to go haywire.
For example, if I’m giving a gift, I pay, I decide, but someone else receives. As anyone who has received an awkward or inappropriate gift knows, it’s an inefficient way to buy things. But there are other factors that continue to make gift-giving worthwhile.
It is so true, the user experience does count for such a lot, and keeps loyal users. I’ve been using Apple products since the Apple ][. Just opening the box of an Apple product is a lovely experience, similar if you bought something from Prada! Part of their product ease of use comes from mastering complexity, so that the user doesn’t have to, but also from not over serving in product functionality, thus keeping it simple and catering the majority of non tech users.
Here’s an interesting point that hit me while reading your footnote 1. Given that the iPhone is as much software as hardware, when Apple opened up the internals of the system (a little bit, but a lot more than anyone would have predicted), aren’t they moving toward a modularity of design, which of course they already have a fair amount of in the hardware (baseband and other radios, flash and RAM, displays)? They seem to be integrating the two approache in a unique way that nobody else, except perhaps Microsoft, is likely able to achieve. Also, they’re integrating a lot of stuff that nobody else is, especially and most significantly, their retail and online stores.
“when Apple opened up the internals of the system (a little bit, but a lot more than anyone would have predicted), aren’t they moving toward a modularity of design” – Mayson
Modularity of design means that the modules are available to all ( or most all). So, for example, in the nineties, PCs kept getting cheaper and cheaper as computers could be built using off-the-shelf (modular) components. Items that can only be used on a proprietary or within a closed system are not modular.
“Items that can only be used on a proprietary or within a closed system are not modular.”
True but much of what Apple uses in the iPhone is made by third parties and is available to other manufacturers. Apple has recently made some decisions to keep some of their components exclusive like the A7 CPU and the touch Id. Future exclusivities are likely to be things like sapphire screens.
When it comes to software, much of what makes up modern software and makes that software valuable is content. And content is extremely modular. While the code that makes up a smartphone app may be iOS or Android, the content can usually be easily reused across platforms. I think software is generally more modular than you are giving it credit for.
iOS and key apps like Camera, iMessage, and iTunes are proprietary. iOS is foundational to the UI/UX even for 3rd-party apps, as all apps must make calls to it to access hardware (display, A7/M7, camera, sensors, etc.)
One would have to use both OSes to understand why those little things matter (I now find lack of inertial scrolling and the requirement to “click to scroll” on Windows nearly infuriating). What I think is most telling about the average Apple basher is the utter inability to grasp the immediately obviously elements of an Apple products superior hardware design, especially in laptops. The metal unibody. Glass screens. The fit and finish of the various elements.
Add to the quality of the hardware the OS elements that almost immediately become “the way it should work” and while I don’t expect everyone to buy all Apple all the time, I do expect more rational criticisms that what we usually get from the bloggeratti.
Which, to bring it back around, is why we end up here on this site.
“much of what Apple uses in the iPhone is made by third parties and is available to other manufacturers” – jamesdbailey
To the extent that that is true, they are modular and do contribute to low-end disruption, but Apple has made many of these parts unavailable to their competitors simply by buying them all up or agreeing to exclusivity with their manufacturing partners.
much of what Apple uses in the iPhone is made by third parties and is available to other manufacturers.
Maybe the generic stuff, but not the things that make an iPhone an iPhone. Take the new CPU for instance. Apple is not selling these chips to the highest bidder, or indeed anyone else. It is a by Apple for Apple custom piece that competitors will be scrambling to match.
Excellent post.
In defense of Christensen and the iPhone, at one point he said, “I thought people wouldn’t want a better phone, but they wanted a computer that is a lot smaller and lighter than a laptop, even if it doesn’t do everything a laptop does.”
But, partly to your point, I do think that Christensen and a lot of others (including myself) underestimate the jobs that people would like a phone to do. The iPhone today is not bought to do the same jobs as when it was introduced in 2007. I think the rapid evolution of the jobs the smartphone is doing keeps pushing back the time when modularization will be more successful. Not that Android is doing all that poorly…
A follow up question: How specifically does Apple set up itself to maximize customer experience? Dediu, Ben Thompson, and others go into this in some detail, discussing Apple’s organizational structure and their efforts to maintain their corporate culture. I am always interested in learning more about this.
I agree with your point, and I think it matches Clay’s own explanation of his failures. http://www.businessweek.com/articles/2014-06-20/clayton-christensen-responds-to-new-yorker-takedown-of-disruptive-innovation
Clay says that his mistake was to pit the iPhone against Nokia, when he actually should have been pitting it against laptops. Essentially, he originally thought that the jobs-to-be-done of the iPhone would to be “a phone”.
Again, in defense of Christensen, computers and phones are extremely complex in their “jobs-to-be-done”. They are multi-purpose devices that switch their jobs depending on what software they are running. No other product is this flexible. Without being able to accurately assess the “jobs-to-be-done”, it is no wonder that predicting the future is hard.
This also reminds me of how so many analysts were surprised by the slowdown in iPad sales, a few months ago. The assumption was that tablets were disrupting laptops. However, it turned out that they were simultaneously being disrupted by smartphones. To my knowledge, few analysts had observed this before the slow down. This is again due to smartphones expanding their “jobs-to-be-done” through software and hardware improvements, and this is what makes analysis difficult in this market.
Clay’s mistake then was not listening and observing. In 2007, Jobs repeated over and over iPhone was a phone, iPod, and Internet communicator. The last item should’ve been the clue that iPhone was going to do what laptops could do. And definitely once the App Store arrived in 2008. Apple then repeatedly trumpeted the app downloads metric, so he easily could’ve heard and observed that.
Fair comment.
Hell, as recent as last Fall the blogeratti were making the same mistake, as they penned scathing articles regarding Apple’s latest offerings with ridiculous titles along the lines of “why do you need 64 bit CPUs in your phone??!!1one”, as if still considering these remarkable pocket computers ‘phones’ was at all meaningful at this point.
Yes. Using 20/20 hindsight, it appears that Christensen thought that the iPhone was an expensive phone trying to disrupt a low-cost phone — which didn’t make any sense — but it hindsight it turned out that the iPhone was really a low-cost computer competing with laptops.
If you forget about phone calls (which is a misleading red herring) and can call it an iComputer or an iLaptop instead, you can see how it perfectly fits within the parameters of New Market Disruption.
“How specifically does Apple set up itself to maximize customer experience?” – Bruce_Mc
I think that Lashinky’s “Inside Apple” (although he comes to a negative conclusion) and Stephen Denning’s “The Leader’s Guide To Radical Management” deal with this. I’m also told (by Dediu and others) that Leander Kahney’s Jony Ive may be the best of the bunch.
Jonny Ive is on my list but – believe it or not – I’m currently working my way through “Plato and a Platypus walk into a bar”. Go figure.
I will take a look at the books you recommend, thank you. I read and enjoyed Leander Kahney’s Jony Ive. Definitely recommended; it fills in a lot of blanks about the design process at Apple. Dediu talks about the way Apple’s functional organization structure helps to minimize “corporate antibodies.” I’ve talked with people who worked at Apple stores, which was enlightening. I’d still like to know more about, for example, Apple University.
The way I look at it, what Apple does it more basic. Once you understand what Apple does, you can understand what other companies do wrong. And what Apple does is, as you say, make great products and provide great services. They focus on that. This creates a relationship with the customer. They don’t try to draw up a contract with their customers, they just try to delight them.
Now, every other company does the same thing to a certain extent, otherwise they wouldn’t exist, but they also have these economists and financial experts whispering in their ear. Think of them like one of those cartoon devils sitting on the CEOs shoulder, goading them on to do stupid things. The first piece of bad advice is to maximise some business metric. This is a basic confusion of instrumental and terminal values. The goal of any business is to make a product or provide a service, not to maximise any business metric. The second piece of bad advice is to treat your customer like a calculator and design your products like your customers are doing cost-benefit analyses against your competitors products. This is a self-fulfilling prophecy: if you treat your customers like your relationship is dependent on you fulfilling an informal contract with them, then that’s how it’ll be. They’ll leave when someone else offers them better terms.
So it’s not so much that Apple is doing anything special, it’s just that everyone else is shooting themselves in the foot.
Exactly.
Clayton Christensen has been working on “The Capitalist’s Dilemma” which is almost identical to what you are saying. More profoundly, he discusses how this is not only a problem for single companies, but is actually a disease that is adversely affecting the national economy.
YouTube: http://www.youtube.com/watch?v=_ukREOADEKM
HBR: http://hbr.org/2014/06/the-capitalists-dilemma/ar/1
Sorry to say, but Christensen appears not to know much about how economies work. In the first couple of minutes, he vaguely explains macroeconomic business cycles as the consequence of a previously unremarked microeconomic phenomenon — the one he’s prepared to discuss. At minute 8, Christensen connects various categories of innovations with arrows, then something mysteriously breaks one of those arrows so the economy stops growing. Christensen presents little or no real-world evidence to support this model of the world, which at one point he describes as “almost” a perpetual motion machine (8:12).
Unaware of any technology capable of converting bad economic analysis into valuable management insight, I stopped watching at 9:08.
Maybe you should read the HBR article that I also linked to. Then you will be able to skip any portions that you are uncomfortable with.
“So it’s not so much that Apple is doing anything special, it’s just that everyone else is shooting themselves in the foot.”
I agree and disagree. It is special and that is why Apple is doing so well. Everyone else is doing what seems logical, but they have asked the wrong question. But they did ask the question they were expected to ask. When commercials sit there and blithely tell us “More is more”, and the history of computing was about getting faster, smaller, bigger, brighter, etc., is it any wonder people want a faster horse instead of a car or even a bicycle?
More wires! We need more wires!
Joe
“while it is all too easy for a company to provide their customers with too many frivolous and unnecessary features and specs, it is impossible to over provide a great experience”
The first half of that is a perfect description of what Samsung does. The second half is a perfect description of Apple’s mission statement.
“Because Apple prioritized the end user experience above all else.”
So in a very real sense this is Apple’s product. The hardware, software, and ecosystem is the conduit. So while competitors may be able to copy the obvious or material aspects of Apple’s offerings, the experience is truly an Apple only product. Other’s may copy Apple’s hardware, software, and maybe even ecosystem, but they will never actually be able to truly replicate Apple. This is Apple’s personality on sale here.
Joe
I agree, and I would say there’s a lot of value in the user experience Apple delivers to the customer. That value is incredibly hard to duplicate.
This is also likely why they have such a hard time with patent lawsuits when the experience is greater than the sum of the parts and not just 5 things here, 3 things there, with all the narrowing of suits they have to accommodate.
Joe
If the iPhone was a sustaining innovation vis-à-vis Nokia, and was also a disruptive innovation against laptops, then Nokia’s early smartphones were also disruptive innovations against laptops and desktops, but innovations that failed to take off, and left the incumbents un-disrupted.
I don’t see anything in the theory that requires disruptions to actually disrupt an incumbent, except with the advantage of hindsight. (About which, I think it’s fair to say, use of fuzzy definitions invites hindsight bias, a big problem in understanding performance in my industry—people remember the winners who stand up and trumpet their successes, while the losers slink away.)
Of course, the iPhone bundled two gadgets you already had in your pocket (the iPod & a cellphone) and then went for the trifecta of adding the part that Nokia couldn’t see how to get right, a nearly-full-featured browser. That third part especially required a LOT of slaving over hot prototypes to get right, driven by a customer focus. But I don’t think it’s necessary to idealize Apple’s devotion to customer satisfaction; the key element was determining what level of browser capability/friendliness was necessary to get people to shell out an additional $400 or so over the cost of an iPod plus phone.
This is not to say that customer loyalty, etc., doesn’t matter; rather, I want to point out an example that reinforces MY idea of why Apple succeeds so spectacularly: it has an uncanny ability to marshall resources such as OS software, product design and generic silicon (the original iPhone, remember), and introduce a product that is just good enough that people will get the idea how to use them. At the same time, they’re aware of what the competition is up to, so that they don’t keep it in the labs forever, aiming for some highly-specific perfection; they stay open to what the market tells them they need to do further.
THIS set of features is one that ANY company — certainly ones with the resources of Google or Microsoft — could do, at least in theory. But (1) Apple has played the game spectacularly well, and (2) per a comment a few months back on Asymco, the other companies don’t balance what consumers will want with what leading edge equipment can do, at least not well enough to hit the big time.
“I don’t think it’s necessary to idealize Apple’s devotion to customer satisfaction” – Walt French
Apple’s customer service may be the reason they are not subject to low-end disruption. If so, that’s worth studying and obsessing over.
Hello Mr. Kirk:
As interesting as I find your ideas to be, I believe that you’ve misunderstood the Christensen-ian ‘overservitude’ notion. Christensen does not discuss any particular product characteristic as being possible to overserve as measured by any single metric *alone*. Rather, he discusses *trade-offs* of a product characteristic metrics relative to another, such as the customer’s willingness to pay. According to Christensen’s model, it is indeed possible for a firm to provide an overserved customer experience *that many customers are actually willing to pay for*. That is, beyond a certain baseline customer experience threshold, increasingly fewer customers are willing to pay a premium necessary for ever-superior customer experiences. A ‘good-enough’ experience threshold may well suffice for the bulk of the market who, once that threshold is attained, begin to care more about other product characteristics such as the lower cost of a competitor product. That competitor product may then very well prove to be disruptive by continually improving its customer experience while still charging a lower cost, meeting the minimum-customer-experience threshold of and thereby stealing away your customer base until you’re eventually left with no customers at all (or at least, not a large enough customer base to maintain a viable business).
Indeed, Christensen discusses just such a process throughout his book. For example, strictly speaking, there likely was no way to ‘overserve’ customers in the 14-inch hard-drive market purely on a storage capacity metric alone. Customers *always* want more storage capacity. Who wouldn’t? But the real question is whether some customers were willing to trade-off storage capacity for other disk-drive characteristics (such as lower price, lower weight, smaller size, etc.), and it turns out that a certain segment of customers would. Hence, the 8-inch hard-drive market captured that segment. As the 8-inch hard-drive market then improved its storage capacity while maintaining its original advantages of lower cost/weight/size, it disrupted the 14-inch drive vendors by enticing their customers to defect.
Now, whether Apple will actually be disrupted remains to be seen and is ultimately an empirical question, requiring empirical data to answer. But it is certainly *plausible* that they might be. The customer experience – like any other attribute – can theoretically be overserved in the sense that after attaining a particular threshold, other product factors might become more important.
Thank you for taking the time to comment, sakky. Loved your comment.
“According to Christensen’s model, it is indeed possible for a firm to provide an overserved customer experience *that many customers are actually willing to pay for*. That is, beyond a certain baseline customer experience threshold, increasingly fewer customers are willing to pay a premium necessary for ever-superior customer experiences. ~ sakky
If one looks at Apple’s excellent customer retention numbers, it is clear that Apple is not over serving its existing customers. Apple is not directing its efforts towards making their best customers happy, they’re making all of their customers happy.
Over serving is the first step to disruption. If Apple has solved the problem of over serving, they’ve cracked the Innovator’s Dilemma.
Hello:
Actually, what you have said regarding Apple’s current strategy is again entirely compatible with Christensen’s theory. It may very well be true that Apple is not overserving its *existing* customer base. Yet that’s precisely the crux of Christensen’s argument: disruption begins when competitors stake a toehold within a market segment that does *not* include your existing customer base, which in the case of Apple, might plausibly consist of those who simply can’t afford (or don’t want to pay for) Apple’s price premium. For example, billions of people in the developing world surely want smartphones but simply can’t afford the IPhone’s luxury pricetag. In contrast, you can buy an Android smartphone in China for less than $50 unsubsidized. The question then is whether Android will quickly improve its customer experience to steal away Apple’s customer base. Anecdotally speaking, that’s already happening, for I know plenty of people who used to be IPhone users but who later switched to Android to save money. {The sluggish economy likely had something to do with their newly found frugality.}
As a case in point, mainframe computer vendors such as IBM enjoyed nearly-perfect retention rate amongst its existing customer base of large corporations and government agencies throughout the 1960’s. However, as Christensen chronicled, during that same time, the minicomputer vendors initially exploited a customer base entirely different from that of the mainframe vendors, consisting of smaller companies and university departments who simply couldn’t afford mainframe prices. Yet minicomputer technology improved quickly and began eroding away the low-end of the mainframe customer base during the 1970’s. While that process was happening, mainframe vendors were all too happy to surrender that low-end, preferring to focus upon the highest-end and therefore most profitable customers. Indeed, their financial performance, as measured by profit margins, actually improved during that time. However, eventually the mainframe vendors found themselves relegated to today’s tiny niche of customers who have the most exacting computing requirements that mainframes can provide. For the rest of the world, a low-end, low-cost PC (but which is nevertheless far more powerful than are the mainframes of the 1960’s) is perfectly acceptable.
Indeed, what Christensen dubs the Innovator’s Dilemma is the notion that retention and satisfaction of *existing* customers, which every vendor tries to maximize, is also the very *source* of disruption. The base of attack from which a disruptive technology is launched consists of those customers that are *not* part of your existing customer base. Focusing upon satisfaction of your existing customers thereby distracts managerial attention away from an eventual attack from a disruptive technology. Minicomputer vendors disrupted mainframes not because mainframe customers became dissatisfied – indeed, they were highly satisfied for years – but simply because minicomputing technology *eventually* became ‘good enough’ that ever-fewer customers could justify the mainframe price premium. Avoiding disruption requires that vendors *not* try to optimize customer satisfaction amongst its *current* customer base, but rather be eternally vigilant in seeking new, lower-end customers. Yet lower-end customers tend to be relatively unprofitable, at least initially, which deters most vendors from pursuing them in favor of the higher profits from the higher-end customer base. That companies can stave off disruption only by the counterintuitive decision of forgoing *higher* profits for *lower* profits is the heart of the Innovator’s Dilemma.
Now, to be sure, I am not claiming that Apple is guaranteed to be disrupted by Android or any other smartphone technology. Perhaps they will, perhaps not; I don’t really know. What I am saying is that nothing that you have presented regarding Apple is incompatible with Christensen’s theory, for it is indeed entirely possible for a company to overserve their customer experience insofar as doing so ignores other desirable product characteristics, not least being low price. Like I said, as a trivial example, billions of people in the developing world would surely like an IPhone but simply can’t afford one.
“The question then is whether Android will improve its customer experience to eventually steal away Apple’s customer base. Anecdotally speaking, that’s already happening, for I know plenty of people who used to be IPhone users but who later switched to Android to save money.”
This is an interesting point. I would argue that Android as it exists today cannot, and perhaps can never improve its customer experience enough to steal away Apple’s customer base. The Apple user experience, the integrated and curated ecosystem/platform, is very, very difficult to replicate, maybe impossible. What other company has enough control of the entire stack to even attempt what Apple is doing? Can anyone other than Apple create same value and user experience?
To your example of iPhone users switching to Android, I would say there’s always going to be some churn no matter what, and perhaps those were iPhone users and not Apple customers.
While it may well be true that Android *currently* may not be able to steal away the bulk of the IPhone market, to say that they may *never* improve its customer experience sufficiently to do so in the future is, I think, taking things too far. Technology development proceeds in surprising ways. Let’s not forget that Android didn’t even exist 6 years ago, yet is already the worldwide leader in smartphones and tablets in terms of installed units (largely because of its ubiquity in the developing world whose customers simply cannot afford Apple). While I don’t claim to be a user-design expert, my understanding is that today’s Android version offers a vastly improved customer experience compared to the initial versions of Android. Indeed, many people argue that the latest Android installed on high-end smartphone/tablet hardware (i.e. the Samsung Galaxy S5, Google Nexus) arguably offers a reasonably comparable customer experience to the latest IPhone or IPad.
Furthermore, Google is offering a complete computing ecosystem through Google Drive, Chrome OS, and the rest of its panoply of services. And of course Microsoft offers a complete ecosystem of its own. Again, while those ecosystems may not *currently* match that of Apple, to say that they will *never* do so, is taking things too far. Those competitor ecosystems will improve with time. Therefore it is entirely plausible that they will *eventually* attain the ‘good-enough’ threshold of an increasing number of current Apple customers, as the Christensen-ian theory of disruptive innovation would predict.
“Indeed, many people argue that the latest Android installed on high-end smartphone/tablet hardware (i.e. the Samsung Galaxy S5, Google Nexus) arguably offers a reasonably comparable customer experience to the latest IPhone or IPad.”
See my other comment re: the Apple Network of Things. Android matching iOS just in the use of the OS on a single device is step 1 of 50.
Google, Microsoft, Amazon, Facebook et al are not even close to realizing a complete ecosystem. They each have pieces, that is all. And none of them are aligned with the end user as Apple is. Also, they lean towards viewing Apple’s approach re: integration and curation as wrong. Google, Facebook, and Amazon have elements of their business model that conflict with user privacy (another important component of what Apple is doing). Microsoft doesn’t make the whole widget, not really. Only Apple provides and controls the entire user experience (the control is necessary), and I’d say Apple has at least a decade of hard work ahead of them just to work out all the kinks. Then maybe we can talk about a user experience that is good enough. Right not it isn’t even close. And Apple has what, a 10 year head start? That’s assuming any competitor is even interested in following Apple, which I don’t think they are (see my other comment on this topic).
First off, I must question how popular the complete Apple ecosystem is, by which I take it to mean (at very least) the combination of a Mac plus either an Iphone+Ipad. Keep in mind that the Mac has only, at most, 15% market share of the entire client computing market in the developed world. Given that there are only ~200 million adult computing consumers in the US (not counting children, because they don’t buy their own computers, and the numerous elderly people who rarely use computers) and perhaps, at best, another 500 million such adult consumers in the rest of the developed world, taking 15% of the number means that we’re still only talking, at most, about ~110 million such ecosystem users in the developed world. The developing world likely adds relatively few consumers of the complete Apple ecosystem chiefly because of the price.
The upshot is that while Apple may indeed have a billion consumers around the world, the vast majority of them are not true consumers of the entire ecosystem, but rather, merely consumers of individual Apple products. Those consumers could very easily be enticed to switch once a competing product becomes ‘good enough’. Like I said, anecdotally speaking, I already know people who used to be Iphone consumers but who have shifted to Android phones because it is now ‘good enough’. I can think of many Ipad consumers who don’t buy any other Apple products and who then might very well switch to a competing tablet once it becomes ‘good enough’. If Apple loses all of these consumers of individual Apple products, Apple would effectively be disrupted even if it retains all of the ‘ecosystem’ consumers, for Apple would become a vastly shrunken company compared to what it is today. Depending on market fluctuations, Apple is sometimes the most valuable publicly traded company in the world largely from the profits from consumers of individual Apple products.
However, to your larger point, it seems to me that you greatly discount how quickly technology can change. While you might argue that other companies such as Google or Microsoft may lack a complete ecosystem *today*, can you guarantee that they will *always* lack that complete ecosystem? And while you may also argue that their attitude towards customer curation is lacking *today*, can you guarantee that they will *always* maintain that same attitude? After all, only 16 years ago, Google didn’t even exist *at all*, and only 10 years ago, Google wasn’t even a publicly traded company yet. Back then, Google was merely a search engine with an accompanying advertising delivery machine. I doubt that anybody would have imagined back then that today they would have a smartphone operating system that has the highest market share in the world (as measured by unit shipments), as well as an increasingly credible tablet-operating system, let alone Google Glass or driverless car technology. 15 years ago, Microsoft didn’t even have a presence in the gaming console marketplace at all, and now they are clearly one of the strongest competitors in that industry. Are you therefore still insisting that the ‘ecosystem’ market can *never* change, despite the momentous changes that have occurred repeatedly in the technology industry just in the last 10-20 years alone?
But even so, to reiterate, no competitor has to actually *match* Apple’s ecosystem head-start, even if that head-start is indeed 10 years long. That competitor doesn’t have to work out all of the kinks of the ecosystem. Again, it just has to offer an ecosystem that is simply *good-enough*, and a good-enough ecosystem may very well have some kinks. The ‘good-enough’ threshold is ultimately determined by the consumers themselves, and consumers have shown themselves again and again to be perfectly willing to tolerate kinks to gain other product benefits. For example, cellphones of the early 2000’s (and to some extent even today) offered far lower sound quality and reliability than do landline phones. Landline calls are practically never dropped, but cell phone calls of the early 2000’s were dropped routinely. But consumers were happy to trade that quality/reliability for mobility. Similarly, Microsoft Windows is less user-friendly than MacOS. Nevertheless, Microsoft dominates the consumer OS market because most people are willing to trade user-friendliness in return for greater software/device compatibility and lower overall cost of ownership.
However, to be clear, I am not saying that Apple will *definitely* be disrupted. I am simply saying that it is *possible* that Apple will be disrupted: that the probability of that event is not 0%, and in particular, that it is indeed *possible* for a company to overserve their customer experience. In contrast, anybody who claims that Apple can *never* be disrupted or, more generally, that it is *impossible* to overserve a customer experience (as Mr. Kirk has explicitly done) is, frankly, making an unnecessarily zealous claim. We ought to at least entertain the *possibility* that a company could indeed overserve its customer experience.
“First off, I must question how popular the complete Apple ecosystem is, by which I take it to mean (at very least) the combination of a Mac plus either an Iphone+Ipad.”
No, simply owning an iPhone makes you part of the “complete Apple ecosystem”.
“The upshot is that while Apple may indeed have a billion consumers around the world, the vast majority of them are not true consumers of the entire ecosystem, but rather, merely consumers of individual Apple products.”
Apple doesn’t have a billion users yet, but they are steadily marching towards that number, it is inevitable and probably one to three years away. You’ve misunderstood what Apple’s ecosystem is. It is simply that they make the whole widget, they deliver the entire experience, from device to services to support to content to apps, it’s an ‘all-in-one’ solution from a single vendor, a fully integrated solution. No other company offers this, and as I’ve argued I don’t think any other company is even interested in attempting to follow Apple’s model.
“While you might argue that other companies such as Google or Microsoft may lack a complete ecosystem *today*, can you guarantee that they will *always* lack that complete ecosystem? And while you may also argue that their attitude towards customer curation is lacking *today*, can you guarantee that they will *always* maintain that same attitude?”
Anything is possible, yes, but it would require an incredibly large cultural upheaval. Apple’s approach is largely viewed as ‘wrong’ and the recent Google I/O seemed very much like a doubling down on the same strategy, I saw no change. Also, you must keep in mind that it took Apple a couple of decades to build up to where it is now. A fully integrated solution cannot be created overnight. Google and Microsoft could decide today to follow Apple’s model, do everything right, and still not match it ten years from now. What you suggest is possible, but it isn’t probable.
“That competitor doesn’t have to work out all of the kinks of the ecosystem. Again, it just has to offer an ecosystem that is simply *good-enough*, and a good-enough ecosystem may very well have some kinks. The ‘good-enough’ threshold is ultimately determined by the consumers themselves, and consumers have shown themselves again and again to be perfectly willing to tolerate kinks to gain other product benefits. ”
I agree, and this is clearly what Google is doing, and they will take the largest market share, certainly. Apple needs a platform like Android to serve the ‘rest of the market’ in a ‘good enough’ fashion. That leaves Apple free to dominate the ‘best customer’ segment. And within this segment, while never impossible, it will be very, very difficult to overserve on the user experience.
If you define the ecosystem to include only Iphone customers, then low-end disruption is already occurring. Like I said, Android is already the top smartphone OS vendor in the world as measured by unit sales, and it seems that many former Iphone customers have already switched to Android. {I myself know several such people, and I doubt that I am so unusual that the people I know would be wildly unrepresentative of the world.} As Android continues to fix its kinks, more Iphone customers may find that Android has reached their individual ‘good-enough’ threshold.
But more importantly, this entire story seems to be a reprise of the mainframe story. During the heyday of the mainframes, the extant mainframe vendors such as Burroughs, Unisys, CDC, etc. built such a robust advantage in customer service and reliability that pundits thought that no non-mainframe vendor could ever catch up. One could certainly say that mainframe customers – which generally consisted of company information technology departments – were certainly “delighted” by the experience of the high-quality customer service and reliability of the mainframe vendors. {Every IT manager’s nightmare is having to deal with a server outage with no backup support from the vendors). And indeed, to this day – nearly 50 years past the mainframe heyday – the (few surviving) mainframe vendors are arguably *still* the world’s leaders in computing system reliability and service. But that advantage didn’t matter, because competing technologies such as the minicomputer (from vendors such as DEC, Data General, Prime, Wang, etc.), while certainly less reliable and offering poorer service, offered other advantages such as far lower price. They then leveraged those advantages to initially steal the lowest-end customers of the mainframe market and then gradually moved up by steadily improving their reliability and service to meet the ‘good-enough’ thresholds of an increasing number of mainframe customers. Yes, the mainframes continued to maintain the most demanding, highest-end customers who wanted nothing short of the most exacting levels of reliability and service. But that ultimately proved to be an ever-shrinking market that simply couldn’t sustain the large, highly profitable industry of the 1960’s. Most mainframe vendors therefore went bankrupt, were broken into different companies, or were merged into other companies. The only notable mainframe survivor was IBM, and they survived only because they themselves launched lower-end, disruptive technologies such as the IBM Personal Computer which was orders of magnitude *poorer* reliability and customer service compared to the gold-standard IBM mainframes
We must bear in mind that that disruption is ultimately a *financial* concept having to do with business *strategy*. While the mainframe market never outright disappeared entirely – even today, mainframes continue to be sold to the world’s highest-end customers – it clearly represents only a tiny fraction of the entire computing market. The vast bulk of the profits of the mainframe market have shifted elsewhere. The mainframe vendors then encountered *financial* distress because their market valuations at the time were predicated upon extracting high profits from a customer segment that largely – although not entirely – eroded. Today’s existing mainframe customer base is simply not large enough to sustain the large mainframe vendor industry of decades past, which is why many of them went bankrupt, were sold in pieces, etc.
Put another way, during the 1960’s, IBM was arguably the richest, most powerful company in the world due to the dominance of its mainframes and their legendary reliability and service. And while IBM continues to be a rich, powerful company today, that is only because they diversified out of mainframes into numerous other markets where service and reliability are less important (relative to the mainframe market). As a thought exercise, if IBM’s mainframe division was to disappear today, IBM’s strength would likely only modestly decline. In contrast, if all of IBM’s business were to disappear *except* for its mainframe division, IBM would immediately find itself in grave financial distress.
That’s the conundrum that Apple faces. Certainly there probably will always be a segment of customers who desire the most delightful customer ecosystem experience. But is that segment large enough to support Apple’s bountiful current market cap? Even if that segment is indeed large enough today, will it continue to be large enough in the future, especially as competitors continue to improve their products? Low-end Christensen-style disruption doesn’t require that your customer segment ever disappears *completely*, but rather that enough of it eventually disappears to threaten your company’s financial valuation. While the mainframe customer segment never outright disappeared (and perhaps never will), it was shrunken to the point that most mainframe vendors suffered severe financial decline.
Indeed, let’s not forget that Apple had itself been severely disrupted on the low-end before – to the point of near bankruptcy in the mid 90’s – as the ruthless competition from Microsoft stole away most of Apple’s market for consumer operating systems. Even then, Apple continued to hold the high-end market for consumers who wanted the best customer OS experience. But that segment wasn’t large enough for Apple to be a financially healthy firm.
Now, again, I am not claiming that Apple will *definitely* be disrupted on the low-end again, like they had been in the early 90’s. I am simply saying that they *might* be disrupted on the low-end, and that Mr. Kirk’s bold assertions regarding the utter impossibility of such an event is inapropos. It does indeed seem *possible* to overserve a customer experience.
“That’s the conundrum that Apple faces. Certainly there probably will always be a segment of customers who desire the most delightful customer ecosystem experience. But is that segment large enough to support Apple’s bountiful current market cap?”
I think it’s clear that it is large enough now that computing is finally consumer-facing. The market for computing devices is an order of magnitude larger now than it ever was.
I also don’t buy into the old mainframe or Windows arguments which are based on an entirely different market where purchasing decisions were largely driven by business. The consumer market is a different beast. I think a lot of poor analysis stems from not recognizing that difference.
“Even then, Apple continued to hold the high-end market for consumers who wanted the best customer OS experience. But that segment wasn’t large enough for Apple to be a financially healthy firm.”
It is though, the Mac business is doing just fine and captures almost half the profit of the PC industry. Apple’s PC products are generally considered best of class, leading the industry. I could argue that it was Apple that actually won the PC wars. Apple dominates the best customer segment for PCs, and takes much of the profit in the entire industry.
When Apple was struggling was a period of time when they lost focus on the user experience, which actually proves my point.
It’s interesting when people bring up the Windows PC vs Mac issue. The end result of that is Apple dominating the best customer segment with a thriving Mac business, a great developer community, high customer satisfaction, and almost half the profit from the entire industry. If Apple’s iOS device business suffers the same fate, that’s not so bad, especially given that the market is an order of magnitude larger.
I still don’t think you’ve fully grasped what user experience means, it’s not a feature list or quality customer service, it’s the experience of the end user, the person using the device to get something done. Mainframes offered a terrible user experience, just horrible. Doesn’t matter how reliable they were or how great the customer service was, the actual user experience was very, very poor.
To be clear, the actual ‘users’ of the mainframes were enterprise IT departments. And, believe me, the IT workers were absolutely delighted with the hand-in-glove service and support that the mainframe vendors provided (not least because if the system crashed at 3AM on a Sunday, they knew that the vendor technicians would show up). The rest of the enterprise rarely if ever actually directly interacted with the mainframe system at all. Rather, they would simply tell the IT department what computing tasks they wanted done, and the IT department would then determine how to do it. At best, what the rest of the enterprise might do is to be presented with the results of a computing task through a terminal. But even that was rare. Let’s remember that the vast majority of businesspeople in the 1960’s didn’t even know how to type, let alone know how to interact with a computer.
I actually think I understand the user-experience quite well. History is replete with high-end user-experiences being disrupted. For example, luxury retailers offered white-glove user experiences, with personal shoppers and sales staff dedicated to pleasing the customer at every turn. Nordstrom’s customer service is legendary: one (possibly apocryphal) story regarding Nordstrom’s commitment to the user experience is that Nordstrom once agreed to allow a customer to return a set of tires for credit, even though Nordstrom doesn’t even sell tires. Nordstrom sales rep also will agree to sell you anything that you want, even if Nordstrom doesn’t sell the product, in the sense that the sales reps will find that product at another store and buy it for you there. Yet nevertheless, the dominant retail vendors in the world are not high-user-experience retailers such as Nordstrom but rather low-cost behemoths like Walmart and Costco. Indeed, Walmart has about a 20X market cap compared to Nordstrom. Similarly, decades ago, flight travel was a glamorous luxury experience where all airlines competed to offer the most pleasant user experience possible. And while such pleasant flight experiences are still offered in first-class, nowadays, the discount airlines have clearly won. Southwest, which not only doesn’t even offer first class, it doesn’t even offer assigned seating, has been one of the most financially stable airlines in recent US history whereas most other airlines have gone bankrupt.
Regarding the PC market, it should be said that Apple captures about half of the profits of the PC *systems hardware* industry, which is admittedly a generally low-profit industry. The vast bulk of the profits of PC’s go to the operating systems vendors such as Microsoft and, yes, Apple, along with the microprocessor vendors (i.e. Intel). Microsoft generates 2X the profits from Windows as Apple does from MacOS. It’s therefore difficult to argue that Apple actually beat Microsoft in the PC Wars. {Apple’s current resurgence is mostly due to the smashing success of IOS and the Iphone/Ipad.} That’s not to say that Apple has *failed* in the PC Wars. However if the Iphone and Ipad were to disappear tomorrow, Apple’s market cap would be eviscerated {In contrast, if Windows Phone and MS Surface disappeared tomorrow, I doubt that Microsoft’s stock price would drop much – heck, it might even increase.}
“The rest of the enterprise rarely if ever actually directly interacted with the mainframe system at all. Rather, they would simply tell the IT department what computing tasks they wanted done, and the IT department would then determine how to do it. At best, what the rest of the enterprise might do is to be presented with the results of a computing task through a terminal.”
So the mainframe user experience was so complex that the end user could not even interact with the device. Instead the user had to rely on a third party to get any use out of the device. As I said, mainframes offered a terrible user experience.
And yet you go on to say “I actually think I understand the user-experience quite well.”
No, I don’t believe you do. See my other comment, we are worlds apart on this. I don’t want to waste my time or yours, we’re simply going in circles.
“That is, beyond a certain baseline customer experience threshold, increasingly fewer customers are willing to pay a premium necessary for ever-superior customer experiences.”
I would argue there’s always going to be a segment of the market, what I call the ‘best customer’ segment that will pay for an ever-superior customer experience. It seems this might shake out at just north of a billion users for Apple. Perhaps by targeting a self-selected group in this manner, and by focusing on the value of the user experience, Apple has indeed solved the problem of disruption.
Space Gorilla, you might well be correct that a perpetual ‘best-customer’ smartphone customer segment that Apple hopes to harvest *might* well exist
But whether it actually *does* exist is ultimately an empirical question. All I’m saying is that it is entirely *possible* that Apple might eventually find itself disrupted as perhaps no such perpetual best-customer base actually exists at all (or is such a small customer base as to be unable to support a viable business), and that most customers are indeed satisfied with an alternative smartphone technology that provides a ‘good-enough’ experience but also provides other desirable product characteristics, not least being a lower price.
To be clear, I am not claiming that it is ill-advised to develop and sell a technology that is eventually disrupted. Even if the IPhone is eventually disrupted someday, Apple nevertheless reaped billions of dollars of profits during the interim. What’s wrong with that? All technologies have a finite lifetime of maximum profitability. The profitability heyday of typewriters and 8-track players was decades ago. In principle, I see nothing wrong with a company developing and selling a technology as long as it remains profitable to do so, and then winding down that business when its increasing obsolescence becomes clear. It seems to me that the *real* problem comes when company management continues to heavily invest in and promote obsolete technology, a problem that is further exacerbated when the investors of that company *demand* that the company continue to invest in obsolete technology rather than exploring new technology. That’s the heart of Christensen’s Innovator’s Dilemma.
I should be clear, it is not a “best-customer smartphone customer segment”. It is a best customer segment period, people who value the user experience. Apple sells many products and services to this market, from Macs to iPhones to iPads to iPods to iTunes content, and more. It is the ecosystem, the entire experience, that draws this market segment to Apple, and if we can believe in math it is clear that this segment is very large and will soon be more than a billion users.
It is also clear that the majority of any market does not value the user experience enough to seek out solutions that beat ‘good enough’. Most people are happy with good enough and are somewhat price sensitive. I think we agree on that.
Perhaps part of Apple’s solution to the Innovator’s Dilemma is their focus on building value in the user experience, rather than building any specific technology or product. Apple works backward from the user, from the job-to-be-done, and uses whatever technology works best. In that way there’s no promotion of inappropriate or obsolete technology. In fact Apple takes a lot of criticism for not using certain technologies that are deemed ‘necessary for success’. But as we can see, Apple is succeeding. So that success is either the result of a good process, or it is luck. I don’t think any company could possibly be that lucky for that long.
To be clear, Apple’s success has not been particularly long-standing compared to the grand sweep encompassing the Christensenian disruptive technology theory. Let’s not forget that Apple nearly went bankrupt during the 1990’s; Michael Dell infamously proclaimed that Apple management should simply shut down the firm, sell its assets, and distribute the funds back to the shareholders. And of course Apple’s recovery (along with its initial success in the 1970’s and 1980’s) could reasonably be attributed to the unique vision of Steve Jobs, upon which Apple obviously can no longer rely.
But more to the point, the Christensen disruptive technology theory fully encompasses large, profitable, high-end markets that develop and persist, thereby allowing high-end vendors to reap high profits for many years. The key is that other technologies eventually improve and then may eventually disrupt your company. For example, Apple may indeed currently offer a superior customer experience throughout its vast sweep of products. But the customer experience offered by its competitors has been improving – Android tablets, Android smartphones, and Chrome OS are inexorably getting better – and that steady improvement may eventually peel-off Apple’s customers once their ‘good-enough’ threshold has been met. Granted, you might then argue that Apple will respond by developing and the high-end of new technology markets. But of course that presumes that Apple will continue to be able to identify and successfully develop such markets. After all, not all Apple products have been successful. {Anybody remember the Bandai Pippin or the Newton? Even the Apple TV has thus far not been a success, although I agree that it might be successful one day.}
To reiterate, I am not saying that Apple will *definitely* be disrupted. I would need to have far more empirical evidence regarding Apple’s product technology trajectories relative to its competitors as well as detailed customer information before I could make such a determination. What I am saying is that it is *possible* that they will be disrupted.
I therefore must respectfully disagree with Mr. Kirk’s assertion that “it is impossible to over provide a great experience.” It is indeed possible to do so; technology history (and the work of Christensen) has amply demonstrated that firms have indeed overprovided great experiences. For example, the mainframe computer vendors of the 1960’s did indeed provide an excellent, albeit expensive, customer computing experience. The cheaper competing minicomputer technologies, while never outright matching the experience provided by the mainframes, did improve their experience to the point that they eventually disrupted the mainframe market by peeling off the vast bulk of the mainframe customers by meeting their ‘good-enough’ threshold.
“Apple’s recovery (along with its initial success in the 1970’s and 1980’s) could reasonably be attributed to the unique vision of Steve Jobs, upon which Apple obviously can no longer rely.”
Jobs certainly had a vision, but I wouldn’t say it was unique. It was quite simple actually, focus on the customer, the user experience, make it delightful, pay attention to the details and the design. Jobs understood that design was how a thing worked, not just how a thing looked. The concept here is simple. The execution is incredibly difficult.
“For example, the mainframe computer vendors of the 1960’s overprovided an excellent, albeit expensive, customer computing experience.”
I think we may be talking about two different things when we say “user experience”. Computing has only recently gone mainstream, and even Apple’s user experience is nowhere near good enough. I think when you say user experience you mean a feature set or the tasks that can be accomplished. Please correct me if that’s not what you mean.
When I say user experience I mean ease of use, simplicity, delight, and of course also jobs-to-be-done, but more importantly the reduction of friction in the experience to the point where a product or service becomes truly consumer-facing. And that’s just the starting point! Mainframes never got close to this kind of user experience. Apple is far ahead of the pack on user experience but still nowhere near what I’m talking about.
But at least Apple is trying. Back to my point about the execution of this concept being incredibly difficult. Not only is it difficult but it requires vertical integration, curation, control of the stack, security, privacy. Apple’s competitors aren’t even interested in doing some of these things. Indeed, much of the technology industry views Apple’s approach as wrong. Culturally it is very unlikely any of Apple’s competitors have a strong desire to implement a similar approach. And companies like Google have business models that actually conflict with necessary components of ‘the Apple way’.
For these reasons I don’t think it is likely that Apple will be disrupted by the current landscape of competitors. I think it will take something new, and that new thing will have to be laser focused on user experience and beat Apple on that front. Not only that, there’s an Apple Network of Things coming which should serve to insulate Apple even more from disruption. That’s a longer discussion though. There’s an excellent comment on this idea on Asymco I think. Let me see if I can find it.
Here it is, by ‘jinglesthula’
“I think this relates strongly not just to how Apple has disrupted, but to how they’re going to address the Dilemma going forward. Rather than trying to foresee what could disrupt iPhone and skate to that so they can at least be the company that cannibalizes/disrupts themselves, I think they’re trying to build a mesh (ecosystem) where they not only create the disruptor, but do so in a way that the existing family of products and services invites and integrates with the newcomer and, as we saw with Back to the Mac and Continuity, the old integrated proprietary incumbents are improved and informed in synergistic ways by the disruptor – they are flexible and are shaped by, rather than inflexible and shattered by, the new. They eschew the old wine/new bottles problem by instead being an improvisational jazz duet.”
jinglesthula calls it a mesh, I call it the Apple Network of Things. Basically the same idea I think. And the ‘mesh’ greatly increases the value of the user experience, which adds to Apple’s lead.
I think we agree that disruption is always possible, but Apple is making it very, very hard for anyone to disrupt them.
I would first argue that Steve Jobs’s ability to execute was actually a component of his vision: after all, there’s little point in having a vision if you can’t execute it. But even if you view Jobs’ vision and his execution as two separate traits, that’s fine, we could then credit Apple’s recent recovery (and pre-90’s success) to his ability to execute. Either way, the upshot is that Apple can no longer rely upon Jobs’s unique gifts – whether they consisted of his vision, his ability to execute, or some other personal characteristic.
Regarding the customer service provided by the mainframe vendors, I would point out that one of the main support functions they provided was a contractual commitment to physically replace any hardware component within a given period of time, sometimes a matter of hours (depending on the location of your computer room). That is, if your mainframe hard drive crashed, the vendor would commit to having their employees actually physically show up to your computer room and install a brand-new replacement hard drive by a set number of hours, even if that means, say, 3AM on Sunday. Furthermore, mainframe vendor service could include full upgrade and maintenance service, meaning that their employees would come and visit your mainframe to examine it for maintenance and provide free upgrades as necessary. However nice Apple’s customer service may be, let’s face it, if you drop your Iphone and crack its screen, nobody from Apple will come to your house with a replacement IPhone at 3AM on Sunday.
But more to the point, I would ask the impertinent question: if Apple’s customer experience was truly as desirable as you (and Mr. Kirk) seem to believe it to be, then why does MacOS still have only, at best, 15% market share of consumer operating systems in the US (and surely even less than 15% market share in almost any other country)? Why was Microsoft, through Windows, able to wrest that market away from Apple in the 1980’s and maintain a hammer-lock on it to this very day? It seems to me that whatever shortcomings regarding customer-experience that Windows might have suffered from vis-a-vis to Mac, Windows provided other benefits that consumers apparently wanted. Hence, most customers were clearly willing to trade a superior customer experience for those other benefits.
“Regarding the customer service provided by the mainframe vendors, I would point out that one of the main support functions they provided was a contractual commitment to physically replace any hardware component within a given period of time, sometimes a matter of hours”
That’s great, but that isn’t ‘user experience’, not really, it’s just an example of how a company deals with a poor user experience (device failure).
“However nice Apple’s customer service may be, let’s face it, if you drop your Iphone and crack its screen, nobody from Apple will come to your house with a replacement IPhone at 3AM on Sunday.”
True, so Apple has a lot of work to do yet, perhaps once they can build an indestructible iPhone we might be getting closer to overserving on the user experience.
“if Apple’s customer experience was truly as desirable as you (and Mr. Kirk) seem to believe it to be, then why does MacOS still have only, at best, 15% market share of consumer operating systems in the US (and surely even less than 15% market share in almost any other country)?”
The answer is simple, the best customer segment is not anywhere near the majority of the market, and it never will be.
“Why was Microsoft, through Windows, able to wrest that market away from Apple in the 1980’s and maintain a hammer-lock on it to this very day? It seems to me that whatever shortcomings regarding customer-experience that Windows might have suffered from vis-a-vis to Mac, Windows provided other benefits that consumers apparently wanted. Hence, most customers were clearly willing to trade a superior customer experience for those other benefits.”
Yes! Exactly! You just answered your own question.
If Apple, in the future, is relegated towards serving only the best ecosystem customer segment – those customers who absolutely want a complete ecosystem that provides the best customer experience – yet loses the competition for other customers (for example, customers who just want a smartphone and don’t care about the complete ecosystem), then Apple will effectively have been disrupted relative to its current state. From a valuation standpoint, the only way that Apple can justify having one of the largest market capitalization values in the world is through the promise that they will continue to serve the wide range of customers who just want point-products rather than just complete ‘ecosystem’ customers. But the competition for point products is ferocious indeed, where Apple holds no clear long-term advantage.
Like I said, Google Android is already a credible smartphone competitor, is becoming an increasingly credible tablet competitor, and Google itself is becoming so dominant in terms of Internet search that it has effectively become the world’s Internet front-end. {People have openly remarked that if your website cannot be found through Google, it effectively doesn’t exist at all.} Microsoft is already the world’s dominant competitor in customer operating systems, and is a ferocious competitor in gaming/living-room consoles (in stark contrast to the Apple Bandai Pippin which was an abject failure). If one therefore defines the computing ecosystem to include pieces like gaming/living-room-consoles or Internet services, then one might argue that Apple is the company that lacks key ecosystem components. AppleTV has hitherto been a relatively unsuccessful living-room console, Apple’s presence on the Internet is minimal, in contrast to even Microsoft which at least has MSN and Bing (and indeed, Apple even relies upon Bing as its default Spotlight Internet search option.)
The upshot is that an Apple shorn of its point-product Iphone/Ipad customers and thereby relegated to serving only its ecosystem customers would be a severely shrunken company with a far smaller market cap than it has today. That’s certainly not what Apple investors want, and I doubt that’s what Apple management would want either.
“But the competition for point products is ferocious indeed, where Apple holds no clear long-term advantage.”
The advantage Apple has is that it offers a complete ecosystem, a vertically integrated solution, one vendor for the device, services, support, content, apps. I’ve explained this a couple of times, we’re having some kind of disconnect here, you’re not getting it.
When I buy an iPhone I’m not just buying an iPhone, I’m buying a complete ecosystem that comes with the iPhone, I’m getting extra value in the user experience because of Apple’s fully integrated solution.
There is no disconnect on my end, for I have always understood your point completely. What I continue to question is how large that market for a complete ecosystem truly is, and more importantly, whether that market is large enough to truly sustain the $550bn market cap that Apple enjoys today.
Like I’ve said before, some former Iphone users have already migrated to Android. Apparently, as you had agreed before, those Iphone users don’t place much value upon the Apple ecosystem. As Android continues to improve – and Android has already vastly improved in just the last few years alone – it seems quite plausible that more Iphone users may find that Android has finally become ‘good enough’ for them.
Again, I would offer the historical analogy of the mainframe. Mainframe consumers were purchasing not just the mainframe system but itself, but also the accompanying robust support, hand-in-glove service, and (often times) an entirely vertical one-vendor solution for every mainframe subcomponent. For example, IBM provided not just the mainframe computer itself, but also the terminals, the printers, the customized data network (using IBM’s proprietary networking technology called SNA), the operating system, the storage drives, the memory, and, like I said, a 3AM Sunday morning replacement guarantee. That seems to me to be just as much of a complete ecosystem solution as Apple has ever provided. Nevertheless, the mainframe market was eventually disrupted as competing solutions (i.e. the DEC minicomputers) became both cheaper and good enough. Again, that’s not to say that mainframes entirely disappeared: they’re still sold today. But what has clearly disappeared are the *luxurious market valuations* of the mainframe vendors. {IBM’s current financial strength is mostly derived from their non-mainframe products, while IBM’s mainframe competitors from the 1960’s are now mostly niche firms. Unisys – which is a combination of the venerable mainframe vendors Burroughs and Sperry – now has about a $1 billion market cap, which is about half of the purported valuation of the photo app company Snapchat.}
To be clear, nobody is disputing that a high-end market for complete Apple ecosystems exists. The question is how large and profitable that market truly is. If the brutally one-sided rivalry between MacOS versus MSWindows of the last 20 years is any indication, the high-end computing ecosystems market at least for consumer OS’s doesn’t seem to be that large. {Again, if it truly was large, then why does Microsoft continue to hold such a dominant OS market share?} It is then possible that the high-end ecosystems market regarding smartphones and tablets may well be likewise not very large.
“For example, IBM provided not just the mainframe computer itself, but also the terminals, the printers, the customized data network (using IBM’s proprietary networking technology called SNA), the operating system, the storage drives, the memory, and, like I said, a 3AM Sunday morning replacement guarantee. That seems to me to be just as much of a complete ecosystem solution as Apple has ever provided.”
It’s not even close to the same thing. We are entirely disconnected on what we mean when we talk about user experience. I’m afraid further discussion is pointless.
Businesses haven’t been buying PCs. They have been buying UCs – Utility computers. We use(d) UCs because we HAVE(D) to.
Consumers now buy the real PCs – _Personal_ Computers – iPhones & iPads & high-end mobile devices, which they value much higher than UCs. People use PCs because they WANT to.
Just as Mercedes, BMWs, and other luxury brands will never be commoditized and over-serving their customers, for as long as Apple’s products are produced the same way they have been, iPhones, iPads, and any new product coming out will never be commoditized as well.
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