Why 2016 isn’t 1997 for Apple

Apple’s legendary Super Bowl commercial promised to show why 1984 in the real world wouldn’t be like “1984” in the George Orwell book. This week, I’ve seen a number of tweets from people snickering at the fact Apple’s iPad and iPhone product lines are becoming more complex and referring to Steve Jobs’ moves back in 1997 to simplify the Mac product line. Though it’s true these portfolios are becoming more complex (more diverse might actually be a better way to put it), it’s disingenuous to pretend Apple is in the same boat in 2016 as it was in 1997, and here’s why.

The 1997 context

When Steve Jobs returned as CEO of Apple in 1997, the company was in dire straits in a number of ways. For context, here are some quick numbers from Apple’s 1997 fiscal year:

  • Revenues were just over $7 billion, down from $9.8 billion the year before and $11 billion the year before that
  • The company had operating and net losses of around $1 billion each that year
  • Apple sold 2.9 million Macs in the 1997 fiscal year and essentially no other significant products

It was in this context Steve Jobs returned and famously became frustrated at the huge number of different Mac models Apple was producing. For further context, we’ll borrow from Walter Isaacson’s book on Steve Jobs, discussion a product review meeting shortly after Jobs became CEO again [emphasis mine]:

The product review revealed how unfocused Apple had become. The company was churning out multiple versions of each product because of bureaucratic momentum and to satisfy the whims of retailers. “It was insanity,” Schiller recalled. “Tons of products, most of them crap, done by deluded teams.” Apple had a dozen versions of the Macintosh, each with a different confusing number, ranging from 1400 to 9600. “I had people explaining this to me for three weeks,” Jobs said. “I couldn’t figure it out.” He finally began asking simple questions, like, “Which ones do I tell my friends to buy?”

It’s worth breaking that down a bit – despite the fact Apple sold under three million Macs that year, it had a dozen versions with meaningless numerical names, driven by two factors that had nothing to do with actual customers: internal bureaucratic momentum and pressure from retailers. No wonder Jobs was fuming – it would be as if 2016 Apple had twelve different versions of the Apple TV, created specifically for Best Buy, Wal-Mart, and Target. All of this led to Jobs’ radical simplification of the Mac line down to just four products according to a two-by-two matrix: consumer and professional, and desktop and portable.

Back to 2016

Let’s take a reality check about the year we’re in. In Apple’s most recent fiscal year, which ended in September 2015:

  • Revenues were $233 billion, up from $183 billion the year before
  • Apple made $71 billion in operating profit (or ten times 1997 revenue) and $53 billion in net income
  • It sold 20.6 million Macs, 231 million iPhones, 55 million iPads, and millions of units of other products from iPods to Watches to Apple TVs

Right from the start, it’s clear 2016 is not 1997. The sheer scale of Apple’s business today and the enormous number of shipments of its key products put it in a completely different league and the financial state of its business is record-breakingly good rather than heartbreakingly bad.

Let’s take a lot at the portfolio in Apple’s two biggest product categories – iPhone and iPad. If we focus just on the current product in each category, we have:

  • Three iPhones, differentiated by screen size: iPhone SE (4 inches), iPhone 6S (4.7 inches), and iPhone 6S Plus (5.5 inches), all now with very similar specs
  • Four iPads, with two consumer-grade devices at 7.9 and 9.7 inches, and two professional grade devices at 9.7 and 12.9 inches.

In and of itself, that’s actually both remarkably simple, as illustrated below. Here’s the iPhone portfolio:

iPhone portfolio

And here’s the iPad portfolio, which is now remarkably close to Steve Jobs’ 1997 vision for the Mac line, with two form factors and two target audiences:

Revised iPad portfolio

Older devices and names cause complexity

What makes these portfolios more complex in reality is the fact that, ever since 2009, Apple has kept some older devices in these product lines in market even when replaced by newer versions. The iPhone 3G was the first to stick around and others since then have stayed around for several years. In the current lineups, the two iPhones 6 and the iPad Air and iPad Mini 2 fill these roles (and the replacement of the 5s by the SE in the lineup actually simplifies things). In general, those devices somewhat break the simplicity of the portfolios but, even with their inclusion, we can get a pretty simple picture for each. Here’s iPhone:

Complex iPhone portfolio

And here’s iPad:


Complex iPad portfolio – revised

I’ve used the term “sub-premium” in both portfolios – I’m sure Apple could think up a better category name here but the point is both lines offer two tiers for their mainstream devices – the best available and something slightly less. Arguably, the biggest problem isn’t the structure of the portfolio but the naming conventions. The iPad Air and Mini have different names but really belong to the same general category, while adding numerical suffixes just complicates things – having an iPad Mini 2 and 4 on sale just raises the question of what happened to the iPad Mini 3. In some ways, Apple’s 2012 strategy of naming the new iPad simply that – the New iPad – seems the better way to go here. Something similar could be done with the iPhone line too, to denote size and recency without the messy numbers and letters. It’s interesting that there’s now also a maximum of two options per device size as well.

Maturity drives diversification

The reality of 2016 is Apple sells massive numbers of iPhones and iPads each year compared to the number of Macs sold in 1997. The maturity and scale of these products demands increasing segmentation to better address the needs of a large and increasingly diverse set of customers. As growth in the overall smartphone and tablet markets slows, reaching new customers in both markets will require more targeted devices. Apple has never been a company to try to serve every segment in the market but the iPod and iPhone have significantly broadened Apple’s mass market appeal and needs to reach more segments than ever before. The challenge will be to retain simplicity in these products, to name them in a way that clearly describes the differences between them and, ultimately, to make it easy to answer Steve Jobs’ 1997 question: “Which ones do I tell my friends to buy?”

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

13 thoughts on “Why 2016 isn’t 1997 for Apple”

  1. You didn’t address the Mac end of things. Over there,.Jobs’s 2×2 grid is still very much alive, only it’s a 3×2 grid now:

    (I tried formatting this and it came out borked, so it’s unformatted, sorry)

    Consumer/Imac/Macbook Air
    Pro/Mac Pro/Macbook Pro
    Tiny/Mac Mini/Macbook

    You need the most powerful mac possible? get a pro. Just a regular mac? Get an Imac or a macbook air. The smallest/most ultraportable mac available? Get a mini or the unflavoured Macbook.

    1. While I still think that the original 2×2 matrix was genius, I do not think that it is a good model to apply to iPhones and iPads.

      The thing is, iPhones and iPad users cannot be segmented into consumer/professional, and iOS devices do not clearly separate into desktop/laptop form factors. Instead, both consumers and professionals alike use 4-inch to 5.5-inch phones. Likewise, all iPhones are equally mobile despite size. There is good reason why the iPhone 6 Plus was not called the iPhone 6 Pro.

      Instead, the various sizes of iPhone or iPad should be considered as different screen sizes of the various Macs. They occupy only one quadrant of a Jobsian product matrix.

      In this sense, I think it is totally misguided to compare the proliferation on iOS devices to the convoluted Mac product line in 1997.

      1. Agreed that the Pro distinction doesn’t make sense on iPhones, and that’s why I didn’t make it. It does make some sense on the iPad, where Apple now has two distinct product lines, one of which is more powerful and accessory-compatible.

        Not sure it makes sense to think of iPads as a subset of the Mac matrix – they’re fundamentally different and may well replace them over time, while also significantly outselling them.

        1. My comment was ambiguous. I didn’t mean to say that iPads would occupy one quadrant of the Mac matrix. I was trying to say that if one were to segment the iPad market in a Jobsian way, they would find that there weren’t four segments but only one (or with the introduction of the iPad Pro, now two).

          So really, the current product matrix is still very, very simple.

    2. Yes, I focused on the two biggest product lines because that was the focus of this week’s event and much of the commentary I saw about it. But debated including the Mac on the basis you just did. You’re exactly right.

  2. One other thing — unless I missed something, Apple has eliminated the 1st gen air from the “sub-premium” row — the older mini is the only previous generation model still in their lineup.

  3. Remember the iPod lineup from Jobs’ time –
    1. iPod Nano
    2. iPod Shuffle
    3. iPod Classic
    4. iPod Touch

    It was too many iPod in my opinion.
    Also, the current Mac lineup.
    1. Macbook
    2. Macbook Air – 13 and 15 (4 variations)
    3. Macbook Pro
    4. Macbook Pro with Retina Display – 13 and 15 inch ( 5 variations)

  4. Absolute revenue numbers do not predict a stock price. The stock price is about a revenue growth and a market share and it is much easier to grow up from $7B than from $223B. The real question is about how to manage a mainstream adoption part of iPhone/iPad product cycle. I am sure there are strikingly new conceptual products down their pipeline, but the introduction of these products may be years off. Apple has two choices in my view to use their time now:
    1. Keep churning up more slabs to generate more revenue.
    2. Try to tie more customers to their ecosystem.

    I think an option 2 is definitely preferable in a long run. I would speculate that the differentiating factor to get to option 2 is software and services rather than hw features. We need more services like Apple Music and Apple News.

  5. If the diagrams you’ve shown above were true, then I would agree 100% with this article. But they’re not. The iPhone SE, iPhone 6s and iPhone 6s Plus don’t just differentiate on size. The iPhone SE is not just a 4″ iPhone 6s — it lacks features. Which makes it a compromise for anyone who actually does prefer the 4″ form factor.

    Same goes for the iPhone 6s and iPhone 6s Plus. If you want optical image stabilisation, you need to sacrifice the one-handed usability and opt for the iPhone 6s Plus.

    Take a look at the brand new iPad Pro line. The 12″ iPad Pro is not even a few months old and already it has feature disparity with its newly announced 9.7″ iPad Pro counter-part. If I want the True Tone display, I have to sacrifice screen realestate.

    Look. I get that they are not in the same position they were in 1997, anyone who does make that argument is a moron. But you cannot sit there and say their product offerings are the result of a relentless, consumer driven focus because it’s not.

    If all of their differently sized products also had the exact same features/components, I would agree. But when my friends ask me which iPhone they should get, it’s not simply a case of “grab the one that feels best in your hand” it’s a case of “well, what do you value and what are you willing to give up?”

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