Why 2016 isn’t 1997 for Apple

on March 24, 2016
Reading Time: 4 minutes

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?”