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2016-02-25 11:03:41
Juan Pablo Vazquez Sampere
February 02, 2016
This post was updated on February 3.
Apple is the poster child for how to make a disruption strategy successful over time.
Back in 2007, when it launched the iPhone, Apple took functions that few mobile devices had previously provided and made them accessible to millions of consumers. Subsequent versions of the iPhone further enhanced the apps available: the iPhone 4 introduced Apple s multitasking system (designed especially for apps); the iPhone 5 provided apps using other developer tools* such as Xcode and iOS SDK; and in between those iPhone generations, Apple launched versions of each that improved and refined the new functionalities (iPhone 4s, iPhone 5c, etc.).
But Apple s technological innovativeness is not the full story. Think about it this way: Most health apps that you can find in the App Store are a technological marvel. You can check or monitor yourself in ways that otherwise would be just too costly or take too much time to do. To be sure, it s not as good as going to a doctor, but Apple s health apps do enable people to self-monitor themselves enough to know if they have a problem. And it is this functionality that makes them valuable. In disruption we call this type of inroad into an industry, in this case the health industry, a New Market disruption. Before, people couldn t monitor their health regularly because they didn t have the skills, time, money, or easy access to a doctor. Now they can.
Apple has pulled off the same trick in many other industries, and the message for consumers was powerful: buy the latest iPhone because every version will pay off you will save money and time in many areas of your life. Consumers bought heavily into this value proposition, which is why Apple, captained by Steve Jobs, led the smartphone industry and why the industry has grown so fast. In a previous article I called this Apple the old Apple, a leading company that makes the entire smartphone industry grow every time it introduces a new phone by continuing the disruption process in other industries.
But after Steve Jobs came the iPhone 6. It was a game changer for Apple, and not in a good way. Increasing the screen size of the handset is the iPhone 6 s major difference from the iPhone 5. But screen size is simply an industry feature, one that other smartphone companies have introduced already. It s a feature valued by smartphone customers, to be sure, but it does nothing to disrupt other industries the way previous iPhone generations did.
From the company s perspective, improving a standard feature makes a lot of financial sense. You don t have to explain the benefits of a larger screen, so you benefit from savings in marketing and it continues through the entire production process of an iPhone, generating massive savings along the whole supply chain. The fact that the larger screen was a valued feature for consumers and that it was much less costly for Apple to produce and launch explains the record earnings of the iPhone 6.
But the longer-term picture is not so rosy. The very same disruption process that has made Apple so successful at capturing growth from other industries is also happening elsewhere in the smartphone industry. Apple is getting plenty of competition at the low end of the market. Samsung was first, of course, but now there s also Xiaomi and many other companies with similar smartphone offerings.
This situation has not mattered until now. In smartphones, Samsung generally hasn t disrupted other industries the way Apple has, instead usually taking a free ride on Apple s innovations with cheaper versions that emphasize standard product features, most notably the screen size. Now that Apple has begun to compete on the same terms as Samsung and the other smartphone providers, there is no smartphone company that is a market-creating innovator. Apple, Samsung, and the others are stuck in a battle of sustaining innovations, which is about classic competition on who makes a better phone. It does not benefit customers in the same way.
Unfortunately for Apple, the strategic shift to engaging in classical competition instead of continuing leading the industry doesn t have a good prognosis. In these situations, the incumbent almost always fails and one of the early signs of failure is the incumbent s inability to make sense of the competitive environment. Here s Apple s CEO, Tim Cook: We re seeing extreme conditions, unlike anything we ve experienced before, just about everywhere we look.
Finally, it s important to note that the recent reported slowdown in smartphone sales does not necessarily mean that the industry is maturing. An industry s growth rate is the result of the activities of the companies in it. If the company that s traditionally driven industry growth has stopped disrupting other industries, you would expect the growth rate to fall back. But the fact that Apple has stopped disrupting other industries with iPhones does not mean that there are no more industries to disrupt. To the contrary, I believe that smartphones have still plenty of room to disrupt, to the great benefit of their users which is precisely why I d love to have the old Apple back.
Juan Pablo Vazquez Sampere is a professor of business administration at IE Business School in Madrid.