Last week news “broke” that the Apple Watch had a steep drop off in sales after the initial launch, with many news sites going so far as to call the product a failure and a handful signaling the end of Apple’s era as an innovative company. Certainly sales of the Apple Watch are down from its debut, but this was hardly unexpected given what we know about the maturity of the wearables market and the realities of launching a new category of product. Perhaps most of the angst over the Apple Watch has something to do with the fact that the industry, several years removed from the iPad and the boom of the tablet market, is desperate for a new product category to win the hearts and minds of the consumers. Wearables has been the expected winner for several years now, but companies have yet to find the magic formula to make one a must-buy.
I reviewed the Apple Watch and found the product neither Earth-changing nor a bomb; it’s a watch, and if you like watches and technology you will be happy… and if you don’t it will be a tough sell. History perhaps is an indication of what it will take for the Apple Watch, or any wearable, to be successful; it wasn’t until the developer community began producing thousands of applications and services that the market really embraced the devices. While few remember it now the iPad gathered a host of doom and gloom reviews as well in its early days, but today with a rich and robust market of things to do on it the device is seen as a critical part of the ecosystem. But more on that in a moment.
Overall though, how the average person feels about Apple usually has more to do with how many of the company’s products they have elected to embrace and far less with industry sales figures and forecasts. In the face of overwhelmingly positive news for Apple, if you regularly read CNN you would get the impression that Apple was on the brink of collapse with threats to its existence coming from every direction. Not a week goes by without one article or another forecasting the company’s slide into oblivion, but the real story of Apple could not be any more different.
In the first quarter of the year, Apple (AAPL) captured a mere 18 percent of the global smartphone market. While this may seem surprisingly low for the smartphone maker that grabs the most press and mindshare in the industry, the real number to pay attention to is not the share of devices but the income of the company. Apple accounted for a staggering 92% of the total operating income from the world’s eight largest smartphone makers in the first quarter, up from 65% a year earlier, according to estimates from Canaccord Genuity managing director Mike Walkley. Samsung, a distant second at 15%, wasn’t even close; and if you’re doing the math and realized that the two companies couldn’t possibly make up 107% of the operating income you’re right… unless you factor in that all of the other smartphone makers either broke even or lost money during the same quarter.
Think about that for moment: for all intents and purposes, only one company is making money in the smartphone market: Apple. Samsung is profitable, but the gap to first place is insurmountable; the only hope other companies have is that Apple will make a catastrophic mistake that tanks their position in the industry. In the history of mainstream consumer products, no such gap has been traversed in less than four years time with only one exception: Apple themselves. So while many point to the Apple Watch as a sign of troubling roads ahead, the reality is that the product is an insignificant part of Apple’s core business. So much so that Apple can afford to build an ecosystem around wearables and the connected car business using the same formula they applied to the smartphone and tablet market: a simple foundation, strong industrial design and an open ecosystem for developers. Apple has perfected a model of utilizing strong design and sharp marketing to demand a premium price while enabling outside companies to build a market for themselves. It remains remarkably similar to how Microsoft created wealth for third parties in the 80’s and 90’s, and it’s a proven successful formula if you build the right foundation for your product. The real curious question is why other companies have struggled so much to copy what is ultimately a very simple strategy.
Many large companies struggle with the concept of ownership. When Apple announced that they weren’t going to get in the way –or demand a share of the profit– of developers using advertising in applications, many companies criticized Apple for leaving money on the table. Apple purchased their own advertising company as an alternative but seemed content to let others, including their rival Google, promote an advertising market they gained no profit from. Other smartphone makers took a more traditional approach that resembled the airline industry by creating small fees for store placement or certification… which backfired spectacularly as the Google Play storefront, native on all Android devices, operated like Apple. Rather than have ownership over the most active and innovative part of the device, rival smartphone makers ceded control to Google. In an attempt to own something outside of their core, they lost the mindshare and market completely.
It’s difficult to find ways to attack Apple’s product strategy when they are sitting dominant with 92% of the total operating income in the smartphone market, but people find a way to do it. Perhaps it’s simple tone-deafness to the realities of the market or a deeper desire to want to be right, but in the end it allows people to miss the point: when you force control you kill off innovation. Apple has been clever around recognizing what they can and can’t control, and have avoided wasting effort trying to control something uncontrollable. Building a strong developer ecosystem is only possible if you allow the developers to build and grow their business they way they know how.
Apple is far from perfect. But it’s important to take stock of the company’s strategic history and how they build businesses. It is far too early to write off the Apple Watch because if history is any indication it will be the applications and services that the developer community creates that ultimately causes the device to succeed (or fail). The real question people should be asking themselves is if Apple has done a good job getting developers excited about working with it… because if they have then it’s very likely the product will succeed.
Apple, and any product company, needs developers and creators to thrive. The sooner other companies realize this the sooner they can start taking market share and income back. Until then, it’s a one-company market.
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The Real Secret to Apple’s Product Success
Last week news “broke” that the Apple Watch had a steep drop off in sales after the initial launch, with many news sites going so far as to call the product a failure and a handful signaling the end of Apple’s era as an innovative company. Certainly sales of the Apple Watch are down from its debut, but this was hardly unexpected given what we know about the maturity of the wearables market and the realities of launching a new category of product. Perhaps most of the angst over the Apple Watch has something to do with the fact that the industry, several years removed from the iPad and the boom of the tablet market, is desperate for a new product category to win the hearts and minds of the consumers. Wearables has been the expected winner for several years now, but companies have yet to find the magic formula to make one a must-buy.
I reviewed the Apple Watch and found the product neither Earth-changing nor a bomb; it’s a watch, and if you like watches and technology you will be happy… and if you don’t it will be a tough sell. History perhaps is an indication of what it will take for the Apple Watch, or any wearable, to be successful; it wasn’t until the developer community began producing thousands of applications and services that the market really embraced the devices. While few remember it now the iPad gathered a host of doom and gloom reviews as well in its early days, but today with a rich and robust market of things to do on it the device is seen as a critical part of the ecosystem. But more on that in a moment.
Overall though, how the average person feels about Apple usually has more to do with how many of the company’s products they have elected to embrace and far less with industry sales figures and forecasts. In the face of overwhelmingly positive news for Apple, if you regularly read CNN you would get the impression that Apple was on the brink of collapse with threats to its existence coming from every direction. Not a week goes by without one article or another forecasting the company’s slide into oblivion, but the real story of Apple could not be any more different.
In the first quarter of the year, Apple (AAPL) captured a mere 18 percent of the global smartphone market. While this may seem surprisingly low for the smartphone maker that grabs the most press and mindshare in the industry, the real number to pay attention to is not the share of devices but the income of the company. Apple accounted for a staggering 92% of the total operating income from the world’s eight largest smartphone makers in the first quarter, up from 65% a year earlier, according to estimates from Canaccord Genuity managing director Mike Walkley. Samsung, a distant second at 15%, wasn’t even close; and if you’re doing the math and realized that the two companies couldn’t possibly make up 107% of the operating income you’re right… unless you factor in that all of the other smartphone makers either broke even or lost money during the same quarter.
Think about that for moment: for all intents and purposes, only one company is making money in the smartphone market: Apple. Samsung is profitable, but the gap to first place is insurmountable; the only hope other companies have is that Apple will make a catastrophic mistake that tanks their position in the industry. In the history of mainstream consumer products, no such gap has been traversed in less than four years time with only one exception: Apple themselves. So while many point to the Apple Watch as a sign of troubling roads ahead, the reality is that the product is an insignificant part of Apple’s core business. So much so that Apple can afford to build an ecosystem around wearables and the connected car business using the same formula they applied to the smartphone and tablet market: a simple foundation, strong industrial design and an open ecosystem for developers. Apple has perfected a model of utilizing strong design and sharp marketing to demand a premium price while enabling outside companies to build a market for themselves. It remains remarkably similar to how Microsoft created wealth for third parties in the 80’s and 90’s, and it’s a proven successful formula if you build the right foundation for your product. The real curious question is why other companies have struggled so much to copy what is ultimately a very simple strategy.
Many large companies struggle with the concept of ownership. When Apple announced that they weren’t going to get in the way –or demand a share of the profit– of developers using advertising in applications, many companies criticized Apple for leaving money on the table. Apple purchased their own advertising company as an alternative but seemed content to let others, including their rival Google, promote an advertising market they gained no profit from. Other smartphone makers took a more traditional approach that resembled the airline industry by creating small fees for store placement or certification… which backfired spectacularly as the Google Play storefront, native on all Android devices, operated like Apple. Rather than have ownership over the most active and innovative part of the device, rival smartphone makers ceded control to Google. In an attempt to own something outside of their core, they lost the mindshare and market completely.
It’s difficult to find ways to attack Apple’s product strategy when they are sitting dominant with 92% of the total operating income in the smartphone market, but people find a way to do it. Perhaps it’s simple tone-deafness to the realities of the market or a deeper desire to want to be right, but in the end it allows people to miss the point: when you force control you kill off innovation. Apple has been clever around recognizing what they can and can’t control, and have avoided wasting effort trying to control something uncontrollable. Building a strong developer ecosystem is only possible if you allow the developers to build and grow their business they way they know how.
Apple is far from perfect. But it’s important to take stock of the company’s strategic history and how they build businesses. It is far too early to write off the Apple Watch because if history is any indication it will be the applications and services that the developer community creates that ultimately causes the device to succeed (or fail). The real question people should be asking themselves is if Apple has done a good job getting developers excited about working with it… because if they have then it’s very likely the product will succeed.
Apple, and any product company, needs developers and creators to thrive. The sooner other companies realize this the sooner they can start taking market share and income back. Until then, it’s a one-company market.
Like this:
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About The Author
Travis
He has a twenty plus career in product creation, which includes writing and describing an endless series of bad decisions.