Disruptive Innovation Apple and the Future

Disruptive Technology

"As companies tend to innovate faster than their customers’ needs evolve, most organizations eventually end up producing products or services that are actually too sophisticated, too expensive, and too complicated for many customers in their market." - Clayton Christensen

Many of these factors can be applied to apple except maybe the complicated to use. But what has changed recently is the speed with which apple is bringing things to market. So far this year we have had the iPhone, 4s, 5 and already predictions of 5s early next year. The iPad has become the New iPad, iPad 4 and the mini iPad. Again a new mini and possible iPad predicted early next year.  Apple produce high quality for the most demanding users but how are they feeling with their investment being superseded so quickly? How many times will they return to buy a new device if it is being improved and upgraded so quickly? or will they start to take on the "Osborne Effect". Early in the PC era there was a company called Osborne Computers. They started in the market quick promisingly but soon after starting they would start to market what was coming next. People were buying their computers which were quite expensive in those days. We are talking the 1985-1995 period. So buying a computer was a big decision. Buyer were encouraged to buy more as is the norm you got some technology you can always do with more as it will make thing easier to do. But what happen was the sales people of Osborne Computers were starting to suggest to their buyers to buy the latest computer, but in the next breath inform the client that if they waited a little longer there was a bigger and better computer coming. As most of the computer being used were performing well businesses would wait. The next computer came out and business would delay. The sales teams would then hit the market, they had a growing client base so to keep them they would continue to service them. But decisions to buy were taking time and the computers were still being effective. Again the sale people would try to make the sale but again the next breath suggest waiting for the next greatest system coming out. The only problem is that business did keep waiting as the next computer was going to be bigger, faster, better but there was one problem to this model the company needed to sell its current technology more consistently to support it future technology development and sale. Buy the time they realised this the company had gone.

"Companies pursue these “sustaining innovations” at the higher tiers of their markets because this is what has historically helped them succeed: by charging the highest prices to their most demanding and sophisticated customers at the top of the market, companies will achieve the greatest profitability." - Clayton Christensen 

For quite a number of years Apple has been on a sustaining innovation track. Many of their innovations have been ground breaking and game changing to a number of different industries outside of computing. Much of this innovation lead by Steve Jobs, a founder and CEO of Apple. A lot of these innovations have been quite large jumps and Apple has been a market leader in consumer electronics with the release of the iPod, iPhone and iPad. These were massive game changers and were what I believe Blue Ocean devices. In true Blue Ocean Strategy they eliminated the competition, for quite a while there was no competition, Apple owned the space.

"The cornerstone of Blue Ocean Strategy is 'Value Innovation'. A blue ocean is created when a company achieves value innovation that creates value simultaneously for both the buyer and the company. The innovation (in product, service, or delivery) must raise and create value for the market, while simultaneously reducing or eliminating features or services that are less valued by the current or future market. The authors criticize Michael Porter's idea that successful businesses are either low-cost providers or niche-players. Instead, they propose finding value that crosses conventional market segmentation and offering value and lower cost. Educator Charles W. L. Hill proposed this idea in 1988 and claimed that Porter's model was flawed because differentiation can be a means for firms to achieve low cost. He proposed that a combination of differentiation and low cost might be necessary for firms to achieve a sustainable competitive advantage." - W. Chan Kim and Renée Mauborgne

But as indicated with Disruptive Innovation Apple has open the door to "disruptive innovators" at the bottom of the market. The likes of Samsung, HTC, Google and many others enters the bottom end of the market. These companies produced products which allowed a whole new population of consumers to access the technology that was historically only accessible to consumers with a lot of money. Apple products were not cheap and they are still in the top end of the price market. As many have experienced Apple controls their market price and no one can discount. For Apple this is good, it keep the position of the product in the market and their margins are high. The thing with disruptive innovation is that is does not address the top end of the market due to a number of factors. The product is inferior, does not have the polish or capabilities of the higher end product but one things it does have is price and an approximation to the high end product. The buyer are not so fussy and are prepared to put up with these deficiencies. But what happens next is the part that many industries have failed to take into account is the speed and veracity of development and improvement. Due to the price companies are able to turn over more product and then develop further product. At each iteration they start to improve their offerings and each offering is then purchased with much more zeal. This cycle of improvement then moves them closer to Apples customer base. For a while now Apple would then present to the market a product that was well hidden and a leap above the others and again secure their foot hold and market presence. Another factor which Apple has always claim to be their ability to do so well is that they own the entire Apple eco-system. That is both the hardware and software, which has given them quite an ability to manage and control how their products and services worked together. But again this is changing.

"Characteristics of disruptive businesses, at least in their initial stages, can include:  lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance metrics.  Because these lower tiers of the market offer lower gross margins, they are unattractive to other firms moving upward in the market, creating space at the bottom of the market for new disruptive competitors to emerge." - Clayton Christensen

So there is not much in the margins in the bottom end of the market for Apple. Their products are high quality and high value designed for the most demanding customers and to change that would lose that market. In the last year we have seen so many different devices coming out and competing with Apple and trying to find their market place and customers. Apple has not paid any attention to the lower end of the market as those products and services were not competing with Apple as they did not have the quality or compare to what Apple was offering. But as disruptive innovation has moved we are now seeing that the likes of Samsung is knocking at the door as are many companies. Google developed their open source platform "Android" and now Microsoft with Windows 8. Apple has resorted to the legal avenue which for Samsung has been a great marketing campaign. It is totally a perspective but to be compared to being like or similar to Apple has raised its profile. Apple had to protect its patterns and IP and they were dammed if they did and dammed if they did not challenged Samsung. But what has been the fall out. There has been so many Android Tablets released and now Windows 8 Tablets they are all similar and some different but none stuck out like the iPad. That was until Apple made us aware of the Galaxy Tab 10.1 until then it was one of many. Now as the court case was in every days news reports. That is from a tech perspective we all started to look deeper at the other offering. Why, well if Apple was worried and spending so much to stop these companies then maybe there is something that might be different or better. Better you say, but who knows let just check them out. In doing so we started to see there was alternative to the totally controlled ecosystem that Apple offered. It wasn't as good initially but we were able to customise and design to our tastes, this became infectious and others started to look the rest is history. We now have considerably more offering in the tablet space. Each offering its own type of experience and not just one view.I hear many people now saying but that's ok Apple could never fail they are just to big and they are the best. This won't stop Apple they will keep going. I would suggest that if Apple does not take heed to "Disruptive Innovation" this may not be the case. Many industries have been in the exactly same position as Apple and very sure they would continue forever, but time has proven otherwise. They did not just become dumb or the people working in them did not sabotage their futures, they were displaced by disruptive innovation. ie

• Main Frame Computer > Personal Computers
• General Motors > Toyota > Hyundai > (China and India Car Companies)
• Super Steel Mills > Mini Mills

These are just three industries but there are many more. To get a better appreciation of Disruptive Innovation check out Clayton Christensen's book the The Innovator's Dilemma: The Revolutionary Book That Will Change the Way You Do Business

Update: I have recently come across an interview with Clayton Christensen and here is what he had to say about Apple and their future prospects.