Apple Doesn't Sell Phones
In the eight years since Apple introduced the iPhone, traditional business and industry analysis has failed miserably at predicting Apple's approach to technology. Ben Thompson, writing at Stratechery, articulated three reasons why tech observers misunderstand Apple. I think the heart of the issue was briefly touched upon by his third point dealing with Apple's stated goal of making great products. Apple has actually been playing a completely different game than everyone else for years. Apple has been successful at building iPhone momentum in the face of what seems to be insurmountable obstacles because Apple doesn't sell phones, but rather experiences. The best selling experience is called iPhone.
Apple is a company built in such a way as to be a product-driven organization. When trying to define Apple's products, a somewhat savvy observer would answer: hardware, software, apps and services. In reality, Apple is selling much more than tangibles. The combination of those elements into one device creates emotion. Apple's primary products are experiences. From videotaping themselves unboxing new Apple products to vividly recalling the day they bought their first iPhone at an Apple store, people crave experiences, and Apple has been focused on selling such a product for years.
An iPhone represents something different to each of the 400 million current users. For some, it is a remarkable symbol of design, while for others it embodies hard work and accomplishment. It may also just be a device used to take pictures and send Snaps on Snapchat. Regardless of what the device represents, the experience of using an iPhone on a daily basis for years creates a bond. It is that bond that Apple is focused on nurturing and maintaining over time. A bond that is so strong that 9 out of 10 iPhone buyers decide to buy another iPhone. A look at other companies selling handsets would show a completely different paradigm. Samsung is so removed from the consumer, management wasn't even aware that people weren't buying the latest flagship Galaxy phone until the mobile carriers complained of unsold inventory.
Once the iPhone is thought of as an experience and not a phone, the mobile industry begins to look very different, and much of the mystery surrounding Apple's decisions fade away.
Competition. Apple's biggest competitor in the phone industry is the previous year's iPhone. The implications of this are significant, helping to frame why Apple never seems to follow industry protocol or respond directly to competitors. As an Apple competitor, this strategy is hard to counter because Apple is always one step ahead, as shown with Samsung's current lack of direction in mobile.
Two other examples of this strategy were Apple's AuthenTec acquisition and the decision to hold off on large screen iPhones. Apple turned fingerprint scanning from a gimmick feature into an enjoyable experience and competitors have so far been unable to find an answer. Meanwhile, Apple SVP of design Jony Ive's decision to hold off on larger screens for the iPhone was Apple's attempt at getting it right, instead of being first. Apple had plenty of experience with larger screens since the iPhone was born from the concept that eventually became the iPad. Jony Ive waited in order to make sure the experience was just right. Judging by Samsung's recent struggles, being the first to market a feature or idea, such as large screens, doesn't guarantee success.
Since the previous iPhone represents the competition to beat, Apple doesn't get distracted by features on competing phones that amount to little more than smoke and mirrors, as seen with most of Samsung's features, and pretty much the entire Amazon Fire Phone feature list.
Addressable Market. Following Apple's record 193 million iPhones sold in 2014, it would be easy to rely on smartphone shipment data to figure out iPhone's remaining addressable market in the premium Android space. In reality, that strategy is prone to error as it fails to describe how Apple views the landscape. Apple wants to sell experiences to as many people as possible. Take a look at Apple's renewed product strategy and it's clear that Apple isn't content on just selling these experiences to a certain segment of the population. Apple comes up with new products with the goal of appealing to all consumers, not specific tiers or layers of a market.
Price. Many consumers face price obstacles when wanting to buy an Apple experience. However, Apple has shown that roadblocks are meant to be overcome. Apple doesn't look at low prices as motivation to come up with an inferior experience, instead Apple positions the ultimate iPhone experience as an aspirational goal, while reducing the cost of older iPhones (which at their time were the best experiences on the market). By reducing older iPhone prices, Apple is able to accomplish the goal of selling a great experience at a lower cost, while keeping a different, newer experience as something to desire. Apple has also shown the ability to address price in different ways other than just selling older experiences at a lower price. Apple's iPad mini continues to sell relatively well, with very strong satisfaction rates, and has proved to be quite an attractive proposition for those who want to experience iOS for much less than the cost of an iPhone.
Apple Retail. In the context of selling experiences, Apple's retail plans take on a much more strategic importance and is the primary reason why I look at the retail stores as a key competitive advantage for Apple. A look at Apple's current retail push into China would suggest that management is focused on selling the iPhone experience, not just a merely a phone. Many people go to flagship Apple stores, which some have described as museums, just to visit and take in the environment, a rather remarkable feat when other retailers struggle to even get attention.
Apple knows what kind of experiences it wants to sell years ahead of time. Features, components, and designs included in Apple's current product lineup are often included as groundwork for what is to come. By recognizing that Apple's primary products are experiences, management's strategy in terms of pricing, marketing, and product direction begin to make more sense. Of course, selling experiences is much harder than selling hardware gadgets or software. Even Apple has failed to deliver a great experience from time to time. The key is to do less and concentrate all available resources on building few, but very meaningful, experiences. As long as Apple doesn't just sell a phone, the iPhone will see continued success.