Is Apple Cursed? An Intriguing Conversation…

Hola Todos!

I was reading an interesting article the other day on CNNmoney.com.  What originally caught my attention was the article’s title “Is Apple Cursed” questioning if Apple’s market dominance was soon to be in the rear view mirror.  Then, what really caught my attention was the author; a brilliant marketing academic, Gerry Tellis, from the University of Southern California.  I love to see examples when academics cross over into the mainstream as thought leaders and I wish I’d see more articles from academics in the popular press.

As I read the article, Professor Tellis describes a familiar story in the study of innovation; is rare, very rare for a company to maintain their market dominance for an extended period of time.  Competition is fierce, consumer behavior changes, the marketplace changes, the technology landscape changes and nothing lasts forever.

Professor Tellis details;

“Success, and especially market dominance, breeds complacency, arrogance, and reduced innovation. Companies such as Sony in mobile music, Hewlett Packard in personal computers, Blackberry in smartphones, General Motors in automobiles, and Kodak in analog photography were at the top of their respective markets, when their decline began. What caused the fall?

Critics often fault the rise of external technologies when discussing a company’s demise. But that is a superficial cause. In all the above-mentioned cases and many others, the revolutionary innovations that catapulted upstart firms were also available deep within the bowels of these dominant companies. But those innovations were put on hold, ignored, or belittled. What caused firms to overlook such radical innovations? A risk-averse culture, that’s what. Such a culture stems from a firm’s dominance and its success with its current stable of products. My coauthors and I have called this the “incumbent’s curse.”

So the question is, has Apple peaked?  Apple’s stock price performance over the last five months seems to indicate that the market believes Apple has peaked.  Moreover, the scenario described above by Professor Tellis happened to Apple as well.  From 1980 to mid to late 80’s, Apple was dominant in the personal computing market – first with the Apple II and then the Macintosh.  By the early 90’s, “WinTel” (Microsoft Windows and Intel chips) were the dominant player.  Apple almost went Chapter 11 by 1997.

To summarize, history tells us that very few firms can maintain its market leadership. While I would agree the data is clear, I would like to add a few thoughts to this conversation concerning Apple.

(1) Contrary to popular believe, Apple is not as top-down – either in a management sense nor with regards to innovation – as most observers would believe.  While Apple is very hierarchical as a whole, Apple’s top management particularly the Top 100 as they call it, is very flat given a company that size.  All of the key leaders meet every Monday and Apple believes everyone should work at headquarters and meet face-to-face.  Perhaps in Steve Jobs’ time, innovation was more top-down at Apple but not any more.  I’d bet the Apple faithful would be very shocked if Jony Ive was not part of the equation at 1 Infinite Loop.

(2) I believe there a number of misconceptions about Apple’s innovation cycle.  First, I’d agree that Apple has had a number of major duds during Steve Jobs’ 2nd tenure (USB “puck” mouse, G4 Cube, MobileMe, “AntennaeGgte” on the iPhone 4 just to name a few).  Second, the innovation cycle at Apple is much longer that most tend to believe.  The original iPod was released in 2001, while the first iPhone was 2007 and iPad was 2010.  The shortest of these cycles was three years while the longest was six.  If these innovation cycles remain consistent, we should expect at least one major new product line from Apple in the next 12 to 24 months (e.g., iWatch or Apple TV anyone?).

(3) If one were to take a careful look back at the launch of each of those major Apple innovations, the business press was not universally applauding.  When iPod came out, most pendants were perplexed to what was Apple doing.  Journalists were very curious about the iPhone but questioned whether Apple could break into a market with so many established players, especially at that $499 price point.  In 2010, the iPad was not nearly as well received as the iPhone (what do we need a giant iPod for?).  Even in 2012, many pundits criticized Apple for developing the iPad Mini.  Even I was critical that Apple missed the price point.  The Mini sold out during the holiday shopping season and Apple never has more than 1 to 2 weeks of inventory for the Mini.

(4) Perhaps the most telling indicator of whether Apple will be able to maintain market leadership or become “cursed” is their internal culture. I would wholeheartedly agree with Professor Tellis that previous market leaders were risk-adverse, complacent and arrogant – incredulous that some other firm could knock them off their perch.  One has to look no further back than to 2008 to 2010 while iPhone and Android destroyed Nokia and Blackberry’s worldwide market leadership.

(5) What makes Apple’s culture different?  That’s an easy question: Creative Destruction. Economist Joseph Schumpeter coined this term and perhaps the easiest way to define it is cannibalization.  My hypothesis is that for every firm that lost its market leadership, I suspect a culture that was too afraid of cannibalization if its own products.  For the record, Apple is NOT afraid of cannibalization.  In multiple examples turning Steve Jobs’ 2nd tenure, particularly with the iPod and iPhone lines, the new product made the previous product obsolete.  Reporters asked Steve Jobs if he was afraid that the iPad would cut into Mac sales – we was not.  Luckily for Apple, CEO Tim Cook also preaches the discipline of creative destruction (iPad Mini radically cut into iPad grande sales).  In multiple earnings calls and interviews since becoming the CEO, Tim Cook has repeated the same mantra (paraphrased), “I’d rather we cannibalize ourselves than have someone else do it for us.”

In closing, I’m curious as everyone else to see what will happen to Apple.  Will history repeat itself?  Is Apple cursed like all those other firms who were once market leaders?  Only time will tell but I believe Apple has the deepest leadership bench in tech and their culture is stronger than most.  In my eyes, I still see Apple just as dominant over the next 3 to 5 years given what they have in the pipeline.  Any time frame longer than that is too far out to project.

Something to think about today…

 

Best regards,

Dr. Dan-o

 

Daniel M. Ladik, Ph.D.,

Associate Professor of Marketing

Stillman School of Business

Seton Hall University

 

 

 

3 thoughts on “Is Apple Cursed? An Intriguing Conversation…

  1. Hi Dr. Dan-o!

    Great insights, very interesting. I would like to make one key point on Apple’s success so far:

    Apple has gained market dominance not because they were ever the “first-movers.” Think about it, the top 3 most successful Apple products to date: the iPod, iPhone and iPad. These products were far from the firsts, Apple didn’t invent the mp3, smartphone or tablet, but has become the go-to choice in these categories.

    Why? Because Apple isn’t innovative in the sense that we normally associate the word with inventors. Rather, Apple has gained its market domination due to what I’d like to call “inspired innovation.”

    They take what someone else has already made, and make it better. Faster, sleeker, more consumer-friendy, whatever it is, it is better. Well used to be, at least.

    Now others are playing the waiting game, because Apple has found such success in being a follower rather than leader. (think of AppleTV and that major flop)

    So is Apple cursed? No, their luck has just probably run out. Perhaps they will never reach back to the peak of their success because Samsung is now thinking again and Microsoft is realizing the benefit of watching and learning.

    But, I would say, that although Apple may not benefit financially from being a first mover in any category, it would be of great benefit to our society if they do so. Apple is sitting on so much cash that it is wasting time and opportunity to put that all into R&D and make something truly innovative. Maybe the wearable tech and smart, see-through watch is the next step, but if Apple makes it first, Samsung is bound to come out with the better product in the second round.

    And that is OK… not great for Apple, but great for us consumers. If Apple thinks this way, they will at least guarantee survival in the tech world, but maybe not dominance. But wouldn’t that make for a better marketplace anyway?

    –Meg

  2. Gracias Meg – I think you’re spot on here. Apple is what is known as a “fast follower.” Apple might publicly say they do not conduct marketing research but I tend to not to agree. They let the market first develop – and then jump in when they see promise of something that might scale. If I were the people who developed the Pebble watch, I would be mindful that Apple is more than sniffing in that direction…

    best
    Dr. Dan-o

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