Product Study: iPhone

One of a handful of product case studies I wrote last year to help understand successful product launches.

Apple’s iPhone was announced December 9, 2007 and released June 29, 2007. It was $499 for the 4GB version, $599 for 8GB. After 8 years it had captured 50% of U.S. smartphone market and >66% of sales, with 100 million users.

(1) Value created — Simply describe the innovation. How did it create value?

The iPhone is a pocket computer. It has typical phone capabilities including phone calls and text messaging, along with cellular internet connectivity. Differences between other smartphones at the time were:

  • Large multi-touch screen with no tactile keyboard, no need for stylus — this allowed full use of screen when not using keyboard
  • Ability to browse normal, non WAP, websites (can zoom easily using multi-touch)
  • Ability to run desktop-class applications
  • Multiple sensor inputs — proximity, light, accelerometer

(2) Value captured — Competitive advantages, barriers to entry. Why didn’t incumbents have a reason to fight them?

  • Distribution:
    • Extension from existing Apple network — iTunes, Mac OS, iPod.
    • Brand attachment to Apple.
    • Economies of scale exist with integration and complexity of engineering.
  • Switching costs once owning an iPhone.
  • Strong habit attached to usage many times / day — strong attachment to UX.
  • Phone makers saw it as toy for rich people at first. Computer makers didn’t see it as a computer (low-end disruption).

Continue reading “Product Study: iPhone”

Companies I admire

Here’s a short list of modern companies I admire, in no particular order:

I admire each for different reasons, but primarily it is their culture, processes, and organizational structure. All of these also maintain “smallness” in their own way, a topic I’ll probably discuss in a future post.

Quotes On Steve Jobs

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After reading Walter Isaacson’s biography and the last few months worth of articles on Steve Jobs, I put together a collection of my favorite quotes about and related to him:

At the company he founded after being ousted from Apple, Jobs was able to indulge all of his instincts, both good and bad. He was unbound. The result was a series of spectacular products that were dazzling market flops. This was the true learning experience. What prepared him for the great success he would have in Act III was not his ouster from his Act I at Apple but his brilliant failures in Act II. — Isaacson (page 219)

It was yet another example of Jobs consciously positioning himself at the intersection of the arts and technology. In all of his products, technology would be married to great design, elegance, human touches, and even romance. — Isaacson (page 41)

Jobs’s interest in Eastern spirituality, Hinduism, Zen Buddhism, and the search for enlightenment was not merely the passing phase of a nineteen-year-old. Throughout his life he would seek to follow many of the basic precepts of Eastern religions, such as the emphasis on experiential prajñā, wisdom or cognitive understanding that is intuitively experienced through concentration of the mind. — Isaacson (page 48)

[Jobs’s] reality distortion field was a confounding melange of a charismatic rhetorical style, indomitable will, and eagerness to bend any fact to fit the purpose at hand.  — Andy Hertzfeld 

Continue reading “Quotes On Steve Jobs”

Fumbling the Future at Xerox PARC

Current PARC campus
There is a wide difference between completing an invention and putting the manufactured article on the market.” — Thomas Alva Edison

In this week’s New Yorker, Malcolm Gladwell writes about innovation and how Xerox PARC failed to profit from the many incredible inventions that came out of its lab. (You can read the summary here.)

PARC (Palo Alto Research Center), located on the Stanford University campus, was founded in 1970 as a division of Xerox Corporation. They were an R&D lab that Xerox planned to use to both create new products and augment their current ones. They were tasked with creating “the office of the future.” In the mid-1970s, almost half of the world’s top 100 computer scientists were working at PARC. Within five years of its founding, PARC had developed a wide array of important computer technologies, including the following:

  • Xerox “Alto”– the first personal computer with a mouse and graphical user interface (GUI) that included windows, icons, and pull-down menus.
  • A WYSIWYG (what you see is what you get) text editor.
  • Computer generated graphics.
  • An Ethernet local-area-network.
  • Laser printing.

In Everett Roger’s book Diffusion of Innovations, he uses Xerox PARC as a case study in the “commercialization” phase of the innovation-development process. What led the engineers and scientists at PARC to such an amazing track record? Rogers breaks it down as follows: Continue reading “Fumbling the Future at Xerox PARC”

Apple Inc: The Greatest Turnaround in Corporate History

Steve Jobs
Some fun facts about Apple’s turnaround:

  • +8,524% (37.7% annualized): Stock performance since Steve Jobs’ return to Apple in 1997.
  • +821% (18.6% annualized): Revenue growth since Jobs’ return.
  • +5,093% (66.4% annualized): Stock performance since the launch of the iTunes Store in April, 2003. (A disruptive innovation.)
  • +951% (39.9% annualized): Revenue growth since iTunes Store launch.
  • In the last 8 years, revenue has grown by $60 billion (1,000%). 73% of that growth came from newly launched products.
  • In the last 3 years, revenue has grown by $40 billion (165%). 60% of that growth came from iPhone sales.
  • $220 billion: Amount of products sold since the release of the first iPod.
  • $19 billion: Apple’s cut of all sales through the iTunes Store, plus Apple iPod accessories (currently $5 billion a year).
  • 298 million: Total number of iPod units sold.
  • 90 million: Total number of iPhone units sold.
  • If the cash and securities on Apple’s balance sheet (~$60 billion) was turned into a hedge fund, it would be the biggest in the world.

Apple Sales/Income Timeline

Apple Sales/Income Timeline

Apple’s unit volume for non-Mac products:

Apple Unit Sales

The Innovations of Apple: Part II

Steve Jobs iPhone
Instead of further examining where Apple’s current (and future) products fit in on the “innovation scale,” in Part II I want to talk about Apple as an investment, and where its products fit in in terms of investment value.

Apple has been a fantastic investment over the past decade. In fact, since April 2003 when they launched the iTunes store (and iPod sales took off), a dollar invested in Apple would be worth over $40 today – an annualized return of almost 70%. That’s a return that would make most venture capitalists blush. Not bad for a company founded 27 years prior.

One more statistic: even if Apple stock had gone nowhere from its IPO in 1980 up to 2003, its annual return over the three decades since going public would be 13%, which still beats the S&P 500 by over 3%. In other words, almost all of Apple’s current value (~$230 billion) was created over the last seven years.

Where did that value come from? For the seven years ending 2009, sales grew from $5.7bb to $42.9bb. Over 70% of that growth came from new products: the iPod, the iPhone, media sales, and other related peripherals. On a net profit basis, even more than 70% of Apple’s growth came from new products (segment margins aren’t disclosed, but overall margins have hugely increased and most of that likely came from new products). Aside from the storied brand name, Apple is basically a startup that was funded with the cash and income from their struggling Macintosh business.

Apple and the Red Queen Run the Hedonic Treadmill

…it takes all the running you can do, to keep in the same place.” – The Red Queen, Lewis Carroll’s “Through the Looking-Glass”

So, clearly, the law of large numbers comes into effect when looking at Apple’s future growth prospects. To double revenues, Apple would have to sell an extra $43 billion a year in products – that’s over 68 million iPhones or 32 million Macs every year. Continue reading “The Innovations of Apple: Part II”

The Innovations of Apple: Part I

Steve Jobs

Apple is an incredibly creative, innovative company, and is usually at the top of people’s minds when it comes to new consumer technologies. So for the rest of this post, I’ll examine if and why Apple’s products are disruptive.

Disruptive Portable Music?

Before MP3 players, the only real option for portable music was a CD player. The first MP3 players were introduced in 1998, and had very low capacities. They could hold at most one or two CDs worth of music. In 2000, Creative released its NOMAD Jukebox, which had a capacity of around 1,200 songs. However, it was expensive and had limited usability.

SongCapacity

The first generation iPod (5GB) was released in 2001 and could hold an average of 1,000 songs, or about 79 CDs at an equivalent quality. The cost of music (content) was low at first: consumers who already had a CD collection could transfer their songs to the iPod, or download them from the (usually illegal) filesharing programs on the internet.

The total cost per portable song for an iPod 1G was $1.48 or $0.39 if users converted old songs. This compares favorably to a CD player’s $1.95 cost per song (assuming someone can carry around a maximum of 10 CDs without it becoming too much of a burden – see notes for details). Despite this ability to carry more music for an incrementally cheaper cost, like earlier players the high total cost of the device—and the lack of convenience to use its capacity—confined sales to “fist adopters” and high-end users who were willing to convert their old music collection.

So at first, the iPod was a sustaining innovation relative to other portable music devices. Although it wasn’t made by a current industry leader, it was a breakthrough improvement upon other portable music devices and the performance metrics that customers valued (quality, capacity, cost per portable song, etc.).

Continue reading “The Innovations of Apple: Part I”