Reading Assignment

FEBRUARY 22, 2010 Wall Street Journal

Deconstructing Apple — Part I
In 1997, or about three centuries ago in tech years, I bought an e-tablet from A.T. Cross, the pen company. Co-developed with IBM, the CrossPad was heralded as a game changer that would open up a whole new product category—Portable Digital Notepads. I’m a copious note-taker, so the idea of turning my scribblings into digital files was too seductive to ignore. Yet within a month, the CrossPad was sharing shelf space with all the other paradigm-busting products that had promised, and failed, to change my life.
Truth is, I’m not so much an early adopter as an easy mark—a sucker for the utopian dreams of technology mystics, no matter how commercially tainted their visions might be. Who was I to argue with “Ozzie” Osborne, head of IBM’s Pen and Speech Business Systems business unit, when he declared the CrossPad would “redefine how users perceive pen and paper?” i And why, today, should I question Steve Jobs’ claim that Apple’s soon-to-be-shipped iPad will break open a huge new market for personal media devices? (Though I’m baffled by the idea of a “pad” without a pen—what’s up with that?) As the love child of a Kindle and an iPhone, the iPad is certainly winsome—but only time will tell if consumers come to regard it as an essential gap-filler between a mobile phone and a laptop.
There are many in the blogosphere who are betting against the iPad. Much of the skepticism seems to be a visceral reaction to Apple’s recent triumphs. Apparently it is easier to tolerate jaunty immodesty when a company is a struggling also-ran and not a high-tech juggernaut. Yet despite the alleged shortcomings of the iPad (no camera, no Java, no Flash, no stylus), you’d have to be at least a tiny bit stupid to bet against Apple.
Over the past decade, the pride of Cupertino has produced a mind-boggling parade of accomplishments.
– Having been dismissed as a footnote in the personal computer industry, Apple is now the market leader in computers costing more than $1,000. In one recent month, its market share in this segment exceeded 90%. ii – Though it was a late entrant into the mobile phone business, Apple currently makes more money from roughly 3% of the global handset market than Nokia makes from more than 30%. iii – Within six years of launching its online music store in 2003, Apple had become the world’s largest music retailer. iv – Apple’s first physical store opened in 2001. Five years later, Apple’s sparse, elegant shops were generating four times more revenue per square foot than its big box competitors,v and its Fifth Avenue store in New York is thought to be the most profitable retail outlet in the world.vi – At $180 billion, Apple’s market value is currently three and half times that of Nokia, and more than 60% higher than Hewlett-Packard’s—a company with three times Apple’s revenue.
So rather than fretting about the prospects for the iPad, clever Apple watchers and envious wannabes should be asking themselves: How in the world could one company have accomplished all this? How do you build an organization that is capable of reinventing not just one industry but four—computing, music, electronics retailing and mobile phones. How do you do the unprecedented repeatedly?
Some might say you have to start with Steve Jobs, Apple’s prescient and exacting boss. While it’s impossible to imagine Apple without Jobs, the company’s unparalleled success is more than the product of one fertile mind. In his role as CEO, Jobs inspires and arbitrates, but he authors only a fraction of the innovation that permeates Apple’s products.
Competitors and business analysts would probably credit Apple’s gravity-defying success to a contrarian strategy that . . .
Focuses heavily on design. For years, Apple’s focus on design and ease-of-use has differentiated it from competitors, who have often seem determined to create products that are as ugly and non-intuitive as possible.
Fuses hardware and software. While most of Apple’s competitors have specialized in either hardware or software, Apple has pursued excellence in both. By tightly integrating the hardware and software design, the company has been able to optimize system performance to the benefit, and relief, of its customers.
Integrates a broad array of complementary technologies. With the possible exception of Samsung, Apple encompasses a broader array of technological capabilities than any of its competitors. While it does little of its own manufacturing, Apple’s mastery of advanced materials, batteries, power management, component packaging, application development and industrial design gives the company a distinct advantage in launching ground-breaking products—and in controlling its own destiny.
Locks up customers with velvet hand-cuffs. Apple has found ways of locking customers in and competitors out—all with the goal of delivering a great end-to-end user experience (and making boatloads of money). That’s why the only place you can buy music for an iPod is at the iTunes store—and why the iPad will probably work best with books purchased from Apple’s own iBook store. Bill Gates would be proud.
Harnesses the efforts of independent software developers. The vibrant network of developers that Apple assembled around the iPhone is unique within the mobile phone industry. With more than 140,000 applications created thus far, Apple has again shifted the grounds for competition. Today it’s not just phone versus phone, but ecosystem versus ecosystem. And since Apple owns the channel through which these “apps” are sold, it garners a share of the profits. Undoubtedly Apple hopes to turn the iPad into another developer magnet.
Leverages the company’s core competencies into new markets. There is always a risk that a company becomes tethered to a particular product or market (like Kodak). Over the past decade, Apple has avoided this fate by leveraging its core capabilities into new industry segments. The company’s self definition isn’t centered on one particular industry, but on a portfolio of deep competences. It is telling that in his recent iPad pitch, Jobs described Apple as the world’s large “mobile devices company,” ahead of Nokia, Samsung and Sony. A decade ago, no one would have lumped Apple in with these companies—the comparisons would have been with Microsoft and Dell.
But as logical as this analysis may seem, it’s also unsatisfying. It reveals something of the “how,” but nothing around the “why.” Why has Apple been able to rewrite the rules in a handful of industries when most companies struggle to do it in even once? Why does the company seem to take such pride in defying conventional wisdom? And most importantly, why is it able to routinely deliver the exceptional?
These are the questions I’ll tackle in my next post, but for now a few questions:

Question:
1. Is Apple a successful company? Justify your answer (compare Apple’s financial performance with its main competitors).
2. What are the main sources of its success? (Value chain, resources? valuable/rare/difficult to imitate/difficult to substitute?)

More than 300 word.