Apple's brave old world of cannibalization

Summary:There's no pleasing the analysts or their followers; they all want Apple to follow the competitors into a headlong dive to the bottom of a commodity market. One where there's no quality, nothing special, and little profit.

Apple on Wednesday reported its fiscal first-quarter financial results: Sales of 48 million iPhones (a record), 23 million iPads (a record), only 4 million Macs (constraints on new models a problem), and 13 million iPods (who expects this line to keep growing?). And this is a company that's a failure?

The financial analysts are never made happy. They want Apple to emulate the past history of the PC market: A dive to the bottom with commodity products with little extra cost and little innovation.

There's a bit of irony when some of the very things that Apple is being beaten up for come from its boldness. Apple doesn't just disrupt other platforms but it has little fear in cannibalizing its own successful product lines.

Tim Cook, Apple CEO, described the philosophy in the conference call:

In terms of cannibalization, I see cannibalization as a huge opportunity for us. One, our base philosophy is to never fear cannibalization. If we do, someone else will cannibalize it. We know that iPhone has cannibalized some iPod business, we know iPad will cannibalize some Mac, that doesn't worry us.

On iPad in particular, we have the mother of all opportunities because the Windows market is much, much larger than the Mac market. It is clear that it is already cannibalizing some. I believe the tablet market will be larger than the PC market at some point, and I still believe that.

The iPad Mini could have been a much lesser machine if Apple wanted to protect the iPad. Or the same difference with the iPad to the MacBook. But, no. Cannibalization was accepted. Apple is taking a long view.

A different tack towards cannibalization was taken back in the 1990s. Avoiding cannibalization created chaos in Apple's product lines. There were competing divisions developing lines with different architectures, and marketing groups that would compete for segments. The teams would work against each other, limiting the growth of some systems in a market segment or limiting hardware capabilities to fit a crazy, grand strategic positioning matrix. There were dozens of SKUs.

All of this went out the window with the takeover by Steve Jobs in 1998 and the many corporate restructurings that followed. He focused the many lines into four targeted machines: A professional desktop and laptop; and a consumer desktop and laptop. And there was little worry about cannibalization, not because there wasn't any. There were times when the performance or features overlapped.

Today, the Apple top brass say the company continues to be dedicated to quality, which has been the brand value.

The most important thing to Apple is to make the best products in the world that enrich customers' lives. That's our high-order bit. That means that we aren't interested in revenue for revenue's sake. We can put the Apple brand on a lot of things and sell a lot more stuff, but that's not what we're here for. We want to make only the best products.

And so what does that mean for market share? I think we've had a great track record here on iPod, doing different products at different price points, and getting a reasonable share for doing that. I wouldn't view those things as mutually exclusive as some might. But the high-order bit is making a great product that enriches customers' lives and so that's what we're focused on.

So, here's a company with multiple product lines that are growing. Its customers value and appreciate their hardware purchases. The software and content purchased in the company store is considered a continuing investment in the platform.

Doomed. Obviously.

Topics: Apple, Hardware, iPad, iPhone, Laptops

About

David Morgenstern has covered the Mac market and other technology segments for 20 years. In the recent past, he founded Ziff-Davis' Storage Supersite, served as news editor for Ziff Davis Internet and held several executive editorial positions at eWEEK. In the 1990s, David was editor of Ziff Davis' award-winning MacWEEK news publication a... Full Bio

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