Daring Fireball: Dazzling Results

It’s amazing how some people can just not get it when it comes to Apple in particular, and the technology industry in general.

John Gruber tends to get it, which he demonstrates in this post dismantling someone clearly doesn’t get it. I’m going to be lazy and rather than carefully selecting some quotes to comment on, I’m going to post pretty much excerpt pretty much the whole thing and interject my own commentary here and there.

Juan Pablo Vazquez Sampere, writing for Harvard Business Review, “We Shouldn’t Be Dazzled by Apple’s Earnings Report”:

But one thing has changed. Apple used to revolutionize industries, announcing record sales numbers because it had introduced a new technology, feature, or product that we had never imagined but that, when we saw it, we all instantly wanted. That Apple seems no longer present. In this instance, all Apple has done is copy a feature for its own best customers. While that’s very effective for today, it does not solve the problem of tomorrow for a company that competes on serial innovation.

That one feature he’s talking about is the larger display sizes for the iPhone 6. I’ll reiterate that Apple has never been a company that serially produced revolutionary product after revolutionary product. Their revolutions have been very few and far between: Apple II, Macintosh, iPod, iPhone/iPad. Everything else is constant iteration and refinement.

Exactly right. Revolutionary products come when the industry as a whole gets lazy and slow.

The Macintosh built on innovations created at Xerox PARC (along with plenty of Apple’s own) that Xerox had failed to capitalize on.

I’d argue that the iPod took advantage of a series of incremental changes to the technology and media landscape that the incumbent players had neglected to take advantage of. The music labels shunned online distribution, I think, in part, because they couldn’t make it work on their own, and didn’t trust Microsoft enough to work with them. On the other side, the Wintel duopoly didn’t have the chops to make a true consumer oriented product, and the PC OEMs they held in their orbit couldn’t pull it off either.

Apple wasn’t ready for it either, not at first. They needed to get their own house in order before they could pull off the iPod, but once they did, their ability to launch the iTunes music store was primed by the desperation of the music industry for a partner that could give them a path into the future.

I’d suggest that Apple’s opportunity to do something revolutionary with the iPhone came because of the conservatism of Blackberry, Microsoft’s habit as a fast-follower, rather than an innovator, and Palm’s decline.

If there is a steady pace of innovation, often leavened by some competition, the sorts of holes that you can launch a Mac, an iPod, an iPhone, or even an iPad into just don’t exist. Constant steady improvement carry’s the day.

So I’d argue Sampere is provably1 wrong on Apple’s history. And it seems doubly weird to publish this two months before Apple Watch is set to hit. Potentially, Apple Watch is clearly another “we had never imagined but that, when we saw it, we all instantly wanted” product.

I would also argue that Apple’s record-shattering results last quarter are remarkable. Not because the iPhone 6 and 6 Plus are revolutionary, because they’re not. But because it shows that design can matter in the mass market. For decades the industry’s conventional wisdom held that design wasn’t important. The industry’s leaders created shitty software and shitty hardware. Apple’s success has upended the industry’s value system. Almost all of Apple’s competitors value design more today than they did a decade ago: Microsoft, Google, Samsung, HP — all of them.

Indeed, and the industry leaders created shitty software and shitty hardware because they weren’t selling to individual end-users, they were selling to IT managers, and CIOs.

There’s no reason to buy an iPhone 6 or 6 Plus other than because you’re willing to pay a premium for superior hardware and software quality. And last quarter 74 million people around the world did just that.

As its products evolve, Apple pours ever more effort into incremental improvements in the details. The bigger displays are the most noticeable differences in the iPhones 6, but everything else was improved too: the camera is better, both in terms of speed and image quality; the CPU is faster; the GPU is faster; battery life is better; the display quality is better; Touch ID is better. And then there’s Apple Pay.

Most of these are things that Clayton Christensen and his acolytes would call sustaining disruptions, and then there is Apple Pay. I’m not sure what to think of Apple Pay. To be clear, I think it will be huge, but part of the reason it will be huge is because it does such a good job of accommodating all the various players in the payment chain. Such accomodations usually require either a great deal of duress (like the dire straits of the music industry when Apple arranged iTMS), or a lot of kowtowing that ends up leaving an opportunity for something truly disruptive. Which isn’t to say there isn’t a middle road, but it remains to be seen how Apple Pay plays out.

Again, none of those improvements are revolutionary. But it’s a solid list of year-over-year improvements, and the results show that consumers agree. The most telling — dare I say dazzling — number Apple revealed last week wasn’t the number of iPhones they sold during the quarter, but the price people paid for them. Average selling price went up year-over-year, in an industry where average selling prices are going down.

A fundamentaist Christensen Disruptionist, will know that an excessive focus on average selling price (ASP) is what ends up leading innovators astray, leaving them vulnerable to disruption from below. Of course, Apple’s success in the computer market is a reminder that a company with a rising ASP in a market where ASP is otherwise trending downward isn’t necessarily doomed.

The problem isn’t that Apple has changed. The problem is that Apple has not changed, and their continuing success is proving that conventional disruption theory does not apply to consumer-driven markets in which outstanding design and integration (as opposed to modularity) can drive demand.

I’d suggest that there are two important factors that fundamentalist disrupptionists ignore at their peril. The first, is, as Gruber notes, that consumer markets are different from B2B markets. The other is that a lot of disruption theory focused not just on B2B markets for high-tech, they did so at a time when those markets were still on the long climb to reaching global scale, a time when computing was relatively precious, when Microsoft’s vision was a computer on every desk.  Now, many have one on their desk, another in their bag, one in their pocket, and one in their living room. Other parts of the world aren’t so well served, but mobile phones are widespread, and are being quickly followed by smart phones, and inexpensive PCs are spreading as well.

Apple is disrupting the conventional tenets of business even more than they are any particular product category in consumer electronics. There is something fascinating — in several ways unprecedented — going on with Apple right now. Rather than study it, understand it, describe it, and teach it, Sampere2 has chosen to deny that it’s happening.3

via Daring Fireball: Dazzling Results.

When you have a hammer, everything looks like a nail. I think disruption theory was a very useful tool for exploring business dynamics, and it remains so, but it is merely an imperfect attempt to model the world. I think that the mistakes Clayton Christensen and his acolytes make in understanding Apple, and the failed predictions they’ve produced to date, are, unfortunately, being repeated as the try to mis-apply the theory to other spheres, like education.

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