Just 13 years ago, Apple was on the verge of bankruptcy. Today, it is the world's most admired tech company.
Steve Jobs can be credited for the drastic turnaround. But how did he do it?
By thinking differently, innovating, and being controversial.
- Partner with the enemy - Can you imagine Pepsi and Coca-Cola getting together? Or Verizon and AT&T? That's how strange it was when Apple and Microsoft announced their partnership at the 1997 Macworld Expo. After 12 years of financial loss, Jobs needed to get Apple money, and quickly. So he turned to Bill Gates, who made a $150 million investment in Apple. Jobs announced. "The era of competition between Apple and Microsoft is over as far as I'm concerned," "This is about getting Apple healthy, this is about Apple being able to make incredibly great contributions to the industry and to prosper again.”
- Put sex in products - A great salesman, Jobs knew the importance of aesthetics; he realized Apple's products looked dated. In 1998, Jobs called a meeting at Apple, sat everyone down and said, "You know what's wrong with this company? The products SUCK -- there's no sex in them." Today, Apple is credited for creating the most beautiful technology, from colorful iMacs to sleek iPads.
- Change the business model - Apple began as a computer-only company, but Jobs knew it needed to broaden its approach if it wanted to become truly successful. Apple began expanding its products beyond just computers with the release of Final Cut Pro, followed by MP3 players, music, iPhones and iPads. Jobs changed the company's name from Apple Computer, Inc. to Apple Inc. in 2007 to symbolize the new, broader vision.
- Cutdown Barriers - Other retailers were not giving Apple products adequate positioning. Jobs' solution? The Apple Store. Scattered throughout the world, these successful outlets are now the "darlings of the retail computer industry."
- Sell customers what they didn't know they needed - Jobs does not use focus groups. Instead, he sells customers what they want before they know they want it. "[Apple has] a great track record for making you want -- and buy -- things you thought you didn't need," says Carl Howe, director of consumer research for Yankee Group. Last year when the iPad was announced, people gawked. Nearly 20 million sales later, it's not so funny.
- Connect the dots - Apple releases products that are innovative in and of themselves, but they are also integrated visions. iPods mesh beautifully with iTunes; iPads and iPhones collaborate with the app store. According to Jobs, "creativity is just connecting things." Apple frequently shows how the sum is greater than all of the parts.
- Don't hire cookie cutter employees - Ivy league graduates aren't the only people who can run companies. "Part of what made the Macintosh great was that the people working on it were musicians, and poets, and artists, and zoologists, and historians who also happened to be the best computer scientists in the world," Jobs has said.
- Think differently - Apples' "Think Different" ad campaign in the late 1990's was one of the most effective of all time. It stimulated innovation and reinvention, which is what Apple, today, is all about.
- Keep It Simple, Stupid - Simplicity is bliss. Apple's designer Jonathan Ives confirms this strategy: "We are absolutely consumed by trying to develop a solution that is very simple, because as physical beings we understand clarity."
- Sell dreams, not products - Jobs gets people hooked on a feeling. It's not the products his customers buy, it's what the products represent. Remember, people first and foremost care about themselves, so make products they can relate to.
- Trust your gut - Steve Jobs said in his Stanford commencement speech: "Have the courage to follow your heart and your intuition. They somehow already know what you truly want to become."
COMMENTARY: Steve Jobs is not just a business visionary and technology innovator, but a trend maker and one of the greatest product pickers ever. His trackrecord of four straight product successes: the iPod, iTunes, Iphone and Ipad is unprecedented.
Steve constantly tinkers with the products of others, studying how they work, how they are built, and how he could make them better. When you think about it, Apple did not develop the first personal computer, portable music player, cellular phone or tablet computer. The keys to Apple's success is focus on big markets, not turnout "me-too" products, or make incremental improvements to existing products, but to introduce products that are game changing and leagues ahead of the competition.
He is a student of neuromarketing or study consumer psychology. The secret to his success stems from three key things:
The Digital Hub Strategy - In 1996, Apple was having serious financial difficulties and its stock was at an all-time low, so the Apple board asked Steve Jobs to return to the run company and lead a turnaround. By 1996, the personal computer business had completely changed. IBM, Dell, Compaq and others had entered the market. Microsoft dominated desktop applications. The Mac no longer dominated personal computers. Steve knew that if he was to turnaround Apple's misfortunes, Apple needed to change from top to bottom. Apple needed to change its products to meet the needs of a changing market landscape, think differently and adopt new strategies to say ahead of the competiton.
It was right about this time that the Internet really began to take off and the Dotcom Era began. All content text, images, video and sound were going digital, and to Steve this presented a whole new world of business opportunities. When Steve recast Apple from strictly a computer company to a consumer electronics company his decision was based on the Digital Hub Strategy. The Digital Hub was Steve's grand vision of the future: Reshaping Apple to build consumer electronics products built around digital devices and digital content.
On January 9, 2001, Steve Jobs gave a great presentation at MacWorld (see video below) where he introduced the public to the concept of the Digital Hub, when he said that the PC was not dead, but was evolving. Steve Jobs declared that the Mac would become “the digital hub for the digital lifestyle,” an emerging digital trend driven by the internet and an explosion in digital devices: digital camera's, videocam's, portable music players, PDA's and DVD video players. Steve's idea was to use the Mac as a way to add value to those devices by making them more useful by allowing users to share digital files and be able to combine text, images, video and sound to heighten the overal digital experience.
Higher Gross Margins - Apple's gross profit margins are the highest in the personal computer and consumer electronics industry. The main reason: Apple has created legion's of brand loyalists that have grown to like and trust the Apple brand and its products. This creates value in the consumers' minds, and opens their wallets. This is a powerful point of differentiation has allowed other companies like Coach, Nike and Starbucks to charge premium prices.
Unlike other IBM-compatible personal computer and consumer electronics brands, Apple has developed its own proprietary iOS operating system for the iMac, so it does not have to pay a license fee to Microsoft for its Windows operating system.
Apple has consistently been able to deliver game-changing new products that raise the bar within their product category and has set a new standard in technology innovation, design, quality and performance. This has allowed Apple to charge premium prices for the iPod, iPhone and iPad.
- iPod - The iPod set a new standard for portable music players with its design simplicity, ease in downloading digital music, and storage capabilities. Sony used to dominate the portable music player category, but lost it virtually overnight. As of December 2010, nearly 300 million iPods have been sold and Sony has been left in the dust.
- iPhone - The iPhone truly raised the bar in cellular phones with its revolutionary touchscreen, larger screen, graphical user interface, ability to view video, play music and even watch movies and huge library of third-party apps and games, has given Apple a two-year head start over the competition. Through end of of 2o10, Apple sold over 41 million iPhones. It was only after Google released Android, an open architecture operating system for smartphones, that Apple's has somewhat relinquished its lead.
- iPad - Set a new standard in tablet computers as a platform for reading digital books, magazines and newspapers, ease in surfing the internet and running mobile apps. The iPad was an instant hit, selling nearly 15 million iPads in 2010. Industry forecaster's believe that Apple will sell nearly 30 million ipads in 2011. Although competitor's have released tablet computer of their own, Apple's superior technology, high perceived value and first-mover advantages has created barrier's that competitors have been unable to breach.
Apple's legions of loyal brand Evangelists is a "captured market" that really works in its favor everytime it launches a new product. On launch day, Apple customer's often wait in line for hours or even days outside an Apple store just to be able to be the first to buy Apple's products. The result: Apple has completely sold out of the new product within days.
Increasing Returns Business - Apple has evolved into a money-making machine because it has been successful in creating a business model that results in increasing returns that has created economies of scale in production, sales and distribution. This has also contributed to Apple's high gross profit margins. Here are a few examples:
- Lower Production Costs - Apple outsources all product production to Asia, eliminating the need to invest in plant and equipment and hiring production personnel.
- Locking Up Scarce Components - Apple's deals with its manufacturing partners allows it to lockin prices and regular supplies of vital components, while competitors have to pay higher costs for the same components and wait longer to get them.
- Distribution Chain Economies - Apple does not use distributors or dealers thereby eliminating middle-man costs, instead it sells its products through:
- Apple Stores - Apple sells the bulk of its products through its network of 325 state-of-the-art worldwide Apple Stores. Apple Store's innovative store interiors, Genius Bar and personalized selling approach is what sets it appart from other retailers. Apple stores attract over 75 million visitors per year and are the highest grossing stores per square foot of any retail chain in the world.
- Major Cellular Phone Providers - Apple distributes the iPhone through AT&T (no longer exclusive distributor) and Verizon Wireless (beginning with the iPhone 4). It is rumored that Apple negotiated sweet deals with both companies.
- Itunes Store - Apple's online iTunes Store is the secret sauce that has made the iPod, iPhone and iPad a resounding success. The iTunes Store's sweet deals with the major music labels and "99 cent per song model" has allowed Apple to control nearly 85% of all music downloads and reaching over 1 billion downloads in 2010.
- Apple App Store - Apple now has the world's largest collectiion of apps for the iPhone and iPad with a combined total of 350,000 apps. At the end of 2010, Apple reported that over 10 billion apps had been downloaded. Apps are a huge revenue contributor for Apple. Wwhile 80% of Android apps are free, only 33% of Apple apps are free.
- Software Developers - With the exception of the Mac and iOS operating systems, Safari browser, Quick Time Player, and iWorks, Apple leaves nearly all software development up to its network of software developers and partners. Again, Apple has a very sweet deal. Apple's revenue sharing deal with developer's allows it to keep 30% of the revenues. Most of this is pure profit.
Steve Jobs Halo Effect - Let there be no doubt that Steve Jobs is the Face of Apple. He is one of the most recognized business personalities ever. I don't know what else to call this, but Steve Jobs seems to hold a magical spell over his loyal Apple evangelists. I have often referred to this as the "Lemming Effect". His customers never quite know what new products Apple is developing. Secrecy is tantamount. New product research and development is top secret. Everything is compartmentalized and conducted behind closed doors, and information about new products under development is strictly on a need to know basis.
When rumors about a new product leak out, they are from "unidentified sources". Some say that Steve Jobs deliberately provides small leaks to the press off balance and keep anticipation at a fever pitch. When new products are finally unveiled, it is a huge media event. People fly in from around the world to be at the unveling or watch it by live video stream. Steve Jobs is a master of the presentation. It is said that Steve Jobs spends endless hours practicing and perfecting the delivery of his presentations at these events. If you view the above video you cannot be but deeply impressed.
Notice how he takes small pauses, carefully using certain words when talking about the iPhone, "changes everything", "breakthrough", "sync", "leap frog product", "super easy" "reinvent the phone", and "revolutionary mobile phone". He calls the new widerscreen iPod, the iPhone and a new revolutionary internet communications device, a "single product". This is in reference to the Digital Hub.
For some valuable insights into Steve Jobs "The Man" I highly recommend "Inside Steve's Brain" by Leander Kahney and "The Presentation Secrets of Steve Jobs" and "The Innovation Secrets of Steve Jobs" by Carmine Gallo.
Courtesy of an article dated March 23, 2011 appearing in SAI Business Insider