Apple’s ‘disruptors’ nip off innovations

Apple's recent record earnings report may have led some consumers to believe that the "old" Apple is back. And the world wants that Apple back. We want the Apple that revolutionised industries and communication in the past decade.

But does the fact that it earned more money in one quarter than any company in history mean that our beloved Apple is alive and well? A look at the bigger picture within which these numbers sit suggests an alternate view.

To see that larger picture, let’s locate Apple within its larger context as a once disruptive innovator that’s now essentially an incumbent. A fundamental tenet of disruptive innovation is that established firms normally do not react to disruptors. And for a good reason.

Generally, disruptors take over the least profitable customers of the industry. As that happens, established firms usually redirect the resources they might have spent defending their low-value consumers toward their high-value consumers.

Adopt to disrupt

One of the most common misunderstandings about disruptive innovation is thinking that incumbents are either blind to the opportunity disruptors are creating or they are deliberately choosing to ignore it. It’s more accurate to say that they see it, but are unable to adopt the disruptor’s business model for some reason.

But not reacting at the business model level does not mean failing to react at the technological level. Very often, incumbents do adopt a disruptor’s technology if it serves their best customers.

For instance, HP did try (and succeeded, for a time) at selling PCs online. Established airlines adopted many of the technologies of disruptors, including online reservation, fleet optimization and internal management practices.

In many cases, what is gold for the disruptor is only the cost of doing business for an incumbent, which can now serve its best customers better even if it does not earn much in the way of additional revenue or profits.

Many banks, for instance, now offer the convenience of online banking, but they still rely on branches to bring in new customers.

However, there are the cases when new technology helps incumbents better monetize their premium customers. One such example is the smartphone’s screen size.

In a smartphone market that is growing at a healthy rate of more than 25 per cent, data indicates that Apple had lost 2 per cent of market share in the past three years.

This loss came from new customers who chose other brands – and, even more importantly, from former Apple customers who defected because of frustration over a particular feature: screen size.

By launching the iPhone 6, Apple has regained a portion of these customers, as well as an additional share of new customers, who now can compare different phones without screen size being an issue.

So at a strategic level, what Apple has done is what incumbents usually do: adopt a disruptor’s technology (Samsung’s and Xiaomi’s, mainly) to sell more to its premium customers.

The astounding results are explained in large part by the power of its scale - the reach of Apple's mighty marketing capability and its capacity to manufacture a large number of phones, admittedly the result of good, traditional management by chief executive Tim Cook.

Monetising products

Despite these record numbers, the process of disruption continues. Xiaomi and other disruptors still eat away at the low end with business models that are capable of monetising their products much more effectively than Apple.

Still, one thing has changed.

Apple used to revolutionise 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 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. – Copyright Harvard Business Review 2015