As a break from my daily routine I often like to think strategically about other companies. I particularly like to look at some of the bigger companies that impact our daily lives. Starbucks is one that I like to watch as is Dell. One that has caught my eye lately and that I find intriguing is Apple. Apple was recently named the most admired company in the world by Fortune Magazine. It's a good article as is the follow on piece about Steve Jobs. What makes Apple particularly interesting to me is their BHAG - "to democratize technology by providing products everyone will want to use". Apple pursues their BHAG relentlessly and utilizes this passion in their product development process which consists of three questions: : 1) what do we hate; 2) what do we have the technology to make; and 3) what would we like to own?
This is classic Blue Ocean Strategy. By focusing on democratizing technology Apple has transformed the digital market from one that focused on owning technical standards to creating products that people wanted to have. That is why today, I'm writing this blog on a Mac; its current sales growth is double the next competitor. As I type, I'm listening to music on iTunes; now the second largest music retailer in the world. Later, I'll go to the gym and will listen to those tunes on my iPod; that has 70% of the market for digital music players. And, the iPhone has been such a rage that people stood in line to buy one and Apple expects to ship 10 million this year.
Yesterday was an interesting news day for Apple watchers as word leaked that Apple is strongly considering some type of subscription model for music. As is typical of news about Apple moves, details of the plan are sketchy at the best so its virtually impossible to comment on the merits of the model. Rather, what is interesting about this "news" is that it appears to the pundits and followers of Apple that this is a significant change in Apple's strategic thinking. Steve Jobs is on the record as being against a subscription model as he believes that consumers want to own their music. If Apple does in fact come out with this type of model it would appear to signal a strategic change. Personally, I'm not sure that this really isn't just a long planned strategic move that gets Apple closer to its BHAG.
From a historical perspective I'm inclined to agree with Jobs about music ownership. As much as I use iTunes I have historically only bought singles, not albums online. There is something I like about having that CD in hand and know that my ownership is not limited. Given the success of the iTunes model and the lack of success for subscription models like Napster and Rhapsody, it seems that the market concurs.
However, as time has gone by I have gotten comfortable with online music and I have begun buying whole albums. I'm now buying all my music online. Because its all online, I don't necessarily feel like I own my music - that attachment is gone. To be honest, I don't miss the experience of having a CD in hand because I like the ease and depth of iTunes. Three years ago when I got my first iPod I did so because I didn't like the subscription model. Today I would be comfortable with a subscription model because the music ownership no longer has a personal connection for me. Rather, the idea of unlimited music at a fixed cost is hugely appealing.
Consider my conversion within this context. Apple indicates that it has sold 140 million iPods and over 4 billion songs on iTunes! It stands to reason that if a user like myself can get comfortable with buying all their music online and lose that attachment to the ownership aspect of music that the other 140 million users could as well. Assuming so, perhaps Jobs has determined that a tipping point has been reached in the need for music ownership.
The question then becomes is a subscription model a dramatic change in strategic thinking for Apple or a predetermined recognition that the need to own the music would disappear? If I didn't understand Apple's BHAG and approach I would concur with the pundits that this is a strategic change. However, knowing what we know about Apple its pretty clear that this strategic move has long been a foregone conclusion. Why do I say that? Well, think about the BHAG - "democratize technology". What is more democratic - ownership or unlimited access? Obviously unlimited access is as the ability to own is limited by the amount of capital you have to acquire. Also, unlimited access implies freedom of choice - I can listen to whatever I want whenever I want. The only constraints are my imagination and music tastes. In Apple's BHAG subscription based music becomes the ultimate demonstration of the democratization of technology!
Many will argue that Apple has been less than democratic with iTunes. After all, you can't play it on any other player besides the iPod. Also, Apple has been adamant about its pricing model when dealing with the music companies. All true, but if Apple determined long ago that the market was not ready for subscription music why would it bother pursuing that model? Additionally, by waiting for the tipping point to arrive Apple has been able to build a dominant market position in the music business. When subscription music finally arrives all those iPod owners will signing up for Apple's offering. And, as anyone in the banking, cable and telephone industry can tell you, its very expensive to convert customers. That's because people only change those services if the case for doing so is extremely compelling because its a pain to do so. Assuming Apple can continue to meet their customers expectations defections to other services will be limited.
The bottom line for me is that I think a subscription model done right could be pure genius for Apple. The reoccurring revenue they will generate will be mind boggling - do the math at any subscription number. If Apple can truly democratize technology with a subscription model, they will have happy customers and very happy shareholders.
So there you have it.
This is classic Blue Ocean Strategy. By focusing on democratizing technology Apple has transformed the digital market from one that focused on owning technical standards to creating products that people wanted to have. That is why today, I'm writing this blog on a Mac; its current sales growth is double the next competitor. As I type, I'm listening to music on iTunes; now the second largest music retailer in the world. Later, I'll go to the gym and will listen to those tunes on my iPod; that has 70% of the market for digital music players. And, the iPhone has been such a rage that people stood in line to buy one and Apple expects to ship 10 million this year.
Yesterday was an interesting news day for Apple watchers as word leaked that Apple is strongly considering some type of subscription model for music. As is typical of news about Apple moves, details of the plan are sketchy at the best so its virtually impossible to comment on the merits of the model. Rather, what is interesting about this "news" is that it appears to the pundits and followers of Apple that this is a significant change in Apple's strategic thinking. Steve Jobs is on the record as being against a subscription model as he believes that consumers want to own their music. If Apple does in fact come out with this type of model it would appear to signal a strategic change. Personally, I'm not sure that this really isn't just a long planned strategic move that gets Apple closer to its BHAG.
From a historical perspective I'm inclined to agree with Jobs about music ownership. As much as I use iTunes I have historically only bought singles, not albums online. There is something I like about having that CD in hand and know that my ownership is not limited. Given the success of the iTunes model and the lack of success for subscription models like Napster and Rhapsody, it seems that the market concurs.
However, as time has gone by I have gotten comfortable with online music and I have begun buying whole albums. I'm now buying all my music online. Because its all online, I don't necessarily feel like I own my music - that attachment is gone. To be honest, I don't miss the experience of having a CD in hand because I like the ease and depth of iTunes. Three years ago when I got my first iPod I did so because I didn't like the subscription model. Today I would be comfortable with a subscription model because the music ownership no longer has a personal connection for me. Rather, the idea of unlimited music at a fixed cost is hugely appealing.
Consider my conversion within this context. Apple indicates that it has sold 140 million iPods and over 4 billion songs on iTunes! It stands to reason that if a user like myself can get comfortable with buying all their music online and lose that attachment to the ownership aspect of music that the other 140 million users could as well. Assuming so, perhaps Jobs has determined that a tipping point has been reached in the need for music ownership.
The question then becomes is a subscription model a dramatic change in strategic thinking for Apple or a predetermined recognition that the need to own the music would disappear? If I didn't understand Apple's BHAG and approach I would concur with the pundits that this is a strategic change. However, knowing what we know about Apple its pretty clear that this strategic move has long been a foregone conclusion. Why do I say that? Well, think about the BHAG - "democratize technology". What is more democratic - ownership or unlimited access? Obviously unlimited access is as the ability to own is limited by the amount of capital you have to acquire. Also, unlimited access implies freedom of choice - I can listen to whatever I want whenever I want. The only constraints are my imagination and music tastes. In Apple's BHAG subscription based music becomes the ultimate demonstration of the democratization of technology!
Many will argue that Apple has been less than democratic with iTunes. After all, you can't play it on any other player besides the iPod. Also, Apple has been adamant about its pricing model when dealing with the music companies. All true, but if Apple determined long ago that the market was not ready for subscription music why would it bother pursuing that model? Additionally, by waiting for the tipping point to arrive Apple has been able to build a dominant market position in the music business. When subscription music finally arrives all those iPod owners will signing up for Apple's offering. And, as anyone in the banking, cable and telephone industry can tell you, its very expensive to convert customers. That's because people only change those services if the case for doing so is extremely compelling because its a pain to do so. Assuming Apple can continue to meet their customers expectations defections to other services will be limited.
The bottom line for me is that I think a subscription model done right could be pure genius for Apple. The reoccurring revenue they will generate will be mind boggling - do the math at any subscription number. If Apple can truly democratize technology with a subscription model, they will have happy customers and very happy shareholders.
So there you have it.
1 comment:
This blog is pure gold. Very insightful and full of the wisdom that embodies Mr. Michael Vann
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