Apple IPod as Metaphor for Business Innovation

Apple iPod as 'Poster Child'
Apple Computer's iPod encompasses virtually every aspect of this new wave of business innovation which makes the iPod experience one from which we, as enterprise architects, can draw lessons from.

Apple iPod & Accelerated Product Morphing
The Apple iPod is ubiquitous - just board an airplane, go to the gym, walk across a college campus or visit your child's fourth grade class. It is easy to forget that Apple introduced the iPod less than 6 years ago on October 23, 2001.

The iPod nano was launched on September 7, 2005. At that time the iPod was less than 4 years old and yet Apple describes the iPod nano as “the fifth generation” of the product line. That is five generations of product in less than four years.

Not only did Apple completely change the design of the iPod with the nano, but Apple also radically changed the underlying technology - moving from mini-disk drives to flash memory (apparently to address the complaints of joggers and other 'active' users). And in changing technology, Apple also changed storage suppliers.

Apple iPod & Business Morphing: Music
From RCA to Sony, companies that have built large businesses selling record/cassette/CD players have eventually entered the music business. But few have done so as quickly and boldly as Apple.

Apple launched the iTunes business in April 2003 just 18 months after the introduction of the iPod. The growth of iTunes is stunning:

  • 50 million downloads in first 11 months (March 15, 2004 - “The Path of Thorns”)
  • 500 million downloads in just 27 months (July 18, 2005 - “Mississippi Girl”)
  • 1 billion downloads in just 35 months (February 23, 2006 - “Speed of Sound”)

Today, iTunes accounts for more than 80% of global online digital music sales.

Apple iPod & Business Morphing: Videos
On October 12, 2005 Apple launched the video iPod. By the end of October, 1 million videos had been downloaded. Three months later (on February 23rd) Apple announced that 15 million videos had been downloaded.

Apple iPod & Explosive Growth
Apple's revenues in FY 2005 for the iPod, iTunes and related products were $5.49 billion (note: Apple's fiscal year ends on September 30th). This was 240% growth over the prior year. To put this in perspective, Apple's iPod-related business is larger than Starbucks, Estee Lauder, Harley Davidson, Dole Foods, Hershey, Monsanto, Mattel, Caesar's or Cablevision, to name a few.
Apple iPod & the 'nano Effect'
The amazing part is that the enormous FY2005 revenue growth for the iPod did not include the sales effect of the iPod nano as the nano was launched on September 7th - just 23 days before the end of the fiscal year.

The impact of the iPod nano is stunning. iPod-related revenues for Q1 2006 (the period from October 1 through December 31, 2005) were an astounding $3.397 billion - or 61.9% of all of FY 2005iPod-related revenues! A total of 14,043,000 iPods were shipped in the quarter which is equal to 50% of all of the iPods shipped since the introduction of the iPod through the end of FY2005 and the launch of the iPod nano. Today, iPod sales are running at a little over two per second.

Apple iPod & Globalization
Apple uses offshore Original Design Manufacturers (ODMs) such as Inventec and Asustek. The original suppliers of the mini-disks were Hitachi and Toshiba. Assembly is largely done in China.

The Apple iPod has the largest global market share for portable media players based on HDD technology as well as the largest global market share for portable media players based on flash memory. The iPod also has more market share in Japan than it does in the U.S. Online iTunes Music Stores have been opened in Japan, France, Germany, United Kingdom, Australia, Canada and dozens of other countries.

Apple iPod, Publishing & Distribution (Holy Hogwarts!)
On October 26, 2004, U2 - the rock group from Dublin, Ireland - gave iTunes exclusive distribution rights for downloading. This was the first of numerous exclusive music distribution rights that Apple secured.

Apple seized momentum in the audiobooks space when it announced the exclusive rights to all Harry Potter audiobooks on September 7, 2005.

Today, Apple has exclusive distribution rights from movie soundtracks to over 150 TV shows (from 'Adam-12' to 'Zoey 101' as well as current mainstream hits such as '24' and 'Lost'). And Apple is always looking for new opportunities; for example, for the 2006 NCAA Men's Basketball Tournament, Apple offered “Season Pass” which entitled the user to download condensed videos of all Tournament games for only $19.99.

In addition to the millions of digital music recordings and thousands of TV shows available for download, iTunes also offers:

  • 35,000+ podcasts
  • 16,000+ audiobooks
  • 3,500+ music videos

Apple iPod as Branding ('Designer iPods')
When Apple announced exclusive rights to U2's music, Apple also introduced the 'iPod U2 Designer Edition,' the first 'designer iPod'. This offering also included the first color screen and its product packaging foreshadowed elements of the iPod nano.

The Harry Potter announcement included a designer iPod which bears the Hogwarts crest on the back.

Apple iPod as 'Bling'
In 2004, Kate Spade introduced an iPod carry case for $74.95 (also available through Apple's online store). Similar offerings followed from Louis Vuitton, Christian Dior, Burberry and Coach. Norêve, a French design firm based in St.-Tropez which specializes in luxury cases for mobile devices, introduced the limited edition iPod “Love Pouch” which is encrusted with 44 diamonds and has a retail price of USD $1,783. (I estimate this price to be roughly 8 times the typical price paid for an iPod.)

In Japan alone, there are over 1,000 iPod accessories.

And carry bags and other accessories aren't the only luxury goods with which the iPod has mingled.

Apple iPod as 'Boom Box'
In the summer of 2004, two separate companies began to sell iPod adapters for the BMW. On September 1, 2004 BMW and Apple announced that BMW was integrating iPod controls into the steering wheel. Mercedes, Ferrari, Volvo, VW and others followed suit.

But has this idea really caught on? Analysts estimate than in 2006, two-thirds of all cars sold in Japan will include iPod adapters. Even Chrysler finally announced on January 8th that they too would integrate the iPod. (As with all innovation there are late adopters as well as early adopters.)

Apple iPod as 'Required Reading'
In August 2003, Duke University brought new meaning to the phrase 'early adopter' by giving all incoming freshmen an iPod preloaded with student orientation information. Duke's vision was to use an iTunes server to distribute lectures and foreign language lessons.

What is remarkable about Duke's decision to embrace the iPod was that Duke made it just a couple of months after the launch of iTunes in April of 2003.

Today, Duke's vision has been replicated at hundreds of colleges and universities. In November, Apple will hold a Digital Campus Leadership Institute at Georgia College and State University (GCSU) in Milledgeville, Georgia (approximately 90 miles from Atlanta and the birthplace of Oliver Hardy of Laurel & Hardy fame.)

GCSU has been dubbed by Apple as 'iPod U' for the breadth of iPod adoption across the university. The adoption of the iPod was championed by Professor Hank Edmonston who is popularly known among the student body as “The Podfather”.

Apple iPod as Ubiquitous Technology
When Apple announced the iPod nano, they also jointly announced with Cingular Wireless the availability of the Motorola ROKR cellular phone. Madonna used the ROKR to have an 'iChat' with Steve Jobs from London as Jobs demonstrated that the ROKR was the first mobile phone to have iTunes preloaded.

Even Wurlitzer jukeboxes now offer an iPod docking station.

Integrating iPod and related technology into automobiles, mobile phones and jukeboxes may only be the first few steps.

On July 21, 2006, Atech will begin shipping the “iCarta Stereo Dock for iPod with Bath Tissue Holder” which include 4 integrated high performance “moisture- free” speakers (www.atechflash.com/products-icarta.html). (Just to be clear, “bath tissue” means toilet paper.)

Apple iPod as 'Give Away'
It is not uncommon for 'hot' products that become ubiquitous to also be used as 'give aways'. In 2004, Air France gave free iPods to anyone who purchased a transatlantic business class ticket.

In Las Vegas, an enterprising orthodontist gives iPods to new clients (which strikes me as a pretty effective bribe parents can use to try and convince their 11 year-old child to wear braces.) And iPods are used as give aways at trade shows, conferences, seminars, company meetings and youth groups, to name a few.

Apple realizes the enormous power of the iPod to stimulate business as a free give away.

Apple has just launched its 'Back to School' campaign for Fall 2006. A college student who purchases a Mac receives a free iPod nano (after mail-in rebate). (The details are at www.apple.com/backtoschool/).

Apple iPod, Business Turnaround & 'Halo Effect'
There is no question that the success of the iPod was the turning point for a company that had lost its sheen and edginess. The iPod's success was also an enormous vindication for Steve Jobs' business acumen.

It is also easy to argue that the iPod has had a significant 'Halo Effect' upon the Mac. Macintosh revenues jumped 48% year-over-year in Q4 2005 - the same quarter that the iPod nano was introduced. And this growth is primarily among young consumers, which bodes well for the future.

With the launch of Macs using Intel's dual-core processors, Apple has clearly moved the Mac from fringe markets, such as graphics artists and education, much closer to the mainstream PC market (with a little help from iPod nano give aways).

Apple iPod & Industry Morphing
The next wave of business transformation is underway and the Apple's iPod, iTunes and related products represent almost all of the core dynamics: from product morphing to globalization, from rapid growth to branding, from 'bling' to 'boom box.

Perhaps the most profound transformation for Apple is its own industry morphing.

What business is Apple Computers really in? The computer business? The music business? The publishing business?

The simple fact is that Apple Computer's iPod and related revenues are significantly greater than Apple's revenues from the Macintosh.

Maybe it’s time to stop calling the company Apple Computer and start calling it by what it really is - Apple Consumer Electronics or even Apple Entertainment. After all, Steve Jobs is the largest shareholder of Disney.

(Article by Larry De Boever, reproduced with thanks to Larry and Architecture and Governance http://www.architectureandgovernance.com/articles/06-deboever.asp).

 

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