Why Apple must move beyond the ‘wow’ moment

Discussion
May 26, 2016

[email protected] staff

Presented here for discussion is a summary of a current article published with permission from [email protected], the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

Apple’s disappointing second quarter earnings — including the first-ever drop in sales for the iPhone — accelerated worries about how the company will deliver the strong growth investors have come to expect.

The big problem is that the smartphone market is starting to look more like the PC industry, where there is little to differentiate companies’ product lines and customers stretch the lifespans of their systems for longer than vendors would like.

Apple’s conundrum isn’t unique. Companies such as Microsoft and IBM have developed new technologies to grow quickly, but then are forced to reinvent their businesses.

However, Peter Fader, a marketing professor at Wharton [and a RetailWire BrainTrust panelist], isn’t worried about Apple. “Customers are more in love with Apple than ever before.”

Indeed, Prof. Fader believes Apple needs to be careful about focusing on hit products as a way to drive sales. “Apple is going to have to be about running the business better than creating a ‘wow’ moment all the time,” he says. “How much of Apple’s future revenue is going to be product sales vs. services? The product upgrade approach is working for Apple, but the value is in all the stuff surrounding the hardware.”

To Prof. Fader, Apple’s growth conundrum is analogous to software companies that have to transition from business models that revolve around licensing to one focused on subscriptions and cloud services.

As examples, he pointed to Adobe Systems’ transition to cloud services, but also how Starbucks refocused on customer experience, easing transactions and then selling its customer base more products through a loyalty program and apps.

While noting Apple doesn’t have the analytics or customer knowledge that rivals like Amazon.com or Netflix have, “the key to victory will be valuing the customer base,” Prof. Fader said.

Apple should study Starbucks, says Prof. Fader. “Because of data and analytics, Starbucks has made it very easy to order more coffee,” he points out.

Ultimately, Apple has to see its customer base as its primary asset, much like Amazon does. “Apple’s most golden asset is the one that isn’t on the balance sheet,” says Prof. Fader.

Photo: RetailWire

DISCUSSION QUESTIONS: Should Apple shift focus to better capitalize on its rabid fan base? Do you see challenges for Apple to relying more on a service and subscription model?

Braintrust
"I don't expect Apple to change the world with every new product release, but I do expect to see them lead, not follow."
"Take a look at Blackberry or Palm, which relied on their install bases, and learn from them."
"Who says Apple has to be a computer company or a smartphone company? "

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20 Comments on "Why Apple must move beyond the ‘wow’ moment"

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Dick Seesel
BrainTrust
To some extent I agree that Apple can learn from the kind of profitable incremental volume that Amazon generates with its cloud services and membership revenue. But at heart Apple is a different kind of company. Its brand promise is based on product development (not just ancillary services like iTunes). And the product development has been lagging for the past few years, especially on the smartphone side. The perceived saturation of the iPhone business and the change in pricing strategies by the phone carriers for the past couple of years are major disincentives for the annual trade-up frenzy that used… Read more »
Bob Phibbs
BrainTrust

I’ve been an Apple fan since my Apple II. Apple’s problem is their iterations are less and less about “new” and more and more about “recycled.” Cool and new is what has always driven Apple and I’m sure they have more up their sleeves but until iPhone X has more than cosmetic changes, my iPhone 6 Plus will be just fine.

Kim Garretson
BrainTrust
Interesting question, but if Apple is going to rely more on analytics and customer knowledge, I point to this excerpt from a story: “Apple’s CEO Tim Cook hasn’t hidden his contempt for advertising and tracking technology. “I’m speaking to you from Silicon Valley, where some of the most prominent and successful companies have built their businesses by lulling their customers into complacency about their personal information. They’re gobbling up everything they can learn about you and trying to monetize it. We think that’s wrong. And it’s not the kind of company that Apple wants to be. As Ad Age points… Read more »
Nikki Baird
BrainTrust

I’m not so worried about whether Apple will be able to capitalize on its fan base or rely more on a service and subscription model as I am worried about a lot of “me too-ism” out of Apple lately. I don’t expect Apple to change the world with every new product release, but I do expect to see them lead, not follow. And there are a lot of areas — voice recognition, for example — where Apple, once a leader, now feels like a follower. As someone pretty invested in the Apple brand, THAT worries me.

Phil Rubin
BrainTrust
1 year 6 months ago
Professor Fader is spot on in terms of how Starbucks has used its data — yielded from Starbucks Rewards — to be able to deliver a better customer experience. It’s not the loyalty program — it’s the data, and there is more and more evidence that this is the case. He’s also right that Apple needs to start re-orienting itself to include customers as part of its business strategy. This is an ENORMOUS opportunity for Apple, who has long delivered great products built around its own eco-system but has consistently failed to recognize customers for their ownership (of said great… Read more »
Liz Crawford
BrainTrust

Apple created many wow moments because it armed the world with the handheld computer: namely, the iPhone, which included a digital camera, Siri, iTunes, etc.

Once operable hardware is in everyone’s hands the next breakthroughs will come in applications, software and business partnerships. These things are not in Apple’s wheelhouse. Instead, it’s the era for Google, Amazon and fin-tech.

In 50 years, Apple will be recognized as one of the founding fathers of the digital age, but no longer its leading light.

Bob Amster
BrainTrust
There is an elephant in the room that has gone unseen. For years, I (an Apple fan since 1988) have bemoaned the fact that Apple did little or nothing to market itself as a solution provider for business (compete with IBM, Dell and Microsoft, etc.) and only focused on the consumer products aspect of the business. Now that there are so many followers of Apple products and the brand, the elephant in the room is for Apple to begin aggressively marketing its presence in the business office — and not just in the creative departments of a business. The company… Read more »
Ian Percy
BrainTrust
The “WOW” factor is usually over-valued and over-hyped. These days trying to surpass the last “wow” is almost impossible, regardless of what business you’re in. Unless your newest “wow” raises the dead we are not impressed. And if it does, we’ll get used to that too. My issue, as one who finally converted to Mac, is that while there was the initial excitement that finally I was one of the cool kids, the steak didn’t match the sizzle. There are SO many little quirks with my Macbook Pro that drive me nuts. Like someone said, it’s the mosquitoes that drive… Read more »
Lee Kent
BrainTrust
Starbucks customers go to Starbucks for the product yes, but they aren’t necessarily looking for a different, better product. They are looking for their favorite, same latte done perfectly. This is not apples to apples IMHO. Apple brought us into their brand with a wow and now there is lots of competition. To keep us coming back, they need to keep iterating the product or adding more services. Microsoft did something similar but their next move was to claim the office. Success! It’s time for Apple to start thinking like a grown-up too and not so much like a startup.… Read more »
Lee Kent
BrainTrust

With the introduction of the iBeacon, I really thought Apple might foray into the connected store leading to the connected home and the IoT, much like Microsoft took on the office. 2 more cents!

Gene Detroyer
BrainTrust
The discussion is right on point if we look at Apple’s businesses today. Imagine if we were having this discussion about Apple before any of us were contemplating a smartphone. Imagine if we were having this discussion today before any of us even contemplated Apple would be the number one music company in the world. We are stuck on devices. Apparently Apple isn’t, per their work on self-driving cars and the biggest investment the company ever made in taxi service in China. Perhaps Apple understands the crunch of technology brings everyone close together in ability and features and they are… Read more »
Cathy Hotka
BrainTrust

Apple absolutely needs to shift focus away from commodity products. It has the opportunity to become the sherpa for the connected home, using Apple products to coordinate television, lighting, temperature and more. Investors would be relieved to see the company expand its footprint.

Dick Seesel
BrainTrust

You’re absolutely right … so why is Apple letting Amazon and Google take the lead?

Cathy Hotka
BrainTrust

Good question. I’m convinced that there’s a swath of the population that will want to talk to a Genius Bar person (or equivalent) as they deploy these products.

Brian Numainville
BrainTrust

This is a great thought! Many people who are currently engaged in home automation are those who are comfortable messing around under the hood. To really move this to more mass adoption, a Genius Bar type approach by a company could be invaluable (providing they have a service that works)!

Ed Rosenbaum
BrainTrust

I wonder as I think of this discussion. Could it be that Apple set the bar so high in their growth over the years that we are expecting more than they can reasonably deliver? No company can set high standards of technological growth year over year. Not even Apple. Could we be making too much of too little?

Kenneth Leung
BrainTrust

Apple’s install base is rabid because they perceive innovation and leadership. If Apple stops trying to wow and focus on building their install base, that install base will depart quickly to another platform. Given the fast replacement cycle of consumer electronics, that install base can depart quickly. Take a look at Blackberry or Palm, which relied on their install bases, and learn from them.

Jerry Gelsomino
BrainTrust

I’m not too worried about Apple. The core spirit of the company still exists. Would analysts prefer a new product or service be released before it’s ready for prime time? Day to day, continuous improvement is smart until they are ready to give us an innovation that again improves our lives.

Charles Whiteman
Guest

Apple needs a dual focus. The first is part of its DNA … re-imagining and creating a mass market product that stimulates “lust” for it within the upscale part of the market.

The second is the key to Apple’s continued growth and ability to weather the inevitable gaps between the release of these home-run products. Apple must build an ecosystem of offerings that complement these products … which generate a recurring revenue stream for Apple.

Shep Hyken
BrainTrust

It would be great if any company can, metaphorically speaking, hit home runs every time they went to bat with a new product. Apple has had an amazing run of grand slams along with a few base hits. They have an amazing fan base that they can nurture even further. A new hit product is great. Leveraging the existing relationship with add-ons and cross-sells might be a way to keep the game going strong between the big hits.

wpDiscuz
Braintrust
"I don't expect Apple to change the world with every new product release, but I do expect to see them lead, not follow."
"Take a look at Blackberry or Palm, which relied on their install bases, and learn from them."
"Who says Apple has to be a computer company or a smartphone company? "

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