Holy Shit! Apple’s Halo Effect

Churning through the analysis of Apple’s earnings call yesterday, there was one bit of data that evoked a “Holy Shit!” moment. 

The data pertained to year-over year Mac sales, and the fact that they are up 51% this year compared to last - a rate of growth that is 3.5X better than the PC industry. 

Think about that one for a moment, and what it means to Apple’s execution of their strategy. 

On the one hand, it is tempting to caveat this data by noting that Apple is growing from a relatively tiny base of the PC market (they have a six percent market share). 

But, the fundamental truth of the matter is that growth is growth, and the bigger the ripple, the bigger the wake. 

Even more, when that ripple is GOOD GROWTH (i.e., high margins, product differentiation, customer lock-in/leverage via multi product buys, Apple's penetration into real and virtual sales channels), look out as true ‘halo effects’ start to play out that are self-affirming (i.e., success in one area feeds success in another).

In other words, the more the Mac business grows, the more gravity becomes Apple’s friend in mobile, media, online services and the like.  And vice-versa (growth in those areas drives people to buy Macs). 

This got me thinking about the fundamental TREND BETS that Apple made and has executed on.  Why?  When you can get in front of the right trends and actually execute, gravity has a strange way of becoming your friend. 

I would summarize these trend bets as follows:

1. Make mobile Internet caveat-free. EXPLANATION: Before iPhone, mobile Internet was the proverbial dog walking on its hind legs.  Impressive that it could be done at all but not compelling.  No more.
2. Rich media is the ‘MY STUFF’ bucket that matters.  EXPLANATION: What we personalize, choose to listen to, watch, save or digitize is what we keep.  As a result of this fact, iPod (and now iPhone) have established a hard to emulate position as part of our online DNA, and this can be grown into all sorts of interesting product directions.
3. Everything is a platform.  EXPLANATION: Having specific methods for extending and integrating your offerings, as well as providing tools that enable an ecosystem to coalesce around your platform trains customers that investments today will be rewarded in spades over time, creating customer loyalty and enabling high margins.  This used to be Microsoft 101 (before they started chasing Yahoo’ish windmills to Vistas unknown), but now it's Apple’s domain (read: iPod and the music industry; iPhone and mobile carriers; and soon, iPhone SDK).
4. Everything is integrated from device to PC to online service.  EXPLANATION:  When you have the ability to look at an application as the optimal composite of what a general-purpose PC does well, combined with what a highly specialized iPod/iPhone/Apple TV does well and can weave in the dynamism of online services, you can operate in three dimensions, which is a beautiful thing.  When you are adept at things like workflow and usability, as Apple is, it is breathtaking; a game-changer.
5. Everything is derivative.  EXPLANATION:  Understanding the different “jobs” that customers hire your products for and segmenting your offerings accordingly enables you to provide optimized solutions while maximizing leverage.  This, in turn, enables domination of specific segments while delivering the economy of scale needed to build high margins.  The latest wrinkle to this is that Apple is starting to get good at taking innovations from one product (e.g., Multi-Touch on iPhone) and baking it into others (Multi-Touch on MacBook Air).  Cross-pollination in an innovative company like Apple bears all sorts of unanticipated fruits.

Now if only Apple can figure out how to get in front of the social media/social networking trend, my Facebook page might start to hyperventilate.  :-)

Related Links (from my blog):

1. iPhone SDK: Mobile reasons for optimism
2. The Chess Masters: Apple versus Google
3. Comparing Microsoft's challenges to the fall of Communism

Related Links (other sites):

1. Gone Indie: an excellent post by an ex Apple engineer both affirming what makes Apple great and why it was time to leave.  Also, supports my comment on Apple being slow on social networking uptake.  His post was written some time back so not suggesting our comments influenced one another just connecting dots from an Apple insider to an Apple outsider (me).
2. Valleywag: On BusinessWeek story indicating that out of 250 surveyed companies, 87 percent report owning Apple computers. That's up from 48 percent in 2006.

Comments

[Jared in Oklahoma]

Mark, your writings are always SO insightful. Your observations (on many diverse fronts) are extremely novel, fresh, and keen.

For one small example, you are one of the few observers I have seen who has picked up on the game-changing potential of one of Apple's more unheralded, under-publicized products (in the financial and gadget-analysts' press), the iPod Touch. Part of the under appreciated-genius of the Touch is its form factor being POCKET-SIZED yet having a relatively generously-sized screen (like when it's tilted sideways for easy document reading), for an ultra-portable device. (The screen shouldn't be smaller nor should it be bigger, for portability sake.) I think that once WiFi enabled campus users and office users (who are prohibited from checking their personal email or conveniently checking their online news updates on their company computers) find that they can easily port their own personal net device (hidden in their pocket), and they start showing (off) all their co-workers and peers how easy and convenient this device truly is, it may well become an indispensable gadget, if not "near-essential, tool-of-convenience". Also, when places like Starbucks roll out their universal, essentially free WiFi services, many of their patrons can easily leave their lap tops at home and just carry their new iPod, when all they want to do is surf the net, play with email, or check their social services.

Mark, thank you so much for your fine articles.

[Mark Sigal]

Thanks for the kind note, Jared. Like you, I am waiting for more ubiquitous free WiFi along lines of Starbucks rollout with AT&T.

That starts to make the iPod touch more of a true mobile device versus what it is today for me: a great untethered device for home/office.

My only question wrt Apple marketing of iPhone/touch is they are usually very good at segmentation and clear messaging, yet every time I talk about the platform and misnamed iPhone SDK, I have to arm wave iPhone/iPod touch, which is a mouthful.

Hopefully, at WWDC they will re-brand as iMobile SDK or something like that.

Cheers,

Mark

[Acai Berry]

Nice bog you have here. I pretty much lurk the internet when I'm bored and read all I can about the organic lifestyle, but I really liked you view on things. I'll bookmark the site and subscribe to the feed!

[inwowgold]

happy ending

[Nintendo DSi]

Apple have made a damn good stategy at the moment, and there is talk of a new iPhone coming out in the summer aswell, so looks like they are going to make some more money! Good on them, their desgin has been the innovation needed in the technologies industry and long may it continue!

[paul smith]

Very interesting article. Thanks for putting it

[Marco]

Das iPhone war ein Volltreffer fuer mich, aber mit Apples normalen Computern kann ich mich nicht anfreunden.

[Genesis]

I really found this essay insightful as well Mark.

[Rick's TwypePad]

Nice post, but one big and one small caveat:
1. The idea that Apple will ever "get" social networking seems far-fetched; they haven't produced anything successful in that area that I can recall.
2. I recognize that Apple are more interested in workflow than other massive companies, but on a micro-level there are all kinds of flaws, especially when you want to do something that isn't exactly like whatever Steve Jobs envisaged when the product was designed.

[Mark Sigal]

@Rick's TwypePad, re the social networking piece, I raised the question as it is an obvious blindspot of theirs. When you have 125M credit cards on file, offering up reams of buying behavior, how can you not provide a way to connect the dots between people with similar likes and interests? We are on the same page as to the current state of the world there, though.

As to workflow and micro-level flaws, agreed wholeheartedly, but that's like saying the united states form of democracy is the worst form of government except for all others. In other words, who does a better job there (on this scale) than Apple?

Thanks for the rich thoughts.

Mark

[vaal]

Great post even if outdated, to this day the iPhone still seems to be quite a revolution and mac sales are still growing...!

[nike shox]

As to workflow and micro-level flaws, agreed wholeheartedly, but that's like saying the united states form of democracy is the worst form of government except for all others. In other words, who does a better job there (on this scale) than Apple?

[nike shox]

On the one hand, it is tempting to caveat this data by noting that Apple is growing from a relatively tiny base of the PC market (they have a six percent market share).

[digital caliper]

Apple Ipad and now... Iphone 4 .What do you think about this year for Apple?

[Mark Sigal]

@digital caliper, I see app moving aggressively to expand the footprint of iOS (formerly iPhone Platform). That means Apple TV as a low-cost gaming platform/media center). That means driving iPad into new segments. That also means we could finally see different form factors of iPod touch (with camera, without). All of this creates tremendous growth opportunity but it creates platform fragmentation risk, the very thing that separates iOS from Android. I am WAY more bullish than bearish about Apple in the year ahead, and iPad is ahead of what I expected for year one of its release.

Mark

[防身器材]

Thanks for the rich thoughts!Thank you