Two brilliant moves that helped create the Apple iOS powerhouse

Most new announcements by Apple are digested and understood by the tech press instantaneously. Great products are great products, and it doesn’t take much time to realize how exciting things like the iPad or Retina displays are. But some moves can take years to completely understand.

So, I now bring you, my two favorite tactical moves by Apple, which I have only recently come to fully appreciate.

Move #1: Windows Compatible iPods #

I remember it like it was yesterday. The summer of 2002.

I had a summer internship as a programmer. I was excited about using my new salary to purchase an mp3 player so that I could listen to music at work. At that point in time, I predominantly used Linux on the desktop.

As a devoted Slashdot reader, I was up to speed on the newest mp3 players on the market, and given my massive, Napster-provided music collection, I opted to buy a “Creative Nomad”. The problem was the mp3 syncing software required Windows… oh and it was terrible. The software was so terrible that I quickly returned it to the Palo Alto Fry’s. (If you have ever shopped at Fry’s you would know that my returned product most likely got a white sticker put on & was placed right back on the shelves). I had read that the Archos mp3 player software was even worse, so I instead opted to buy an iPod. Apple had just released Windows compatibility for the iPod, and I had read the software was great. Well… the software wasn’t great, but it was great by comparison.

The announcement that Apple was going to sell Windows-compatible iPods was surprising to me, and even now it seems like a non-obvious move. Taking their beautiful hardware and subjecting it to Windows users must have been controversial inside of the company. It just didn’t seem like something Jobs would do.

But that iPod was the first Apple device I had ever purchased. It was the first Apple device for a lot of people. This seemingly un-Apple move became a defining Apple move. By casually co-opting the Windows userbase, Apple made Windows desktop marketshare irrelevant in the mobile-centric world that would soon come into being.

Suddenly, everyone had an iPod… and whether or not you used Windows or Mac was completely irrelevant. This trend has continues: what OS do you think runs on the legacy desktops of folks buying iPads? Do Windows consumers even consider buying an iPhone or iPad “switching”? I am not sure anyone (outside of Apple?) truly understood the brilliance of this move at the time. But Windows-compatible iPods paved the way for the iPhone. For iOS. For the iPad.

Move #2: Market segmentation by Moore’s law #

If you are in the business of selling gizmos and gadgets, you live and die by the product cycle. Part of a product rollout is the quiet dumping of the previous model. This isn’t just electronics, ie car dealers have closeout sales to clear out last years model. New product rollouts are part of a constant replacement cycle, and that’s what keeps everyone in business.

From a manufacturing perspective, before the product is released, new manufacturing capacity must be spun up to create sufficient inventory at launch. It can take quite a bit of time to spin up a new device and get it in a place with high reliability and yield. Manufacturing competency is both impossibly hard and vitally important, so it’s easy to see why expertise in this area is one reason Tim Cook earned the CEO role.

At my previous company I had some interaction with the [manufacturer redacted] Android team. I found it very strange that there were several mobile teams at [manufacturer redacted], each building Android devices as part of different market segments. They had one team working on a phone for the low-end of the market, another working on a phone for business users, and so on. Product managers inside of [manufacturer redacted] were responsible for creating product requirements for each handset, then delivering it within a certain budget. There were separate marketing and rollout schedules for each device. The one detail that blew me away was that these different devices were going to ship with different versions of Android. I seem to recall the low end phone was still on 1.5, and the others were 1.6. Holy sh*t.

In contrast, when a new iPhone model is released Apple doesn’t shut down the line and liquidate inventory. Rather, Apple keeps some percentage of manufacturing capacity devoted to this legacy model. Manufacturing the old device is easy by this point; it’s a fully debugged process with increasingly cheaper components. I remember when the implications of this completely sunk in: Apple is doing market segmentation off of a single product line!

Let’s drill down into the full implications of this: in the Apple org chart, the iPhone is a single product. This single product is built by a single product team, a single software team, and a single marketing team. They put all of their energy into building the single greatest product they can. Without expending any effort, they simply let Moore’s law transform today’s great product into tomorrow’s entry-level device. No need to re-tool, no need to pollute your own channel, no duplicative corporate ass-hattery.

To demonstrate how powerful price and market segmentation can be, lets take a moment to recall the great Palm WebOS tablet liquidation of 2011. One day, out of nowhere, all tablets in the channel were unceremoniously liquidated after HP announced WebOS was going away. Lo and behold, the product that they couldn’t sell to save their lives flew off the shelves at the $99 price point.

Getting back to Apple, right now you can go out and “buy” the flagship iPhone that was originally released 3 years ago for $0 (or the one released 2 years ago for $99) -OR- you can get an entry-level Phantek Astroglide which inexplicably runs Android 2.2, looks like a Hummer, & has 3 hours of battery life.

Why hasn’t Dell or Samsung or HP implemented their own version of the “Moore’s law market segmentation” strategy? Nothing about this strategy would seem to require it to happen at only Apple (or is specific to mobile devices). I am sure there are a lot of reasons, and there is a very good chance I simply don’t understand the hardware supply chain complexity.

However, if I had to take a single guess, I would guess corporate inertia. If [manufacturer redacted] wanted to take this approach, the sheer number of executives, mid-managers, and regular employees that would need to be moved/demoted/fired out of their respective fiefdoms is mind-boggling. If there was only one flagship phone, there could only be one person in charge, and one head marketing person to report to that person, and one head of engineering etc etc etc. And it would require killing massive, existing (profitable) revenue lines. How would you explain this to your public company investors? Doing something this radical inside a company as large as [manufacturer redacted] would have overwhelming odds of unleashing a disaster of the Yahoo (or RIM) order.

I still wonder, though, how much of this brilliant strategy was fully understood by Apple when it was being implemented, and how much of it was just smart people doing the incremental right thing at thousands of micro-decision points. Probably both.