Professor Christensen has stirred up an interesting debate about Apple's ability to maintain its current level of growth in the recent BusinessWeek article, "How Apple Could Mess Up, Again."
In this interview, he speculates that Apple's proprietary architecture will lose its competitive advantage in the future, as it did in the past. Prof. Christensens bases his argument on the theory of modularity which states that early on, when functionality and reliability is not yet good enough, a proprietary solution is right. However, when the technology matures and standardization occurs, the product becomes modular. The industry leader loses its competitive advantage and the ability to make money shifts down the value chain to those who control aspects of performance.
What is your view on this topic? What do you think Apple should do?
For more information about modularity, see Skate to Wear the Money Will Be, HBR, 2001.
See also, Chapter 5 in The Innovator's Solution.
Clayton Christensen takes a bite out of Apple
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Discussion
Posted: Thursday, January 12th, 2006 - 8:29 am EST
Highly interesting and enjoyable discussion in Business Week. The points about short term investors is reminiscent of issues raised by Daniel Yergin and Joseph Stanislaw in "The Commanding Heights" and Thomas Friedman in "The Lexus and the Olive Tree". Friedman used the term the "Electronic Herd". While one should rightly manage for the long term, how can any CEO of a public company not help but heed the expectations of such a powerful group?
The idea that Apple may only survive a bit longer as a PC maker is quite intriguing. Perhaps, they may have a better chance of survival if we choose to describe them as being a new market disruption to the PC...it may be a stretch but allow me explain.
For years, Wintel makers have focused on traditional performance measures, such as speed and storage for lowest cost on a flexible comprehensive platform, whilst Apple have focused on performance in the market niche of digital multi-media. Legions of PC users now find any PC good enough for their "job to be done", which are mostly tasks involving connectivity, email, web browser, Word, Excel and Powerpoint. This drives the PC market relentlessly towards modularity, where lowest cost per GHz/Gbyte wins, and Apple's integrated architecture strategy steadily loses ground.
However, from barely surviving as a hardcore niche in graphics art and desktop publishing, Apple has slowly migrated into what is mostly top quartile performance in many digital multi-media areas, such as music, video conferencing, digital photography, home movie making, and all forms of digital media publishing.
Whilst these new performance attributes were previously only of interest to a small niche group of PC buying customers, it appears that there may be a much larger home market of non-consumers that now want to be able to manipulate digital multi-media with ease (a rapidly growing "job to be done" if digital camcorder and camera sales are any measure of this market).
The very modularity of the current PC industry, a competitive advantage in traditional PC performance measures, may actually sow the seeds of the next wave of innovation: integrated architectures for specific applications may topple the modular PC, which does everything well but nothing exceptionally. In retailing waves this would be akin to category retailers disrupting downtown department stores. Other signs of this disrutive wave hitting the PC market are already evident in the video gaming niche where a dedicated PC and software does the "I want to play a game" job-to-be-done better than the average PC. The RIM Blackberry, which does the calendar and email job-to-be-done more effectively than the PC, is yet one more example.
Just a few thoughts....any comments?
Posted: Saturday, January 14th, 2006 - 3:57 am EST
with no doubt iPod has been a disruptive innovation to the lucrative and highly diversed MP3 portable players industry. Apple did exceptionally well on creating a simple yet efficient product that can be characterized as a platform for further incremental innovations. iPod cannot only be characterized a disruptive or radical innovation due to its technological advances but also to its embedded and clear "Apple" culture.
Apple clearly won the market by simply immitating what Sony and Procter & Gamble did with Walkman and Gillette products respectively; to kill their own products before even they become obsolete.
long term, however, the iPod platform must evolve to something new to sustain competitive advantage. The real challenge for Apple is to integrate the iPod success to other horizontically related markets as the PC market.
lets wait and see how far Apple can go with its iPod platform in the portable media arena.... :-)
SR
Posted: Monday, January 16th, 2006 - 1:18 am EST
I have posted a rebuttal to Christensen's article at http://www.blackfriarsinc.com/blog/2006/01/rebutting-clayton-christensen-on.html . I find it odd he was worrying about Apple's survival when it's market cap just exceeded that of Dell's. Instead, I suggest he apply Innovator's Dilemma to Microsoft, who seems to be having much more trouble casting off the golden handcuffs of its current business model.
Posted: Tuesday, January 17th, 2006 - 3:19 am EST
Good points. I agree with you about Microsoft being in a challenging situation. I also agree with you that Apple's future currently appears much brighter than "survive a bit longer" would seem to suggest.
I believe that Apple is creating a new category of PC which is a disruption to the current "do-everything-well-but-nothing-exceptionally" modular PC market. Apple's category is a "digital multi-media tool". A tool that happens to be built around PC technologies but uses a controlled proprietary format that allows for more effective digital media manipulation. From this perspective, the iPod and iMac are specific proprietary adaptations of PC technologies that solve a growing niche market for efficient digital media manipulation. Seen in this manner, they do not compete directly with the mass of look-a-like modular PC products out there.
Possibly the older modular PC market has become like a downtown department store: a one stop platform for all needs but not a place where you find the best in any category. Downtown department stores were disrupted by category retailers and the same may happen to the conventional concept of the PC, as we have known it for twenty years.
Why? I believe the low cost of PC technologies is allowing consumers to contemplate specialized PC categories rather than a single machine to do it all....the car GPS "get-me-where-I want-to-go" PC solution, the Blackberry "get-my-email" PC solution, the Tivo "get-me-programming-I-want-when-I-want" PC solution and so on and so forth. Perhaps Apple simply needs to achieve the minimum standard in mundane tasks such as email to beat modular PC's whilst doing an exceptional job with emerging "killer categories" such as digital photos, music playback and camcorder/DVD file manipulation.
One other comment, your initial rebuttal rests on Dr Christensen's comments being about the early stages of the PC market in the 1980's when IBM dominated. I read Dr Christensen's comments differently. I felt he was referring to the subsequent stages, late 80's and onwards, where IBM PC clones proliferated. Therefore I agreed with Dr Christensen fully on these points.
Posted: Wednesday, January 18th, 2006 - 4:13 am EST
Your rebuttal of Christensens article actually contains a lot of arguments reinforcing his theory. It doesn't really matter that IBM did the proprietary PS2 thing, Christensen argues at some point a proprietary architecture is the wrong strategy. The main point of the argument seems to be that if Apple had opened the hardware and licensed their software would they have made more profit from their innovations? I'm not sure too many people would argue no.
The same applies with iPod/iTunes. However, I think Dr Christensen does himself a disservice by questioning whether Apple will fail. You have rightly pointed out Apples current financial strength and dominent market position. I'll add to that by stating that Apple and Steve Jobs in particular have shown themselves to be brilliant disrupters.
Christensen discussed in one of his books how Sony profited from their serial disruptions from the 1950's to 1980's, and have fallen on hard times as the disruptions dried up. He equated their success with their ability to serially disrupt, not to some deep understanding of modular versus proprietary architectures. Steve Jobs has also shown an intuitive ability to disrupt. If he continues to show an ability to disrupt then I don't know if I would be shorting Apple stock, even if they mess up the proprietary versus modular architecture again.
The crux of Christensens argument though is should Apple keep the iPod/iTunes relationship symbiotic, or should they license software and allow any compatible MP3 player to sync to iTunes. I think they would make more money if they owned the music and video store, and the software that syncs to it, rather than trying to own the entire MP3 world.
Posted: Wednesday, January 25th, 2006 - 12:24 pm EST
Interesting article in today's Globe and Mail;
http://www.globeinvestor.com/servlet/ArticleNews/story/RTGAM/20060124/wmath0124
It poses an interesting question: how much of Pixar, Apple and Next success is simply down to the key man, Steve Jobs? [Obviously a lot, but is it completely all down to Steve?]
Since Pixar, Apple and NeXT were all, in the past, relatively small companies in relation to the market size: how much might be down to sword and shield asymmetries? ("Seeing What's Next", Christensen, Roth and Anthony)
These questions are summarized in the last line of the Globe and Mail article: "What if Steve Jobs manages to bring a little bit of his creativity and industry intelligence to Disney?"
Posted: Thursday, February 9th, 2006 - 4:06 am EST
Well, there is one obvious lesson: do not talk about a company messing up again the day before they may announce a blow-out quarter.
Apple has done an outstanding job in many areas:
- design
- branding
- engineering
- supply-chain management
- using a standard to create a defensible position
- cannabalizing their own product
The way that they take commodity components (hard disks, flash memory), and create a premium product is exemplary. (And I do not quite understand why Clayton Christensen does not give an approving nod to Apple for seamlessly replacing the iPod Mini by the flash-memory base Nano to combat a possible disruption from below.)
Apple masters the iPod supply chain in a way that puts them in the same class as Dell. (They more than tripled shipments of iPods within a year, and have handled frequent product transitions with aplomb.) The combination of engineering and supply chain management skill allows them to control prices well. Other products may be 20% cheaper, but not more, and they invariably are not as 'cool' and then there is the convenience of iTunes - so competing with them is very, very hard.
And clearly, this is not just Steve Jobs, but a fantastic team effort. (But he assembled that team, didnt he.)
Posted: Friday, February 10th, 2006 - 1:33 am EST
Heinz,
You could not have said it better. As you say this is clearly not just Steve Jobs but a fantastic team effort.
However, could there be more to it than that....could size relative to market and incumbent behaviours have something to do with Apple's success? Surely Sony has some brilliant people and fantastic teams too, yet where is Sony in this emerging market?
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