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Management lessons from Apple

The Smart Phone wars, which started in early 2007 with Apple launching the iconic iPhone followed by Google’s debut in 2009 have a plethora of lessons to offer. The launch of iPhone heralded a multi-billion dollar Smart Phone industry.

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Apple launched the first Smart Phone in 2007. The phone was a state of art product, with a focus on design, innovation, ease of use and quality. The initial launch price of the phone: $499 (5 times to the phones of those days and twice as much as BlackBerry). Sales reached to more than $115 million in just the first 2 quarters.

As it seemed that Apple had cracked the code for phone quality and design, it did something that seemed haywire in terms of strategy: slashing the prices of its phone to more than half in the July of 2008. The reason behind this move was because Apple had figured out the reason behind the sale of its Smart Phone.

During the launch, the phone was just marginally better than the competition, with a few extra features and 9 native apps (Maps, Stocks, Weather, iPod, Calculator, Mail, Camera, and a few others. Even Nokia and Blackberry, during the time, had a couple of native apps like the aforementioned. It seemed as though the hardware innovation were the ones driving the sales until consumer research indicated something very very interesting. While the majority of users of other phones spent around 70% of the time with the plain vanilla phone services like calling, messaging and so on, the reverse was true for Apple. To reinterpret it, neither cell phone services not the hardware innovation were driving the sales; Apps were! 

In 2008, Apple created the “App Store” and slashed the phone prices. It gave 70 cent to the developer for every dollar revenue generated, and let us just say, rest is history.

Complements and their pricing

“Price the durable cheap, and the complement higher” – a standard textbook lesson on complement pricing, popularly named the razor and blade strategy. Take Gillette razors and its blades, printer, and its cartridges, or even with the latest Jule and its smoking pods. But then Apple did something different, it chose to price the iPod(durable) higher and songs(complement) download lower! Why did Apple do this? It comes down to the profit pool of the specified industries. For every song downloaded, only one studio had control over the artists’ rights. It was more like dealing with a monopoly. While on the other side, when Apple made profits off the iPod, it was dealing with many near-commodity component assemblers. The bargaining power, in this case, was with APPLE!

What’s with the million apps!

The number of Apps on the App Store and Google Play Store is impressive and at the same time a huge joke in itself. According to research, an average user uses per month is 30! The fuss over the number of apps wasn’t because all of them mattered to an average individual. More the number of apps implied a strong ecosystem. But then make an extremely good app and exclusive for your platform, it would be a good threat to the competition.

Take the example of Google Maps! In the year, 2012 Apple replaced Google maps with a very poor version from its side – Apple Maps. Now Google Maps is far superior to Apple Maps, but then why did Apple replace it. Put the lens of product quality, and Apple’s decision seems absurd, but then view from the point of view of complements and exclusivity, the picture becomes much more clear.

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