Common wisdom and perspective among Apple’s growing chorus of critics is that the company may be pricing itself out of business because competing PCs, smartphones, and tablets are mostly commodity items.
In this case, a commodity is defined as a product (or service) with no relative or qualitative difference in a market. Copper is copper. Pork bellies are pork bellies. Grain is grain. The lowest price wins. But are all smartphones created equal? Is there no differentiation in the technology markets where Apple chooses to play?
Commodity vs. Apple
Allow me to argue in favor of differentiation as a key ingredient to the success of a product, regardless of spectrum positioning. Commodity items can be differentiated by price. But not only price. Electricity, for example, can be differentiated by the method of generation; renewable solar power vs. fossil fuels.
Thanks to Apple’s innovation in the smartphone industry, circa 2007 and the iPhone, all smartphones today look, feel, and work mostly the same. One could argue the same about the traditional personal computer, again, thanks to Apple’s innovations launched in the Mac, circa 1984. Today’s PCs are point and click. Today’s smartphones and tablets are touchscreen.
As mobile technology moves toward complete commoditization– thanks to similar hardware and Google’s ubiquitous Android operating system– Apple prospers with key components of clearly defined differentiation, while many competitors suffer in competition with one another because of a decided lack of differentiation.
Why buy a Samsung Galaxy S7 when there are hundreds of similar models– all running the latest version of Android, and with similar hardware features– for hundreds of dollars less? After all, Apple differentiates through a complex ecosystem of Apple retail stores and support, to iOS and interoperability to OS X on the Mac, plus a layer of cloud services baked into each device. Despite a much more broad product spectrum, even Samsung differentiates its top of the line premium smartphones from other Android models.
The commodity syndrome which would seemingly discount Apple’s premium status is not a law as much as it’s an effect of market processes which impacts some, but not all, products. Apple’s executives deliberately choose not to compete at the commodity level by redefining and refining their products collective differentiation from competitors.
It’s not that a potential customer cannot find products which work and function similar to a Mac, iPhone, or iPad. Apple has plenty of such competition. The key, though, is differentiation– Apple can and does provide sufficient differentiation to justify higher prices and the resulting profits which come to manufacturers that inhabit the premium end of a product spectrum.
Watch, The Example
Common wisdom and perspective among Apple’s chorus of critics and market analysts state that Watch is a new product failure. Why? Because, compared to iPhone, Watch sales (still unannounced by Apple) obviously are far, far less, so, ipso facto and Voila! Failure.
Nothing could be further from the truth, but critics and analysts, themselves a commodity with little differentiation, also suffer from myopic insight.
Watch is a raging success by any measure– except– when compared to annualized iPhone sales and profits. Watch itself is an accessory, not yet classified as a standalone product, yet first year sales topped that of the iconic iPhone. Watch has more than a 50-percent marketshare of the nascent smartwatch or wearable industry, and thanks to the premium pricing model and positioning, commands– as does Mac, iPhone, and iPad– most of the segment’s profits.
What’s not to like about that scenario?
Are not watches mere commodities? Everyone has one. They all do the same thing. Tell time. Again, differentiation is key. Watches are status symbols. Watches are luxury items. Watches are utilitarian devices. Watches are cheap and expensive, luxurious and fashionable, and spartan tools. Again, Apple has chosen to position the first version of Watch as an accessory, and at the premium end of a new industry segment. Future Watch models will feature more capability, become fully standalone and take more functionality from the iPhone (Apple seems not to worry much about product cannibalization).
Because we’re comparing Apples to oranges, everyone who owns an iPhone will not dump their devices and switch to a Watch, regardless of how much functionality is built into the device. Instead, Apple did exactly what Apple has done for many years and created a successful, growing product which fits into the company’s highly regarded ecosystem, nattering nabobs of negativism be damned.