Thursday, February 07, 2019

Why Apple can't innovate anymore

Yes, it is a provocative title.  And no, I don't quite know if it is true.  But it does make one stop and think, doesn't it?  What if the avatar for innovation over the last decade is exhausted?  What if Apple has done all the innovation it can do?  An interesting thought, wouldn't you say?

What Apple now has in common with other large companies

Innovation is easier when an organization is smaller and more nimble.  There's a reason why a lot of really interesting innovation comes from startups rather than larger companies.  Larger companies have masses of customers to keep relatively happy.  They have shareholders to placate.  Larger companies aren't all that comfortable with risk.  In many ways, in 20 years, Apple has shifted from a scrappy, nearly bankrupt company to king of its own hill.  And in many ways in that relatively short period of time it has shifted from a company that could innovate, to a company that has a lot of institutional barriers to innovation:
  1. It is very large - and it appears size is actually a barrier to innovation in many cases
  2. It is increasingly risk adverse - it wants to protect the market share it has
  3. It has a lot of customers to keep happy
  4. It has a platform and a brand to protect
Apple created a new platform - a nicely designed music player that led to a nicely designed phone that led to some nicely designed and crafted PCs and laptops.  But once each of these offerings reached a critical mass, and became mainstream products, it has for the most part stopped innovating, instead reaching for higher and higher margins.  Do we really need a cell phone that costs $1000?  I think in some ways Apple is ripe for Christensen's disruption - the disruption that comes from products or services that offer less.

What Apple has that other companies have less of

Note that while Apple has many of the institutional concerns of many other large companies, it does not suffer one of the prevailing complaints that other large companies use to explain why they don't innovate:  Apple has plenty of cash.  Billions of dollars of cash, with which it should be possible to fund new ideas, hire new researchers and scientists, acquire new startups.  Which makes one wonder - is Apple simply out of ideas?  Or, do they have so much to protect and defend that new innovation requires creating new products in markets or needs far from their core.

Beyond the Core

Apple succeeded because it created a new platform - the "i" series - that attacked core products and offerings of other companies (Nokia, Motorola, etc) and did not impact Apple's core products.  There was no cannibalization of Apple products with the iPod, iPad and iPhone.  Now, however, anything really interesting and new in any of these spaces puts Apple's hegemony at risk.  The question is - can Apple find a way to extend its "i" platform to needs and technologies far from its core - say in medical products as an example - to disrupt a distant market or industry and gain new revenues?  Apple surely does not want to disrupt its own highly profitable suite of products and services, so it has done something else that many companies like it have done before - shift into a defensive posture.

Apple is now defending the core, rather than innovating in adjacent markets.  20 years ago it had no choice - it had to take risks, explore new opportunities and risk a lot to grow.  Now, it has all of the infrastructure and institutional challenges that Nokia and Motorola had, and a far less aggressive management team.

Where will it innovate next?

As I've noted, Apple has all the capital it needs to gain entree into almost any industry or market.  The last few decades have given Apple a lot of panache and success, and its management team may not feel as though it can risk "failing" in a new market or industry, so its options may seem limited.  Plus, once a company gets large, small experiments, even when successful, don't seem all that meaningful.  Back when GE was a 'thing', Immelt asked for ideas that could quickly scale to $100M in revenue. If they couldn't get to that size quickly, the organization felt that they weren't important.  Perhaps Apple has a very high threshold for success in a new venture as well.

If these factors are true, then Apple can only experiment in a few industries, where the consumer experience isn't great, where there is an opportunity to win a significant market share and where their experience (or the experience they can acquire) can be quickly relevant.  There are a few markets or industries where this may be the case:
  • Aging boomers and home health - boomers are already familiar with Apple, they like the interface and have money.  They may want better medical technology in their homes than they can get from traditional medical device companies today.  And they have money.
  • Augmented reality - increasingly we will interact with the world in a very different way than we do today.  Our reality is already augmented by websites, news feeds and other data sources on our PCs, and our reality is augmented and shaped by our tablets and cell phones.  How and where the augmentation happens - on a device, in googles or glasses, in your home or auto - there are customer experience requirements, interface requirements and data requirements that Apple may be good at, and that no one "owns" today.
Why Apple is like a fruitfly

Scientists study fruit flies to learn about genetics because they are easy to study and their lifespans are relatively short, meaning we can see genetic traits passed down or changed over a short period of time.  Is Apple our technology and innovation fruit fly?  Does it shift from scrappy, almost bankrupt PC firm to industry behemoth unable to innovate in only a generation?  If so, can Apple spot and move to new markets and opportunities for new innovation, or does it settle down and slow down, starting toward a slow demise already?

And while we are using Apple as an avatar, doesn't everything about Apple's recent innovation challenges speak volumes about corporate innovation generally?  Large companies have risk adverse cultures, large customer bases to protect and serve, little understanding of markets beyond their core, and shareholders to keep happy.  What many other large companies lack is deep pockets that could fund innovation more easily.  If Apple, without that last disadvantage, can't innovate, then we may find that corporate innovation is distinctly incremental, and that most disruptive innovation will originate from startups, and large corporations will either acquire those innovations or be overwhelmed by them.
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posted by Jeffrey Phillips at 6:41 AM


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