How To Compete With Apple

Apple is fundamentally different from any other company in Silicon Valley, but certainly not perfect. Its photography strategy is flawed (in the same way its competitors are), and its iTunes Store needs to adopt true meritocracy if it does not want to alienate the record labels (movie subscriptions anyone?), its wireless Networked Storage strategy needs work as well as Apple TV and the MobileMe service. But in many ways, Apple is ahead of the pack but not immune to the inherent risks.

Here is how technology companies, such as HP, Dell, Nokia, Symantec, Cisco need to change in order to compete:

1/ Innovate from the top, then continuously out-innovate yourself
Innovation is about taking a look from the outside in with a fresh perspective and the purity of a new-born. The way to innovate is using my mantra of “believe nothing you hear, believe anything you see” (SM), meaning, the only thing that matters is how many people who you want using your product, are using your product. Analysts are useless in this assessment, as they simply use artificial market definitions to tell companies what they want to hear. Once you define real innovation, the next step is to continuously out-innovate yourself, ensuring that the pace of innovation is untouchable by others, and thus sustainable.

2/ Build irresistible products
Many of the aforementioned companies are in the technology commodities business. I wouldn’t want to be in the business of building a car where the rest of the auto business is forced to use the same engine. There is only so much a pretty exterior can do to hide the ugliness of aging underperformance. As the dependency on operating systems shifts from the desktop to the web now is the time for these vendors to escape commoditization and build their unique web-operating-experience.

3/ Develop a unique experience and maintain it
Too many technology companies in the Valley are “stocking stuffers”, they stoically stuff a “market” (see markets don’t exist) as defined by analysts and predecessors with incremental point products to eek out a larger percentage market-share than their competition. They “trade” market-share numbers as if they are the currency, that is – until “market” definitions change. But products don’t sell, the experience does. People buy an iPhone, iPod because of the ecosystem behind it. Additionally with the life-cycle of many technology products being so short – around 3 years – renewals by recurring customers are vital to sustaining growth. A one-off product that made a promise and told many lies is devastating to the renewal rate and even the return to the brand. So, the emphasis should be on the experience -say music or photography – and innovate from the top around those.

4/ Change the culture: incentify continuous innovation, punish stability
Corporate culture is fundamental to creating sustained innovation and for many large companies that means the CEO needs to exhibit that exemplary behavior. (it is somewhat humorous to see how VPs often mimic even the dress code of their CEOs). CEOs whose core competency is operational efficiency (HP, Cisco, Dell) need a right-hand man with executive privileges to cut through the bureaucracy and fundamentally realign the company along with new macro and microeconomic differentiation. Divisions need to be realigned to match customer experiences (not product groups) and be reduced into a one-level hierarchy. That ensures there is no place for employees to hide.

5/ Invest in innovation
Innovation, as defined by bullet 1, is sustainable, spending money on stuffing markets is not. But the advantage large companies have over external innovation sponsored by Venture Capitalists is that they can think big, they are in a unique position to redefine customer experiences that ties seemingly disparate products into a cohesive offering that is much larger than the sum of all parts. Unlike startups, large companies are uniquely positioned to focus on the value of disruption rather than be restrained by the cost of entry. Large companies can build robust platforms upon which an ecosystem of independent software vendors can thrive.

Most of Apple’s competitors are now merely chasing the iPhone strategy or music strategy, as they’ve chased market leaders for so many years. But that will never work. Every company has its core competencies, and its challenge is to become the innovator in the category they can make theirs.

Tough choices lie ahead for the technology titans. Those that change will survive.


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