It’s been a while since the last time I felt so excited by a WWDC keynote. There’s evidently a staggering amount of innovation gone into the iOS UI, particularly on the iPad. We’re talking about an implementation of drag-and-drop that’s far superior than your click-and-drag equivalent, a multitasking framework designed for simultaneous touching, and numerous killer features like instant note and instant markup with the Apple Pencil. At this point, there is no doubt that the iOS platform is the future of Apple’s personal computing. It reminded me of the early days of OS X UI innovations. They truly made people happy and excited.
All this demonstration of vision piqued an interest of a completely different kind in me. It got me thinking about cannibalism, the non-bloody kind. The word cannibalism in the western world carries a connotation of cruelty. One product cannibalizes another with a competing function and reduces the other’s revenue. What I’m intrigued to explore, however, is the effects on innovation driven by intentional and designed product cannibalism, and the ramifications of which on the company as a whole.
For decades, Macs have been the core of Apple’s PC innovation momentum. Decades of research, product, and engineering development have gone into the Mac lineup. Despite the recent challengers, its position in the market remains immovable, established, and loved. That begs the question: why bother with the iPad (iOS-based as opposed to macOS-based) now? I think the answers will come from asking these two questions, which examine two main opportunities presented by carefully designed cannibalism:
- Does this product bring new users into your market? (Opportunity to expand market)
- Does this product establish a new business model? (Risk of company competency to adapt and change culture, but opportunity for new revenue structure)
Let’s try to answer these questions by examining the case for the iPad cannibalizing the Mac.
Question: does this product bring new users into your market?
The operating system that gives souls to all Macs, macOS (formerly OS X), is designed for the computing needs and conceptions from decades ago — the point-and-click paradigm, the way it handles applications and multitasking, etc. It’s established and immovable, with little room and tolerance for big-leap advancements, which would arguably bring more disruptions than benefits. That’s why its iOS and Android devices that are enabling people to do things they previously couldn’t or didn’t understand how across developed and emerging markets. New users? Check.
Excel is another example that presented an interesting and potential opportunity for accounting firms. Accountants used to spend days simply recalculating row and columns cell-by-cell to predict the conclusion to a “what if” question. It was costly, time-consuming, and a luxury only the most successful businesses could afford. The advent of Excel was feared to pronounce the death of accountancy industry. But contrary to that, hundreds of thousands of accountant jobs were added. “What if” questions are now instantaneous and cheap, which enables accountants to offer their services more cheaply and competitively. Furthermore, it turns out that more people and businesses started using Excel for non-accounting purposes. If the accounting firms created or bought Excel themselves, this new market would have been theirs to capture.
Question: does this product enable new consumption behaviors and business models?
This is the most interesting one to me and, and to a company, represents the most riveting outcome. Instead of putting all the eggs in the basket of incremental improvements on an extremely mature product, creating a well crafted cannibal is like installing a parliamentary democracy to end your monarchy: disrupt yourself before others behead you.
I think the iPad represented a blank slate for Apple to think from the ground up: what can we do to take the everyday operating system iOS and scale that to some key tasks that perform better than the Mac does? What you end up with is a different set of incentives. With the Mac, Apple is making most of its money on the upfront cost of the hardware. After the user purchases the computer, they can install whatever they want on it and plug anything into it with minimal oversight, let alone control, from Apple.
But that’s not true with iOS devices. Perhaps Apple realized that the potential of mobile apps can hold them hostage (as software did to OS X), rendering the underlying OS potentially irrelevant (e.g. WeChat). Therefore from the get-go, iOS is tightly controlled. As it turns out, most users didn’t care. They loved the more stable, more secure, and more consistent user experience. For Apple, this goes far beyond a UX revolution. The product is no longer just a piece of hardware with some great software, it becomes a subscription to an ecosystem.
iOS devices generate more money in their lifetime because Apple owns and controls all the gateways to unlock the power of iOS and the underlying hardware power. In exchange for the ecosystem lock-in, iOS users enjoy a superior and more polished product experience. Think about the various accessory certification programs, App Store commissions, Apple Pay, and more. Users’ expectations and consumption behaviors are different, which is the leverage for a new business model.
That means a lot to Apple as a company. Suddenly, you’re no longer only focused on just the hardware, you also have to deliver a spectacular portfolio of services to extract the lifetime value from your customers. As a company so fine-tuned to deliver excellent hardware, that’s not an easy adaptation to make. A great piece on Apple’s organization crossroads by Ben Thompson nails this issue. Essentially, Apple’s strength of hardware development is a nontrivial weakness in its transition to this new business model, and that has tremendous ramifications on this cocoon-shedding process. Everything from shareholder communication, marketing, engineering practices, product culture, and people management have to reinvent themselves to support the larger vision. None of these are straightforward. In the case of Apple, all of these changes are driven by the nascent iOS devices, and now more so than ever, iPads.
This is a good thing. We heard plenty of platitudes on the tenets of disruptive innovation, but it really comes to having the courage to look in the mirror and ask: can we rethink the perfectly profitable and stable business model and transition to something entire different in the future? I think this is why creating a cannibal draws omnidirectional caution and consideration because, after all, changing internal incentives is hard.
The key to creating a perfect cannibal doesn’t seem to be a question of how to protect my product line, but rather how to maintain or grow my bottom line. And sometimes, doing so requires some scary business model do-over and potentially becoming a different company altogether.