Successful Businesses

Ben Thompson of stratechery fame has written a great article on the hypothetical disruption of Apple. I highly recommend reading it.

In the meantime, Apple, stuck with an obsolete business model, has been working steadily on increasing its services offering, an area that has never been a strength for the company. Unfortunately, even if Apple’s services were as attractive as Xiaomi’s offering, it would be exceptionally difficult financially for the company to shift from the $325 it formerly acquired per iPhone buyer to the $50/year that Xiaomi receives.

goes the fable that Ben uses to illustrate the point of disruption.

Here's the takeaway

To be disrupted is not to lack vision, or intelligence, or even product sense.2 Rather, it’s to be challenged by a business model that offers good enough products or services at a price you simply cannot afford to match. Were this situation to befall Apple (and again, I am not predicting this by 2018) Tim Cook would not have failed; he would have simply met the fate that all of recorded business history suggests is inevitable. What would be far more surprising would be if he, or his successor, did not, at least eventually.

This is a significant point. Business model innovation and by corollary, disruption is critical for sustaining high performance, growth and scale for a business.

Here's the tl;dr version of Apple's business model that everyone talks about. Make exquisite hardware that runs customized fine tuned software and sell it at a profit.

But, it goes way beyond that. Apple is able to work and provide a great user experience, because most users are on a subsidized pricing model. Apple works hard to cut costs by scale and improves premium by increasing demand using the iOS eco system[[1]] and Apple marketing.

And it is very rare that such a business system functions so well and there is no known occurrence of it becoming perpetual (enter disruption). The closest parallel to this is the Windows business model. Most customers don't pay full price for Windows because OEMs subsidize it to sell hardware. Yet, Microsoft cut costs by sharing codebases and improved demand by putting a PC in every house and office.

Yet, Microsoft got disrupted when they could not convince that you don't need to run Windows on a mobile phone and there were unique use cases (communication, surfing the web, reading and other social activities) that Microsoft never really paid much attention to.

Apple has a precaution in place with the iOS developer eco system. Yet, it is something that is very un-Apple like. Losing control of the user experience to someone provides an opportunity for disruption for the service and Apple realizes that at the end of the day, it is the service that matters. It is more important for people to access Facebook than run Facebook on an iPhone. It is more important for people to get navigation than it is for people to run navigation on an iPhone. And it is more important for people to watch a movie on the go, than watch a movie on Netflix on the iPad.

I am positive that Apple gets it. I am not sure Apple likes it that way because it leads to the fable that Ben points out. As things become good enough (and there's enough momentum from companies), iOS would be just another mechanism to provide that service.

Now, services are just ONE way to be a successful business in the mobile market. Samsung focuses on vertical integration and little to zero cost on OS development. So does LG.

A successful technology business entity has the following facets working well in tandem - business model, technology, organizational structure and culture.

I know of companies that are innovating in technology, business model and even organizational structure. Do you know of sustainable businesses that are innovating on culture? LMK in the comments below.