What did HP do wrong, what could it have done differently?
I have watched with interest the various post mortems of the HP Touchpad. This can be summed up in one line.
HP Launched iPad competitor: Not better than iPad: Same price level: Didn’t sell: Dropped price to 1/4 of cost: It sold
Cue – lots of debate about selling below cost and generally useless business quackery that should have ended with the last tech bubble. Rule #1. Businesses need to make a profit. They can sell products below cost, but rule 1 still applies. If you don’t make it on the device you need to make it elsewhere. HP had no other way of making revenue (or to be more accurate, no one including the HP board had confidence that they had viable alternative revenue streams. They were probably right. I don’t think HP did. This was a big mistake and itself doomed the tablet to failure.
And to those writers who said that the Touchpad was a huge success as validated by it selling like hotcakes at 1/4 of cost – you are stating the business model that Poundland, and other discount shops know – people like a bargain. This does not prove the Touchpad was a great device. It proves that given the right price, you can sell pretty much anything. But remember rule #1. Businesses need to make a profit. Selling something for 1/4 the cost of production is only a good idea if you make lots of money from somewhere else from this. Given that HP didn’t have a ‘somewhere else’ they were losing money on each device. Find any market and sell a new products at 1/4 of cost and you will sell a lot. But this violates Rule #1. Sky and cable providers, mobile phone contract providers all sell at a loss, but ALL have a proven revenue model (subscriptions) to make this money elsewhere. HP didn’t. The other point that many bloggers have missed is that the price that the Touchpad did actually sell at $99/$149 should send a shockwave through many tech companies. People will buy your product but only at 1/4 to 1/6th of the market leader. You brand is worth nothing to them. It has no premium. Whilst Apple has a brand premium, as a competitor, you have a brand cost – this means that your product will need to discounted to even compete. For a company launching a product in a highly competitive market with a strong leader – this is harsh and a very unforgiving environment.
So why can Apple make great devices that sell by the bucketload whilst so many others have failed?
This list of those who tried to compete against Apple includes some credible competitors. Microsoft’s tablet failed. HP’s Touchpad failed, RIM’s playbook is a failure, and there are hundreds of minor players. Many PC manufacturers are seeing markets shrink and profits vanish. The same is true in the mobile phone market, with Nokia, RIM, and others facing major questions over their ability to compete against Apple. It isn’t about the mobile or laptop or tablet market – it is any market that Apple decides to play in.
So can a competitor beat Apple?
Is this even possible?
To understand this better, you need to start to look at why Apple are successful.
The most important point – it is not the device alone that makes them successful. Let me repeat this – it is not only about the device. A device is only part of the puzzle. Many companies have produced great devices that match and even exceed Apple products, but still do not succeed. So when a Product Manager proposes the way to beat Apple is with a better device (often at the same price as Apple or more expensive) – show them the door. It is the ecosystem that Apple have built that provides users with a great experience and Apple with a very profitable revenue stream that needs to be built.
Of course, Apple has world leading industrial design capabilities and invests significantly in industrial production innovation, but it is about more than this. Competitors could buy or hire world class designers, and they could invest in production innovation (but unsurprisingly most don’t).
But this is not enough. Great industrial design helps, but is not the key factor. It goes deeper than this.
What Apple have done better than others is understood what people want to do – not with technology, but with their lives; they have worked to understand interactions, processes and experiences at a human level. They have searched to understand what matters most to people them and enabled this. When obstacles and industry norms were in the way, Apple has sidestepped, ignored or innovated past them. Innovation is key, but this is not limited to technology. Apple has innovated in user experience, interface design, industrial design, retail, packaging and critically in business models.
When a competitor states that they innovate, do a quick check and see what area this is in. In most cases they mean technology features. They have a slightly better widget improved at a level that is invisible to many and irrelevant to most users. Ironically this the area that Apple arguably innovates least in. Many Apple features appeared in other products, but not as a whole, and often badly implemented. What Apple loves is not incremental innovation of the usual, but exceptional innovation of the often ignored – hinge mechanisms, the open and closing experience, un-boxing experiences, time to get things working and tasks done. The experience more than anything else defines Apple.
Getting this right means understanding the usage scenarios and the features required to enable these. As mentioned by Jobs and Ive many times, it also gives them the confidence to know what NOT to include. Given that each feature is a compromise (features costs money, unnecessary/unvalued features increase complexity) this understanding is essential.
There is not company even close at the moment to beating Apple in terms of understanding and enabling human<>technology interactions across multiple devices. This alone is an incredible asset, but what Apple have assembled today goes much further. They have defined what Bill Hill called a ‘Golden Castle’. It is a closed ecosystem that is not only incredible profitable, but also hard to defeat. Beating Apple cannot be achieved with one device alone. You need to deliver a better ecosystem AND a better device. This ecosystem could be from multiple companies, but it needs to interact and interoperate seemlessly – Why? Because Apple’s ecosystem does. Any device manufacturer can only ever achieve a minority sales position until they solve the ecosystem problem. Until they do, they risk being successful in volume, but not profit. The challenge is not making a good device and selling it, it is making a great device at a good profit and sustaining this. The HP device was OK, but against an iPad was overpriced and weak and lacked the user experience that Apple provided.
Several writers have pointed out that the HP device was faster, the operating system was more powerful and it was more extensible. It didn’t matter. Users, people, punters – those parting with hard earned cash made a different judgement. It was wasn’t better than the iPad in terms of the device experience, cost about the same, had very few apps and didn’t have anything like the content ecosystem that iTunes brings. It was always going to fail.
Until competitors address the ecosystem problem, they are fighting for at best niche market share. The only companies who could be successful over the long term will be those who have deep pockets and the ability to define and execute ecosystem strategies and have a unique asset to bring that Apple do not have today. This is not a world for compromise. Solutions need to find gaps in the Apple experience, find markets that are not well served, identify unmet user segments and do a better job than Apple for these users. This is a hard task. Note to HP: the consumer market was the worst place possible to start – and certainly with a v1.0 product that offered a less experience for the same price.
So for the future – a quick start check list for anyone thinking of trying to beat Apple products (in no particular order):
1) Great user experience in accomplishing key tasks, not just using the device on its own
2) Excellence in design
3) Global production and scale to launch and deliver multi-nationally (or a tightly integrated partner network)
4) A payment mechanism/model that content providers and airtime providers support
5) A content management system
6) Agreements with major content providers
7) A developer network and ecosystem to allow them to make money
8) Excellent marketing/brand image
9) High street sales presence (not necessarily your own stores) and Apple-class post-sales support
10) Vision and what is coming next and the courage to go there.
The company closest to this list in one place? Amazon. Microsoft has many of this list, but not more than Amazon.
It is hard to see anyone else getting close, including Microsoft without building a close and trusted partner ecosystem.
HP ignored much of this. Rather than embracing partners and identifying those who had similar fears, it alienated them. The decision to put WebOS onto PCs, thereby losing the strategic commitment of Microsoft was a good example of this. Microsoft could have been a partner. Instead, I’m sure there are execs in Microsoft grinning with, “We told you so”, but equally worried that Apple has scalped a valuable potential ally.
So ecosystems are key – whether internal and closed like Apple (and Amazon) or open.
No ecosystem = niche success at best
And even if you design and can implement the ecosystem – the other elephant in the room is that Apple can change.
Apple make a huge amount of money today. Their nuclear option would always be to lower price or launch a low end device and lower the profitability any one or more market revenue streams (thereby stopping competitors dead as the market becomes a zero profit market). With highly diversified profit streams Apple is able to do this.
So the only way to counter this is by innovating the business model – to change the game. Be faster, smarter, more agile and more focused. Not an easy ask, but when you look for how to achieve this, look to military strategists who understood how intelligence and agility was key, not bloggers and pundits who don’t understand that in order to claim victory you have to survive.