What a New, Cheap iPhone Reveals About Apple's Grand Strategy

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Under Steve Jobs, Apple became the biggest company in the world by tweaking existing technologies to build magical new products. Then Tim Cook tweaked Apple.

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The rumors are in agreement: Apple is releasing a cheaper version of the iPhone. Maybe that news feels like a small retail announcement. If true, it's more like a keyhole into Apple's grand strategy since the death of its founder CEO.

The biggest technology company in the world is in a position it rarely found itself in the last ten years under Steve Jobs -- playing catch-up in the race for market share.

"Steve Jobs didn't care about market share," Silicon Valley investor Marc Andreessen said at a Quartz event in New York City last year. He wanted to invent amazing new products and sell them for a fat profit. In the 2000s, Apple didn't need to obsess over market share because it invented its own markets -- particularly with the iPod/iTunes store, with the iPhone, and with the iPad. None of these products sprung fully formed, and without precedent, from Jobs' brain. Apple didn't build the first mp3 player, or the first smart phone, or the first tablet. But what it built became the industry leader, the standard that all other companies had to speed up to meet -- in digital music, smartphones, and tablets. "The Apple playbook under Steve Jobs was a single playbook," Andreessen said. "He would invent a new product category, start with 100% market share, and then every day that goes by, lose market share until some terminal outcome."

We're approaching such a terminal outcome. Samsung phones are poised to open a ten-percentage-point advantage over iPhone in global market share -- 33 percent share to 21 percent. Google Android software now runs the plurality of the world's smartphones. Apple's portion of the worldwide tablet market fell from two-thirds to half in the last six months of 2012.

The world is eating into Apple's markets faster than Apple is building new markets.

The company's response under Tim Cook has been to play smart defense -- it hasn't created new market categories, so much as played carefully within them. Popular phones were getting taller and thinner, and the iPhone 5 got taller and thinner. Popular tablets were getting smaller, and the next iPad fit in one hand. Even subtler moves, like leaving old iPhones on the market for longer periods of time at a discount, could be seen as an attempt to win undecided buyers who might pick a cheaper rival. If these moves seem un-Jobsian to observers, they're also quite clearly necessary to Apple defending its slice of the mobile market.

Something else is happening. The appetite for Apple's products is going global very quickly. Today, the company makes about two out of every ten dollars in revenue from Asia -- which doesn't have the same carrier subsidies as American families. It is only slightly hyperbolic to say the future of Apple is as a Chinese and Indian phone-retail company. If it doesn't meet the so-called "Chindia price," it has no chance to stop the march of Samsung and other phone makers.

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Steve Jobs, in Malcolm Gladwell's eloquent characterization, was not a soup-to-nuts inventor, but an ingenious tweaker. He assembled pieces of technology that already existed into beautiful, and beautifully functioning, machines. So far, under Cook, Apple isn't tweaking other technologies to invent new things so much as it is tweaking its own inventions. Six months from now, Tim Cook could unveil a new Apple TV that creates yet another must-have screen and another Apple-dominated market. But so far, that's behind the curtain.

The Apple of the last decade was a non-stop invention factory, truly an extraordinary company. The Apple in front of the curtain today looks more like an extraordinarily rich, ordinary company.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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