Sunday, May 15, 2011


iPad and a Bluetooth KeyboardImage via Wikipedia
In a previous entry I talked about Apple and the fictitious iKey, a device that could fit between the iPad and MacBook Air. I also discussed how such a product might reduce sales of other products in Apple's product line and how companies keep that phenomenon in mind when developing new products. It's generally good to take sales away from you competition but you don’t want to put yourself in a position where you create a product that reduces your overall margin by reducing the sale of higher margin product offerings.

OK, so while it’s good to take sales away from your competition are there factors that companies keep in mind when evaluating new product offerings designed to compete with existing competitor products? Not surprisingly the answer is yes. I’m only going to touch one here. I’ll continue to use Apple and the fictitious iKey which is an iPad like device with a detachable keyboard about the size of an iPad 1.

One of the interesting phenomena of iPad competitors has been the fact that almost nobody seems to be trying to undercut Apples pricing in the tablet space. This is somewhat perplexing. On the one hand Apple does have the advantage of a very healthy content marketplace to help them offset the costs of designing and building the iPad but on the other they buy all of their components from other companies since they don’t build processors, touch screens, batteries, etc. The companies that do make these components are all taking a cut of the actions. LG, Sony, Hitachi, etc. all own substantial component manufacturing capabilities. It would be fair to argue that Apple can afford to sell the iPad for little or no profit since it drives a larger “eco system” but Sony isn’t lacking in this area given their media assets

It may be possible that potential competitors are weary of being seen as cheap imitators if they bring out tablets that cost less. This would be a reasonable concern but some of Apples competitors are actually charging more for what seems like less. Frankly that phenomenon confuses me. I have absolutely no interest in buying a 10 inch or so Android based wireless only tablet for more than $499 and I suspect most people would agree. I love my Android based Droid X but I wouldn’t pay more for it than an iPhone. Ignoring functionality, iOS & Apple have a much larger cachet. Old school cell phones are essentially fungible and smart phones are heading in that direction, particularly in the Android market segment. Superior features may help differentiate a product in this kind of market but at least some of the differentiation is going to be purely based on brand perception and buzz. Apple wins big on both counts.

So, in addition to cannibalization another potential factor companies have to consider is fear of cheapening their brand. Given the commodity nature of consumer electronic products this probably isn’t a big factor in this case but it is something to keep in mind. Apple is a premium brand and if you are forced to compete with them on price rather than features you’re going to come out looking a little bit tawdry.

Getting back to my fanciful iKey idea, one way a company could choose to compete with Apple is to create a product that is adjacent to the iPad but not a direct competitor. A tablet sized device with a physical keyboard could in theory do that. If executed well it could cannibalize some of Apples iPad sales.

The key here would be to make something no bigger than the MacBook Air in terms of thickness and with a ten inch screen. You can get pretty close to a full sized keyboard with that form factor. After experimenting with our iPad 2 using a small Blue Tooth keyboard I'm starting to think you might not even need a touch pad with such a device. It's reasonably natural to reach out and use the screen.

Apple innovates mostly in small ways. They didn't invent the MP3 player, they perfected it. They didn't invent the smart phone, but they sure as heck put their mark on that market. Imitating Apple is not the right way to compete with them. They are always thinking several steps ahead as market leaders generally are. It's always good to know what the competition is doing, but for businesses that want to live at the top of the food chain that is not enough. You have to be willing to take some chances and work hard to understand where there are opportunities to try something a little different. Steve Jobs and company do have the advantage of what is now a very well established and regarded brand but they got there by taking chances. The Apple Lisa was an early example.

High margins come through innovation, not creating "me too" products.
Enhanced by Zemanta

No comments:

Post a Comment