As I was waiting in line for Apple’s iPhone event last Wednesday, I was talking with a number of my analyst colleagues. We all agreed that no matter what Apple launched, there would be folks in the media writing headlines about why the iPhone was disappointing, what it was missing and being generally negative. At my firm’s publishing site, Tech.pinions, we wrote a range of content trying to add perspective to this discussion. Through the process, we had great conversations from people on all different parts of the consumer-adoption curve.
It’s important to remember that much of this sentiment is held by the tech media and the rather small group (from a macro perspective) of early adopters. But this sentiment arises because Apple has done so much to define the smart-phone category, playing a major role in leading this segment to maturity. To get there, Apple has led the market with quite a bit of innovation in nearly every iPhone release. Now the expectation from the tech media and early adopters is that Apple needs to blow our minds with a world-changing device each and every year. The problem is that this is not necessary for success.
The Truth About Mature Markets
The reality is that the smart-phone market is reaching maturity. We currently sell more smart phones worldwide every year than we do traditional desktop and notebook computers. Over half the U.S. population has a smart phone, and we will quickly get to 75% saturation over the next two years. Once a market reaches the point where smart phones are today, history shows us that more evolutionary product iterations are the norm, while revolutionary leaps happen less frequently and are, in fact, more difficult.
The fundamentals of this market accurately reflect a mature growth market. Which means there are still new customers to acquire, and these customers are shopping with predefined preferences. If all of a sudden a leap in innovation occurs, it runs the risk of not being adopted by larger segments. This section of the market is the largest size by volume and appreciates more evolution than revolution because of the less technical nature of its needs and wants.
To use a parallel industry as an example, we do not expect Ford or Kia or Honda to change the world every year with their newest products. In fact, I can think of no industry that releases products on an annual basis where the expectation is radical innovation in every product. Mature markets simply don’t work that way.
Apple wants consumers in the middle part of the adoption curve who appreciate upgrades in key features they find valuable with each new generation. This part of the market wants products that are simple to use and just work. They do not want to have to tinker with or fuss with such products. That’s always been the appeal of the iPhone, which is why its satisfaction ratings are the best in the industry, and it’s exactly what the market will find appealing about the iPhone 5.
Now, I am well aware that there are other smart phones on the market with better specs, larger screens and subjectively better features — not all of which have been available on the iPhone. Some features and functions Apple was not first with. That’s all fine and good, but many consumers (over 400 million of them) are not customers of competing platforms, they are customers of Apple. What matters is that Apple keeps its customers happy.
These customers have invested time, money and energy into Apple’s ecosystem and have no desire to leave. Therefore, what is most important to Apple customers is that Apple gives them the key features and functions that matter, are useful and add to the experience Apple wants to deliver to its customers. It doesn’t matter if Apple is first; what matters is that the company offers the features that are relevant when the time is right. A key element of innovation philosophy is that what you leave out is just as important as what you put in.
That is exactly what Apple has done with the iPhone 5. It has brought key new features and functionality to its customer base — a customer base I am convinced has had extreme pent-up demand for this new iPhone. Existing Apple customers will be extremely pleased with the latest-generation iPhone, and I fully expect the iPhone 5 to shatter all previous iPhone sales records. However, upon seeing this amazing new piece of hardware, I also expect Apple to welcome many new members to its customer base.
Ben Bajarin is a principal at Creative Strategies Inc., a technology-industry-analysis and market-intelligence firm in Silicon Valley. He contributes to the “Big Picture” opinion column that appears every week on Techland.