History is not working in Apple’s (AAPL) favor. Apple’s smartphone global share was 14% in the second quarter this year, down from 19% in the same quarter in 2012. Motorola (MSI), Blackberry (BBRY) and Nokia (NOK) never recovered leadership positions after similar market share losses -- an ominous industry lesson Apple ignores at its own peril by failing to take more dramatic steps than those presented today.
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Improved user interface (iOS 7), speed (A7 chip), camera and security features (finger print recognition) of the top-of-the-line iPhone 5S, and pricing between $199 and $399 with a two-year contract in the U.S. are impressive achievements. Immersive gamers will find the higher speed very important and everyone wants better pictures. But these remain premium products with limited broad-based appeal because of the high price points.
The important part of the story in the market share battle with Android are Apple’s less expensive phones -- the new iPhone 5C and the remaining 4S. And here a lot is left to be desired.
The iPhone 5C at $199 for 32GB with a two-year contract in the U.S. is at parity with today’s upper-end Android phones. And Android prices for these phones will drop with today’s announcement. Competitively the 5S is a neutral move for Apple. While it will slow or even stop the inroads of Android, assuming the price gap does not become too great over the ensuing months, it is unlikely to reverse market share losses.
The iPhone 4 will continue to be sold (free with a two-year contract in the U.S.) but is probably the worst part of the whole story. Arguably obsolete with its small screen, heavy weight, and lack of the extremely fast wireless 4G LTE capability, keeping the iPhone 4 on the shelf is like BMW selling the 2006 Chevy Malibu. Every iPhone 4 sold today erodes the Apple brand because poor value weakens any brand.
Make no mistake: Apple remains in an epic struggle to avoid becoming a niche player in the market it pioneered. While losing massive market share, it has yet to take the dramatic steps needed to deliver superior products into the mass market at reasonable prices. Motorola, Blackberry and Nokia didn’t wake-up until it was too late to avoid being crushed.
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But this is not the first time Apple has faced such a quandary. Apple created the mass market for PC’s in the late 1970’s and 1980’s by pioneering and offering consumers innovative features such as the mouse and graphical user interface. Then Microsoft Windows running on Intel powered PC’s delivered similar options -- maybe not as great but functionally good enough -- at a lower cost. Meanwhile, Apple stuck to its higher prices, almost went bankrupt and ended up becoming the niche player it remains today. All of this with Steve Jobs at the helm, the person who drove the culture of the organization then and whose influence still dominates today.
It is possible to successfully navigate treacherous competitive waters. IBM did it when their mainframe computer business collapsed. Xerox did it when copiers went from analog to digital. The airlines did it when deregulation swept the industry. GM and Chrysler are doing it now. Granted, it might take a bankruptcy to motivate action, but it can be done.
What it takes is breaking down the rules of thumb -- the implicit and deeply ingrained understandings that are built over years of success and influence every decision in the organization -- and replacing them with ones that reflect new realities.
In recent years, rigorous academic research has revealed techniques that reduce or eliminate these internal biases. And experience shows that using these techniques combined with specific approaches to help people understand what the future must be allows for a successful launch of a new line of business or restructure even after repeatedly failing to do so in the past.
As Apple enters new markets with an unmet demand like China, sales will continue to rise and reinforce internal beliefs that Apple is succeeding. But the declines in market share reveal the truth: more and more consumers are choosing Android smartphones and Apple is falling further and further behind. Blackberry faced a similar paradox of simultaneous success and failure with rising sales even after the iPhone came to market while, at the same time, entering a disastrous decline.
Apple already has brilliant people, massive resources and some great products just like Motorola, Nokia and Blackberry each had when at their peak. But these assets don’t help at all when a company’s core beliefs of what drives success are dead wrong. Assuming Apple doesn’t have a miraculous, transformative plan up its sleeve for the mid and low end of the smartphone market, it will need to follow the same advice it has given us for many years and “Think Different.”