The Apple iPod Success Story — Business Strategy Lessons

The Apple iPod Success Story — Business Strategy Lessons

Shah Mohammed

2 days ago

·

19 min read

The late 1990s saw the launch of several portable MP3 players as substitutes for Walkman and portable CD players. However, their sales were lukewarm. In 2001, Apple entered the digital music industry with the launch of the iPod. Critics commented that iPod would die down without a whimper. However, iPod changed the way people listened to music. It made it cool and fashionable to listen to music on the move. And it transformed the music industry itself.

Image Source:: techguide.com.au

Why did iPod succeed? What lessons can we learn?

SELLING IS TO SOLVE A PROBLEM

Lee Iacocca, f

o

rmer Ford Chairman, said that selling a product is about solving customer problems. If you do not understand the customer well, you cannot sell any product. You would be wasting time and losing credibility.

Innovations happen when you try to solve a customer’s pain.

So, the first thing in building a business/brand/product is to find the customer’s problems/pains/needs.

How to understand the customers’ needs/pains/problems?

FINDING THE NEEDS/PROBLEMS — BE THE CUSTOMER

A product’s success primarily depends on how well a company/brand has understood the customers’ needs. To understand their needs, we need to observe prospective users in their natural environment, collect insights, and think from their perspectives.

We can go a step ahead — Rather than passively observing them, how about, we become customers of our proposed product? — Living like one of your customers is the best way to understand their needs.

Most of the employees in Harley-Davidson’s company are riders. The organization believes that being riders help the company to design a better product for its customers.

When you are the customer, you are designing the product for yourself — you would go the extra distance and make the product as convenient/exciting as possible.

The Apple Team As Customers —

Steve Jobs and his several teammates were passionate music fans. Steve and Wozniak bonded over Bob Dylan’s music and electronics. In their younger days, they had spent several hours collecting copies of their favorite songs. Tony Fadell, who was in charge of developing the iPod device, was a hardcore music fan. He had earlier come up with ideas for creating a better digital music player. He had approached companies like RealNetworks, Sony, and Philips but couldn’t succeed.

“Music is a part of everyone’s life, and because it’s a part of everyone’s life, it’s a very large target market all around the world. It knows no boundaries.” — A teammate of Steve Jobs.

CUSTOMERS’ NEEDS

Being passionate music enthusiasts, the Apple team could understand the problems faced by other fans. Based on their own experience, they have listed the following needs —

Music Management Application —

In 2000, the personalization of music was on the rise. Listening to music at work had become a daily routine for millions of people(Thanks to the new startup companies). People were ripping music onto their computers from CDs or downloading it from file-sharing services such as Napster. They were spending hours making/remaking the lists on their PCs. And, computers were also becoming digital hubs where people used them to manage their music interests.

Unfortunately, the desktop music management applications like Real Jukebox, Windows Media Player, and HP Music app were clumsy and complex. It frustrated the users, including Steve Jobs and his team.

Portable Music Player —

A segment of music zealots wanted to listen to music on the go. In the late 1990s, several brands entered the market to meet that need — AT&T FlashPAC, MPMan, RIO, Sony Vio MC-P10, and Intel Pocket Concert.

Steve and some of his teammates had tried several portable music players. Unfortunately, they found them terrible to use.

The devices could store only a few songs.

It had a complicated interface.

There’s a story that Steve Jobs was so frustrated with a portable player that he angrily threw it into a garbage can.

It had poor battery life(Since the devices used AA batteries).

Syncing songs from their computer to the portable music player was an arduous task and consumed time.

Compatibility issues with file formats and file transfer protocols frustrated the customers. It was one critical challenge that discouraged people from using the product regularly.

The devices were also bulky and ugly. They were not pocket-friendly.

So, customers need —

User-friendly

Desktop Music Management Application and a small,

User-friendly

Portable Music Player with a

large capacity and long battery life.

User-friendly — That’s the critical factor.

ACTIVITIES & THE STRATEGIC FIT

After deciding the new value propositions for the proposed product, it is imperative to check whether it would align with the brand’s core vision and overall strategy.

DIGITAL HUB STRATEGY—

In the late 1990s, Steve Jobs realized that the personal computer would become a Digital Hub that interacted with various devices from music players to video recorders to cameras. He felt that people would plug and sync all those devices into their PCs.They would be using the computer to edit photos or movies or manage a music library. So, Steve Jobs had already started to steer the company towards a Digitial Hub strategy.

Jobs and his team felt that a desktop music application and connected portable music device would reinforce that strategy. It would add value and strengthen the competitive advantage.

ACTIVITIES FIT —

Now, the next crucial part — A business has to perform several direct/indirect activities to deliver value to a customer through its new product/service. Example -For Starbucks, the activities are

Sourcing quality coffee beans, Roasting, Customer Education, Baristas training, Consumer Research, R&D, Hiring, Procurement, Testing, Real Estate, Packaging, and Branding.

Similarly, for the new proposed music player, Apple had to perform specific actions. The company had to check whether those activities align with core competencies & capabilities.

Competency refers to an organization’s combination of facilities, unique processes, value-added networks, knowledge, skills, and technology that can help in completing a particular activity. Capability is the ability of the company to stretch/modify the core competencies to meet future needs without deviating from core values.

The Apple team believed that designing the new portable music player would be like creating a mini PC. There were several similarities. They felt that Apple was best equipped than any other competitors to provide a seamless experience due to their knowledge in developing hardware and software for Mac computers.

The combination of unique processes, facilities, loyal fanbase, OS development, and knowledge in electronics, styling, product’s external finishes, PCB manufacturing, enclosure manufacturing, assembly lines, operational efficiency, UI would help the design of the new product.

THE DESIGN JOURNEY

CHOOSING A NICHE MARKET

Most of the disruptive products/services became successful by starting small. In other words, they targeted a small niche market at the beginning — a specific customer segment.

When Apple launched Macintosh, it did not target every customer.

Mcintosh initially targeted Graphic Artists/Designers in Fortune 500 companies.

These designers used Macintoshes to give presentations to marketing professionals/executives.

The marketing and sales professionals were mesmerized by GUI and the responsiveness of the computer. They began to use the Macintoshes for their work and gave presentations to Outside Vendors, Publishers, Clients — and the idea spread.

So, Macintosh began its business by targeting a Niche customer base(Graphic Artists/Designers) and went on to dominate the market.

The rule of thumb for business success is to “Start small.

Find the target market with maximum pain/need.

Focus on a particular need, work on it, make your product distinctive and dominate the niche market. Once you become a leader in the niche market, you could move to the larger markets”.

Smaller the customer segment, it is easier for the entire company to focus all their resources, energy, efforts to meet the customer needs, wants, and desires of the niche segment. It further helps in developing and launching a meaningful product at a low cost.

A better product means loyal customers.

Focusing on a small market also makes it easy to test and collect efficient customer feedback about our product or service which will help in further enhancing the product.

Niche Market for the new Portable Music Player —

For choosing the niche — Rather than looking at the number of people, look at the magnitude of pain/need.

Which customer segment would have the maximum need?

In 1999, Shawn Fanning, a college student, found it hard to search and download songs from the internet. The frustration led him to start a website called Napster. The site allowed users to share mp3 files across the internet with their friends. Within a year, the site had sixty million users. It showed that the digital music revolution had begun. Teens and young adults were leading that revolution. Their first love was music. The teens and young adults went to considerable lengths to collect and curate the songs. They were also the most active customers than other segments.

Even most artists and music label companies’ primary target segments were teenagers and young adults.

So, Steve Jobs and his team chose young adults and teenagers as their initial core target audience for Apple iPod.

The team also had several other reasons for choosing teens and young adults —

Research had shown that teens wanted to establish their own identity. They had disposable money and were willing to spend money on the right product.

They loved products that would allow them to show off their uniqueness.

Teens also exerted a substantial influence on purchases in their families.

Teens like to be in charge of their lives. So, they spend time in research and prefer to make informed decisions.

The right product could easily attract them.

Teenagers were also adventurous and willing to explore new territories/products. Most of them were experimental in nature.

It would be easy to convince them to try the new music player.

Most teenagers would like to show themselves as cool as possible to the outside world.

So, they aspire for new technology products because of the coolness factor.

Teenagers love sharing product information with their friends. Remember, Shawn Fanning started the Napster website to share songs with his friends. So, it presents an opportunity for a product idea to spread wildly in quick time.

Product penetration increases with minimum effort when consumers market to each other.

MARKETING MYOPIA

SaeHan Information Systems launched the first MP3 player, MPMan, in 1997.

Diamond Multimedia rolled out its portable music device Rio PMP3000 in 1998.

Compaq introduced Jukebox PJB-100 in 1999.

By 2000, several other manufacturers launched many more MP3 players. Yet, the market response was lukewarm. These manufacturers saw their products as strong substitutes for the popular Walkman(which used older technology — cassettes) or CD players to carry music.

Even the name MPMan was a substitute for the Sony Walkman.

One of the ads for Rio PMP300 stated that

“PMP300 is smaller than an audio cassette and has no moving parts, so it never skips.”

Theodore Levitt, in his ‘Marketing Myopia’ article, wrote, “The railroad industry failed because they assumed themselves to be in the railroad business than in the transportation business. They were product-oriented than customer-oriented. If they had thought that they were in the business of helping customers get from one place to another, then they would have transformed their service offerings.”

A few decades back, Hollywood was mauled by television. Some studios simply disappeared. They disappeared not because of TV but because of their myopia. They saw themselves in the movie business rather than in the entertainment business.

Marketing Myopia was one of the reasons behind the failure of those portable music players. The companies saw their products as Walkman or portable CD players with new technology.

How to escape from this myopia?

Amy Gallo offers a solution based on Levit’s article on Marketing Myopia. She says that leaders, instead of asking

What business are we really in?,

should ask themselves

What are we doing for the customer?

Think of every offering from a customer’s perspective.

Once, Steve Jobs said, “One of the things I’ve always found is that you’ve got to start with the customer experience and work backward to the technology. You can’t start with the technology and try to figure out where you’re going to sell it. We start with ‘What incredible benefits can we give to the customer...Where can we take the customer?’ Not starting with ‘Let’s sit down with the engineers and figure out what awesome technology we have and how we’re going to market that.’”

So, Steve Jobs ensured that his team focused only on customer needs and not on technology or product. It was not about designing the best music player or an application but about the best ways to help a customer accomplish his/her intended tasks with minimal cognitive and physical effort & within a short time. Jobs reiterated that nothing should get in the way of listening to music.

iTunes — MUSIC MANAGEMENT APPLICATION

Apple bought the rights of a music management application called SoundJam MP, developed by its former employees. The music application had several features and a complex user interface. Steve Jobs pushed his team to make it as simple as possible. The developers stripped away several features and simplified the interface.

Instead of an interface that made you specify whether you were searching for an artist, song, album, Jobs insisted on a simple box where you could type in anything you wanted.

The team renamed the application iTunes.

DESIGN OF iPod

Most of the manufacturers had crammed several features in their portable music players— Users would create/edit song lists, add/delete songs — It demanded more processing power, memory, and battery capacity. Appending more functions increased the bulkiness of the device, complicating the product. As the complexities increased, people struggled to understand how to use the product.

There’s a common myth about new product development — The more features we add, the more customers will like it. However, the research shows that a brand can maximize new product adoption only by minimizing complexity.

The Key Insight —

Steve Jobs believed that they could provide a seamless experience only if the device had few functions. He felt that users could perform some tasks on the computer(using iTunes) than on the iPod. The research also showed that most customers made/remade lists very rarely(the usage frequency was low). For that, they preferred computers since it was convenient.

The users just wanted to listen to songs using their portable devices.

Steve Jobs asked his team to strip away as many functions as possible from the device. The music player would have only frequently used functions — A user couldn’t make playlists using the device — He/she would make them on iTunes and then sync with his/her device.

Rio and other devices had to have functions like make/edit playlists because they weren’t integrated with the Jukebox software on the computer.

Apple team observed that focusing on a few uncomplicated functions would bring down the processing power, battery, and memory requirements. It would also result in lowering the cost of the device. Another benefit — The smaller components would lead to a reduction in the overall size of the music player. It could truly become a pocket-sized device.

We have often heard that the key to creating a great product is not what you put in but what you leave out. Steve Jobs and his team knew what to omit.

EASE OF USE

Ease Of Use is the next critical factor that would help in providing a seamless experience to a customer.

Ease Of Use makes people love the product. They become loyal to the brand and happily share the product’s benefits with their friends and acquaintances. It results in positive word of mouth.

Definition —

The ISO defines Ease Of Use as — “The extent to which a product can be used by specified users to achieve specified goals with effectiveness, efficiency, and satisfaction in a specified context of use.”

REMOVE THINKPOINTS —

iPod interface design followed one critical design principle —

Remove User Thinkpoints.

People would be buying the new product to save time, not to spend it. Moreover, our brains always look for ways to conserve energy. Any cognitive load would be a barrier to product adoption. So, make the product easy to use so that users need not think.

On seeing, a user should readily comprehend how to use the product/interface to accomplish a task. Make everything self-evident. The product design should work around users’ existing behaviors, skills, and habits. It should simulate real-world processes wherever possible and have more familiar things.

Jobs’ primary demand was to Simplify the product as much as possible — If he wanted a song or a function, he should be able to get there in three clicks. He would test it. And the click should be intuitive. If he struggled to figure out how to navigate, he would ask them to redesign it.

Scrollwheel —

Jobs's demand for ‘Simplicity’ resulted in one crucial innovation that drastically improved user experience. It was the Scrollwheel.

In other digital music players, customers faced one critical problem— How to go through a playlist and choose songs — The user had to press ‘+’ or ‘-’ hundreds of times to play a song from the bottom of the list. Imagine if the customer had more than one thousand songs. It was a tedious job. Apple team came out with a wheel concept — By turning the wheel with the thumb, a user could scroll through the list at any speed he/she wanted. He/she could reach the bottom of the list within few seconds.

The scroll wheel transformed the iPod’s ease of use.

Ease Of Transfer —

Most portable digital music players used USB 1.1 standard to transfer music from a host computer to the device. It took several hours to copy the songs. To provide a seamless experience, Apple had to solve this problem. Fortunately, being a PC manufacturer helped it to overcome this obstacle. The company had developed FireWire technology in the 1990s. It was a high-speed serial port that moved digital files such as video from one device to another. Apple’s team adopted the FireWire technology for iPod.

iPod’s FireWire connector transferred songs faster than USB. People could move a CD’s worth of songs onto their iPods in few seconds.

PRODUCT AESTHETICS

Color —

iPod would be a consumer gadget. At that time, most of the portable gadgets were black or dark grey in color. Jonathan Ive wanted his device to stand apart from those devices. At the same time, the color should be understated, quiet, and restrained(Imagine people listening to music in peace). Peace, purity, and tranquility was the theme. He felt that white would be the right color.

Shape —

Remember the earlier quote that nothing should come in the way of listening to music. Jonathan Ive and his team gave a simple shape to the product to denote its purity. The pure white color amplified the simplicity. Only two elements dominated the iPod’s face — a rectangular display and the iconic scroll wheel.

Material —

At that time, most portable music players were made of plastic. It gave a disposable feel to them. Jonathan Ive disliked that. He felt that iPod needed to have a premium appearance to show its significance. So, he chose polished stainless steel back cover.

Consistency —

Jony also introduced another crucial, iconic innovation— the white earphones. Many argued that earphones should be black, like everyone. But Steve Jobs prevailed.

The white cables changed the game for Apple.

Jony also made the power connector white.

Consistency would help consumers understand the brand’s message.

iTunes STORE

Steve Jobs unveiled the iPod on October 23, 2001. By early 2002, Apple faced a challenge. Sales were stagnating.

As Steve Jobs expected, the combination of iPod, iTunes software, and computer provided a seamless experience in managing the music a user had already owned. However, experience suffered when a customer tried to get a new tune/song.

To get a new song, a user had to buy a CD or download it online. Purchasing a CD and transferring the songs involved several tasks. Moreover, customers hated the idea of procuring a whole album when they liked only one or two tunes.

Downloading tunes would be the simplest way to add a new song to the iPod. However, it had its downsides — People struggled for hours to search and find the tune. Downloads were unreliable, and the quality of songs was often worse. Moreover, it was stealing somebody’s hard work. Steve Jobs observed that most consumers hated stealing music. They were open to any other legal alternatives to download songs. The customers also didn’t like digital subscription services like Pressplay and MusicNet, as they preferred owning the music.

Steve Jobs and his team explored a simple, safer, and legal way to download songs. At that time, the music industry has also wanted a solution to stop piracy — A solution where customers would win, music companies would win, artists would win, and Apple would win.

PLATFORM BUSINESS MODEL —

The solution was the iTunes Store, where Apple would sell digital versions of songs.

How to encourage customers to buy from the online store? Naturally, the consumers would be skeptical and exhibit resistance towards any new technological change. A lower price could play a pivotal role in attracting them. Steve Jobs requested music companies to unbundle albums and sell individual songs for 99 cents. He told them that the price would encourage impulsive buy from the customers. The companies agreed. And it transformed the iPod and Apple’s future.

Customers could locate the song they wanted within few seconds. They could preview the tune before buying and downloading it. The songs were also of good digital quality. It was a win-win situation for everyone.

The entire system — the iPod, the iTunes Software Application, the iTunes Store, the Business Model for selling music together offered a seamless experience.

Demand for iPods began to soar multiple times after the launch of the iTunes Store.

SELL AN IDENTITY

Humans are in a rat race to build a nest of social status, a unique identity, & show it off to others to attract power, favor, or mate(s). All our public purchases/consumption/behavior is a way of achieving those goals. We use some brands and products to construct, maintain, and express part of our identities.

Take the case of purchasing a car. We need a vehicle to take us from place A to place B. Almost all automobiles have similar working mechanisms and satisfy the need. Yet we all prefer different brands for various reasons. The car is not just a means of transport but a coveted status symbol for us whether we like to admit it or not.

In one of the focus group tests, a group of people was asked: “What would your friends think of you if they saw you driving this new car?.” They responded with an air of subtle arrogance,

“I don’t care what others think of me, I just want to get from point A to Point B.”

Shortly later, the same group members were shown several car concepts and asked about their preferred choices and the reasons behind those choices. Almost everyone chose a car that they strongly felt had the head-turning looks.

Deep down, everyone desires recognition and attention from others. They want to communicate their identity.

To summarise,

brands that help people broadcast part of their identity could quickly build a sustainable business.

iPod and Identity —

We saw that iPod’s sales rocketed through the roof only when Apple launched the iTunes store. The store helped consumers to show off a unique identity —that they cared for legitimate purchasing of music and loved to do their bit in stemming online music piracy.

“I’m not stealing music. I care for artists.”

However, for customers, iPods posed a challenge in showing off their altruism to the outside world— iPods would be staying in pockets while in use. There won’t be any way to grab the attention of other people. Remember, a product’s success lies in helping your customer to advertise himself/herself.

Design for Showing Off —

What did Apple do? The company introduced white earphone cables — a simple game-changing innovation. Before Apple came along, every other headphone’s cables were black. Once you were used to seeing black cords, a white cord grabbed attention. It broke the pattern we are used to seeing. After this, every time you saw a white cord, you are unconsciously aware of the person’s identity. The ad team also exploited this phenomenon — The ads had only a silhouette of someone dancing while listening to an iPod, its white earphone wires moving with the music. It didn’t show the product.

Slowly, the iPods became a fashion statement. Having an iPod was seen as trendy and cool. So, people started buying iPods to show off their cool identity.

‘Design for Showing Off’ also helped to sell iPods in large quantities.

CONTINUED INNOVATION

Steve Jobs and his team didn’t rest on laurels. They continued to improve the product experience and constantly explored ways to meet the user’s changing needs.

In 2004, Apple launched iPod mini. It was smaller than the original iPod and had less memory. It targeted people who wanted to listen to songs while working out in the gym, jogging, and engaging in other outdoor activities. Mini was a massive hit among customers. It drove iPod to market dominance. Apple’s market share in the portable music player market rose from 31% to 74%.

In 2005, Apple launched iPod Shuffle that played songs in random order. It lacked a display, the trademark scroll wheel, and playlist management features. Users couldn’t navigate and only skip songs. Compact design, low cost, and long-lasting battery attracted users in droves. People loved it.

It’s rare to see any company bold enough to tinker with their popular products. But Apple happily did that. They weren’t averse to killing their products. It allowed them to innovate continuously. Innovation made it difficult for competitors to catch them.

ORGANIZATIONAL STRUCTURE

With the introduction of Walkman, Sony was an undisputed leader for more than two decades. In 1992(9 years ahead of Apple), they also entered the portable digital music market with the launch of the MiniDisc system. The company had a consumer electronics division and music records division. They had experienced, technically sound software & hardware engineers. Sony also owned a massive collection of songs and had a strong distribution network. Yet, Sony failed in the portable digital player market. The reason — Silo culture.

Silo Culture —

In Sony, several divisions worked independently and didn’t want to share information and knowledge. The music division didn’t want to cannibalize their own music distribution business. In the name of protecting copyrights, the division used proprietary files that were incompatible with the fast-growing mp3 format.

They were more concerned with avoiding piracy than with the success of the new digital product.

Both consumer electronics and music divisions had conflicting objectives. There was no culture of co-operation which is vital for success.

On the other hand, Steve Jobs didn’t organize Apple into semiautonomous divisions. He rallied them to work for a common purpose. Jobs closely controlled all his teams and pushed them to work as one cohesive and flexible company, with one profit-and-loss bottom line.

INTEGRATION

Integration was one of the reasons behind iPod’s success.

Apple made its hardware, software, operating system, device, music management application, Firewire, and the iTunes store. It helped the company to provide a seamless experience.

Some portable music player manufacturers shipped their devices with someone else’s application software. They also depended on third-party desktop management software. A few companies like Microsoft had good software capabilities but had no experience in hardware design and development. They had to rely on other vendors. That affected the quality and customer experience. Sony was good at hardware but had no experience in the design of an operating system. So, their software wasn’t great. Customer experience suffered. Only Apple was well-positioned to provide a great customer experience.

CONCLUSION

iPod succeeded because Apple offered a seamless experience by integrating the iPod, the iTunes Software Application, the iTunes Store, the Firewire, and the Business Model for selling music. Moreover, the device had a sleek style and easy to use interface.

References::

Steve Jobs by Walter Isaacson, Entertainment Marketing & Communication By Sayre Shay, Story of the iPod by Jake Nielson(Ignition Framework), Macworld.com, The rise and fall of iPod by Clancy Morgan, Irene Kim, Lisa Eadicicco, Design-Driven Innovation by Roberto Verganti, Hooked by Nir Eyal, The Elephant in the Brain: Hidden Motives in Everyday Life -Book by Kevin Simler and Robin Hanson, Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of Blackberry by Jacquie McNish and Sean Silcoff.