Muddy Models

To dominate or not to dominate. That is the non-rhetorical question.

Being a former IT guru, I hang-out virtually with some of my former peers in forums where we argue about everything from driver code to global warming. Many years ago I announced to that cabal that Android would dominate the smart phone market due to its business model. iPhone fanbois who littered this clan insinuated I had lost my mind – that Apple’s elegance, simplicity and market lead would forever overwhelm Android’s then 3% market share.

This week Gartner announced Android makes up 75% of all new smart phone sales.

iphone-record-profitsMy prognostication was based on market mechanics while my techie chums were enamored by Apples early technology differentiation. But like Microsoft before them on the desktop, Google decided to use the ecosystem to spread an operating system, which is a good way to get a lot of companies to drive sales and share. Google’s goal was to dominate the market and gain profits by means other than hardware sales.

Which was never Apple’s objective.

There are many ways to make money. In smart phones Apple and Google have different objectives based on how they plan to grow richer. Google wants to be the center of people’s online universe and to sell advertising. Theirs is a low margin, high volume end-game. In order to make mega money in mobile, Google had to dominate the market to drive tangent revenues.

Apple makes money via margins. Recent studies of the PC market show that Apple has insanely high margins, allowing them to be vastly more profitable on a per PC basis than every other vendor. The same strategy is at play with smart phone and anything else Apple sells. The only thing Apple has to do is maintain and extend the impression that they provide the slickest and easiest to use technology on the planet (this was their brand until the infamous Apple Maps fiasco and the seemingly interminable wait for a much more clever iPhone 5).

Marketers often lose sight of corporate objectives. Marketing strategy exists to achieve corporate strategy. Yet many marketers spook when confronted with seemingly superior competition using different business models. Google measures their success differently than Apple because they have different objectives. I’m sure hands are being wrung at Apple given the rapid market dominating success of Android, and there are temptations to fight Google on Google’s turf. Rumors abound that Apple will release a cheaper iPhone just to stem the bleeding (even though their sales are rising despite people delaying handset upgrades, awaiting an updated iPhone 5). Apple’s strategy – to invent, create insane brand loyalty and charge obscene prices – is good and remains sound. But Apple has to stick to it and not chase Google’s model.

All marketing actions – in Apple or your organization – must drive the corporate objective. Only when those objectives prove flawed and are changed should marketing change their strategies. Measure your success against metrics that make sense for your corporate objectives. HP measures PC unit volume (the highest in the business) and because of that is less worried about their low margins. Apple measures success by margins and less so by units. Always avoid using your competitors’ measurement of success … doing so causes failure.


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