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STRATEGY

What Apple's business model tells us

12 September 2017

Apple has a singularly disciplined approach to the process of corporate reinvention, says Richard Brookes.

In mid-2017, for the first time, the world's five largest companies by market capitalisation were tech companies. Apple led the pack, at US$805.2 billion, followed by Alphabet (US$682.5 bn), Microsoft (US$559.4 bn), Amazon (US$479.4 bn), and Facebook (US$442.9 bn).  Just one oil company – Exxon Mobil – made the top 10. Six years earlier, Apple had been the only tech company in the top 10, along with five oil companies – six, if BHP is included.

"The tech companies are examples of an entirely different business model, and now we have to pay attention to that," says Richard Brookes, an Associate Professor in the Business School's Department of Marketing.

Apple is no longer the incomparable, but relatively minor, personal computer company of a couple of decades ago, says Brookes. It has evolved to become one of a cohort of 'big tech' companies, each with its own platform and huge, loyal customer base. These companies have formidable market-shaping aspirations and capabilities, and relentless capacities for re-inventiveness. They are also extremely wealthy.

"Apple led the big tech change without us being fully aware of it, possibly because we attributed its appeal and success largely to the personality of its co-founder, Steve Jobs, and to the design and desirability of its stream of industry-changing products,’ " says Brookes.

"But, beginning with the Macintosh computer, introduced in 1984, Apple has developed an inherently powerful new business model built around the notion of a 'platform'. Its strategy has been to connect app developers and users, and in the process to create value for both. And as the two groups have grown, so has the value – a process known as 'network effects'."

It is a market situation in which strength begets strength, says Brookes.

"For example, the bigger the customer base, the greater the number of applications and services on offer (in the case of Apple), or products and services (for Amazon), or advertisers (for Google). And the more different platforms Apple introduces  – iPod, MacBook Pro, iPhone, iPad, Apple Watch, and so on – the more interconnected they all become."

Now, he says, Apple has signalled its entry into the automotive industry, in order to give customers 'an iPhone experience in their car'.

“Just as the automobile – in symbiosis with the oil industry – redefined how we got about, and how physical spaces were designed and built a hundred years ago, so too are the new tech companies now redefining how we stay informed and shop, how we relate to everyday products and services, and how we connect with each other. The ‘connected’ automobile is simply one more example.”

To proponents, it is about platform companies building their customer bases and facilitating customer ‘engagement’. To opponents, it is about them building monopolies and creating a form of customer ‘addiction’, and, in pursuing profit, these large tech companies may actually come to dominate our lives, says Brookes.

"These practices have to do with the changing nature of competitiveness, design and innovation, value, and consumer behaviour. To date, Apple has shown itself to have a singularly disciplined approach to the process of reinvention. Long considered an outlier, it should now be seen as an exemplar."

 

Richard Brookes

Richard Brookes is an Associate Professor in the University of Auckland Business School's Department of Marketing.

r.brookes@auckland.ac.nz

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