Product Innovation StrategyApple’s iPhone

Agenda▪ Introduction

– Background– Objective– Scope– Methodology

▪ Innovation– Incremental Innovation– Radical Innovation– Disruptive Innovation

▪ Conceptualized Framework for Analysis▪ Apple iPhone Case Study

– Background– Analysis– Conclusion

Background

▪ There has been an ongoing debate on which type of innovation the iPhone belongs to since the introduction in 2007.– There is no clear picture which type of innovation this product belongs to

▪ The CEO then, Steve Jobs, called it a revolutionary product and reinventing the mobile phone industry. The head of market, Phil Schiller has also mentioned that the iPhone is a "bet the company" product, implying that there was a high risk involved from the planning to the release of the product.

▪ Innovation comes in 3 forms and each has their own strengths, weaknesses, opportunities and threats– Incremental Innovation– Radical Innovation– Disruptive Innovation

(Fogg, 2012; McGregor, 2007; Mojonnier, 2012) (Fogg, 2012; McGregor, 2007; Mojonnier, 2012)

Objective

▪ The aim is to analyze the characteristics of each type of innovation using the SWOT analysis

▪ The analysis will provide data for us to design a framework for the analysis of our case study

▪ The analysis will determine which type of innovation the iPhone actually belong to

Scope

▪ The scope of the report will be focus on– Product

▪ The specification of the iPhone– Customer

▪ Product performance– Competitor

▪ Nokia, Samsung, Sony– Market

▪ Target market segment

▪ This will form the basis of our framework after we have gotten data from the 3I s

▪ Which it will look similar to marketing concepts, the 3C and 4P

Incremental Innovation

▪ Strengths– Lower risk– Utilization of lower resources to achieve low level

improvement▪ Weaknesses– Less goal oriented, with less potential for return on

investment▪ Opportunities– Because of the low level of risk involved generally take after

an structured and foreseeable procedure and more success in a short duration

▪ Threats– Slowness to reach growth targets before competitors, leading

to loss of competitive advantage

Radical Innovation

▪ Strengths– A similar product with large increment of performance

▪ Weaknesses▪ Conceptualization to gain market share in the same segment– Competition from the same market

▪ Opportunities– Creation of a new standalone market

▪ Threat– High uncertainty and risk– Performance of product meeting market expectation

Disruptive Innovation

▪ Strengths– Transformation of product into simpler or affordable product– Not an obvious threat to the competitor at the start, and thus will not

have an head-on competition– Will be able to capture the mainstream customers with time

▪ Weaknesses– Start with a lower market performance– Abandons the profitable customers in the market

▪ Opportunities– An untouched market or underserved market

▪ Threat– Competitor still has established roots into the the current market which

has yet to be disrupted– Wrong perception of the market

Conceptualization Framework

Innovation

Product

Customer

Competitor

Market

Figure 1: Framework for determining the type of innovation

Conceptualization FrameworkImpact Incremental Innovation Radical Innovation Disruptive Innovation

Product Expecting a sustainable increase in market performance

Expecting a surge in the market performance

Underperformance of initial product, market performance is gradually pick up, replacing / excelling the existing market

Customer Usage and expectation for will be the same, except that the customer will expect improvement to aspects of the product such as performance

Targeting new usage of a new product. Thus it will be the generation of a new expectation from the customer.

Targets the behavior of the underserve customer and creates a realization of the innovation to bring existing customer into the same segment

Competitor

Likely to have head-on competition.

 Radical innovation involves not fighting competition but circumventing it. Rather than fighting for market share a company steps aside and simply creates its own market.

Unlikely to have head-on competition. Competitor’s business model will be affected in long run.

Market Focuses on the existing market

Shape existing market or create a whole new market

Target underserved market in the short run and transform existing market in the long runTable 1: Guideline for determining the type of innovation

Methodology

• Product• Comparison between the iPhone (2007) and generic functions of

mobile phone in the same year• Customer

• The company perception of what the customer want and need for their product

• Competitor• Checking on competitor performance from 2007 onwards

• Market• Using the performance of the product from 2007 using Apple

quarterly result from 2007

Apple iPhone: Background

▪ Know as Project Purple in 2004, in Secrecy▪ The focus was on User Experience and mobile Web Browsing

capability▪ Jobs was successfully stir interest in 2007, followed by

inagural launch in the same year▪ It introduced multi-touch sensitive device, and interactive

graphical user interface through heuristic command-touch▪ Leverage on its Mac OS features such as TCP/IP and Web

Browsing▪ Promote mobility browsing experience

Apple iPhone: Analysis

▪ Product– The initial release of the

product is inferior compared to existing product in terms of specification

– The phone can only be used with specific carriers in the country then

– Initial iPhone is priced at $499 and $599 much higher than what the competitors are offering – some are offering free with contract

iPhone (2007) Typical Mobile Phone (2007-2008)

Mobile Band 2G, No CDMA and EVDO

3G

Apps Positioned as web platform with only web apps only in 2007. AppStore is introduced in 2008 which allows installation of Apps over the air.

Able to install apps, but usually involved installation through a PC

Camera 2 megapixel 5 megapixelPhysical buttons Multi-Touch Screen Reliance on

physical buttonsSignal performance

Drop calls and network issue

StableTable 2: iPhone and Other Mobile Phone Comparison

Apple iPhone: Analysis

▪ Customer (After release)– Customer focus on having a

phone to meet their daily needs

– Some functions such as music, apps and web surfing

– Focuses largely on Internet Apps

▪ Customer (Before release)– Customer focus on having a

phone to meet their daily needs

– Some functions such as music, apps and web surfing

– Focuses on making calls▪ 1 Year after release– Having a centralized PC-less

Apps installation platform

Apple iPhone: Analysis

▪ Competitor– Unable to realize the new

business unit as a threat, which will affect their business model in the long run▪ Nokia holding onto 3% global

market share in 2013 on mobile phone, 1/5 of what it was in 2007

– There was no head-on competition with the iPhone, strategy for each brand remain the same (A price and specification approach)

▪ Ex-Microsoft CEO Steve Ballmer (2007)– “There’s no chance the iPhone will get a

significant share of the market. No chance.”

▪ RIM CEO Jim Balsillie (2007)– “The iPhone’s impact on our business will be

minimal.”

▪ Capital Group Senior VP Askok Kumar (2007)– “The Motorola RAZR is a great phone at a great

price (free). There's no way the overpriced iPhone can compete with it.”

▪ Wedbush Morgan Securities Analyst Michael Pachter– “The iPhone won’t affect the handheld gaming

industry.”

▪ Ex-Palm CEO Ed Colligan– “We've learned and struggled for a few years

here figuring out how to make a decent phone. PC guys are not going to just figure this out. They're not going to just walk in”

Apple iPhone: Analysis

▪ Market– The iPhone started off under

performed– From the sales figures of

iPhone, the sales increment is exponential since the introduction

– It could be that when the phone is released, it has targeted an underserved customer segment - 2007 an improved web browsing experience on mobile device. 2008 increasing the availability of software on mobile through a centralized online store.

2007 2008 2009 2010 2011 2012020406080

100120140

Figure 2: Number of iPhone sold from 2007 - 2012

Apple iPhone: Conclusion

▪ Product– It shows pattern of which the product is inferior compared to other

competing products at introduction▪ Customer– The focus of the product initially targeted on customers who wanted

portability in enjoying Internet and Apps and gradually the market shifted with the trend

▪ Competitor– Competitor did not realize that the product will be disruptive at the start– Business model is disrupted afterwards

▪ Market– The market performance is very low at the start but increases exponentially

after the introduction

Apple iPhone: Conclusion

iPhone is a Disruptive Innovation