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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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July 27th, 2010

Apple’s Business Model Lesson

Jobs's iPhone 4 antenna decision veered Apple off course

The blogosphere is aflutter with talk on Apple’s recent customer satisfaction issues linked to the new iPhone 4’s antenna design. A quiet whisper turned into thunderous noise once Consumer Reports decided to not recommend the phone because calls are dropped if the antenna is covered while in use (for example, by the user’s hand holding the phone).

Much of the on-line conversation centers on public relations lessons and a debate about the sensitivity issues of the iPhone versus competitive products. (For a good assessment of the PR lessons for Apple, see The Leadership Playlist blog.)

There is more to this lesson than public relations.  I think in terms of business model and strategic leadership, and I believe Jobs ignored Apple’s business model in resolving an internal debate about the antenna, a product design decision that I’m confident Jobs now regrets.

Apple’s value promise includes two key benefits for which customers are willing to pay a price premium. One is an owner appearing “cool” or “savvy,” as the company’s products offer among the most elegant looks on the market for technology products (for most products, as a matter of fact). But a key driver of Apple’s recent financial success has been growing adoption of Apple products for business (as opposed to school or home) use. And in the business world, the benefit promise that converted PC and Blackberry users to the Apple brand is that the company’s products “save you time and minimize frustration.”

Genius ergonomics make Apple products effortless to use. I recently cared for my 87-year old mother, a woman who quickly mastered the iPAD, without prior experience with Apple products. (Try teaching your elderly Mom to use a Blackberry.)  Apple’s effortless products also enable users to better manage more digital information, making Apple products time-savers in our lives. I’ve argued before that Apple moved into Applications faster than its competitors because saving time and minimizing frustration are the essence of Apple’s brand promise.

Jobs placed “cool, elegant design” before “saves you time and minimizes frustration” in deciding on the antenna design, and that was a mistake.

When your business model value promise is multifaceted, it’s vitally important that leaders not advance one element of the promise at the expense of another. Rather, strategic leaders force their team to find the collaborative break-through solution that advances both elements and therefore overall value.

Apple’s first solution to the problem–offering a free bumper case to all owners–contradicts both value promises.  Early adopters now have to take time to order a bumper case or get a refund for one they’ve already purchased and the iPhone looks considerably less sleek with the requisite case.  Eventually Apple will figure out the antenna solution that delivers effortless time savings, while retaining the look of the thin iPhone 4. Apple’s delay in doing this wasted its customers’ time and increased frustration, costs that could have been avoided if Apple had acted more proactively.

A leader steeped in business model innovation can avoid the costly issues Jobs had to leave his vacation early to resolve. Keep your value promise front and center at all times and train teams to align their decisions to meet or exceed this promise. Unlike Jobs, you’ll be able to finish your vacation.

3 comments to Apple’s Business Model Lesson

  • Hi Kay, While I agree with your point that companies need to stay balanced when pursuing multiple brand promises I’m not ready to agree with your assessment that Apple has failed in terms of design. To date it appears that the antenna operates exactly as Apple expected and when launched they felt it was a superior design. While some feel the product is unacceptable others are happy. Product returns (the only meaningful measurement I can think of at the moment) are below normal at this point which means that only time will tell if the trade off was a good one or not.

    Since every tech product involves development trade offs, my feeling at this point is that where Apple failed is in understanding the level of attack it would come under for such a reasonably easy to reproduce behavior. Will this response now drive Iphone design in a way that creates trade offs on battery life and reception that worsens the product? For even though Consumer Reports said they could not recommend the Iphone 4, it was their highest ranked smartphone on the list behind the pay wall.
    Fred H Schlegel´s last [type] ..CHANGE

  • Thanks Fred. “Failed in terms of design”is a stronger conclusion than I’d reached. My point is that these trade-offs are in fact the opportunities in which companies can find ways to further differentiate themselves and advance their value promise further. Every marketplace is cluttered with companies on different sides of trade-offs. The companies that avoid trade-offs earn the largest profit-premiums.

    The Apple brand promise at a minimum would demand Apple be really proactive in managing a product limitation as part of the information about the product so that people would know in advance how to minimize the issue and not get frustrated. (The background reports say the company did not do its usual due-diligence in product testing during development, which might have precluded this kind of proactive issue management.)

    I am a huge Apple fan. Maybe that’s way I assume Apple might have avoided the trade-off.

  • Nathaniel Kofalt

    Interesting insight! It is interesting to see Apple have the opposite challenge as companies like Microsoft or Yahoo, who have confident business offerings but struggle (painfully and publicly) to develop a current consumer image.

    Meanwhile Apple is king of the market for art students and (as you mentioned) mothers, but must grow up a little to compete with the enterprise.

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