When Apple's (NASDAQ:AAPL) Steve Jobs speaks, investors need to do a better job of listening. His recent statement to the media got lost among the noise of Google (NASDAQ:GOOG) phone hype, 3D televisions, and the flood of 2010 predictions coming from market commentators.
Although his statement was as plain as vanilla, it was probably the most profound forecast of the year and deserves some analysis. When announcing that the App Store had surpassed 3 billion downloads, Jobs finished with his crystal ball prediction, “We see no signs of the competition catching up anytime soon.”
But Steve, what about Google’s latest attempt at an iPhone killer, the Nexus One? This super phone is lighter and has a better screen than the iPhone. The Google Voice capabilities are revolutionary. Shouldn’t we be worried about these features? Hasn’t the competition already caught up?
Unfortunately for Google (GOOG), Microsoft (NASDAQ:MSFT), Dell (NASDAQ:DELL), Palm (PALM), Research in Motion (RIMM), or any other company that considers themselves a threat to Apple, Steve Jobs isn’t talking about features. If only it was that easy. To compete with Apple, someone is going to have to scale their gated community. Nobody who lives in a great neighborhood wants to move. Would upgraded counter tops be enough to get you to leave your great schools, parks, and friends?
For most people, once they find their ideal neighborhood they never feel the need to leave, even if a better house becomes available across town. Apple customers feel the same way. The Apple community provides benefits beyond minor features of a single product.
So what would a competitor have to do to disrupt this trend?
- Produce multiple products. Single product companies won’t be able to keep up with Apple. Ditching my iMac, my Macbook, my iTunes account, my iPod, and my iPhone to switch over to a Blackberry just because it has a 5 megapixel camera isn’t going to happen. Sometimes I wonder if Apple competitors are ignorant of this. They think that they need to build a better house but really the only way to compete is to build a better community. The unique features of your phone or MP3 player don’t drive customers. I’ll bet the executive teams at Samsung, Palm, and Microsoft have wanted to scream out in frustration because the market wouldn’t adopt their superior features. The iPod had a smaller screen, it didn’t have an FM radio tuner, it couldn’t squirt songs to friends, but somehow it stayed in the leadership position. The lesson learned is that you might survive as a single product company but your growth will be limited in duration.
- Earn brand trust. The latest release from Google should have been called the G2 but since the G1 was such a bomb that name can never be used again. Same thing with the Droid. Motorola (MOT), Verizon (NYSE:VZ) and Google combined on a great advertising campaign but that wasn’t enough. Now it’s the Nexus One. Any bets that we’ll see a Nexus Two? Those consumers that have been burned by prior Google phones will be reluctant to come back. Meanwhile iPhone customers know that they won’t get a dud out of Apple. In fact, iPhone customer satisfaction is at levels never before seen. To compete with the Apple community of products you need to produce multiple products and you need to refrain from looking like an Apple copy cat. Consumers want real innovation without failures in between. Apple currently holds a monopoly on brand trust.
- Produce multi-function devices. The iPhone brought smartphone expectations to a new level. The gadget was no longer used just to make calls but it was now an Internet browser, iPod, gaming device, camera/video recorder, etc... This is the reason why the Apple Tablet will take out the Amazon Kindle. A sole e-reader doesn’t stand a chance against a multi-function device.
- Combine seamless software (and software updates) with the hardware. Steve Jobs saw firsthand the power of iPod plus iTunes and now we’re seeing it in a bigger way with iPhone plus App Store. If I bought a Palm Pre I would be stuck without seamless integration to iTunes and if I bought a Motorola Droid I would be stuck with the old version of Android while the Nexus One users get the upgrade. Mixing and matching hardware with software gets too complicated in today's world of tech.
- Have multiple distribution channels. If you want to compete with the Apple community then you’ll need a strong physical retail presence as well as a strong online presence. Consumers like to handle the product and then compare prices on the Web. Allow them to do it. Once they have the product, they need wireless distribution of additional software. For trouble shooting and customer service, you need some Genius Bars where problems can be solved. Make convenience and simplicity a priority.
- Turn a profit. Any business model that tries to compete with Apple must produce a profit. Rumors spread that Google wanted to offer the Nexus One for free by reaping the profits from ad revenue accrued from the various Google software offerings. Now that would have made a splash! Too bad they couldn’t pull it off. You can’t cheat to beat Apple because at the end of the day, it’s all about making money.
In conclusion, I think Steve Jobs chooses his words carefully and he wouldn’t make an unfounded statement. As you hear the media talk about Tablets from HP or phones from Google, remember that these six elements must accompany these products in order for them to have lasting success. As for me, I’m teaming up with Mr. Jobs and my one prediction for 2010 is this, ‘I see no signs of the competition catching up anytime soon’.
Now that’s original.
Disclosure: Author holds a long position in AAPL