Before proceeding with the analysis, let us examine some more
data (from the official Apple Inc. financial statements)::
|in 2003 Apple revenues were
|in 2008 Apple revenues were
|in 2012 Apple revenues have been
and in terms of profits:
|in 2003 Apple profits were
|in 2008 Apple profits were
|in 2012 Apple profits have been
This makes a 5000% increase in revenues, in 9 years,
and a 8000% increase in profits, from 2003 to 2012.
From 2003 to 2012, Apple stocks and market capitalization rose
Calling these results 'spectacular' is an understatement.
It has to be remarked that, in the 2003-2013 period, Apple did
not make any significant acquisition.
Thus, all the Apple growth was exclusively the outcome from its
in-house operations and products.
More than 90% of this growth came out from just 3 product lines:
the iPod, the iPhone (from 2007 onwards),
and the iPad (from 2010 onwards).
Since the iPhone launch, in 2007, and until the end of 2013, Apple
sold 500 million iPhones.
in 2012 alone, Apple sold 120 million iPhones,
in 2013 Apple sold 160 million iPhones.
Since the iPad launch, in 2010, and until 2013, Apple sold 200
in 2012 alone, Apple sold 60 million iPads,
in 2013 Apple sold 100 million iPads.
Recession? Apple thrives.
All the great economists on the planet keep telling you, over
and over, that the years between 2008 and 2013
have been (and still are) "challenging times" for the
This is an elegant way - and quite hypocritical - to say that
US and Europe have been (and are)
deep into a 5 years recession.
On Sept. 15, 2008 the crash and bankruptcy of Merrill Lynch gave
the headstart to the present 5 years recession.
And generated an avalanche effect.
Well, the above numbers say that, in spite of the "challenging
economic situation", when most companies
in the US and Europe saw contractions of sales and profits, Apple
How was that possible?
What Apple had, and did, that all the other major companies in
the US and Europe didn't?
Which is the secret of Apple astounding success?
The answer is straightforward:
- excellent products
- stellar brand value
- unconventional marketing
- brilliant, smart and unconventional communications
However Apple brand value is a consequence of the excellent products
and unconventional marketing.
And communications are an integral part of the marketing process.
Therefore, the keys of Apple success can be synthesized in:
- excellent products
- unconventional marketing
The Apple Milestones.
There are four milestones in the history of Apple astounding
success in the last 10 years:
2001: The launch of the first iPod.
2004: The iPod start to sell significantly.
2007: The launch of the first iPhone.
2010: The launch of the iPad.
The Origins of Apple success.
Today - 2013 - the key products of Apple are the iPhone and
Together these two product lines make more than 70% of Apple total
But both the iPhone and the iPad derive from the iPod.
It was the introduction of the iPod and iTunes, back in October
2001, that marked the turning point for Apple,
from being just a hardware and software computer company to what
it is today.
The iPod was the turning point of Apple history and success
The iPod made the fortune of Apple.
Therefore, to understand the roots of Apple growth and the astounding
success it made in the last 9 years,
we need to focus on the iPod, rather than the iPhone or the iPad.
Before October 2001, Apple was just a computer company, producing
hardware and software.
While Apple computers and their operative systems were decidedly
superior to their competitors - Dell,
Compaq, HP - the marketshare of the "Mac's" - the Apple
computers - were idling at around 4%,
never making it much above that level.
It should be noted that all Apple competitors computers were using
a Microsoft Windows operative system,
which did amount to mre of 90% of the operative systems marketshare.
Apple made incredible efforts in research and development, and
in marketing, to climb above that miserable 4%
of the marketshare, but never succeeded, in spite of many innovations
introduced in more that 20 years.
For Apple, computers were a dead end.
One of the key drawbacks of the Apple computers and software system
was the non-compatibility
with Microsoft Windows based computers. Since Windows based computers
were dominating the market,
at 90% of marketshare, the non-compatibility issue was a no-win
Again: for Apple, computers were a dead end.
Then, the iPod came.
The Turning Point.
In 2001, financial analysts had little interest in Apple, as
it was just one of the many companies
listed at the NASDAQ. Apple profit and revenues results were not
that interesting, nor promising.
Apple was not displaying any significant growth.
At that time, the name of the company was 'Apple Computer, Inc.'.
Therefore, even today, the great majority among financial analysts
and marketing experts take for granted
that the iPod + iTunes concept originated inside Apple.
This was not the case.
The iPod + iTunes concept was brought to Apple by an outsider,
a former Philips engineer, named Tony Fadell.
Before contacting Apple, Fadell had proposed the iPod + iTunes
concept to Microsoft.
Microsoft executives turned down the proposal, saying “This will
not make any money”.
Where are those brilliant Microsoft Executives, right now?
Apple, on the opposite, bought the iPod + iTunes concept, hired
Fadell, and gave him a development team.
Great ideas may come from everywhere.
A great lesson for company executives.
The idea was genial and powerful: a small, portable mp3 music
player, and an online mp3 (aac) music store.
However, with the iPod things did not start so sweet, for Apple.
After its initial development, Apple launched the iPod on the
market in October 2001 - right after
the September 11 events, and subsequent Wall St. turmoil.
The iPod launch did not seem to make any significant impact in
Infact - and few financial and marketing experts know it - for
the first 3 years the iPod was a terrible flop,
whose sales were not covering even the research and development
In the first 3 years (Oct 2001-Sept 2003), iPod sales were lingering
between 50,000-150,000 units per quarter,
very far from the 10-20 million units per quarter of 2006-2012..
In the first 3 years the iPod sales were not even covering the
product research & development costs.
Then, in June-August 2004 something happened, and iPod sales began
to rise, and rise significantly,
quarter after quarter.
In late 2004 iPod sales broke for the first time the 800,000 mark
in a single quarter.
We know what happened after:
in 2006, in a single quarter, Apple sold 20 million iPods.
Then, in 2007, the iPhone came. And in 2010 the iPad.
But the turning point for Apple was the iPod.
Which were the reasons of the iPod success?
(after the 3 initial troublesome years)
The reasons of the iPod success.
First, the iPod was a very practical object, a very practical
In it you could store thousands of songs, hundreds of CD's - converted
into mp3 or aac files - and bring
your favorite music with you everywhere, in a small device which
fit in your pocket, and listen to your music
with the iPod earbuds everywhere.
The iPod was very practical for commuters, on their way from home
to their workplace and back,
during those boring 40-60 minutes in the subway, or in the bus
without having anything interesting to do.
Listening to their own favorite music with an iPod was a pleasant
way to fill that time.
The iPod was appealing especiall for the young generations: those
from 16 to 28,
which were the majority among the early adopters.
Second, it was easy and pleasant to use and navigate among songs
The iPod menu system was intuitive and fast, the click wheel control
was smart and practical,
especially from the 3rd Generation onwards.
Easy, intuitive and appealing User Interface was a key factor,
and Steve Jobs has always been very exacting
on this aspect of Apple products,during the development stage.
Third, the iPod was a beautiful object, thanks to Jonathan Ive's
sleek and attractive design.
The aestethics and the usability made that 'Cool Factor' that
has been key to Apple success in the last 9 years,
which has been incorporated in all the Apple products design.
We shall expand later on the Apple 'Cool Factor'.
Fourth, the sinergies between the iPod and iTunes, the music online
Although the strength of this sinergy became important especially
in later years.
Fifth - and very important - the iPod (from the second generation
of 2002 onwards) was compatible not only
with the restricted world of Apple computers, but also with Windows
(Microsoft) based computers.
This was a key feature.
Wouldn't Apple have accomplished this, the iPod would have been
remained stuck in a ghetto.
(and Apple revenues and profits would have been completely different
in all the later years, up to today).
Sixth, the iPod could read not only the 'aac' files - Apple proprietary
music file system - but also the
much more popular mp3 files.
Most users and music lovers, infact, were ripping their own CD's,
and the CD's of their friends, into
mp3 files, very few were doing it using the Apple 'aac' files.
The mp3 format was also the most popular in the online peer to
peer exchange platforms.
The iPod success was due especially to word of mouth, much more
than to conventional advertising.
Happy iPod users were the most efficient marketing 'tools' and
testimonials that Apple had to
promote and increase iPod sales.
Then, the imitation factor was also essential:
"Cool!, I want to have it, too!" - has been the typical
reaction phrase when happy and proud iPod owners
were showing their iPods to their friends.
Still today, word of mouth and happy costumers are the most efficient
marketing tools for any company.
On the other hand, in the first 3-4 years, Apple invested very
little in iPod communications and advertising,
especially outside the US, and this was a bottleneck factor that
affected iPod sales,
impeding product awareness among millions of potential costumers.
It was a serious mistake, on the side of Apple.
Why Apple invested so little in iPod communications and advertising?
This is still a mystery.
Finally, there were few iPod competitors on the market, and none
of them had the aesthetic beauty,
nor the appeal, nor the enticing and fast usability of the iPod.
Thus, with the iPod, Apple was playing in a virtually virgin and
no competition market.
In the critical years - between 2002 and 2006 - the iPod simply
ridiculed all its competitors.
The Black Factor.
Apple had always used white as the color of its products.
So it did with the iPod.
White is the color of washing machines, and of bathroom appliances.
Many Apple costumers and potential costumers simply did not like
it white, for psychological
or simply aesthetic reasons. Many complained with Apple, they
wanted their iPod to be black.
For several years, their requests fell on deaf (Apple) ears.
Then, finally, Apple understood, and made their first black iPod.
It was a huge success.
Apple marketing executives - and Steve Jobs - understood the lesson,
and both for the iPods,
both later for the iPhones, they gave the option to their costumers
to have their iPod and iPhones white or black.
It could seem a trivial aspect, but it is not.
Aesthetics and personal tastes have a huge role in customers'
Entering in a new realm. Music.
It needs to be remarked, with emphasis, that with the iPod,
Apple had entered a completely new realm.
The iPod was not a computer.
The iPod was a Music device, a small and portable Music player.
Thus, it needed a complete change in Apple executives' mindset.
Infact, the Apple Executives had a computer/technology mindset
And no experience, and poor background in Music.
None of the Apple executives had a significant Music culture.
This was reflected in the marketing and communications that Apple
executives employed for the iPod.
And in the bottleneck factors which affected the iPod distribution
Apple executives were treating the iPod as a 'computer peripheral',
not as Music device.
Apple could have made a strong marketing campaign for the iPod
with a strong and widely recognized rock band,
as the Rolling Stones, Pink Floyd or Led Zeppelin, And build on
Only in 2005 Apple started to do something about it. And it was
little, and too late.
But they chose U2 as their Music testimonial.
This confirms the lack of Music culture that we wrote above.
In 2005 U2 was a band in full decline, with no creative ideas
a band which had just made a few hits 20 years before, a temporary
phenomenon which had rapidly faded away.
The poor U2 music tune that Apple used for the launch of its Video
iPod, back in 2005, confirms it.
Infact, U2 had been a poor musical act.
They did not have the charm, the music power, and the eternal,
timeless appeal of the great rock bands -
as the Rolling Stones, Pink Floyd or Led Zeppelin - or the Beatles.
But, having a so poor Music culture, Apple executives were uncapable
to even recognize this.
The lack of a strong Music culture, and the lack of a Music oriented
attitude in the marketing
and communications of the iPod was a key bottleneck factor in
slowing the iPod sales potential
in the fiirst 3-4 years.
The Halo Effect.
Apple Executives, as well as financial analysts and marketing
analysts, were expecting a significant 'halo effect'
to develop. A 'halo effect' which, from the iPod + iTunes success,
and their powerful reverberation
on the Apple brand value, would significantly push sales of Mac's
- the Apple computers.
This never happened. The 'halo effect' was marginal.
We can make the key question, now:
Where would Apple be, today, without the iPod?
without the iPod, there would be no iPhone, nor iPad.
without the iPod, Apple revenues would not be $156 billion, but
And its stock market capitalization would not be $500 billion,
but $20 billion.
Then, the iPhone came.
In 2005, with the improving revenues and profit figures pushed
by the iPod sales, financial analysts began
to show an increasing interest towards Apple.
the Apple stock had started to rise, and to be suggested as a
'buy' by a number of financial analysts.
The Apple brand value perception was also growing.
In 2005-2006, the cellular telephone market was considered a mature
and saturated market,
with narrow margins, dominated by Nokia and Motorola.
And by the Blackberry in the high end, especially in the business
and corporate world,
which were needing email writing, sending and receiving capability
on their cellphone,
with a suitable keyboard for texting messages.
A mature and saturated market with a fiery competition, such as
the cellphone market in 2005-2006,
was allowing narrow margins, therefore was unanimously considered
unappealing by financial and business analysts.
When rumours came out, in 2005-2006, that Apple was in the process
of developing a cellular telephone,
financial and business analysts were at best 'skeptical'. To be
true, the consensus among financial analysts
was that the 'Apple cellphone' would have been a terrible flop.
Some of them were privately saying that they were suspecting Apple
executives had gone completely mad,
to enter such a saturated and non-profitable market.
Very few, among the business analysts, had the more objective
attitude to just 'wait and see'.
Then, the day came, and the iPhone was launched.
But Apple began with 3 huge, terrible mistakes. We expand on them
When the iPhone was launched, in June 2007, it made an impact.
The touch user interface and the sleek and beautiful design by
Jonathan Ive and his team made it
a masterpiece of technology and design
The iPhone was decidedly a superior product.
had a host of pluses against the competition (Nokia, Motorola,
It was a highly innovative product, a different product from the
other cellphones on the market at the time.
Today, in 2013, with 500 million iPhones sold, and with Apple
stock market capitalization at $500 billion,
it is easy to affirm that the iPhone has been a game changer.
It surely has.
Jumping on the bandwagon is human beings' favorite sport.
But in 2005-2006, before it came out, things were different.
And the perception was different when the iPhone first came out.
No-one, in 2006, would have imagined that an 'Apple cellphone'
would have sold 500 million units in 6 years..
No-one would have thought this even in June 2007, when it was
It has to be noted that, to reflect its change in product lines,
in 2007, after the iPod and the iPhone,
Apple modified their official societary denomination, from "Apple
Computer Inc." to "Apple Inc.".
But which were the 3 serious marketing strategy mistakes that
Apple made, in the launch of the iPhone?
The 3 Mistakes that Apple made when it launched
To purchase an iPhone, you had to sign a 24 months contract with
You had to 'marry' AT&T.
And many potential costumers did not want this marriage.
you were locked on a 24 months contract with AT&T. An expensive
In the end, if you were wanting to buy an iPhone, its real cost
was more than 2000 dollars.
Why forcing your costumers to sign a contract with a service provider?
And why a single provider, not giving any other choice?
Why not letting your costumers simply buy an iPhone, and let them
to arrange a contract as they please?
Infact, there were numerous complaints by iPhone costumers and
potential costumers, on this issue.
Even, a widespread hacking practice took place, significantly
on several websites appeared step by step instructions on how
to hack the iPhone software
to let it operate with a different service provider.
Infact, 3.3 million iPhones were sold in the US between June andl
but only 2 million contracts were signed with AT&T.
Were did the remaining 1.3 million iPhones go?
It has to be remarked that the iPhone jailbreak practice infurated
Apple executives, who, instead
of recognized their marketing strategy mistake, criminalized the
to the point of blackmailing costumers doing the jailbraking.
On June 29, 2007 the iPhone was launched in the US.
It was put on sale only in the US, and in no other nation in the
Only in November 2007, 5 months later, the iPhone was launched in
a few other countries.
To be precise, it was launched in just 3 other countries: UK, Germany
In each of these countries with the same silly formula that Apple
used in the US,
forcing the costumer to sign a 24 months contract with a service
and in each country with a different provider: O2 in the UK, T-Mobile
in Germany, Orange in France.
This was a bad marketing choice by Apple.
There were millions of potential costumers all around the world
who were wanting to buy an iPhone, but couldn't,
because in their own country it was not on sale.
Many of them went to such length to ask to their friends in the
US - or traveling to the US - to buy one for them.
Finally, only on July 11, 2008, one full year after the initial
launch in the US, the iPhone was put on sale
in other countries, in Europe: Italy, Spain, Switzerland, Austria,
Denmark, Norway, Sweden, Finland, Netherlands, Belgium;
and in Australia, New Zealand, Canada, Japan, Mexico, Brasil.
It was already the 3rd generation iPhone, the iPhone 3G and 3GS.
Why so late?
Besides, it is interesting to verify the jam and confusion of
different prices, terms and monthly fees
charged by the service providers in the European countries:
O2 in the UK, T-Mobile in Germany, Austria and Netherlands, Orange
Swisscom in Switzerland, Vodafone in Italy, Telia Sonera in Denmark,
Norway, Sweden, Finland.
It was the perfect formula to confuse potential iPhone costumers
and push them away.
A self-hammering marketing strategy by Apple.
In our opinion, this was a totally wrong marketing strategy by
Infact, numbers do not lie:
from July 2008 until the end of 2013, Apple sold a total of 500
From June 2007 until December 2007 - when the iPhone was available
only in US - only 3.3 million iPhones had been sold.
Mistake #3 - iPhone Pricing.
On June 29, 2007, when the iPhone was launched in the US, its
retail price was.$599.
Just 3 months after, Apple reduce the iPhone price to $399 - a
33% rebate - .
This was an unelegant way to betray and exploit the iPhone early
adopters - Apple most faithful costumers.
And infact, many of them complained with Apple.
A smart and attentive company must not indulge in such serious
betraying their most faithful customer base.
Apple had other 3 better options:
- Apple could have waited 1 year before reducing the price
of the iPhone, or:
- Apple could have delayed the iPhone launch for 3 months,
- Apple could have set the iPhone retail price at $399, since
the initial launch.
Besides, in July 2008, the iPhone 3G was sold at $199,
66% less than the launch price of just one year earlier.
This is not a serious pricing policy.
Each of these 3 mistakes constituted a bottleneck factor which
and seriously hampered the iPhone sales potential in the first
year and a half.
However, in the following years Apple corrected and amended these
mistakes, and things went
smoothly and successfully for the company.
Infact, from 2008 until 2013, Apple sold 500 million units.
in 2012 alone, Apple sold 120 million iPhones,
in 2013 Apple sold 120 million iPhones.
Ultimately, the appearance of the iPhone on the market caused
the death of the Blackberry,
and the loss by Nokia and Motorola of their dominant position
in the cellular telephone market.
The reason is simple:
The iPhone was a clearly superior product.
Its touch control features, and its enticing user interface made
it become a sort of 'cult product'.
Then, after many rumours, Apple in 2010 launched the iPad.
2010: The iPad.
Since 2001, there was a need in the market for a device which
was smaller than a notebook computer,
and significantly lighter than the usual 5-6 pounds, but bigger
and more powerful than a cellular telephone,
and still highly portable.
A sort of 'intermediate device', between a notebook computer and
a cellular telephone.
This gap began to be filled by a generation of so-called "netbooks",
which started to appear by the end of 2007,
especially from brands like Acer, Asus, Dell and Samsung, for
a cost typically between $200 and $300.
They were weighting around 1.5 pounds, and were like a sort of
smaller brothers of notebooks,
light enough, less powerful, but powerful enough for simple tasks
and applications "on the go",
and with a foldable screen, like the notebooks.
They were having a discrete success, in the years 2007-2009, and
their appearance demonstrated
That there was a demand in the market for devices with this kind
In 2008 Apple began to study the opportunity and, while there
was some skepticism even among
the Apple Executives, they finally launched the iPad, in January
The iPad was similar to the netbooks for features, size and weight.
It was highly portable. But it had two features that strongly
differentiated it from the netbooks:
The screen was not foldable, but embedded in the iPad body,
and especially, the iPad fully exploited the enticing Touch Technology
that Apple had previously
developed for the iPhone.
Thus, in many respects, the iPad was a sort of bigger iPhone,
without the telephone capabilities,
with a touch interface, touch makeshift keyboard, a photo and
video camera, wifi and mobile internet connection,
no hard disk (just an embedded flash memory) and no USB connection.
Both at the launch, both before, many financial and business analysts
were skeptical about the iPad,
and were dubious if the market was wanting such a device.
A device with many features, but also with many limitations.
Moreover, the iPad price was considerably high - around $500-$700
- a price much higher
than the netbooks.
However, after some months of perplexity and skepticism, it became
clear that Apple, once more, got it right.
The iPad starting selling in the millions of units, and by 2011
it became a fashion,
almost ubiquitous, both in the US, both overseas.
As we wrote above, from 2010 to 2013, Apple sold 200 million iPads.
in 2012 alone, Apple sold 60 million iPads,
in 2013 iPads sales will reach 100 million.
As a matter of fact, the appearance of the iPad eliminated the
netbooks from the market,
rendering them unappealable and obsolete.
The appearance of the iPad started the tablet frenzy, and several
other brands jumped on the tablet
bandwagon (after Apple), and started to manufacture and sell Tablet
Pc's, copying many of the iPad features,
and eroding just a small part of Apple iPad marketshare.
Of course, and this was inevitable, both the iPad, both the iPhone
started to cannibalize the iPod sales,
especially from 2011 onwards, but, given the iPhone and iPad sales,
this is not of big concern to Apple,
which continues to enjoy its golden years.
But, as we wrote above, without the iPod, no iPhone, no iPad would
Apple would have continued to be just a computer manufacturer,
and its revenues and profit numbers - and its stock market capitalization
- would be much different from what it is today.
And there are more secrets of Apple to be known.
There is no doubt that Steve Jobs has been a great genius - a
business genius and a marketing genius -
and there is no doubt that most of what Apple is today is owed
to him and his skills and foresight.
Steve Jobs was a great communicator, one of a kind, and was a
man with a vision.
And he fulfilled the Vision he had in mind.
It remains to be seen if - deprived of Steve Jobs's guidance -
Apple will be able, in the coming years,
to continue their impressive pipeline of innovative and successful
or if they will remain "sitting on their current success".
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