The iPod turns 18 this year — holy you-know-what! Apple’s first foray into truly disruptive technology since the PC wars is basically old enough to drink. And it was followed by a string of lucrative successes with the iPhone, the App Store, and Apple Watch. In the early 2000s Apple was the standard of innovation and design. Every other company was forced to keep up or die.
The 2019 version of Apple couldn’t be further from that reality. At a two-hour “special event” two weeks ago, Tim Cook took to the stage to announce a series of also-ran services: Apple TV+, the company’s tentative foray into original streaming content, Apple Arcade, a gaming service, and Apple News+, a subscription news service.
Gaming, streaming, news. Really? In 2019? Where has Apple been for the last six to seven years? What was once the most innovative company in the world is now laughably behind in some of the most ubiquitous services on the planet. Apple TV+ was particularly egregious as announcements go, offering no information on pricing, even as it enters a very competitive space. Instead, Apple trotted out celebrities like Oprah and Steve Carrell to divert attention from how half-baked and uninspired it all seemed.
By far the most intriguing announcement was the Apple Card, a “new kind of credit card” that actually sounds a lot like a normal credit card when you read the fine print. It’s certainly not the first card to tout lower rates, cash back rewards, and no fees.
Wall Street wasn’t impressed. Goldman Sachs, the bank partnering with Apple on the Apple Card, stopped short of calling the other announcements a distraction from Apple’s flagging phone business.
Even product categories Apple once led in, like design solutions for creatives, are getting more innovative makeovers elsewhere — far away from Cupertino. Microsoft, once the butt of the “I’m a Mac, I’m a PC,” joke, suddenly seems alluring to young, hip creatives. Its gorgeous Surface Studio, crammed with functionality and flourishes you’d expect from Apple, has been described as a designer’s dream. An audience once deemed untouchable by Microsoft might be up for grabs now. How did this happen?
For CEOs like Tim Cook, who aren’t founders, innovation doesn’t always come easy. When you inherit a lead, you instinctively protect it, focusing on the numbers right in front of you, not the problems you can’t see yet. But without a hunger for exploring the unknown, the seeds of complacency grow unchecked, and before the company knows it, a whole wave of technology and innovation passes by.
To stave off that grim event horizon, Apple and its leadership need a new approach. They need a refounding mindset like that of their archrival Microsoft. Perhaps Tim Cook could learn something from Microsoft CEO Satya Nadella.
Put customers before cash cows
In May 2015, roughly a year into Nadella’s tenure, Microsoft made a stunning announcement. Windows 10 would be the last Windows release. How could this be? Windows was Microsoft’s biggest seller every year since 1985. Now Microsoft was refusing to commit to its future beyond the latest release?
Of course, Microsoft’s strategy was much more considered than that. It was pivoting to a new model: Windows as a service. Rather than asking consumers to shell out hundreds of dollars every few years for a new version, it would release Windows 10 as a free upgrade for current customers and make regular updates and improvements.
Nadella knew that with more users and more devices running Windows, developers — who had shunned and consequently killed Microsoft’s mobile OS precisely for a lack of users — would be incentivized to enrich Microsoft’s ecosystem, a win-win-win for Microsoft, customers, and the all-important developer community.
By contrast, Apple’s product strategy seems to hinge on nickel-and-diming its customers. Each new phone or laptop that requires new accessories to function properly might pad Apple’s bottom line, but the proliferation of dongles drives even their most loyal customers crazy. A cynic might observe that adding a credit card to your product portfolio is the oldest trick in the book for adding a revenue stream.
The most adept maneuver in Apple’s playbook now is tempting fans to abandon them for more customer-centric brands.
Look from the outside in, not inside out
Before Nadella became CEO, growth was viewed strictly from Microsoft’s position in existing markets and how to improve that position. That point of view is responsible for Microsoft’s protracted failure in mobile.
At one point, Microsoft accounted for a mere one percent of mobile market share. The duopoly of Apple and Google had an insurmountable lead in mobile.
Instead of asking, “What new problem can we consider solving for users?” Microsoft asked, “How can we improve our market share?” Which led to a consequential decision: the $8 billion acquisition of Nokia.
The move was a disaster. The truth was, no one was asking for a third mobile OS. Microsoft’s one percent market share should have been all the proof they needed. Instead, Microsoft had to write off billions on the acquisition and is still figuring out its place in the mobile ecosystem.
Reversing its focus to look at problems from the outside in instead of inside-out has led Microsoft into fields that, five years ago, were much harder to imagine them leading in, like cloud computing and AI. In his book “Hit Refresh,” Nadella describes the process of beginning Microsoft’s miraculous turnaround with a shift. Rather than being a “know-it-all” company, Microsoft would become a “learn-it-all” company, or an outside-in company.
They discovered, for example, that as more and more companies relied on expanding sets of data to drive their business, storing the data was becoming an expensive logistical nightmare. This was especially true for the large enterprise customers Microsoft had served for years. Microsoft refocused its efforts on the cloud to better meet this need for their customers, so that even those who wanted to maintain some data on local servers could adopt a hybrid solution.
Today, Microsoft’s cloud business has surpassed Amazon’s at nearly $27 billion.
Grant permission to innovate
Most large companies already have the talent to innovate and drive growth. What’s often lacking is permission to apply the talent to new opportunity areas.
Microsoft’s leadership in AI is a great example. Bill Gates founded the company’s research arm way back in 1991, and Nadella’s predecessor, Steve Ballmer, touted AI for feats like self-driving cars as early as 1994. The company invested millions in its research team over the years, yet somehow their findings never made it into the products.
Why? Because Microsoft’s research and product teams were notoriously siloed. They simply didn’t talk to each other, let alone collaborate on common challenges. They didn’t have permission to innovate together.
That’s changed in the last five years. Microsoft has improved the way it identifies which research to use in which products and how to get even the most distant employees to collaborate. For example, every six months or so, they host a two-to-three day workshop between research and product teams to share their findings and participate in a hackathon.
Now the company is renowned for its AI efforts in vision, speech, language, and real-time calculation, from healthcare solutions to CPG inventory management.
Even an old signature like Office now subtly employs AI in just about every capability in the suite. In Powerpoint, for example, it’s training AI to be an intelligent assistant that can all but finish presentations for you. It’s a far cry from the days of the laughable “Clippy” assistant in Microsoft Word.
Microsoft is able to innovate at a previously unimaginable pace because in large part, they’ve given their terms permission to work together on customer problems. A simple yet surprisingly radical notion in many of the largest companies.
Your move, Apple
In asking Apple to innovate once more, the directive isn’t to rip up their product roadmap and halt all production of phones. For a large enterprise like Apple, steering the whole company in a new direction is neither feasible nor desirable.
Instead, Apple needs the framework other large companies are discovering to install a permanent, always-on growth capability.
Operators like Tim Cook focus the whole org on the “Big to Bigger” picture. That is, how do we take an existing business and scale it?
Instead, Cook should focus the company on discovering new customer problems and new businesses. For that, he needs talent and capital that run in tandem with the company’s established business. This new arm should be tasked with discovering and validating new customer problems worth solving, so the company is always analyzing the Total Addressable Problem (TAP) in a new area before it ever considers a Total Address Market (TAM). The latter is about what is today. The former is about what could be.
This discovery-focused group would go out and learn from customers, understand new influences on their behavior, report back without bias, and run inexpensive tests to see if a new customer problem holds the seeds of a new business. It’s an effective way for companies to ensure they never lose the entrepreneurial spirit that turned them into successful businesses in the first place.
Ultimately, what Apple faces is not a money, talent, or ideas problem. It’s an ownership problem that starts at the top. If Apple is going to be a leader once more, Tim Cook needs to go beyond his operator roots and learn to be a creator.
Christina Wallace is VP of growth and David Kidder is CEO of growth advisory firm Bionic. They are co-authors of New to Big.
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