Apple has had a run of big product hits. iTunes, iPod, iPhone, iPad, etc. Beyond the world class design and thinking of Steve Jobs and Jonathan Ive – there is a mindset that exists in Apple that unlocks this innovation success.
Market cannibalization is the act of introducing brand new products that customers purchase in place of your existing ones. Traditionally, this has been seen in a negative light. Companies have tried to find adjacent markets to avoid self-competition. Today, the forces of technology and globalization completely redefine the way we think about market share and competition. Products and marketplaces change so much quicker and with far greater transparency in the digital age. We have to be prepared for shorter product life cycles. This means the success of a product can be fleeting and open to replication by a competitor. Phil Schiller, Senior Vice President of Worldwide Marketing, suggested on the TV show “60 minutes”, that cannibalizing its products is almost by design at Apple.
It’s not only Apple that thinks like this. Look at 3M which utilizes a 30% rule. The rule mandates that 30% of each division’s revenues must be generated from products introduced in the last four years. Both Apple and 3M share an appetite for constant change driven by product innovation. The trade off they make is that it’s better for self-cannibalization than allowing a competitor to take market share. Better us than them. The power of this trade-off can be seen when put in contrast the possible the world’s greatest innovation mistake: Kodak and the digital camera. Recently Kodak has emerged from bankruptcy after selling thousands of patents. The company reported a net loss of $75 million in 2015. At its height in 80’s and 90’s it would deliver over $1B in annual profits.
When a Kodak engineer created the digital camera he paraphrased management’s response as being ‘that’s cute—but don’t tell anyone about it.’ Amazingly, after an internal study confirmed the growth prospects for digital photography, management ignored the opportunity and rejected the idea of self-cannibalization. Digital Photography was poised to replace film-based photography. The great irony is that decades earlier, Kodak was the company rising on the innovation wave, as they embraced film over the traditional dry-plate technology. Despite all the right quantitative research and insights into digital photography, the company could not make the right choices. For market leaders, it’s not just about having the newest and latest innovation. It’s equally about the courage to see it. To embrace it and allow it to flourish. Even if it means taking market share from an existing offering. Apple’s most recent financial reports should be enough evidence for the power of their mindset. Fiscal 2015 was Apple’s most successful year ever, with revenue growing to nearly $234 billion. If that’s not enough, you’ll be happy to know that one of the companies who purchased the Kodak patents during bankruptcy was…you guessed it: Apple Inc.
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Mike is the Head of Innovation at QUALITANCE. He’s passionate about emerging technologies and experience design. Over his award-winning career, he’s worked on big innovation and marketing projects for Nike, Levi’s, Xbox, GE and many others.