MacDirectory Magazine

Mike Thompson

MacDirectory magazine is the premiere creative lifestyle magazine for Apple enthusiasts featuring interviews, in-depth tech reviews, Apple news, insights, latest Apple patents, apps, market analysis, entertainment and more.

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Apple had put the developers under NDA so we couldn’t even use resources like StackOverflow. We were flying blind the first couple of weeks. We didn’t even know how many downloads we had. Finally we found the right person to call and they turned on app “sales” reports. By then we figured we may have a couple of hundred free downloads. When they finally sent us the report, it was not at all what we expected. We had 17,000 downloads! Not total over two weeks, 17,000 on a single day! In one day, we had served more users than all our previous work combined. This was until the next day, when our downloads more than doubled! My point for telling this story is that, even in its early days, iPhone’s scale was staggering. Before we could blink, we had millions of downloads by customers we didn’t know in half of the countries around the world, by simply signing the App and uploading it to Apple’s servers. Apple took care of the rest of the business stuff, tally the downloads every day and deposit money into our account every month. At the end, the app sales helped us offset the loss of our corporate customers during the financial meltdown. And this was 2008. Today, Digital Clock is a genre that includes thousands of apps. There are hundreds of thousands if not millions of developers like us. The scale is unfathomable. Horace: Yes. Like you said, Farshad, the AppStore enabled innovation in packaging, pricing, and distribution. And as the market has grown, it’s now morphing into subscriptions where developers can go from $1 per download to $1 per month. When Apple touts that they have 600 million subscriptions, it’s not their own but the subscriptions sold by third-party apps enabled by Apple devices. Imagine that: as a software developer, you’re being told that you can get customers to give you a monthly payment! Wow! Farshad: That’s true. When I now replay my early AppStore experiences through the lens of disruption, I can see how the iPhone and AppStore met the litmus tests you guys mentioned: that iPhone was a worse computing device than computers, but it also was awesome in another dimension! It was characteristically different than working for corporations. Horace: And it created [a whole new universe around this] but it’s so subtle and so difficult to convey. I use this notion that it’s a computer only to simplify and make it more palatable. The fact of the matter is that the iPhone completely reshaped computing, which means it created a new ecosystem, a value network. And by this, I mean tha software distribution, oftware creation, the business model in software has completely changed. And all of those things meant that you had to have a cellphone. And we don’t think about it now, but the imagined that that pre-smartphone we could not have had ride-hailing. We could not have had micromobility. We could not have had social media as we know it today, which itself created a niche consumption of media. Where we used to think of media as either half an hour sitcom, or a one hour drama, or a two hour movie, and now we have a six-second TikTok. So this gives the apps the ability to slice content down to such tiny, tiny increments of time that fill up spaces that would be otherwise unoccupied. This is classic non-consumption disruption. So the iPhone enabled all these things: it enabled new communications, that enabled new consumption, that enabled new transportation that…

So do you give credit to the iPhone and let Apple just sitse there and collect rents on all this? Or do you give credit to the whole system that was created? Are the disruptors the engineers who wrote the apps? Or are the disruptors the Facebooks and Twitters? In their own right, they changed media, they changed the way we think about our approach to information. The idea of the disruptive theory is that you want to use it to point to causality of the innovation—what and who caused the transformation? But what we find in reality, is that the world is multi-causal, it’s hard to pinpoint which is the real cause. And all it can do is to tell multiple causes, but it’s kind of hard to predict them. It’s fascinating. Dave: Yes! Maybe I sound like a broken record, but the key thing Apple did that helped in the success of the iPhone was the AppStore. And to make AppStore successful, Apple had to use a different business model type. This topic probably requires its own discussion, but we have briefly introduced it here. We’ve so far talked about two kinds of disruptive innovation in this conversation: First, low-end disruption, when an entrant sells a cheaper solution to customers who are over-served by the incumbent players (ex: Excel → Google Sheets). The second is by creating a new market—finding non-consumption and exploiting it (ex: pocket transistor radio or the Walkman, used by teenagers). But there is yet a third type of disruptive innovation, where a firm causes fundamental changes in its business model to enable the transformation of the market. With the AppStore, Apple changed how they and their developers did business—their relationship with each other and with their respective customers. To make this happen, Apple maintained what we call a “value-added process” business model,—really, just making stuff and selling the end product—while also creating a “facilitatednetwork” business model, where people pay to participate in the network. Horace: Yes, it’s critical to be aware of the change in the customer definition, as in mobile computing we end up with a new value chain as did the developers. This may as well be the glaring omission in the PC and particularly on the Mac because this ecosystem didn’t emerge, certainly not thriving in the same way, partly because of legacy issues, partly because of corporate customers and perhaps because the lack of an appropriate network business model. But we can see that something is fundamentally missing. Farshad: This is a good segue to our second question which is whether Apple is over-serving with the Mac. Thank you both for this very insightful conversation! Looking forward to taking on the second question!

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