Apple's Advantage

Post by
Scott Francis

John Gruber on Daring Fireball refers to this as "The New Apple Advantage":

But now that Apple?s products are more popular, we?re beginning to see another benefit to Apple?s lesser degree of configurability: greater scalability. Apple needs larger quantities of fewer different components to manufacture the same number of computers as other companies. It?s not just the economies of scale that all companies get when they sell 3 or 4 million laptops in a quarter ? it?s greater, because Apple?s 3 or 4 million laptops sold share a larger number of the exact same components.

In other words, the old advantage was the "it just works" advantage... but the new advantage is the scale gained by having fewer products and configurations and still having high volume.

But it isn't new.*? It just sneaked up on industry analysts, Apple watchers, and Apple skeptics alike.? When Tim Cook pointed out that all of Apple's products would fit on a single table, that was an allusion to this advantage.? Last year I wrote about this in response to an article by Allan Breillatt:

Second, what struck me most is that Apple?s design process doesn?t consider these throw-away prototypes as waste ? it considers these prototypes as a valuable part of the creative process ? and that the TRUE waste is producing less than the best product design.? Or worse, producing multiple products that are inadequate.? Imagine if Apple had released 4 iPhones instead of 1 in the first run.? That would have been the real waste ? because each of those products would require significant production costs, engineering costs, support costs, and marketing costs on into the future. So Apple is making a trade-off of design-cost against production-waste, from this point of view?

Allan characterized 9 of 10 prototypes being discarded as waste - but from the point of view of production, waste would be producing products that don't increase sales, or disproportionately increase costs.? The benefit of this focus was apparent in the MP3 market - and it was apparent as Apple entered the smart phone market by introducing the iPhone.? Apple was already (if I recall correctly) the largest buyer of NAND flash memory chips.? Apple already had a pricing advantage on this critical component over every other handset manufacturer in the world (except perhaps Samsung).? And it showed.? The iPhone shipped with more flash memory than the other phones (and still seems to ship with more storage). John writes:

This realization sort of snuck up on me. I?ve always been interested in Apple?s products because of their superior design; the business side of the company was never of as much interest. But at this point, it seems clear to me that however superior Apple?s design is, it?s their business and operations strength ? the Cook side of the equation ? that is furthest ahead of their competition, and the more sustainable advantage. It cannot be copied without going through the same sort of decade-long process that Apple went through.

One thing I'd point out - the supply chain advantages Apple currently enjoys are much like the supply chain advantages that Dell once enjoyed.? These advantages can be copied, but it takes time, and it takes a different organization and mindset.? Dell had a successful model and Lenovo and HP were eventually successful in equaling Dell's supply chain efficiencies.? But they all gave up much of their design prowess in the process...

Apple's approach retains design prowess, and embeds that prowess deep into the component and supply chain.? So John's right - it takes years (maybe a decade) to adapt.? And the reason that these firms will have trouble adapting isn't so much a supply chain management problem as a cultural problem.? It is like a blind spot for these firms, and until they demonstrate that they're aware of the blind spot and are addressing it, I don't expect them to find the right adaptations to compete effectively.? If I had to guess, Samsung is closer to adopting (copying) the right model than the other firms, and this is part of the contentiousness between the two firms.

* I think you could argue that the advantage was less apparent in the notebook lineup because the volumes were smaller - but there was still a benefit to the focus that Apple already had - and a cost to the lack of focus that the other vendors already had.

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