The Implicit Strategy Behind Apple's Success in Business
The new iPad is now a few weeks old and has launched to great reviews. The iPad accounts for nearly 20% of Apple’s revenues, but barely two years ago the iPad 1 was mocked as a dud upon its premiere. The iPhone4 was launched a short while back and also received a great welcome. It seems like there is very little Apple can do wrong today. Forbes' interesting analysis speculates that at this rate the current $600+ per Apple share could balloon easily to $1650, in spite of their announcement of dividend offers which typically reduces share values.
So what has driven this extreme success at Apple? I am sure you are thinking that’s a silly question. Everyone knows the answer to that: making great products that the market desires. Sure. That is definitely a prerequisite. But what many people miss is an underlying implicit strategy that has gone into creating desirable products and nourishing the good ones. A very smart application of the Pareto principle to running a business. Pareto principle or what is sometimes also referred to as the 80-20 rule, dictates that 80% of any success really can be accounted for by only 20% of core factors. The success you are measuring could be revenues or profits or wealth. The factors of this success could be products or profits or individuals.
If the 80-20 rule applies to Apple, it would imply that they have a whole bunch of products which are really draining profits. In other words, a few insanely successful products are subsidizing a whole bunch of dogs. As we all know that is not the truth as it stands today. The iPods, iPhones, iPads, iTunes, and even the Macs continue to grow in sales and profitability. Even though one may argue that the Macs, by virtue of their low market share may be considered unsuccessful, that is not reflected in their year over year growth or loyal following from customers. Thus there is not one single Apple product or line of products that can be cited as examples for this case. So how does the 80-20 rule apply to Apple? But that is exactly the point. It does not! By understanding the impact Pareto principle can have on the success of their business, Apple has been very cautious and vigilant about not letting any product languish and be a drain on the more successful ones.Continued on the next page