Apple: My New Services Hero

I have a San Jose Mercury News in front of me as I fly out of San jose airport this morning.  The headline of the business section: “Apple Does it Again.”  And brother, did they. Apple just announced their quarterly earnings and they smashed the ball out of the park. They reported revenues over $13 billion and earnings of $3 billion. Analysts had expected revenues of around $12 billion.  Of course, the Mercury focused on the incredible increase in iPhone sales in Asia, which fueled the great quarter. As they should. But I am excited about these results for a very different reason. Apple is providing one of the strongest proof points in the technology industry that the marriage of technology and value added services is the recipe for maximizing profits. They are also proving that the traditional go to historical market model for tech industry is about to implode. And the enterprise tech companies better pay attention here.

The Best Business Model in Tech

In the Mercury News article, one financial analyst made the following statement:

 “Apple has the best business model in all of technology, and it’s getting better.”  

So what is that business model? I think the intuitive answer most folks would provide is straightforward: product innovation. Apple creates brilliant products for which people are willing to pay a premium price. The oldest business model in high tech. But, unfortunately, not the core secret to Apple’s current success.

Service Innovation

I own a iPod and an iPhone. I always travel with both devices. The technology is ok to use. In fact, the iPhone touch pad is pain in the ass to use when I am trying to keep up with my kid’s text messages. But the physical footprint is not why I am finding my iPod and iPhone irreplaceable. I am addicted to itunes and the apps store. I find itunes as an irreplaceable service to manage not only my music library but the various podcasts I subscribe to every day. I have found the application for my IPhone to blow away anything that was available for my Blackberry and I am still amazed at the incredible productivity applications I can download for free.

Apple has married their products to a set of “subscription services.” They are no longer a hardware company. They are now a Saas (software as a service service) and Paas (platform as service) company. It is this tight integration of the hardware and value added services that makes the Apple offering so compeling. Enterprise tech companies, PLEASE take note. This changing role of traditional product (or component) providers is a topic I will be discussing in my opening keynote next month in Santa Clara.

Channel Innovation

 The second innovation I would argue is helping to fuel Apple’s wonderful business model is the way they have changed the go to market model. Traditionally, product companies have always relied heavily on resellers to help drive products to market. This is true for consumer products like PCs and enterprise products like servers or storage. A simple version of the historical go to market model for tech is below

Now, that model is facing significant disruption. Subscription based services and cloud computing are shifting the model. Suddenly, a company like Apple finds itself with a fat pipe directly to customers. Everyday I am interfacing with Apple services directly—through Itunes and the app store. If I have questions, I go to the Apple store and visit the Genius bar. The new go to market model is looking much more like the image below.

Enterprise companies, PLEASE TAKE NOTE. This shift in the go to market model is happening in your world as well. This is another point I will be discussing in Santa Clara.

Apple had a great quarter. The headline is that they sold a bunch of products. The real story is how they are innovating both their service offerings and go to market process to pull those products sales  through.

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