For showing magical performance, innovations behave like a seasonal crop. Irrespective of the greatness of the idea and initial performance, both its sales volume and willingness to pay (WtoP) keep drifting downward. To stay on course and get deeper into the market, innovators must keep releasing successive better versions–with bursts of innovative features. In retrospect, sustaining Innovation strategy is at the core of iPhone’s success.
Innovation is like a satellite. To sustain its position in orbit, it requires bursts of thrust at regular intervals. For sustaining innovation in the market, innovators cannot keep selling the same product. It needs successive bursts of thrust for supporting its journey in penetrating deeper into the market. Even Apple could not do it with its magical iPhone. They need to keep releasing successive better versions. In fact, for extracting value from the market out of ideas, the first challenge is to create a willingness to pay in the market. The second one is to face the challenge of sustaining innovation in the market.
Challenge for sustaining innovation in the market demands waves of thrust
Sustaining innovation challenge has two underpinnings. It begins with the willingness to pay the innovation creates among how many customers. Thus, at a certain price point, the total sale of an innovation depends on how many people are willing to pay more than or equal to the price point. The second underlying factor is that the willingness to pay is not constant. It depends on a number of factors, including the Externality Effect and, most importantly, the offering from the competition.
On the one hand, a limited number of people are willing to pay more than the price. On the other hand, the willingness to pay keeps drifting downward due to the competition’s response. Consequentially, the sales volume starts slowing down after a while of the release. To regain the sale, the willingness to pay should jump up—through a burst of innovative features. Hence, innovators need to release successive better versions for sustaining innovation in the market.
iPhone sales record looks like a seasonal crop—an underlying pattern of sustaining innovation
In 2007, Apple released the iPhone. In the innovation history, its performance is magical indeed. However, at the end of one year, the iPhone’s sales came down to virtually zero. Customers who were willing to pay more than what Apple was charging already bought the product. Moreover, the competition was also giving an indication of releasing similar or better products. Hence, some of them were at the waiting bay.
What could have Apple done to regain the sale for sustaining the iPhone in the market? Among the options were advertisement and lowering the price. However, there is a limited effect of those two interventions to push up the sale. Another option was to release a better version. For sustaining innovation, this better version should create far more willingness to pay than the previous one, preferably at a lower price. Or, at least, the willingness to pay increase will be far more than the marginal price.
In retrospect, Apple pursued the second strategy. Hence, Apple released iPhone 3G in June 2008. Due to far higher perceived value, some of the previous iPhone users adopted it as a replacement; and Apple also got some new customers. As a result, Apple sold far more units of iPhone 3G than it sold the initial version. However, after reaching a peak in the 3rd quarter of 2008, the sales volume started slowing down. To sustain the sale, Apple released the iPhone 3G plus. Like in the past, after reaching a peak, the sales volume kept declining. Hence, Apple released a far better version—iPhone 4 in June 2010. Since its birth, Apple has been releasing successive better versions for sustaining this magical innovation in the market. Its sales volume looks like seasonal crops or sustaining innovation waves. Hence, its diffusion pattern also looks like waves of progression.
Brust of innovation features at regular intervals is the core strategy
As it has been explained, for sustaining innovation in the market, Apple has been releasing successive better versions. Each version shows up with a burst of innovative features. Some of them are advanced forms of existing features. And others are new. For example, the recently released iPhone 12 pro has a burst of innovative features around the camera module. Its LIDAR based scanner produces 30,000 depth data points. The computational algorithms make intelligent use of those data points by fusing them with images captured by other image sensors. Some of those features, such as night vision or augmented reality, are extremely appealing. Even they are posing a threat to cause destruction to DSLR cameras.
In prior versions, Apple used other areas for producing those bursts. For example, in Phone 3G, it was the enhanced communication feature. In iPhone 6 and 6S, Apple focused on the screen size for creating the burst. However, Apple’s attempts to create that similar effects with Siri or biometric did not produce much millage.
Lesson from iPhone’s entry as a big sustaining innovation wave
Apple has been late in the mobile handset business. The journey began in the 1980s with the release of Motorola’s DynaTAC. During that time, a sustaining innovation strategy was around voice and battery technologies. Innovators were busy releasing successive better versions, which were getting smaller, offering longer talk time. However, in the mid-1990s, Nokia created a sustaining innovation wave around aesthetic design. This sustaining innovation strategy made Nokia the market leader. Subsequently, during the last leg of the 1990s, innovators started focusing on imitating PDA features to fuel sustaining innovation waves—giving birth to smartphones.
However, iPod and mobile internet emergence started creating innovation opportunities in making smartphones more than PDA and voice devices. Apple took advantage of it for creating a new sustaining innovation wave in the smartphone. Hence, Apple focused on adding a bust of innovative features to iPod for keeping it on course and get deeper into the market. Subsequently, it led to the release of the iPhone in 2007. Instead of hardware-centric features, Apple focused on software for developing sustaining innovation waves around multi-touch features.
The release of the iPhone in 2007 sharply reduced the willingness to pay for smartphones offered by incumbents like Nokia or Blackberry. iPhone was so appealing that Instead of waiting for the competition respond with better versions, customers adopted the iPhone. Moreover, Apple kept releasing successive better versions in expanding the footprint. Furthermore, Apple also took advantage of the externality effect through its App Store for creating sustaining innovation effect for iPhone.
Technology and idea management strategy
To respond to the burst of innovation at regular intervals, both technology and idea management play a key role. It begins with detecting a megatrend. Some of the megatrends in the iPhone have been multi-touch interface, screen size, camera resolution, and producing special effects in images through computational means. The next one is to acquire technologies, fine-tune and fuse them, generate ideas, protect those ideas, develop the supply chain, and manufacture for integrating them as a single piece.
For example, for releasing iPhone Pro, Sony needed two major technology pieces. The first one is the integration of LIDAR with the camera assembly. As Apple did not have adequate in-house capacity, Apple has extended its image sensor supply relation with Sony. For the computation capability of producing special effects out of the fusion of LIDAR and image sensor data, Apple has gone all the way to acquire Israeli startup Camerai. The computational algorithms of Camerai use artificial intelligence to better understand scenes and build AR graphics that interface with those technologies in real-time.
Similarly, for creating a sustaining effect, Apple targeted a burst of innovation around virtual personal assistants. Hence, Apple acquired Siri by paying as much as $200 million. Apple has also acquired machine learning startup Inductiv Inc., in a bid to improve Siri’s capabilities. In addition to acquiring technologies, Apple keeps fine-tuning them and building patent portfolios for building an idea base for fueling the next burst. Hence, for sustaining innovation, there is a need for strong technology, innovation, and idea management capability for releasing successive better versions. On the other hand, in the absence of sustainable innovation capability, even a great idea like the iPhone cannot systematically ferreting out value from the market value.