Building Products in a Hits-Driven World
April 29 2016
When we’re evaluating the success of music albums and movies, we often think in terms of hits. They either break out and are successful, or are defined as flops, one-hit wonders, or, rarely, they’re Beyonce. They also run on a finite timeline—hit the top charts and then fade away. Meanwhile, in tech we don’t often think in these terms. While this a slight oversimplification, the cycles tend to be longer and many success stories are built on services (Google) or networks (Facebook). Apple, however, is different—they became the world’s largest company by building “shut up and take my money” hits that people line up to pay for again and again.
That method may have run its course. When Apple released its quarterly numbers this week, they were down nearly across the board—but the most surprising figures were iPhone sales. This isn't because of a dip in quality or an insurgent competitor. They’ve just started to run out of growth opportunities for their most “recent” hit, the iPhone. Ben Thompson covers that well here (paywall). Apple is certainly looking for its next hit—whether it’s on the TV, on your wrist, or in your driveway—but maybe there’s magic in a not-so-new way of thinking.
Apple's 13-Year Winning Streak
Over the last two decades Apple has strung together hits by disrupting from within—from iMac to iPod and iPhone. During this time they have trained the media and Wall Street to expect wins in both profit and product.
Apple isn’t a one-hit wonder. They’ve consistently stayed ahead of the curve for decades—constantly iterating and improving their offerings. Today around half of all phones sold in the US are still iPhones and that’s not going anywhere fast. But their latest bets haven’t hit it big and are never going to fuel growth anywhere close to the iPhone.
Like any hit-driven business, Apple’s iPhone fairytale wasn’t going to last forever. The story reaches the end of its arc, growth slows, and consumers move onto the new hotness. And with this week’s news, the doomsayers are out in force and the numbers, for once, are in their corner.
Finding an Heir to the Throne
HBO has a similar playbook to compare with Apple: they build premium products for passionate customers. But, as their latest hit begins to wind down, they also find themselves in a position of vulnerability. From The Information:
“Game of Thrones,” now in its sixth season, is currently on track to end in two more years. And that creates uncertainty about HBO’s future. It has no other hits on the same scale as “Game of Thrones.” Moreover, some of the network’s next-generation shows are faltering, like “Vinyl.” Concerns about HBO’s ageing hits have loomed before, most notably in 2007 when “The Sopranos” ended. But HBO was operating in a much less competitive landscape then, giving it more time to come up with a new hit.
Game of Thrones is to HBO as the iPhone is to Apple. The two companies have become runaway successes (both in profit and critical reception) on the backs of these products.
Now both of their flagships are plateauing and they find themselves without a clear follow-up. For the first time in a long time, their past success does not guarantee future profits. It’s a place where many hit-driven companies have been before, but where few have found a sustained method to winning.
(And this goes without mentioning but both HBO and Apple are bonafide hit factories, they just may be coming down from the stratosphere).
The Disney Exception
Disney offers a model that could apply for Apple and HBO. Their sustained success through a combination of movies, merchandising, theme parks, and TV networks has allowed them to ride out highs and lows all while keeping a cohesive creative vision. There are some ready strategies from their playbook:
- Grow through acquiring like-minded companies. No company has has done a better job in the past 30+ years of acquiring and empowering companies than Disney. There are simply too many to list here: Pixar, Marvel, LucasFilm (Star Wars), ESPN. These acquisitions have all given Disney access to new customers and markets while bringing talented leaders into the company to create new hits.
- Repackage aging-products for a new generation. Disney is incredible at extending the lifetime of their projects with sequels, reboots, and spinoffs. The expansion of the Marvel film universe and the recent reboot of “The Jungle Book” and Star Wars are ready highlights.
- Build multi-platform experiences that offer new revenue opportunities. Disney has been an experiential company since day one. They take this a step further by expanding the footprint of their products with live action shows, toys, online games, and a litany of other revenue generating opportunities.
There are many examples where Apple is doing this, especially in their growing services business and expanding range of OEM peripherals. But it’s not enough to be the next iPhone.
The Stories Company
When one tries to summarize what makes Apple, HBO, or Disney special, it’s that they’re all in the storytelling business. It's not what they're really selling, but it’s what keeps their customers coming back for more. And while our appetite for their stories hasn’t waned, we are hungry for new ones.
Apple has been working from their own playbook for a little too long... And their reboots aren’t as captivating as they once were. As long as mobile is king, profits will still be there. But if Apple is going to continue to be the company of outsized ambitions it has been for the last 20 years—they must produce their next hit.
To close, here is a great story from Thomas Higbey, a former NeXT employee, loosely about this ambition:
I was in the break room with 2 colleagues when Jobs walked in and started making a bagel. We were sitting at a table eating ours when he out of the blue asked us "Who is the most powerful person in the world?" I said Mandela since I had just been there as an international observer for the elections. In his confident fashion he stated "NO!...you are all wrong...the most powerful person in the world is the story teller." At this point I was thinking to myself "Steve, I love you but there is a fine line between genius and loco..and I think I am witnessing this right now". Steve continued, "The storyteller sets the vision, values and agenda of an entire generation that is to come and Disney has a monopoly on the storyteller business. You know what? I am tired of that bullshit, I am going to be the next storyteller" and he walked out with his bagel.