iCONOMICS: Six Key Takeaways From the Era of Apple

iConomics is a word I’ve created to capture the state of doing business in a world that Apple ($AAPL) owns and the rest of us just live in.

Regular readers know that I am a fairly astute observer of market trends and themes.  While lots of ink has been spilled about Apple’s ascendancy, no one has really yet formulated a good list of takeaways from it all.  Below are what I view to be the key lessons for companies in the Era of Apple

1. Don’t just invent the product, invent the market:

Nobody knew they needed an in-home Keurig machine to make cup after cup of coffee until Green Mountain Coffee ($GMCR) convinced them that they did.  In much the same way, Microsoft had tried and failed repeatedly to kickstart a market for tablet computers over the last decade.  Each failure was blamed on there being no market for the devices.  Funny, Apple’s iPad came into the world with a similar lack of a market for tablets – so it had to invent one.

2. Pick needy partners:

Jamie Dimon awoke to his destiny in early 2008 as one of the few remaining pillars of strength in the financial world.  While all the other bank CEOs were running around trying to do deals with each other, Dimon’s JPMorgan ($JPM) was busy partering with the government.  He and his resources were needed so badly that he was handed Bear Stearns almost for free – a price he voluntarily raised it on his own because it was such an embarrassingly good deal.  As the government got even more needy, it handed its new partner Washington Mutual while simultaneously eating all the bad debt – too good to be true.  In much the same way, Apple launched its iPhone with the neediest of partners – the combining Cingular/AT&T ($T) colossus that, above all, needed a hit phone to overcome their patchwork coverage network.  Apple was handed a monumental opportunity to have its untested hardware pushed to millions of new customers.

3. Consumer tastes are overrated:

Steve Jobs isn’t one of those guys who test-markets stuff to death.  Rather than try to innovate by committee, he relies on his own taste and the prowess of his designers and engineers.  And it works.  He is delivering functionality like music-playing, web-accessing and computing in a user-friendly modular package.  He is not polling and second-guessing and focus-grouping every step of the way.  He is setting the trends, not reacting to trends like his Redmond, Washington rivals (“Oh, Apple did mobile, now we have to do mobile…Apple did an MP3 player, now we need an MP3 player…and name it Zune because that’s gonna be really cool!”).  Jobs said in a recent interview that when he came up with the iPad there was some doubt about whether consumers would want one.  His response was basically that “consumers don’t know what they want until we tell them”.  That is just so gangsta.

4.  Make it good, charge accordingly:

Sure, we can all give everything away for near-free and join the race to zero, but our lack of profitability for having done so means stunted research and development in the future.  And then all that market share you grabbed by degrading the value of your products and services is out the window when someone creates something better.  Nowhere is this more evident than in the content world.  Businessweek Magazine had basically become a free online magazine with a dead and dying print circulation that was, for some reason, still paying for delivery.  Bloomberg, on the other hand, had a highly lucrative data terminal business but almost no magazine presence.  Guess who ended up snatching the other for almost nothing in the end?  BusinessWeek had so thoroughly devalued itself that the well-compensated Bloomberg company really had only to wait, there was no reason to chase.  Apple is very methodical about their pricing, they toe the line perfectly between affordable luxury and the cache that comes with a bit of exclusivity.  They don’t take losses on anything and they almost never, ever discount.

5.  The ecosystem:

The most important takeaway from in the Era of Apple is to be the center of an ecosystem.  Encouraging record companies and app developers and accessory manufacturers and wireless partners and software designers to have a stake in Apple’s success was a masterstroke.  Music execs and artists saw their saving grace in iTunes even if they hated their lack of pricing power – and so they’ve embraced it and learned to promote it and profit.  There are whole clusters of applications and software businesses whose sole existence is based on the Apple ecosystem – component makers, too.  When the whole village is vested in your continued success, you can almost crowdsurf your way above your competitors who are fighting it out in the mob below you.

6.  Focus on the kids, the adults will fall in line:

Unlike in Europe and Asia where the elderly are respected, revered and borderline fetishized, Americans have little to no use for anyone who even limps the wrong way.  We are obsessed with being youthful and emulating the young – watch these twisted families on Bravo where the moms share clothes and boyfriends with their teen daughters – or don’t watch but trust me when I tell you that tens of millions of people are tuning in each night.  There is a chain of mall stores called Forever 21, walk past sometime and tell me if you see anyone under 25 inside.  The key here is that by hooking the kids on the Apple hip factor back in the early iPod days, the company had all but assured that adults (with real money) would be lining up for notebooks, desktops and phones one day.  How many iPods can one buy for their kids before they start wanting one as well?

Those six takeaways are what I believe to be the most important from Apple’s ongoing run of über-success.  What are some others I may have missed?

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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