The Apple iPhone – 3 lessons in digital ecosystem innovation master class
- Mark Skilton
- May 12, 2014
- 4 min read
I was reviewing the recent excellent lecture by Professor Youngjin Yoo at Warwick given back in February this year on his research into Digital Tools and the temporality of Design and his case study of recent work at Intel. The seminar covered insight into the nature of digital innovation and the evolution of new generative digital innovation techniques that work in a non-linear simultaneous way. The generations of Intel chip design were explained as creative explosions of architecture invention breaking the Moore’s law of CPU performance. There were definite cycles of simultaneous activities of multiple Intel teams working on concurrent next and later generations chip architectures that may either introduce incremental performance change of an existing architecture instruction set or break out and create a new architecture. I found the analogy of the iPhone generations helpful in illustrating this key concept of the generative nature of digital architecture design.
What is astonishing about the history of the iPhone is the speed and characteristics of simultaneous creative consumer innovation. The following diagram illustrate the point.
The iPhone project started in 2004, the development steered away from tablet to phone. Steve Jobs , Johnathan Ives established “Project Purple” with 1000 employees and a secretive collaboration with then Cingular Wireless (AT&T Mobility). The result was the iPhone with a development cost estimated at $150 million over 30 months.
Looking at the iPhone generations, several architecture “break points” were established that rapidly pushed past old versions into new architecture features in step jumps in product performance and creative product consumer design. But what is also evident is the nature of modularity and platforming in this strategy which appear to be key concepts of digitization and digital architectures.
What was clearly happening was an evolution and revolution in design cycles that both changed the context of the smartphone and the wider context of many industry ecosystems including music, video , consumer applications development, photo sharing, navigation, gaming and natural language interactivity. This was brought about not by the digital strategy of content on a device but in the way the generations of solutions were combined with the digital context and services in their respective digital ecosystems.
The digital strategy not only established nested platforms for services inside the Smartphone device ( itunes, apps store, books for example), it also enabled the hardware and services to work in the digital ecosystem to scale in a modular way by growing communities of buyers, sellers, content providers and channels to co-exist and co-create value with the platform brand and capabilities. Over relatively short spaces of time generations of design activity were driven to create a digital ecosystem of products and services.
In the case of Apple there were platform and modular changes in hardware and software simultaneously that created several step changes to enable new scaling capabilities and generative performance. Many of these were baked into the operating system updates to create architectural changes to enable these advances. Whether these were commercially friendly practices is open to debate, yet the evidence of success in the connected digital ecosystems both vertical (design to service end to end delivery) and horizontal ( mass consumer appeal) is in plain sight in the stock valuation and profit of the iPhone.
GPS location based services
Touch and Movement sensors (for tactile use and gaming)
Front and back cameras for video chat
itunes music store ( modular scaling and monetization scaling)
Apps Store
Book store
Siri natural language voice recognition
What is astonishing is that this was a digital platform and modular architecture strategy working at hardware, software, OS and content and networking levels.
What lessons can be learnt from this?
The generative nature of digitization means that through understanding the connection between objects, communities of association and accessible design a new kind of co-created value is possible.
Lesson 1. Understanding digital platforming and modularity can create monetization scaling
successful disruptive digital strategy first needs a new sense of how platforms and modular architecture design works. Digital Architectures need to think in terms of generative structures that scale and monetize both the platform and the modular content and communities it enables.
Lesson 2. Digitization on contexts enables value-in-context
Secondly, value-in-context is only realized through understanding how the digitization works in contextualizing the time and space of the objects, events and communities involved.
Digitization needs to understand how digital inclusion works at the societal level, a critical issue I was recently reminded again in discussions on the economies of the developing world. Then at organizational levels both formal and informal, how social relationships are formed and evolved and impact by digitization.
Lesson 3. Digitization has the potential to reinvent any object and its value offering
Thirdly, at the object level, the nature of how it is digitized and placed into context in creating value in use. Digitization is about contextualizing the objects, people and environments in a way that makes sense for the user and provider of digital consumption and value.
Looking back at the Apple iPhone, in September 2013, a mere nine years since 2004 it was reported that it made $88.4 billion in annualized revenue. That’s from just 7% of the global phone market but a whopping 60% market profitability. The ultimate “ubiquitous luxury product”, both mass appeal and high volume and high margin. In 2013 , Apple knocked Coca Cola off the top spot at the world’s most valuable brand (interbrand survey). With 51% revenues from iPhone in 2013 this is more than Proctor & Gamble or Boeing alone. Apple’s cash reserves of $147 Billion is likewise more than the GDP of most small countries placing it the 58th richest economy in the world if it were a country.
That’s some example of a digital ecosystem masterclass.
References
http://elitedaily.com/news/business/apples-iphone-revenue-exceeds-all-the-money-made-by-microsoft-and-amazon/
http://www.huffingtonpost.co.uk/2013/10/02/apples-cash-hoard-is-147-billion_n_4028576.html
http://www.statista.com/statistics/263401/global-apple-iphone-sales-since-3rd-quarter-2007/
http://en.wikipedia.org/wiki/File:Apple_revenue_breakdown_2007Q4.svg
http://www.macrumors.com/2013/07/23/apple-reports-q3-2013-quarterly-results-6-9-billion-profit-on-35-3-billion-in-revenue/
http://www.interbrand.com/en/best-global-brands/2013/top-100-list-view.aspx
http://www.cnet.com/news/apple-bumps-coca-cola-to-become-worlds-top-brand/
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