Friday, October 23, 2009

The Apple Success Continuum

Many of us live in a world of numbers, financial forecasts and results. Apple's quarterly results released this week are simply staggering from a financial perspective. There's a common thread weaved in each quarter of Apple's continuing success. The company's success is dependent far more on the company's relationship with its growing universe of product users than it is on the performance of any individual product or product model in the company's portfolio. There's an important lesson to be learned here: Each new product release is simply a "snapshot" in time of a product development continuum and is little more than an aside in an ongoing "conversation" between the company and its product users.

This week Apple reported September quarter results. The company's quarterly performance included the sales of 3.05 million Mac units and 7.4 million iPhones. The iPod, which just a few years ago was the revenue engine for the resurgent computer and electronic device maker, saw a year-over-year drop in unit sales to 10.2 million units.

For years the Mac was the mainstay of Apple's revenue and earnings performance. The return of Steve Jobs in 1997 and the release of the Bondi blue iMac in 1998 began new chapters in Apple's history. With the development of OS X, brilliant engineering of Mac hardware and a focus on customer satisfaction, Apple entered a renaissance era. Lucrative Mac margins financed the development of the iPod and its eco-system. The iPod returned the favor during the first several months of the awkward Intel transition and now the Mac and the iPhone are providing the financial fuel for the next major Apple product release, expected in early 2010 and the build out of the data delivery infrastructure needed to support the company's expanding portfolio of products and services.

While most analysts and AAPL watchers are fixated on quarterly unit sales numbers, the intricacies of deferred revenue accounting, gross margins and the prospects for iPhone sales in China and other new territories, there's a story here that being overlooked.

Apple's consumer products score impressively high marks in customer satisfaction surveys and the Apple retail stores serve not only as points of product purchases but also as locations for continuing Apple's "conversation" with the company's customers.

The focus on the customer satisfaction and a development of an on-going rapport between Apple and its customers is what drives sales. The purchase of a Mac or an iPhone by a consumer isn't the end of a transaction, it's the beginning of a new relationship that transcends the products being purchased.

It's why, for example, the Palm Pre can't compete with the iPhone and why AT&T is willing to pay high subsidies and invest billions of dollars in technology upgrades to support its Apple customer base.

It's why Microsoft will announce all kinds or superlative upgrade numbers about Windows 7 soon after launch but may resort to double-speak when journalists look under the proverbial hood and ask the hard questions about actual upgrade activations and the depth of the Windows 7 eco-system as the market continues its migration to handheld computing devices and decidedly away from Windows-based desktop systems costing $500 or more.

Apple's focus on customer satisfaction and the company's preoccupation with design excellence paves the way for new opportunities and new product releases. Apple isn't about the sale of an iMac or an iPhone. It's about enhancing the company's rapport with its product users. That relationship and continuing "conversation" between the company and its product users is what creates the Apple success continuum. The 90-day fiscal report cards are little more than snapshots in time.

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