The Story Of The Creation Of The iPhone Explains Why Apple Can’t Just ‘Innovate’ A New Product Every Other Year

The Story Of The Creation Of The iPhone Explains Why Apple Can’t Just ‘Innovate’ A New Product Every Other Year

JAY YAROW OCT. 5, 2013, 10:02 AM 7,876 10

One of the strangest criticisms to dog Apple in the two years since Steve Jobs died is that the company is no longer innovative.  Innovation is one of those fickle words that’s relatively loaded.  Microsoft, for instance, is often blasted for lacking innovation despite the fact that it has labs filled with amazing inventions and home-built first-of-its-kind technology. Google and Facebook are often lauded for their innovation, despite the fact that they often release me-too products that are essentially iterations of what already exists.  We’re not trying to knock Google and Facebook. They often release innovative products.  But, every major technology company is innovative. Without innovation these companies die.  Still, some people say innovation is dead at Apple.  The reason the innovation tag hangs over Apple is that the company’s success is perceived to depend upon the release of ground-breaking new products since it is not a monopoly in its product markets. The iPhone has less than 20% of the smartphone market. The Mac has less than 10% of the PC market. The iPad is at 32% of the tablet market, and falling. The iPod is dominant, but largely irrelevant today.Microsoft, Google, Amazon, and Facebook all own their markets. Therefore, while these companies do innovate, their innovation is not seen as a feast or famine proposition in the same way as it is at Apple.  The other reason this claim hangs over Apple more than, say, Amazon, or Facebook, is that Apple has spoiled us.  From the iPod to the iPhone to the iPad, Apple introduced mainstream consumer electronic hits that fundamentally altered the way we live.  People love these products. People love that Apple took products they lived with and made them better.  This is why people want Apple to “innovate.” They want Apple to release a new product that they can fall i  love with.

The problem is, making new products from scratch is really hard. Pundits talk about Apple making something new as if it happens overnight at the drop of a hat. It doesn’t. Building new products is really, really hard.

Nothing illustrates this better than Fred Vogelstein’s fantastic story about the creation of the iPhone in the New York Times Magazine. This is the best, most in-depth look at everything Apple went through to deliver the iPhone.

Here’s an excerpt that sums up what Apple faced when it built the iPhone:

Many executives and engineers, riding high from their success with the iPod, assumed a phone would be like building a small Macintosh. Instead, Apple designed and built not one but three different early versions of the iPhone in 2005 and 2006. One person who worked on the project thinks Apple then made six fully working prototypes of the device it ultimately sold — each with its own set of hardware, software and design tweaks. Some on the team ended up so burned out that they left the company shortly after the first phone hit store shelves. “It was like the first moon mission,” says Tony Fadell, a key executive on the project. (He started his own company, Nest, in 2010.) “I’m used to a certain level of unknowns in a project, but there were so many new things here that it was just staggering.”

Vogelstein also notes that if the iPhone didn’t work, Apple was hosed:

The iPhone project was so complex that it occasionally threatened to derail the entire corporation. Many top engineers in the company were being sucked into the project, forcing slowdowns in the timetables of other work. Had the iPhone been a dud or not gotten off the ground at all, Apple would have had no other big products ready to announce for a long time. And worse, according to a top executive on the project, the company’s leading engineers, frustrated by failure, would have left Apple.

The iPhone was a success, and it was such a success that people just assume Apple can whip up new creations at the drop of a hat. This story shows that making a new product category from scratch isn’t something that happens easily, quickly, or without considerable risk to the whole company.

Apple’s next smash hit product was the iPad, which benefited greatly from the iPhone. The iPad is much like an iPhone, which is why Apple was able to release it so quickly after the iPhone.

Most reports suggest Apple’s next major product will be an “iWatch,” some sort of wearable fitness device that tracks health and fitness.

While there is some overlap between an iWatch and iPhone, there is a lot for Apple to learn. It has to figure out new form factors, it has to figure out new sensors. It has to develop new software. These things take time.

Read this from Vogelstein on how Apple had to learn new stuff for the iPhone and imagine applying to a new category like a smart watch:

Shrinking OS X and building a multitouch screen, while innovative and difficult, were at least within the skills Apple had already mastered as a corporation. No one was better equipped to rethink OS X’s design. Apple knew LCD manufacturers because it put an LCD in every laptop and iPod. Mobile-phone physics was an entirely new field, however, and it took those working on the iPhone into 2006 to realize how little they knew. Apple built testing rooms and equipment to test the iPhone’s antenna. It created models of human heads, with viscous stuff inside to approximate the density of human brains, to help measure the radiation that users might be exposed to from using the phone. One senior executive believes that more than $150 million was spent creating the first iPhone.

The next time someone has the gall to say innovation is dead at Apple because it hasn’t released a new category defining product, keep all of this in mind. Ground-breaking innovation in new products doesn’t happen quickly. It takes a long time, and a lot of learning.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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