(1) Commodity: A product like sugar or oil. All sellers have exactly the same product.
The price of commodities is a good indicator of the overall economy.
(2) To bundle: To sell one or more products together.
In the 1990s, companies had to bundle Microsoft Windows with their computers. Otherwise, no one would buy them.
(3) Network effects: The ways things change when many people use the same thing
Network effects are the main reason Facebook is so popular. Everyone uses it, so you use it too.
1. Which part of a computer was a commodity in the 1990s?
a. The hardware
b. The software
c. The retail store
2. After initial development costs, how much did it cost Microsoft to continue producing Windows?
a. It varied greatly by country
b. Almost nothing. Copying software is free
c. Nearly 50% of their operating budget
3. How did Apple’s strategy differ from Microsoft’s?
a. They only sold software
b. They only sold hardware
c. They bundled hardware and software
By Jeremy Schaar
Imagine this situation. You want to sell lemonade. You need sugar and lemons. Lots of people sell sugar, so the price of sugar goes down. But only one person sells lemons, so the price of lemons goes up.
Today on the blog you’ll learn about Microsoft. You’ll learn the strategy that made them so successful. In the process, you’ll learn some great strategy vocabulary and be better able to discuss the strategy at your company.
Why was Microsoft was so successful in the 1990s? Because Microsoft was a lemon seller. They understood that the hardware of a computer was a commodity. The software, however, depended on network effects. It meant that the makers of computer hardware would have many competitors. But the makers of the software would have no competitors.
In the 1980s it wasn’t clear if Microsoft or Apple would win the computer wars. Apple had a different strategy. They bundled their software and hardware. The result was that if you bought a Macintosh computer, then you used Macintosh software. If you bought almost any other computer, you used Microsoft software. Because it was hard to learn new software and easy to share information if everyone was using the same software, Microsoft dominated.
And that was great for Microsoft. If you wanted to sell a computer, you needed Microsoft. Customers wouldn’t buy computers without it. This let Microsoft demand very high prices.
In addition, Microsoft was able to make an infinite number of copies of their product at almost no cost. Microsoft has had piracy problems over the years, but the ability to copy their software has basically been a huge competitive advantage.
So, what’s changed? I’ll answer that question next week on the blog.
In the meantime, think about your company. Do you sell lemons or sugar? Do your customers demand your product or is it easy for them to choose something else? Is there any way for you to use network effects to make your product more valuable?
(1) Functionality: Something doing what it should do
Functionality is necessary for any product. A phone can look great, but if it doesn’t work, why would I buy it?
(2) Industrial Cream: The color of computers in the 80s and 90s.
Can you believe all our computers used to be so ugly? Industrial cream is a terrible color.
(3) Value: Adding something to your life.
The value of a product can be in making our lives easier, happier, more interesting, or almost anything that people want more of.
1. How were computers marketed in the 1990s?
a. For their power
b. For their fashion
c. Like a furniture item
2. What value did Apple add to computers?
3. How did other companies respond to Apple’s new value?
a. They copied it
b. They refocused on power
c. They added functionality
By Jeremy Schaar
Marketing is about demonstrating value to people. It’s about showing someone that your product is worth their time, money, and energy. Sometimes companies have a chance to expand the value of their products in interesting ways. In this lesson, you’ll learn about how Apple did this with computers. You’ll gain some useful vocabulary and thoughts on how to market your product.
Throughout the 1990s, computers all came in the same colors: industrial cream and industrial black. They were ugly. In advertisements companies focused on power. Here’s a funny example:
Apple realized that if their computers looked better, a lot of people would buy them just for that. Here’s an early example:
Apple expanded the value of a computer beyond functionality. Instead of just being powerful, the computer was now beautiful. This marketing strategy has proved so successful, that everyone in the industry now includes the beauty of their products in their marketing campaigns.
(1) Cool: Good and attractive
In fashion, it’s more important to be cool than functional.
(2) Functional: Useful and working well
These boots might not be cool, but they’re very functional and will be more comfortable when climbing that mountain.
(3) Marginal: Small and not important
He might be a marginally better programmer, but his people skills are terrible. No one wants to work with him.
1. Why did Apple market their products as working well?
a. Other computers had more power than Apple
b. Most computers would often stop working
c. Most computers had many useless programs
2. What is NOT an example of Apple showing they have cool products?
a. A commercial with cool colors, music, and dancing
b. Steve Jobs showing the world the iPhone
c. A commercial with a cool guy representing Apple
3. Why did Apple have big events for their new products?
a. They were excited about their work
b. To get free promotion from the event
c. To show journalists the product
By Jeremy Schaar
Last week on the blog, I began to introduce a great company: Apple. You learned about Apple’s product development and supply chain management. This week, you’ll learn about Apple’s marketing, You’ll learn some great vocabulary and ideas that you can apply to your own company.
Product design and supply chain management seem to me to be Apple’s two greatest strengths. But Apple co-founder Steve Wozniak disagreed. He said, “I would say marketing was [Steve Jobs] greatest strength.”
Why is Apple so great at marketing? Apple markets their products in three ways. First, they just work well. Second, they’re cool. Third, when a new Apple product comes out, that’s a big event. Here are examples:
Dell, Intel, Microsoft, etc. They marketed computers as powerful. And they were powerful, but who cared? We just wanted the computers to work all day without having to restart them.
In addition to just working, Apple markets their products as cool. In contrast, other computer companies marketed their products as functional. Apple sold their computers like their were fashion items. They weren’t always the technically best computer. And other companies have made technically better phones. But, until recently, no other company has marketed their products as cool and fashionable.
Apple’s final marketing innovation was to create anticipation and excitement for their products, to turn a new Apple product into a cultural event that got them a lot of free advertising. Other companies were constantly updating their lines. Every two months, a better computer came out. New computers were normal, like Macy’s getting new shirts. Apple changed all that.
(1) To devalue: To make something less important
We devalued advertising and instead focused on product quality.
(2) Untouchable: Something that can’t be hurt
After last year’s sales numbers, he’s untouchable. They would never fire him.
(3) Dependable: Trustworthy, something that won’t become bad
He’s the most dependable person in the office. We can trust him to do a good job.
1. What’s one way to create a blue ocean value curve?
a. Lower your prices
b. Value the things customers care about the most
c. Value things differently than the competition
2. What’s a second way to create a blue ocean value curve?
a. Add a new value to the curve
b. Add style to your curve
c. Value everything highly
3. What value did Apple add to the computer industry curve?
b. Ease of use
By Jeremy Schaar
In the past three weeks, you’ve learned what blue ocean strategy is, how one company has used the strategy well, and how to draw a value curve for your industry. This week, you’ll review those three concepts and then think about how you might redraw the value curve and find a blue ocean strategy for your company. You’ll learn more good strategy vocabulary and gain ideas that can strengthen your company’s strategy.
First, what is blue ocean strategy? Blue ocean strategy is when your company creates a value curve that other companies in your industry don’t use. That way you don’t have competition.
What is a value curve? A value curve is a group of things that are important to your industry. For example, restaurants will have taste, price, and location on their value curve. Your curve depends on how important each thing is to you.
To create a value curve, you should think about which things are important in your industry and how important each thing is for your company.
How To Redraw Your Value Curve And Find A Blue Ocean
There are two ways to redraw your value curve and find a blue ocean. First, you can change how you value the things on your curve. For example, if all the restaurants care about taste, you might devalue taste and just have a restaurant in a good location with a good price.
But there’s another way. You can add things to the value curve. Let’s say all the restaurants care about price, taste, and location. You could find a blue ocean by adding entertainment to the curve. If your restaurant is the only one with a jazz band playing, then you will succeed.
A great example of this strategy is from Apple.
Here’s a typical value curve for the computer industry in the 1990s.
And here’s the value curve that Apple drew in order to find a blue ocean and become untouchable for ten years.
Apply reduced the importance of features and price. They focused on making a computer that was easy to use and dependable. And they added style. No one else was doing all those things. Apple didn’t capture the whole market with their strategy. For many people a feature or the price was the most important thing. But by adding style and refocusing on dependability and ease of use, they were hugely successful.
To redraw your own value curve, that’s what you need to do: Change how you value things and find things to value that other companies aren’t even thinking about yet.
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(1) To impact: To create change, to influence
My first boss had a big impact on me. He taught me how to work well.
(2) Raw Materials: Basic things like oil and wood
To make a house, you need many raw materials: wood, iron, and so on.
(3) COO: Chief Operating Officer
At our company the COO is the second most important person. She focuses on operations while the CEO is more strategy-focused.
1. What makes Apple a great company?
a. Their fast supply chain
b. Their amazing product design
c. Their impact on the world
2. What kinds of products does Apple make?
a. Simple to use and powerful
b. Beautifully designed and inexpensive
c. Fast to the market and doing something new
3. Why is it interesting that Tim Cook became CEO of Apple?
a. He’s not good at design
b. Jonathan Ive was more famous
c. He focused on supply chain management at Apple
By Jeremy Schaar
Today on the blog, I’m going to introduce a great company: Apple. You’ll learn what makes Apple great. In the process, you’ll learn some interesting ideas about product development and supply chain management. Next week, you’ll learn about Apple’s strategy and marketing.
But, first, what makes a company great? Is it amazing profits like Exxon? How about large sales volume like Amazon? A company that stays at the top for 100 years–like GE–is great. But new companies like American Giant and Tumblr are also great.
The answer is simple. Great companies have a significant impact on the world. They change the way other companies do business and people live their lives.
Apple is a perfect example. They’ve influenced the way companies around the world do business. Their products have made life easier, and cooler, for millions. How have they done it?
“Our goal is to try to bring a calm and simplicity to what are incredibly complex problems so that you’re not aware really of the solution, you’re not aware of how hard the problem was that was eventually solved.” -Jonathan Ive
Jonathan Ive is the Senior Vice President of Design at Apple. Basically, he’s the main designer of their products. In the quote, he’s saying that at Apple they try to make complex things very simple.
In this process, Apple has made products that do amazing things and are easy to use. Apple devices famously “just work”. These days, many competitors also make great products, but when you compared an Apple device in 2005 with a competitor, the difference was amazing. Apple was much better.
Supply Chain Management
Jonathan Ive and Steve Jobs are famous for making amazing products. But Steve Jobs was replaced by Tim Cook, not Jonathan Ive. Tim Cook’s job before becoming CEO was not in design. He was the COO.
In truth, Apple is a supply chain company with a small design team. Apple’s industrial design team has just 16 people on it. There are also teams for product design, manufacturing, and many others. But Apple has 80,000 employees. Where do they all work?
They’re all part of the supply chain. And in supply chain management, Apple has been just as amazing as more famous companies like Toyota. To assemble a computer or an iPhone, Apple needs to find the fastest way to put together batteries from Taiwan, screens from Korea, gyroscopes from Europe, and so on. Everything is assembled in China and then shipped around the world.
What’s more, Apple coordinates not just with their suppliers, but with supplier’s suppliers to ensure that they’ll have the raw materials necessary for their microchips, screens, and so on.
Apple went another step further and, instead of putting their products in stores, created their own stores with amazing customer service. Around the world, they’ve established partnerships with authorized Apple dealers.
In the end, Apple manages their products from raw materials to sales. More than anything else, they do this to create speed. The faster they are, the more products they can sell, and the quicker they can adapt to a changing world.
Product development and supply chain management are just two of the things that make Apple great. Next week, you’ll learn about their corporate strategy and marketing.