Innovation Lessons from Steve Jobs and Apple: Story of iTunes and The Digital Hub Strategy

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By 1999, success of the iMac was fueling Apple’s comeback. Steve Jobs made it his mission to crack the dominant market share of PC’s but despite strong sales, computer sales were dominated by PC vendors such as HP, Dell and Compaq. For Apple to truly break through, they would need to create their own category. Enter iTunes (and eventually, iPod).

People in high school and college at the time were doing things that had never been done before with music. The introduction of the MP3 music file compression format meant that songs could be transferred over the internet in a matter of minutes rather than hours. In the days of 56k modems and DSL, this was a breakthrough. Additionally, software that could extract songs from purchased CD’s and store them on your computer as MP3’s was developed and quickly became the norm. CD burner drives were also introduced which gave people complete freedom over how to use the music they purchased on a CD in the store. Last but not least, a new file sharing service called Napster enabled everyone to share files over the internet for free – especially songs.

Song sharing with others online (i.e. piracy) was rampant among the younger generation as it became the easiest, most convenient and free way to create playlists that suited their interests. Steve Jobs had spotted this trend and wanted to capitalize on it. Jobs saw an opportunity to provide a legal alternative. He spoke of this opportunity in an interview with Esquire.

“We believe that 80% of the people stealing stuff don’t want to be, there’s just no legal alternative. So we said, ‘let’s create a legal alternative to this.’ Everybody wins. Music companies win. The artists win. Apple wins. And the user wins, because he gets a better service and doesn’t have to be a thief.” – Steve Jobs

To create iTunes, Apple started by licensing software from an existing jukebox program that ran on the iMac called SoundJam. Though SoundJam was a good start, Jobs set out to simplify the interface of SoundJam to the point where it was much simpler and easy to use by the time iTunes 1 debuted. The full story of iTunes can be found here.

Innovation Lesson Number One: Simplify (Again!)

In my previous post on Innovation Lessons from Steve Jobs and Apple: Story of the iMac, I mentioned one of the lessons from the success of the iMac was its simplicity. The point of simplicity is so vital to breakthrough innovation that it bears repeating. When Steve Jobs purchased SoundJam, he didn’t just port the software, put an Apple label on it and start selling it (the way many acquisitions often play out), he and his team spent time to meticulously think through the design of the software so that it made sense to the user. ITunes1_vs_SoundJamMP1With iTunes 1 available for free with each new iMac, Apple customers were now able to rip MP3 files from CD’s and easily organize them into their own playlists. Later on Apple would update iTunes with the ability to burn new CD’s and eventually even download new songs directly through the iTunes store and transfer them to an iPod. All of this leads to the second lesson…

Apple-Rip-Mix-Burn-690x474

Following introduction of iTunes and a CD-RW drive on the iMac, Apple would use the slogan “Rip. Mix. Burn.” to advertise the iMac.

Innovation Lesson Number Two: Understand and Capitalize On the Trends In Your Market

Part of what made Steve Jobs so successful at Apple was his ability to spot and capitalize on market trends. One of the best quotes from Jobs is when he discussed waves of technology with Fortune in 2008.

“Things happen fairly slowly, you know. They do. These waves of technology, you can see them way before they happen, and you just have to choose wisely which ones you’re going to surf. If you choose unwisely, then you can waste a lot of energy, but if you choose wisely it actually unfolds fairly slowly. It takes years.” – Steve Jobs

Though he was specifically referring to technology, the same is true of trends in general. Major trends – anything from healthy eating to wearable computing – will take a while before they go mainstream. It’s in the early to middle stages of these waves that lie the best opportunities for companies to surf them to success. Some practical ways to keep up on new trends include the following:

  1. Read major business publications such as Fortune, Wall Street Journal, etc.
  2. Read technology publications such as Wired, Engadget or TechCrunch
  3. Attend major trade shows in your industry. In consumer electronics, CES is a must see
  4. Read market research analyst reports such as Forrester or Gartner
  5. Probably most importantly – observe what young people do, especially when they’re in high school or college. They are the future and what they do now will help you forecast what they’ll do, or want, in the future…
  6. Visit California. I don’t live in California but it just might shock you at how advanced some things are in California. Some parts of California offer a unique sneak peek into the future. For example…
    • This former Blockbuster franchisee needed a new business when Blockbuster tanked. His plan? Visit LA and come back with something trendy. Upon visiting LA he discovered the popularity of yogurt shops. Later on he sold his yogurt shop for $3 million.
    • Amazon Fresh is a grocery home delivery service that Amazon runs in three cities – Seattle (near Amazon headquarters), San Francisco and LA. Many analysts believe the service could be ported to other cities and that it’s only a matter of time before Amazon figures out how to take it to the masses.
    • Electric cars (especially Tesla) and residential solar power – two things California citizens have demanded in droves – are taking off in California. Rollout to many parts of the rest of the U.S. could definitely be forthcoming.

These are just a few ways to stay current with  the trends. Whatever your business or innovation idea, make sure you have the tailwinds of a major trend in your favor or else you could be in for a very long and difficult road ahead.

Simplification and being spot on with the trends were not the only things that made Apple successful with iTunes, and later on, the iPod. The part about what Apple did in the early to mid 2000’s that surprised and changed the entire personal electronics industry was that they created a complete ecosystem of products.

Innovation Lesson Number Three: Don’t Just Create Great Products, Create Great Ecosystems (If You Want To Be A Benefit Leader)

Despite it’s importance, iTunes was just one spoke in a wheel where he put the iMac at the center as the “digital hub” of your life. apple-digital-hub-strategy Jobs didn’t have this vision of creating the entire digital hub from the beginning. At first he went to Adobe to ask them to create a version of the popular video editing program called Premiere. Because iMac’s were only a fraction of the market, Adobe turned him down, forcing Apple to do it on their own. This experience further entrenched his belief in the need to control the entire user experience.

“My primary insight when we were screwed by Adobe in 1999 was that we shouldn’t get into any business where we didn’t control both the hardware and the software, otherwise we’d get our head handed to us…I became even more of a believer in providing end-to-end solutions.” – Steve Jobs

Creating ecosystems is not necessarily for everyone though and can be very challenging to do when your company is not vertically integrated. However, if the market demands an ecosystem and your organization is clinging to a modular structure, you’re organization could be in danger of being commoditized (see my post on industry trend analysis for more on that). As a side note, for years Google (historically a horizontal cost leader) seemed to insist on focusing on search and software only but recently they have begun to vertically integrate in order to create a more cohesive user experience. Their one-time ownership of Motorola as well as their recent purchase of Nest Labs – maker of the smart thermostat – is clear evidence of their intent to further enhance their ecosystem. Microsoft is pursuing a similar path in its acquisition of Nokia. The digital hub strategy continues to be popular among tech companies. The only difference between then and now is the center of the hub is shifting from an iMac (or PC) to the cloud.  Apple-icloud-new-digital-hub

Now there are several tech companies vying for your attention to join their all-inclusive cloud. Google’s cloud hosts an entire suite of products that are customized to your specific desires including Maps, Gmail, Drive, News, Google+, and music/movies/books/games/apps from Google Play. All of these cloud products are supported by a variety of devices and OS’s including Chromebooks, Chromecast, Android phones and tablets (including the Nexus line of products), the Chrome browser, etc.

Another company that is rushing to provide a complete cloud solution for consumers is Amazon. Amazon’s Prime service allows customers complete access to a number of benefits including reduced shipping rates, access to free online TV shows and movies as well as a suite of free book titles that are downloadable through the Kindle store. Amazon also provides a host of services to non-prime customers for free including Amazon Cloud Storage, personalized shopping recommendations, pay-per-view TV and movie titles and a host of other services. This cloud ecosystem is supported by a variety of devices and applications including the Kindle line of tablets and e-readers, the recently announced Fire TV console, iOS and Android apps and potentially an upcoming smartphone.

Microsoft is rushing to catch up to the all the cloud activity by creating Windows 8, the Windows Store, Office 365, Outlook.com for email and a host of other online services. Similar to the above, Microsoft provides a host of products to support access to their cloud including X-Box game consoles, Surface tablets, Windows Phones, etc.

The Future of The Digital Hub: Cloud Services

No matter how you slice it, cloud services are the future. Regardless of the industry you are in, your business will be affected by the cloud in a major way. This is why its so important to have a cloud strategy – even if you’re not a software company.

digital-hub-of-the-future

Because the cloud makes it easy to track and control practically anything (computers, cars, fridge, home, etc.) from practically anywhere (at home, at work, on the road, etc.), the cloud will begin to take on more and more parts of our lives. Apple and Google are already making a push into our cars through Apple iOS CarPlay and Google’s Android for cars.

With regards to the cloud there are essentially three strategic options:

  1. Create your own products and your own cloud ecosystem (essentially go at it alone)
    1. Though there is some overlap with the other options, most of the major tech companies would fall into this category such as Apple, Microsoft, Google, etc.
  2. Create your own products that work with an existing cloud ecosystem (your products become a spoke on another company’s hub)
    1. This is what many small to mid-size manufacturers and developers do. For example, most apps created for iPhone (or Android) would fall into this category. Small application developers don’t have the resources or desire to create their own ecosystem and instead rely on Apple (or others) to maintain their ecosystems in such a way that allows the developers app to gain exposure and adoption.
  3. Create your own products and your own cloud ecosystem and integrate your cloud with another existing cloud ecosystem (tie the two clouds together via an API)
    1. This is what many mid-large size manufacturers and developers might pursue. For example, MailChimp and Aweber are fairly large email automation providers who through an API can connect with a variety of other cloud services such as WordPress. Another example is LucidChart which provides online diagramming software that uses an API to save documents to Google Drive.

Each situation is different but it will be interesting to see how the cloud transforms various industries over time. And to think it all might have started with iTunes!

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