How Apple shows that innovation is overrated

The naughts were a golden age for Apple. Throughout that decade, the tech giant surprised the market several times: it launched iTunes and the iPod in 2001, and the iPhone in 2007. The iPad’s introduction in 2010 was the last time the multinational company released an innovative product. As such, market watchers have been complaining for seven years that Apple doesn’t innovate anymore; it just imitates. For instance, Apple was late to the game with the Apple Watch. And Apple TV never made a big splash.

Small and nimble competitors can move faster to strike first. Apple, on the other hand, moves on a massive scale that can crush smaller players. And if needed, it can always purchase worthy competitors.

The truth is, Apple can’t be innovative because the company can do nothing in secret. Its supply chain alone includes hundreds of thousands of external workers, to say nothing of its accessory partners. All those potential leaks mean the market — and Apple’s competitors — know the precise details of the next iPhone offering months ahead of the official unveiling.

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It doesn’t help when your largest competitor is also one of your biggest parts suppliers. Samsung, and other hardware makers, too, have made a concerted effort for years to beat Apple to the punch with the latest tech, whether it’s curved screens, higher-resolution cameras or faster processors and modems. Besides price, being first to market is one of the few ways they can stand out against Apple’s more alluring consumer offerings.

Apple is known for delaying products that don’t meet its standards. That can play into the hands of competitors looking for first-mover advantage. That’s when it doesn’t backfire, of course, as Samsung learned in 2016 with its exploding Galaxy Note 7 phones. Many believe that Samsung rushed the phone to market to beat the iPhone 7. The eventual cost of the recall and replacement of 4.3 million Samsung phones was more than 5 trillion won ($5.6 billion Canadian).

Ecosystem is key

While Apple is trying to become more independent from a supply chain perspective, it also knows that Samsung isn’t its most formidable threat, due in part to the two companies’ symbiotic interdependence. Apple’s main competitors are Google and Amazon, and the companies’ end goal is not to sell hardware but to trap consumers in their respective ecosystems.

At its June 2017 Worldwide Developers Conference, Apple unveiled its latest hardware product, the HomePod, which is a tabletop speaker that responds to voice commands. Its debut comes after Google and Amazon have both launched similar products (Google Home and Amazon Echo).

A smart home ecosystem integrates not only music, movies, TV, emails and calendars from various devices, but also home-based hardware such as thermostats, lights and, farther down the road, home appliances. In the case of Amazon, the goal is to also have users order a multitude of products from its site with only a voice command. Amazon has been experimenting with fresh grocery delivery for close to a decade now, with middling success. But its recent bid to acquire Whole Foods may have signaled a major shift toward an order-ahead and pick-up solution, which still provides significant opportunity for Amazon to become more ingrained into our daily lives, and might provide an edge in the escalating war of the personal home assistants.

Read: Amazon buying Whole Foods in US$13.7-billion deal

Apple’s delay was strategic. In being late to the game, it unveiled a module that jumps the other two in terms of sound quality, and satisfies its loyal users, who want an Apple solution to connect all their Apple devices and services.

Services are key to Apple’s success. Indeed, in fiscal 2016, services became the company’s second-largest segment — more important than the iPad or Mac computers. For better or worse, many adherents are married to Apple products because of an affinity for Apple services. They have their music stored on iTunes and Apple Music, their photos are kept safe on iCloud, they’ve paid for Apple apps and they’re hooked on Apple Pay. Apple also gradually updates its services to address competition in niche applications, like its recent announcement to offer peer-to-peer payments via Apple Pay and iMessage.

By design, Apple doesn’t make it easy to leave Apple.

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Putting these thoughts to work

New tech comes and goes, so the most compelling investments over the longer term are companies that offer something far beyond the latest hardware upgrades. Apple, Google, Amazon and Tesla set themselves apart by establishing sticky ecosystems and multi-faceted brands. Over time, an installed base of customers ensures much greater stability in recurring revenues. When that ecosystem feeds back on itself, and encourages additional hardware purchases, the investment case only becomes stronger.

Next time you hear criticism against Apple for being a follower, remember that it’s by design. Winners don’t have to lead the race, so long as they define the race.

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