Why Apple's Innovation Feels Different Now

Good morning. Have you heard about Founder Mode? It's the latest Silicon Valley meme on which everyone has an opinion.

The best meme I saw was: “Founder mode is giving your gf a Calendly link.” I hope nobody can relate to that.

What else happened? Apple just introduced the new iPhone. iPhone 16.

As usual, I am not discussing the new features. Hundreds of YouTubers are in full vlogger mode covering this. When this email reaches your inbox, you are already speculating about the iPhone 17…

Every year, the world points out that Apple is no longer innovating. I don’t agree with this at all. But I can see where they are coming from.

Memes like this show how the internet perceives the changes year after year.

The days when Apple would drop world-changing technology at every conference are over. And it’s not looking like they will come back any time soon.

It seems that the era of Apple launching game-changers is behind us, but that doesn’t mean they are not running a highly effective and profitable strategy anymore.

4-minute-read

Apple and Disruption

When we use the term “technology” we usually talk about something that helps us solve problems better or achieve an outcome more efficiently.

So, if a problem matters enough to the customer or a technology improves their life, they will pay someone for it. The entity making this technology is a tech company.

There are two directions a new technology can take. And nobody describes it better than Clayton Christensen in "The Innovator’s Dilemma”:

New companies often get the chance to launch into the market with disruptive technology. This is the classic venture model. A completely new technology that carries more risk is more expensive and difficult to build.

If it works, the additional cost of building more units will be much lower. This product will likely be the leader in a new market or attract new customers because it can offer something at a new price point.

Apple’s History of Disruption

Products that changed the world:

• iPhone - mobile internet on the go

• iPod - digital music on the go

• App Store - mobile app economy

• M1 Chipset - leaps in performance while using less energy

Apple transformed entire industries. The products above are examples for Apple bringing things to the world that nobody had imagined before.

Apple Today: Sustaining Technology

Recent product releases like the iPhone 16, AirPods, iPads 100% are not disruptions anymore. They align with the definition of “sustaining technology” above. “Improve the performance of established products”.

Incremental improvement examples are

• Performance and battery life

• Increased privacy controls

• AI integrations

• Improved Apple health features

• Better camera system

• “New colors”? - I was debating if I should list this here…

The focus is on improving the experience and consistent upgrades. These yearly improvements are innovations that keep Apple at the top of a highly competitive market and help them capture the value they created with their products.

But there is one more thing that Apple always expands on.

Apple’s Focus is to Power its Ecosystem

Apple is running a super-intergration strategy. I made that word up.

It describes how Apple optimizes for integrating everything a user needs into its ecosystem. Starting with devices such as the Watch, AirPods, Macs, Apple Pay, iCloud, and the App Store, it then moves on to services that offer cloud storage, entertainment, and health statistics for additional software products.

In this regard, Apple is the leader in building an ecosystem that users don’t want to leave.

Apple’s #1 priority is not to disrupt the market. Yes, they try. But it’s not their downfall if they shut down their vehicle program or the Vision Pro isn’t initially taking off. Even if they can’t come up with a single disruptive product anymore, they could be fine.

The one thing that can’t fail is the increase in user retention and customer lifetime value.

Apple will be fine as long as these two metrics are trending up.

Capturing the Value

Being a tech company that comes up with disruptive solutions doesn’t mean you are automatically successful. Just because you create massive value through some very useful invention, you still need to figure out how to capture that value.

Apple captures the value and keeps users in their ecosystem not through new disruptive hardware. Apple captures through software.

Everything you own from Apple is connected to your AppleID. Upgrading or adding a new Apple device to your personal Apple ecosystem is seamless.

I would argue that Apple doesn’t even need to be the first mover on hardware anymore. Apple needs to observe the market for first mover products that gain traction. Then extend their own ecosystem with these products.

Mixing in Disruptions

Disruptions can boost growth.

What Christensen calls Disruptive vs Sustaining Technologies, others call: High Tech vs Tech Enabled. Where High Tech companies are the ones that invent something new. And Tech Enabled companies use technology to improve their core offering. Same same.

I found this relevant data comparison based on Pitchbook data here.

This shows that there is a slight difference in CAGR (Compound Annual Growth Rate) between these two:

In the above charts comparing High-Tech with Tech-Enabled Companies, we can see that topline growth is indeed +4% on average and +9% at the Median.

Companies with disruptive products grow on average faster.

That’s why Apple still spends money on Research and Development to develop entirely new products. Apple knows that if one out of 10 disruption experiments works and Apple could add to its ecosystem, it would be a massive growth booster.

Apple Flirting with more Subscription Models

In today’s tech world, we know to enable flourishing continuous software development, we want to sell subscriptions.

Subscriptions, the all to well known commecial business model that makes us consumers live much happier lives. Almost as happy as the lives of the service providers.

Apple sales numbers are differentiated between Products and Service.

We all know that Apple Products are incredibly profitable for hardware but Apple Services is almost double that margin.

Gross margin:

Apple Product almost 40%

Apple Services almost 73%

It is obvious that Apple is looking how it could extend service offerings. Many suspect there to be extended offerings around AI features.

Also Apple needs to find ways to compensate for the threat of Europe’s Digital Markets Act - which mandates open competition in app stores where Apple is currently taking a 30% cut for every transaction. Giving that up means it needs to come back come from somewhere else.

Conclusion and Key takeaways

Today, we explored how, on the spectrum of disruptor and sustainer, Apple is moving increasingly toward the sustainer (optimizer) side. They are no longer a disruptor.

But Apple doesn’t need to be to run a highly profitable business. Apple is a prime example of a company that shows how to capture the value it created.

What customers feel might just be a bit of nostalgia towards the big reveal events where Steve Jobs would indeed introduce products that would change the world.

• Apple is following big tech’s blueprint to lock users into their ecosystem rather then risking brand reputation with risky, revolutionary ideas that might not work.

• As companies mature, it might be the right shift from disruptor to sustainer (or optimizer). This doesn’t mean they don’t innovate - they just innovate for a different reason.

• Chasing improvements in existing products and building services within an existing ecosystem can be just as valuable as the “next big thing”.

Although Apple may not launch world changing products anymore, we can celebrate the ones they launched and for nostalgic feelings, watch the announcements on YouTube.

If you don’t get goosebumps when he says, “A revolutionary mobile phone” then I don’t know how you could read my post all the way to the end. Thanks anyway.

Have a great rest of the week,