Apple iPhone no longer in Blue Ocean Market- Change in Strategy essential

Apple launched iPhone in 2007 which is an internet and multimedia enabled Smartphone with touch screen and has totally redefined the Smartphone market. Apple iPhone has become a cult device and five generations of iPhone models have hit the market till now and Apple sold more than 100 million units till now. With half million applications in app store for the consumers to play with, iPhone is a great device that revolutionized the Smartphone segment with features like a portable media player (iPod), an Internet client with email, web browsing capabilities, multi touch screen, 3G connectivity, camera, etc. iPhone has provided consumers with an unique experience and has generated significant revenues and profits. Apple iPhone created a blue ocean market where it has total control of everything from the product design, pricing, software, app store and development to the way it markets and sells its iPhones. Apple had a created an uncontested market at the high end of the smartphone market and its iPhone has offered the mobile users a very unique experience that has become a benchmark in the smartphone industry that all the other players are trying to achieve. Hardware, software and the developer ecosystem is the best in the world and Apple is dominant player in the application market. Developers love to work on the Apple OS as it is one of the best OS in the world and it allowed them to create numerous applications and make money selling them. Apple developers get 70% revenue of the sales.

Initially only AT&T was authorized to sell the phone but many other carriers across the world are selling. Apple had been able to sell the iPhone at a premium and consumers are more than willing to pay the premium because iPhone was such a magnificent device with functionality and half million applications in the app store that allowed its users to use for everything. Apple has total control on the hardware, software and provided limited access to developers to its code and it tightly restricts the apps on its app stores and allows only apps that are approved by it. Apple has single product and price strategy and focuses all their R&D, engineering, hardware, software efforts on just one product. Apple has the highest profit margin per iPhone and its pricing strategy has been remarkably as it launches its new versions at higher reference price and subsequently lowers the previous versions price. Recently it reduced its iPhone 3GS price to zero with contracts and it is not relying only on hardware sales but also on the sales of apps, music, movies, videos etc on its iTunes store.

Apple iPhone has transformed from a GSM phone to a 3G network capability in second version but the screen size and the home button placement remained as a standard. The 3GS models came with a bigger difference like faster processor, better camera with video and better OS. The iPhone 4 is thinner with a wider brushed stainless steel band, aluminosilicate glass panels, with video conferencing capability, high resolution display and powerful A4processor. The iPhone 4S came with 8 mp camera with video recording, face detection, dual core processor, multi-standard wireless support and a natural language voice control system called Siri. Apple iOS, the operating system initially developed for iPhone has been extended to iPod Touch and iPad. There have been five versions till now and it has been enhanced further with multi tasking capability in fourth version and the OS has been constantly developed to add more functionality and features.

Change in Apple iPhone Strategy

Apple has always believed in quality rather than quantity and focused on the high end premium market. iPhone has been costly when compared to other smartphones but Apple tried to keep the premium pricing close to its competitors premium model price. Initially AT&T was the only carrier selling the iPhones until February 2011 and since then Verizon and Sprint started selling iPhone and in October 2011, C Spire Wireless announced that it would be carrying the iPhone 4S. iPhone was originally launched in six countries in 2007 but now Apple has launched it in around 100 countries.  For the first time Apple has three models of iPhone 3Gs, 4 and 4S with prices ranging from Zero for 3GS with contract, US$ 99 for 4  to US$400 for 4S. Apple has to reduce the price for the older models as the Android Models have flooded the market at the lower price levels and have successfully captured the market and made it the number one in the smartphone market in just three years. Another factor that forced Apple to reduce the price despite good 4S sales and not make the 3GS obsolete is that there has been no wow factor for the 4S model as the consumers were not attracted by the faster chip, better camera and voice activated personal assistant software Siri.

Apple has also been criticized for not having a proper pricing strategy for the emerging markets as iPhones come with huge price tag. There have been a rumors that there will be smaller version of iPhone specifically targeted towards the emerging markets but till now it is no there. But Apple is reducing the price of the older versions of iPhone but these versions are outdated and with less features and functionality compared to the Android phone models that come in all sizes, prices and powerful hardware. Dependency only on the high end market will lead to limited revenue growth but with significant margins. Most of the analysts and Research firms forecast Apple to keep its market share at around 16-18% of smartphone market by 2015. Other Smartphone players like Samsung, RIM, Nokia, and Microsoft are aggressively looking to improve their market shares with new products. Even Android that is holding more than 50% smartphone now is expected to hold around 50% market share by 2015. Initially Apple did not focus much on the enterprise segment but with businesses and other organizations changing their strategy where they are allowing employees to bring in their own devices and integrating them with their IT infrastructure, Apple has a good opportunity to improve sales in this segment. Some of the companies are even buying iPhones as enterprise device for their employees as Blackberry is losing out due to product failures. Apple needs to support its enterprise sales team.

Smartphone market - Red Ocean

Smartphone market has become a big Red Ocean with many mobile makers launching phones that are even more powerful and feature and functionality rich than the iPhone. There has been patent wars going on between all the players and each one of them is trying to block others legally but they are not able to do it. Android, Microsoft and RIM are also invested heavily in their ecosystems and wireless carriers are looking to have multiple eco systems so that they can offer more choice to their customers. Wireless carriers, Google, Microsoft and Mobile phone makers except Apple are looking to convert more mobile phone users to smartphone users. They have been successful in their strategy as the percentage of smartphones has been rising and expected to reach 50% of the total mobile phone market. Apple has to be part of this strategy and look for a less costly iPhone as the reliance only on the high end premium market will always be risky. And there is also a risk that all the other players will bring down the average selling price and no matter how iconic and cult following the brand has Apple will loose the market to its competitors. The success of the Samsung Galaxy phones, HTC Smartphones and the yet to be launched new phones from Microsoft and RIM next years will be deciding factor for the Apple iPhone future success. Smartphone makers are adopting various strategies to survive in the market like collaborating with software developers, investing in R&D for designing new devices with differentiation, attracting more developers to develop more apps and also working closely with wireless carriers to understand the local market dynamics and consumers.

Application store iTunes with Apps was Apple’s another success factor. But now Android has Android Market Place with Apps matching Apple’s app store, Nokia Ovi Store and every mobile manufacturer coming up with their own app stores, Apple is loosing its advantage. Developers are developing for other stores as they are also competitive 70-80% revenue share. Apple also launched another unique offering to its customers which is the iCloud, iPhone users can back up and store their data and content on the cloud. Everybody in the Smartphone market is investing heavily in R&D and realized innovation is must for success in the market. Consumers are looking for powerful devices that offer them more functionality and feature and help them in their day to day life. Mobile manufacturers are launching low price smartphones in the emerging markets that come with essential smartphone features and are pushing them through the wireless carriers with subsidies in price and data plans. Wireless carriers are also upgrading their networks as the smartphones put a lot of pressure on their existing networks and they need to push more smartphone to recover their investments in infrastructure. Marketing and advertising strategy is also essential as the mobile manufacturers have to invest millions to promote the products and educate the consumers about the device functionality and features as they do not have a brand like Apple that is considered to offer most innovative and disruptive products. Under the charismatic leadership of Steve Jobs, Apple has been able to keep customers interested in its iPhone and sell millions of iPhones, but without Steve Jobs one has to see how Apple will do in the coming years. Apple has to keep its innovating and change its strategy according to the consumer needs and also keep a close eye on its competitors.

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Innovation & India Outsourcing Industry – Case Study of Top Indian Vendors (TCS, Infosys & Wipro)

Indian outsourcing companies realized that clients are more interested in innovation along with cost and process efficiencies.  Clients are interested in paying more for the transformational and innovation projects and product offerings. Initially it was sending technology workers to companies in the west for work onsite, then came the offshoring which is the traditional model of outsourcing based on the client needs and the latest third wave in Indian outsourcing is where companies design the platforms and systems that facilitate innovation and efficiency. But the fact remains that till now there has not been a disruptive offering from the Indian Outsourcing vendors. According to a 2011 Forrester survey, 41 percent of outsourcing clients cited lack of innovation as the biggest challenge with their existing IT services relationships.

Clients interviewed by Jan Erik Aase, (Sourcing & Vendor Management analyst-Forrester Research), identified three types of activities offshore vendors may try to pass off as innovation that failed to meet their expectations: innovation-for-pay (vendors creates a solution for one client and then licenses it back as a product to that client and the larger market), innovation for innovation's sake (emerging tech from vendor R&D labs that don't solve a customer problem), and administrative innovation (IT services buyers don't view process improvements, project management tools, relationship dashboards, and the like as real innovation). Clients want innovation relevant to their specific needs such as solve business problems, transformation in doing business, commercially viable solutions, creates competitive differentiation, improve market share, or have "an ROI with a multiplier of at least two”.

Innovation @ Top Indian Outsourcing Vendors (TCS, Infosys, Wipro)

Indian Vendors realize that Innovation is lifeline of business and is a critical factor for success in outsourcing industry. They know innovation is a complex process and is a vital component in their business strategy and in order to stay ahead, companies should increase the speed of innovation, be focused on the customer experience, understand their behavior, and co-create with customers and partners. Innovation has to be instilled into the organization at all levels and companies have done this successfully. The top three Indian outsourcing vendors have around 500,000 employees working in their organization for clients across the globe. They constantly innovate and improve the process efficiency there by leading to cost and other benefits for the clients. They work 24/7 for the clients and the innovation which most of the employees do on the day to day basis is called derivative or sustainable innovation.

All the three vendors are using their in house intranets, employee engagement and social media platforms for the idea generations. These platforms provide an opportunity to express their innovation ideas to the management. Managers and Leadership are being trained to act upon these ideas by the employees, evaluate them, commercial viability of the ideas and finally implement them and develop product and service offerings. Formal trainings for the employees include innovation and creativity. For the training programs they are employing third party consultants and experts and also tying up with the academics and other research institutions. Rewards and recognitions are provided for the employees who provided successful innovative ideas and Innovation is also part of the employees’ formal annual performance reviews. The vendors have invested on the training of the employees, provided them with necessary platforms and are investing and developing the ideas into final products and services.

Annual Innovation Events are being conducted where the employees are allowed to present their ideas, conduct demos not only to the management and leadership but also to the academic, clients, research, alliance partners and other stakeholders. These events bring together all the stakeholders of the innovation process and provide a platform to discuss and debate on the various innovations. All the vendors have tied up with the academic organizations, consultancies and other specific research organizations and do work with them in developing the innovative offerings. Wipro Technologies and Knowledge@Wharton together started conducting this tournament in 2010 which selects the most innovative managerial "tools" that companies can use to improve their business by increasing revenues, reducing expenditures and improving customer experience

TCS and Infosys have setup exclusive Innovation labs and these labs TCS Innovation Labs and Infosys SETLabs have been in existence for the past 30 and 20 years respectively. These labs has developed several process frameworks, methodologies, service platforms and work with standards bodies on future technologies, share best practices and maintain peer relationships with academic bodies, industry forums, conferences, and journals. Around 600 and 800 associates work in the R&D in the TCS and Infosys labs respectively. Wipro on the other hand provide third party R&D outsourcing services to their clients and they dominate this market. Infosys' SETLabs incubated the Innovation Lab in collaboration with Prof. Venkat Ramaswamy in 2005 as part of its research and innovation capability.

Frameworks are used by these vendors like TCS adopted Professor Clayton Christensen Innovation frame work and Co-innovation network with Clients and other stakeholders, Infosys adopted a Co-Creation framework based on the book published in 2004 “The Future of Competition: Co-Creating Unique Value with Customers" by Prof Venkat Ramaswamy and management guru the late C K Prahalad. Co-creation is the practice of developing systems, products, or services based upon innovative ideas from stakeholder experiences, that enhance strategic capital, increase returns, and expand market opportunities.

Wipro’s Innovation initiatives were developed based on a study of innovation methods in companies like Nike, 3M, and Home Depot that were reputed for their innovative practices and Applied Innovation which is the ability to infuse newer ideas and newer ways of doing things into all parts of the organization, and improve business outcomes, often without major disruptive change. Wipro Technologies, Innovation Evangelism happens through a series of vehicles that include: Wipro’s Innovation Camp, Innovation Bazaar, Story Book on Innovation, Systematic Creativity Workshops, and Inflection Point newsletter, etc

Despite all these efforts and investments India Vendors have innovated products which are more of sustainable kind and platforms that are mid range platform innovation but they are not able to innovate a disruptive offering. They have involved the employees and managers, provided tem with necessary infrastructure, established labs with exclusive focus on innovation and creation of new products, employed PHds and highly qualified people in these labs, provided with necessary infrastructure and other technologies in the labs, collaborated with all the stakeholders like clients, industry groups, research and academic organizations etc. Co-Creation with the stakeholders and forming strategic alliances with product companies and technology startups and investing significant amounts of money and resources are the major strategies adopted by these vendors. But success still eludes them.

Clients too have to make serious investments to profit from the vendor’s innovation strategy. Clients should treat the vendor not just as the cost reducing and process efficiency improvement partner but have to look at the vendors as strategic partners for the business growth. Clients should provide the vendors with the overall organization business strategy and make them understand that their role is not only limited to the IT department but also towards the overall organizational performance improvement. They should foster such relationships with their vendors and look for vendors with good innovation culture and strategies in place. It will be a win- win situation for the vendors and clients if they work collaboratively towards developing the innovative products and services.

All the players in the Indian Outsourcing industry realize the fact that only way to survive in this highly competitive outsourcing industry is to constantly innovate products and services that are relevant to the clients and lead to revenue growth to both of them. Innovation is highly complex and critical process that need significant amount of resources like monetary investments, technologies and highly skilled and trained professionals. The innovation Return on Investment is essential factor for both clients and vendors and they have to work together for this.

Further Reading:

Innovation @ TCS

Innovation @ Infosys

Innovation @ Wipro

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