Growing Apple at WWDC

In the end, as with many of Apple strategies, much of what transpired in Monday’s WWDC keynote was telegraphed many months ago, at least from a strategic perspective. Consider the thinking behind iOS 7. As Jony Ive told USA Today:

When we sat down last November (to work on iOS 7), we understood that people had already become comfortable with touching glass, they didn’t need physical buttons, they understood the benefits…So there was an incredible liberty in not having to reference the physical world so literally. We were trying to create an environment that was less specific. It got design out of the way.

Implicit in that statement – “people had already become comfortable with touching glass” – is the acknowledgment that smartphones have reached the saturation point, especially in the premium segment that Apple has chosen to focus on. However, as I wrote in Why Apple is Buying Beats, this is problematic because Apple needs to grow.

There are two ways to do so: steal share from competitors and sell more to existing users. While the sheer number of announcements at Monday’s WWDC keynote was almost overwhelming, much of what was announced slotted neatly into one of these two strategies.

Steal Share: Winning Android Customers

Steal share is just what it sounds like: get more of your competitors’ customers to switch to you than you lose to your competitor. The first part of that equation is largely a marketing effort. To that end Apple spent several minutes in the keynote talking about Android security problems and how few phones are upgraded, and also emphasized that Apple was very concerned about privacy at several different points in the presentation. It will be very interesting to see if Apple starts to incorporate this messaging into more of their outbound marketing.

The second way Apple has gone about stealing share is through increasing iPhone distribution. Many premium Android phones have been sold on networks that did not offer the iPhone; beyond the big ones like China Mobile and NTT DoCoMo, there are scores of smaller carriers like US Cellular that did not offer the iPhone until very recently. Simply being available is half the battle, and it’s one Apple is fighting on ever more carriers around the world, increasing their carrier base by 15% in the last 8 months alone.

Finally, there is a product component to winning Android customers: addressing specific reasons why someone might prefer an Android phone. One such reason is the availability of 3rd-party keyboards. Well, that’s only an advantage for the next three months or so. Much more importantly, many prefer larger screens, which have been Android-only; I strongly suspect that advantage is disappearing in three months as well.

Steal Share: Retain iPhone Customers

Many of the new technologies Apple announced Monday, especially HealthKit and HomeKit, have the potentially to serve as very powerful iOS lock-ins. It’s one thing to leave behind a few dollars’ worth of apps in order to get a larger screen or a lower price; it’s quite another to abandon expensive devices and home appliances that are designed to work with only iOS.

Similar lock-in applies to iCloud Storage and everything else related to Apple’s cloud (this applies to developers too using Cloud Kit); once customers decide to buy an iPhone, Apple wants to ensure that customer only ever considers an iPhone from that point forward.

Upsell Existing Users: Sell Macs

The iPhone’s “bad” news – the fact that only about 20% of the worldwide smartphone market is premium – is great news for Apple’s other platforms, especially the Mac. Ever since the days of the iPod Apple has talked about the “halo” effect – the idea that the experience of owning one Apple product will make you more likely to purchase other Apple products in other categories.

Many of Monday’s announcements, however, take this concept much further by making it very explicit that your iPhone experience can not be fully realized unless you also own a Mac (and, to a lesser extent, an iPad). Chief among these were the suite of features that made up Continuity. Answering phone calls on your computer, handing off documents or web pages, seamless SMS across devices, ad hoc hotspots – each of these is obviously useful to end users, yet only possible with a Mac. I would not be surprised to see Apple promote these features heavily in its marketing, with the intent of converting some portion of its non-Mac-owning iPhone base – which is huge – into Mac owners (And yes, it is rather incredible to think about a 30-year-old product being a growth story, but it absolutely is the case).

Upsell Existing Users: Sell More iPhones

The other way to think about upselling current iPhone customers is incentivizing them to sell iPhones to their friends and family. Just as many of Monday’s announcements only apply if you also have a Mac, others only apply if those you communicate with regularly also have an iPhone.

The biggest example here are the raft of updates to Messages. The “blue” versus “green” bubble color has long-served as a pro-iPhone status symbol, even though the actual experience of chatting via iMessage versus SMS was identical. Now, though, there are a great many additional functions that are only possible if both users have iPhones. To be sure, almost all of the additional Messaging features Apple announced are also available in 3rd-party messaging apps, but the most critical feature of any messaging service is who else is using it. Apple is betting some percentage of users would rather convince their friends to get an iPhone than understand and convince their network to make a wholesale shift to an alternate messaging service.

Family Sharing also fits in with this story. Shared calendars, photo albums, etc. are significant pain points, and if Apple is able to successfully enable these features out of the box it is absolutely a reason for parents to not only buy iPhones for themselves, but for their children as well.

The other important growth story for iOS is the enterprise. Apple went beyond its usual boilerplate about 98% of the Fortune 500 using iOS and actually spent meaningful time detailing new features that had been developed specifically for enterprises, including new security features, enhanced Mail and Calendar, and better device management. Equally meaningful are app extensions, which will not only make power users happy, but also better enable corporations to create and meaningfully use proprietary line-of-business applications.

All-in-all, it’s hard to imagine how Monday’s announcements could have been more impressive. It’s not just that Apple delivered an incredible number of new features and genuine surprises, but also the strategic clarity with which they did so. The big decisions have been made: Apple (and thus the iPhone) is a premium product company that won’t go downmarket; what is left is to execute, and they are doing just that.