Defaults, New Performance Attributes, and Competing to be Unique

Using Defaults to Compete with Incumbents

I wanted to write a quick post on how Apple seems to use integrated device defaults, and the notion of defaults in general, to enter existing markets. Apple acquires Beats and then creates Apple Music and an accompanying streaming service to compete with incumbents like Spotify. Similarly, Apple develops and rolls out Apple Maps, makes it the integrated default, and effectively competes with incumbents like Google Maps (even though Apple Maps started out as an inferior service).

Clayton Christensen recommends entrants avoid entering existing markets to compete with incumbents because incumbents respond vigorously. When you're an integrated competitor controlling the service defaults on your devices, that advice may not apply. See Concepts page and discussion of Clayton Christensen.

Using New Performance Attributes to Compete with Incumbents

It seems like Apple is also using the concept of defaults to effectively enter the AI, search, and machine learning business. Apple is telling consumers that it's default approach with Siri, Spotlight Search, Proactive, and Intelligence is privacy first, data collection second. And Apple is contrasting its privacy/security priorities with the data first approach of Google and Facebook.

Apple is emphasizing a different default or performance attribute -- privacy/security -- to gain customers who value the privacy/security attribute more than the machine learning attribute. Apple is getting its foot in the AI, search, and machine learning business by prioritizing privacy/security and by not targeting users with ads (unlike competitors), offering consumers a private, ad-free environment that still provides high quality AI, search, and machine learning. Apple will improve its AI and machine learning capabilities over time, just as it's done with Apple Maps.

Using a new performance attribute (privacy/security) to enter an existing market (search, AI, and machine learning) is a form of new market disruption. See Concepts page and discussion of Clayton Christensen. And Apple's approach is asymmetric to what Google and Facebook can do because Google and Facebook must gather data and target ads to generate advertising profits. Apple generates all or most of its profits from hardware sales, not ads. So Apple is well-positioned to pursue a unique, differentiated approach to AI, search, and machine learning -- a more balanced approach that factors in privacy/security concerns. Ad-driven competitors are going to have difficulty matching this type of offering. 

Competing to be Unique

Michael Porter defines strategy as competing to be unique through a trade-off based set of unique activities with great fit. He also counsels companies to avoid benchmarking -- and competing to be "the best" at specific benchmark attributes -- because it leads to homogenous, undifferentiated products and price-based competition. See Concepts page and discussion of Michael Porter. 

Apple's approach seems consistent with Porter's notion of strategy: the company is forgoing some data collection to create a private, ad-free user experience, believing it can still create a high quality AI/search offering. Apple isn't competing to be the best at AI or search or machine learning. Apple is competing to offer a unique product/service -- based on an attractive combination of trade-offs -- that solves jobs-to-be-done for a meaningful segment of the populationSee post titled Acquisitions, Rivalry, and Strategic Trade-Offs.

Going a little further, Apple isn't selling the best AI, search, or machine learning -- it's selling a great, unique user experience with all the trade-offs that entails. Good trade-offs are the essence of good, tasteful product design, and Apple excels at design.

By pursuing a unique approach to privacy/security and AI/machine learning, Apple also reduces rivalry with Android OEM's. Apple and Android OEM's can sell differentiated, non-homogenous products, which helps avoid zero sum, price-based competition. Some will prefer Apple's approach and some will prefer Google's, and that's fine.

With complex products and services there is no one right way to solve a problem or address a job-to-be-done. Different consumers will prioritize different functions or features, meaning there's more than one way to make trade-offs and design a commercially successful product. This especially applies to large markets like the one for mobile devices and services. When the "market pie" is large, each pie slice is big enough for a viable, profitable business, meaning each industry player can design for its particular slice without engaging in a high rivalry, "speeds and feeds" spec battle. Apple has consistently followed this approach, refusing to engage in product/service benchmarking based on tech specs or specific product attributes.

Apple is also on the right side of a global trend -- both people and governments (especially in developed European countries) want user privacy/security factored into mobile devices and services. Apple seems to be skating to where the puck is going to be, betting that people and governments are going to want mobile devices to be private and secure, especially as these devices proliferate and are used for payments, unlocking doors, health records, identity verification, and so on. It reminds me of a quote from Franz Kafka that my father had on his office wall:

"In a fight between you and the world, bet on the world."

The author owns stock shares of Apple.