What it is: A business model is the way a company makes money.
Financial analysts are always searching for the magic bullet to success. That’s why they foolishly think that if a company chooses the wrong business model, it will be doomed to failure. Just look at all the critics who claim that Apple has been doomed for years.
Juan Pablo Vazquez Sampere, a professor of business administration at IE Business School in Madrid, even wrote an article for Harvard Business Review titled “We Shouldn’t Be Dazzled by Apple’s Earnings Report.”
His basic theme is that Apple’s record quarterly profits actually masks their inability to innovate. Juan asks at the end, “…by dazzling us with dollars, it seems that Apple’s leaders are deliberately trying to divert our attention. By making such a communication effort to let us know how much money they’ve made—instead of what they’ve done to change the world recently—they are inevitably forcing us to ask ourselves, is this what we get from the new Apple?”
The crux of Juan’s argument is that Apple hasn’t done anything recently to change the world. Of course, this criteria could be applied to practically every company in the Fortune 500. What has ExxonMobil done recently to change the world? Nothing, so therefore they must be doomed. What has Home Depot done lately to change the world? Nothing, so they must be doomed as well. What has Johnson & Johnson done lately to change the world? Nothing, so their future must look bleak as well.
Juan’s problem is that he doesn’t define what it means to “change the world.” He also ignores the fact that when Apple introduced the iPod, critics claimed it was just another MP3 player. When Apple introduced the iPhone, critics claimed it couldn’t succeed because it didn’t have a physical keyboard. When Apple introduced the iPad, critics complained that it was just a bigger iPod touch.
So when Juan complains that Apple has done nothing to change the world recently, he ignores the fact that Apple changed the world several times in the past with the Apple II, Macintosh, iPod, iPhone, and iPad, yet most companies never change the world once. He also ignores ways Apple is preparing to change the world again with Apple Pay that has spurred interest in mobile payments, Apple Watch that will spur interest in wearable computers, and HealthKit that will spur interest in real-time health monitoring.
Many hospitals are adopting HealthKit because “It’s simple for hospitals to connect Apple’s HealthKit to their Epic electronic health-record systems, said Dr. Shafiq Rab, chief information officer at Hackensack University Medical System. And it’s simple for patients to connect their phones’ data through HealthKit to their hospitals, and it’s simple for them to connect their Fitbits and their Withings scales to their phones, he added.”
Apple also recently introduced their Swift programming language to make creating OS X and iOS programs faster and easier than using Objective-C. Earlier they introduced the first mobile 64-bit processor that rivals like Qualcomm and Samsung are finally ready to match more than a year later. With a laundry list of recent Apple innovations that also includes CarPlay, the MacBook Air, and Mac Pro, iBeacon, TouchID fingerprint sensors, and iBooks Author, how can Juan claim that Apple isn’t innovating?
The next time someone claims that Apple isn’t innovating, ask them to clearly define what innovation means. Chances are good they can’t, which makes you wonder why they bother using the term so freely anyway. Perhaps they like sounding important and insightful without actually having to produce any facts in the process because, after all, that would require some innovation.
It Isn’t the Business Model
Everyone seems to think if they follow a certain business model then their own business will suddenly thrive. The particular business model actually matters less than the particular market.
Microsoft’s business model involves selling software for hardware partners to license to sell their own products such as smartphones, tablets, and computers. Initially, this business model seemed brilliant when Windows captured well over 90 percent of the computer operating system market and Windows Mobile captured 20 percent of the smartphone market.
Back then, everyone thought that Microsoft’s strategy of licensing their software was the right business model and Apple’s more closely integrated business model was a failure. After all, the Macintosh only held 4 percent of the market at one time.
Then Apple introduced the iPhone, which now makes more money than every Microsoft product combined. Apple followed this up with the iPad, which has destroyed the netbook market and seriously hurt the desktop/laptop market as well. Now everyone seems to think that Apple’s integrated business model is superior to Microsoft’s licensing business model.
Yet it’s not the business model that guarantees success. ARM Holdings actually follows Microsoft’s licensing business model while Intel follows Apple’s integrated business model.
Intel not only designs their own processors, but manufactures them as well. As fewer people buy desktop and laptop computers, Intel’s business is stagnating. Yet they’re following Apple’s business model.
On the other hand, ARM Holdings designs processors but licenses these designs to other companies such as Apple and Qualcomm. These other companies now modify and manufacture the licensed designs to sell or use these processors in their own products. Practically every smartphone and tablet uses an ARM-based processor whether it’s made by Nvidia or Qualcomm.
So everyone thinks Microsoft’s business model is faulty by licensing products, yet ARM Holdings thrives using that same business model. Everyone thinks Apple’s integrated business model is the reason for its success, yet Intel is struggling using that same business model.
It’s not the business model that defines success or failure, but the market. Right now, the market for desktop and laptop computers continues to decline and it won’t likely reverse course any time in the near future. That means Microsoft (using the licensing business model) and Intel (using the integrated business model) both get hurt.
With the shift to mobile computing, Apple (using the integrated business model) and ARM Holdings (using the licensing business model) are both thriving and will likely to continue doing so until the mobile computing market slows down.
It doesn’t matter what business model you choose if you’re stuck in a declining market. Likewise, it doesn’t matter what business model you choose if you latch on to a growing market. Follow a growing market and your own business will also grow. Stick with a stagnating market and your own business will also stagnate.
Basically, just follow the growing trends and avoid the declining trends. Of course to do that, you have to be willing to objectively examine facts that show you what’s growing and what’s declining. Failure to notice growing and declining trends as early as possible will result in a lot of happy or upset people, depending on which trend you insist on following.
Of course, the best path to success isn’t just to follow trends but to define them, and that’s what Apple does with each of their product lines. The MacBook laptop series has defined the standard for laptops. Apple Pay is defining the mobile payment market. CarPlay is defining the in-dash automotive entertainment system market. We already know that the iPhone redefined the smartphone market and the iPad redefined the tablet market.
When you create trends, you can always be a leader. When you follow trends, you can always be a success. It’s only when you ignore trends that you’ll always be in trouble regardless of the business model you choose.