Platt Perspective on Business and Technology

Rethinking vertical integration for the 21st century context 10

Posted in business and convergent technologies, strategy and planning by Timothy Platt on August 29, 2016

This is my tenth installment to a series on what goes into an effectively organized and run, lean and agile business, and how that is changing in the increasingly ubiquitously connected context that all businesses, and that all individuals operate in (see Business Strategy and Operations – 3 and its Page 4 continuation, postings 577 and loosely following for Parts 1-9.)

I began explicitly addressing a set of closely related issues in Part 9 of this series, focusing there on the first of them, that I repeat here for continuity of discussion purposes:

1. What makes global online interactive connectivity so powerful an enabler, in making a more vertical integration system work?
2. How does this compel a rethinking and a redefining of what “lean and agile” means?
3. And how will that affect and even redefine business-to-business collaborations, as individual enterprises determine what they should do themselves in-house and what they would more effectively outsource, for example to supply chain partners?

And along with discussing the first of these points in more general terms, I addressed it in terms of a working case study example that I have been developing here and essentially throughout this series: Apple, Inc and how it has pursued essentially the same in-house vertically integrated business model twice – but with very different results achieved those two times. Their first attempt left them a niche market participant in a desktop computer industry that they were attempting to take a leadership role in. And the second attempt there, has brought them to leading prominence for smart phones and tablets and related devices.

The basic question that I have been exploring here, about Apple and its two attempts has been one of how and why their second attempt worked so well while their first left them as that persistently reliable niche market participant and for so long – with this discussion framed in terms of the issues that arise when considering the above three numbered questions.

• I focused on Apple’s first attempt at this in Part 9 and in the course of that at least briefly noted how a more nuanced understanding of their potential desktop computer markets and a more effective segmented marketing-based, multi-channel marketing and sales approach might have given them a greater overall market share
• Where the immediate two way communications driven immediacy of the interactive online experience and online social media might have made that easier to achieve.

I continue that discussion here, looking at their second attempt at this same basic in-house vertically integrated business model and how it has been working for them in a ubiquitously interconnected marketplace and world. Or to repeat my closing thoughts in Part 9, added to the end of that posting in anticipation of this one:

• I am going to continue this discussion in a next series installment where I will more specifically focus on Apple’s second effort at becoming a market dominating vertically integrated business with its iPhones, iPads and more, on the proprietary hardware and software side. And as part of this I will discuss its move into content with its Apple App Store, and its iTunes and iBooks and more, where they seek to become a leading content/format gateway too. And this will bring me to a key detail that I have only noted in passing and without comment up to here. Apple has moved from seeking to do everything that is in any way important to their business in-house, to taking on a business model position in which they seek to do almost everything in-house. Their “almost” is crucially important there, for understanding where Apple is now and where they seek to go as a business.

I begin all of this by briefly addressing a possible point of refutation to my basic line of argument here, which I summarize as follows:

• When Apple tried shaping and leading the desktop computer industry and its markets in its first vertically integrated business attempt, everything it did was new and cutting edge so it is readily understandable that as the most novel and disruptively new source of entries in that business arena, it would be more limited in its reach to a smaller pioneer and early adaptor market (when considering this in terms of the demographics of an innovation diffusion and acceptance curve understanding of market share.) But when Apple tried this the second time, graphical user interfaces were already so mainstreamed that even the late and last adaptors of “new” technology were ready to buy and use it.

This sounds reasonable but it overlooks two important points:

• When the first desktop computers first came out they were all cutting-edge new and disruptively novel – and this held for DOS based command-line interface computers of the type that ran Microsoft software, as much as it did for Apple’s graphical user interface computers. And Apple’s failure to effectively inform and communicate with business buyers meant that they in fact primarily opted for the more difficult to learn and use option for their employees, and the one that would cost them more from increased learning curve requirements – out of the range of new and even disruptively new options available. It is important to explicitly note here that all of their business purchase choices would be equally new to the primarily non-computer programmer employees who would primarily use these new tools.
• And when tablets and particularly when smart phones first came out, their smaller user interfaces compelled enough changes in how these devices are used and in what they do, to make it necessary for new users to go through at least something of a learning curve here too – and even for people already comfortable with larger format desktop and laptop computer-oriented graphical user interfaces. And these learning curves are about equal for steepness and length, regardless of whether you consider Apple products or their competitors, and certainly when comparing Apple and Microsoft user interfaces. Graphical user interfaces per se might be all but universally understood by now and certainly for anyone who would buy and use a smart phone or tablet. But a new user of one of these compact devices still has to learn where all of a seeming multitude of features and functions and options are packed into their small, compact screens.

The basic argument that early adaptor limitations doomed Apple to niche market status that first time, but that these restrictions no longer applied the second time, does not actually account for much of what historically happened here. And with that at least potential “just so” story noted, I continue my Part 9 narrative here, with Apple, Part 2: their second try at consumer information technology tools domination.

• Apple built its entire second attempt in terms of the online community and entirely in terms of reaching out to and connecting with specific markets and demographics. It has built itself this second time, and both online and in its physical bricks and mortar storefronts and its customer experiences there, in terms of this larger online communications flow and in terms of that always being relevant and even centrally so to their every business process, decision and action.

Does Apple have alternative technology competitors here? Definitely, and I add that this is something that that company sees as a positive source of value to them – and particularly in the United States and European and other countries where the risk of facing monopoly challenges in courts of law have to be addressed and limited. But they have built their current business model iteration around ubiquitous online computing with cloud computing resources as well as the resources of their consumer devices themselves. And they have built it just as explicitly in terms of ubiquitous anywhere to anywhere and at any time telephony and in terms of the essentially compete blurring of any once meaningful distinction between computers and communications devices in all of this. And this time, their more unified, vertically integrated, one source approach has worked and very well for them.

That addresses the first part of my to-address here bullet point as noted above:

• I am going to continue this discussion in a next series installment where I will more specifically focus on Apple’s second effort at becoming a market dominating vertically integrated business with its iPhones, iPads and more on the hardware and proprietary software side.

I am going to continue this discussion in a next series installment where I will focus on the second side of that point:

• And as part of this I will discuss its move into content with its Apple App Store, and its iTunes and iBooks and more, where they seek to become a leading content/format gateway too. And this will bring me to a key detail that I have only noted in passing and without comment up to here. Apple has moved from seeking to do everything that is in any way important to their business in-house, to taking on a business model position in which they seek to do almost everything in-house. Their “almost” is crucially important there, for understanding where Apple is now and where they seek to go as a business.
• And when I address this, I will directly and specifically challenge a point of detail that I just wrote here when I wrote of Apple now pursuing a “more unified, vertically integrated, one source approach.” That is true for many of the key pieces of their marketable puzzle, but there are pieces to that, that they do not seek or want to offer strictly from in-house. And the dividing lines there are crucial to understanding Apple’s more current success.

And I have not forgotten the last part of my closing note of Part 9, as to what I would follow that flow of discussion with: “And I will at least begin to explicitly discuss the points of my above-repeated information systems bullet point list too.” I will also explicitly address those points too:

• Information flow and accessibility, and
• How new and emerging communications and shared computing frameworks are reshaping business systems friction,
• And through that, the range of what can be made operationally functional and cost-effective.
• And the perhaps more technical issues of single and multiple sourced information and information validation, and
• Noisy systems and their impact on friction levels faced.
• And uncertainty – and how systems noise here, and friction and uncertainty are related.

I have been rethinking how best to delve into that set of issues as I actually write this series and have come to see its more abstract and technical issues as fitting in here more clearly, after developing and presenting more of the case study details that I would offer here.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And see also Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.

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