Why Apple succeeds, and always will

Simply put: Apple doesn't play by the rules. It reinvents them. Apple applies what I call "David Thinking" to its broader business, product development and marketing. Apple is David to Microsoft Goliath -- and other ones, too. Goliath plays by one set of rules. David choses to change the rules, which favor his strengths rather than those of Goliath.

David Thinking is most provocative and surprising when Goliath acts like David. After all, David sometimes becomes Goliath; Apple is a giant in music with iPod and iTunes Music Store. But David turned Goliath also risks making mistakes that would allow another upstart advantage. Today, Apple is both David and Goliath, depending on market.

March 11, 2009, The New Yorker magazine story "How David Beats Goliath" is what got me to looking at David Thinking and making the realization this is how Apple operates its business. Writer Malcolm Gladwell could easily have written about Apple, but his examples are 12-year-old girls basketball and T.E. Lawrence.

Gladwell tells how obvious losers are winners more often than might be expected: "David's victory over Goliath, in the Biblical account, is held to be an anomaly. It was not. Davids win all the time." Gladwell explains why: "The political scientist Ivan Arreguín-Toft recently looked at every war fought in the past two hundred years between strong and weak combatants. The Goliaths, he found, won in 71.5 per cent of the cases. That is a remarkable fact."

David wins almost 30 percent of the time when playing by his opponent's rules. But the percentage dramatically increases when David changes them. Gladwell explains:

In the Biblical story of David and Goliath, David initially put on a coat of mail and a brass helmet and girded himself with a sword: he prepared to wage a conventional battle of swords against Goliath. But then he stopped...and picked up those five smooth stones. What happened, Arreguín-Toft wondered, when the underdogs likewise acknowledged their weakness and chose an unconventional strategy? He went back and re-analyzed his data. In those cases, David's winning percentage went from 28.5 to 63.6. When underdogs choose not to play by Goliath's rules, they win, Arreguín-Toft concluded, 'even when everything we think we know about power says they shouldn't.'

Nearly two-thirds of the time is a remarkable figure. The approach defines almost every line of Apple's business.

Steve Jobs as David

Apple isn't a team player, particularly under the two chief executive tenures of cofounder Steve Jobs. The examples of Apple's rule-changing behavior are simply too numerous to recount. So I'll start with a few around the 1984 launch of Macintosh:

• While Compaq and other clone upstarts sought to imitate the IBM PC, Apple defied it. Macintosh's graphical user interface, mouse and other features defied convention.
• The "1984" commercial launching Macintosh aired only once, bucking traditional marketing approach of repeated airings to build brand and product awareness.
• Apple bought out every single ad space in the Newsweek 1984 election issue -- 39 pages.
• Macintosh came bundled with Apple applications MacPaint and MacWrite.

Apple's business was at its worst -- closest to expiration -- during the early 1990s, when the company played more by rules Microsoft established. Apple had put on Goliath's mail and brandished his sword. For example, Apple embraced clones, allowing third parties to release their own hardware running Mac OS. The seemingly sensible strategy was anything but. Apple's attempts to play by DOS/Windows PC rules put the company at grave competitive disadvantage. Steve Jobs' late-1996 return to Apple and ascension to interim CEO in 1997 set forth dramatic changes in the company's business strategy. Among Job's first actions: The end of Mac cloning. Only Apple would make and sell Macs.

Since Jobs' return to Apple, there are so many examples of Apple changing the rules, it's hard to find ways the company played by Microsoft's -- or other Goliaths' -- rules. Some examples:

• Streamlined product SKUs, from 1997 to present: Following Jobs' second coming, Apple reduced the number of products in each family. Example: Today there are three Mac notebook families -- one MacBook model, five MacBook Pro models (at different screen sizes) and two for MacBook Air. Popular convention is to offer more product families and SKUs. The counter-culture approach lets Apple streamline manufacturing and distribution while maximizing margins.
• Bondi Blue iMac, released 1998: Some Windows PC OEMs offered all-in-one designs, but none like Apple, which dumped all the legacy ports for USB and FireWire. Hundreds of translucent products followed the design trend established by iMac.
• Apple Store, first opened in 2001: Apple moved into retail during a recession and while Gateway prepared to shutter, and later closed, hundreds of stores. Everything about Apple Store, from design to retail staff training and more, defied computer retail convention. Genius Bar was a genius concept for servicing customers and endearing good feelings about Apple products. Goliaths Circuit City and CompUSA later liquidated, while Apple Store is a vibrant retailer.
• iPod, launched in 2001: Apple redefined the nascent MP3 player market with the click wheel and hard-disk storage. Then Apple reinvented the device with iPod nano and again with iPod touch. Companies more typically seek to preserve the status quo they create. Apple has chosen to instead repeatedly reinvent iPod.
• iPhone, launched in 2007: Like David, Apple played to its strengths, such as software and industrial design, rather than play by rules established by handset carrier and manufacturing Goliaths. Examples include use of capacitive instead of resistive touchscreen, multitouch user interface, synchronization and control of software, software updates and services (rather than letting the wireless carrier control them).
• Recessionary pricing, now: Apple pricing has long defied convention. The company prices high, choosing not to compete with Windows PCs in the sub $500 market. The approach preserves the brand's value and margins. No time has Apple's higher pricing been more obvious than during the current economic crisis. So far, Apple's rule-changing approach defies low-pricing logic.

Microsoft was once David

At one time Microsoft changed the rules, too, when David to the IBM Goliath. For example:

• Microsoft cofounder Bill Gates admonished early developers in 1976 "An Open Letter to Software Hobbyists. The convention had been to share code, which he called stealing.
• Gates and cofounder Paul Allen licensed what would later be called MS-DOS to IBM in 1981, rather than selling the software. The approach broke the end-to-end hardware/software model and later flourished a robust IBM PC-clone market.
• Microsoft's approach to partnering, particularly software developers and resellers, put more money in others' pockets. In the IBM model, money flowed up. By contrast, Microsoft shared the wealth.

There are many other examples how Microsoft defied convention over the years, how the company changed the rules. No longer. Microsoft seeks to preserve the status quo it established through success and becoming Goliath. For example, top perennial design principle for Windows is backward compatibility. It's the preservation of the past way of doing things.

Status quo thinking prevents Microsoft from being competitive and disruptive like Apple. Goliath thinking is so pervasive, Microsoft fails where it shouldn't. Microsoft will not beat Google in search as long as it plays by the information giant's rules. Microsoft must change the rules of the engagement, leveraging its strengths against Goliath Google. Gladwell writes in The New Yorker:

David, let's not forget, was a shepherd. He came at Goliath with a slingshot and staff because those were the tools of his trade. He didn't know that duels with Philistines were supposed to proceed formally, with the crossing of swords...He brought a shepherd's rules to the battlefield.

Microsoft must leverage its strengths, by battling Google in an unexpected way. Perhaps Microsoft should apply Apple's David Thinking to search. Apple's sales priority is profit share rather than market share. Maybe Microsoft should seek to make more money off lower search share, as Apple does today in the personal computer market.

Yesterday, at the Loop, Jim Dalrymple asked: "Apple can be copied, but can it be beat?" Apple can be beat if its David Thinking approach can be copied, I assert. But competitors let Apple set the rules in markets where it competes.

So far, Apple has resisted Goliath thinking, consistently competing, at least under Steve Jobs' leadership, in ways that emphasize its strengths rather than complying with rules set by others. Even as Goliath, Apple has consistently changed the rules to its advantage. The challenge ahead: Resisting the temptation to protect the status quo -- to truly be Goliath.

[Editor's Note: A different version of this post appeared on Joe Wilcox's personal Website in May 2009. That version is no longer available-- only its revised replacement here exclusive to Betanews.]