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Twenty Questions from Catalin Stelian Andrei

Catalin Stelian Andrei, Editor of The Day, INTERNET PROTV asked me twenty questions:

1. What phone do you have in your pocket right now? Why that model?

I carry the iPhone 5. The last iPhone I bought was an iPhone 5C which I gave to a family member.

2. Apple is going to launch, form all we know, an iPhone with a bigger screen, long after their market rivals. Is Apple one step behind, being forced to take this road in the fight with Android and Windows Phone devices? Because many smartphone users were hoping that an big screen iPhone, a redesigned model, will be lauched long time ago, and that didn’t happen.

Making bigger phones is easier than making smaller phones. First because miniaturization has always been the most difficult engineering challenge, and second, because a smaller phone has a smaller battery making efficiency much more important. The larger the phone, the simpler it is. The third reason smaller is more valuable is that it’s easier to carry and use. The largest phones cannot be put in pockets and cannot be used with one hand. In the history of consumer, electronics size reduction has been the most consistent measure of performance, and the most rewarding. Usually the most exceptional reductions in dimensions create the highest price and profit bands. There have been niches for larger portable devices but they are consistently a small part of the overall market. If Apple were to introduce a larger device I hope they will be able to solve usability problems and make the category attractive to a larger audience.

3. What do you expect from the new iPhone 6?

I expect it to run the latest version of iOS and, with the new apps developers will ship, that should make the most impact in people’s lives. I imagine health maintenance and home automation will become valuable new franchises. Of course iOS 8 will also run on older iPhones, but I suspect the newest iPhone will somehow run the new software better and have smoother integration with services.

4. What’s the “not to do” lesson that Apple needs to learn for the now iPhone from it’s own past experience or their competitors?

The biggest challenge is to move rapidly with scale. The company has managed to grow from zero phones a year to hundreds of millions. That’s great but it’s still frustrating to wait one year for major improvements. The “cycle time” of innovation for Apple remains one year. I wish it could be faster but perhaps this is also too fast for some. In some services like maps and iCloud and iWork, which are independent of hardware (mostly,) speed is of the essence.

5. The iPhone is the most expensive smartphone on the market right now. In Romania, it certainly is. But where does Apple gains it’s most money from, selling products to users or selling services, like iTunes, App Store? And having that in mind, what will be their next step: better – breakthrough products or bigger, more complete services?

The answer to where a company “gets its profits” is best answered by asking where a buyer “gets his value” from the product. For instance you might answer the question of where a car company gets its value by saying that it’s from making people be in more than one place in a day. So the “differentiation” of a car is in answering the question slightly differently. If it’s hard to see a difference to this answer between cars then it’s hard for any one company to make a profit. For a company like Apple, we need to ask what its users value about the experience and why they are willing to pay for that. My hypothesis is that the brand’s value is in making life a little bit easier. That’s what Apple competes on. Of course, some people are not willing to pay to have an easier life and some even want to make their lives more complicated so Apple’s proposal to make life easier, for a price, is not accepted by everybody—which is ok by them. But for many, paying for comfort, productivity and ease of mind is worth quite a bit. The reason Apple is able to gain a premium over the competition is that this value proposal (of paying for simplification) is either weak or non-existent for competitors. Indeed, many competitors compete on the basis of making life more complicated.

6. What does innovation means for Apple right now? What are their options for assuring a next decade of success? A new Steve Jobs person or a Steve Jobs tipe of group thinking. How hard is that to achieve?

Innovation is meaningful invention—bringing useful creations to a large number of people who then make use of that creation. The interesting aspect of making money from innovation is that it’s a rare phenomenon, requiring many disciplines to work together. It’s like a big movie that somehow works and becomes widely popular but costs little to make. Many movies are made, few are successful and very few of those which are successful are built at low cost. What we know about technology innovation is that it’s a combination that comes together under strong leadership but that leadership alone is not sufficient. The myth of Steve Jobs is that he was both necessary and sufficient to success. The truth is that he was necessary but not sufficient. To make successful innovations requires strong leadership and teamwork and a process of incentives and passion that is hard to create a formula for. How this works at Apple is its biggest secret.

7. Who are the key Apple employees right now? Do they need another Jobs or do they already have him?

All Apple employees are key. I would say that’s the magic formula. There is no chief magical officer (and there never was.)

8. What will be the next best thing for Apple? […]

I don’t know. It’s probably not knowable.

… Are they capable of another breakthrough in the market?

Yes. This is almost certainly knowable.

9. Is the smart-home project something that will really happen in the next, let’s say, two decades?

If the project requires replacement of existing infrastructure, it will not happen. If the project allows adding new items to existing infrastructure, it will almost certainly happen.

10. Growth comes from the middle and low-end smartphones, according to IDC. Would or would not be a good idea for Apple to release a handset cheaper than the 5c?

If Apple were concerned with growth then they should. But we have to ask why they avoided doing this six years ago. Not only was it obvious to do so but a portfolio strategy was the modus operandi for every competitor and had been for decades. The question isn’t why Apple does not broaden its line-up but why do the others diffuse their efforts and have such poor focus.

11. What feature or software you think would be the main battleground in the future, in the smartphone market? Apps? Battery? Camera?

Integration of all the above. When new experiences and services emerge those who are able to make them usable succeed. Usability requires integration.

12. Who puts more pressure on Apple: Apple itself, Samsung, LG, HTC, Microsoft and Nokia? And how.

I suspect competition is part of motivation but it’s not the entire story. Let’s not forget that Apple is considered to suffer from competitor pressure from software companies, services companies, media companies, hardware companies and everything in between. For instance, Apple is in competition with Microsoft, Amazon, Google and Samsung but the competition is not transitive. In other words Amazon is not perceived as being in competition with Samsung and neither is Google competing with Nokia. So somehow Apple should be sensitive to every perceived alternative to every aspect of its products. This quickly becomes an absurd idea. Apple is a system of things and systems can’t be compared with components.

13. What is Apple’s sensitive spot today. What do you believe Apple fears the most?

Losing people. The problem of retaining talented people is the most difficult challenge, especially when they become very wealthy due to the success of the firm.

14. In 2012, you described the fall of Nokia in competition with Samsung at the Guardian Mobile Business Summit due to the disruption theory: the launch of the smartphone. Is Apple in danger of becoming a victim of the same story in the near future? What technology could replace the smartphone and when?

Yes, every company is vulnerable to disruption. The defense is not to protect against it but to self-disrupt or enable self-destruction. Self-preservation is an instinct in humans so this is psychologically very difficult. The crisis comes not from a technology change but a business model change and that implies a cultural change. Companies embrace any and all technologies which sustain their business models and reject, resist and ignore any and all technologies which disrupt their business models. Changing business models is like a brain transplant; it happens so rarely that we can count it on one hand. By the way, because it’s so rare is why companies who attempt it are discounted by the market.

15. You’ve been a Nokia executive. From this perspective, how do you see the deal with Microsoft and the future of Windows Phone and the Lumia brand?

This is a long story. I can’t really do it justice now but I will say that it seems that Microsoft understands that they need to become an integrated systems company and not a component supplier. The same became evident to Nokia so they needed to merge.

16. You’ve also worked with people from RIM. Do the have the capacity to innovate?

Perhaps but scale also matters. RIM and HTC may not have the time to grow.

17. Let’s imagine that no big company owns my personal information. If I wanted to sell that to someone, what would be the right price to ask? How valuable are individuals in the war for gaining personal information?

The price of your personal information will be set by auction. It’s up to you to decide if you want to create a reserve price or to let the highest bidder win. As of today most people would trade all their personal information for almost zero price. This will not last and consumers will find out their value over time. I can’t predict how it will change but it will be a combination of offers being made and personal data catastrophes which will act as warnings.

18. Do you believe in phoneblocks project from Motorola?

Only people who want more complicated lives will want to build their own products. There are some such people (for example children) but they are not willing to spend a lot for that complication so the overall market for increasing complexity is small.

19. The last question. What could trigger an Apple fall and when?

The most common trigger for failure is success. To continue succeeding is very hard because motivation disappears. What can cause a crisis of motivation would be that there is a loss of belief that there are problems left to solve.