Apple: More Than a Pretty Face

Consumer electronics companies need to do more than pare product lines and make cool stuff. What Apple offers is a complete ecosystem

by Sohrab Vossoughi

Gadget lovers take note: Consumer electronics (CE) companies are cutting back their product lines. Gone are the days when manufacturers created a dozen in-line products to cover every price point. Rather than spreading chips across the table, CE brands like Sony (SNE) and Samsung are following Apple's (AAPL) lead by stacking more chips on a few well-placed bets. Sony, for example, now offers just three models of ultra-slim point-and-shoot cameras in its CyberShot line. But will such paring enable Sony and others to succeed the way Apple has? Will this mean more products we love or more dross on the shelves?

Maybe you're thinking, "Not more Apple hype." But it's hard not to think of Apple as the innovator in the CE space. Apple is driving digital lifestyle on a global scale, and it's doing so in the face of economic adversity. The National Retail Federation reported that consumer spending on Black Friday dropped 3.5% compared with 2006. According to a MasterCard (MA) Spending Pulse report, sales of electronics rose just 2.7% from Thanksgiving to Dec. 24, 2007, over the same period a year earlier. Meanwhile, Apple anticipates holiday-quarter sales of $9.2 billion, a 29% increase over 2006, while the Mac operating system hit a record 8% market share in the closing days of the year. With the annual Consumer Electronics Show fast approaching, Apple is once again sure to be the talk of a trade show it doesn't even attend.

Design Alone Isn't Enough

To succeed like Apple, CE brands need to do more than create cool-looking products that are rich in features and intriguing behaviors. A cool object may be at the center of the experience, but as others have noted, surrounding a successful product like the iPod is a complete ecosystem that includes content and services, software and interfaces, retail experience, Web site experience, and an army of accessories. Imagine competing with NASA by designing a better space shuttle—but ignoring the launch pad, ground control in Houston, or the facilities at Cape Canaveral. Apple is successful because all of the elements of its ecosystem are in place—and are consistently meaningful and relevant to its target consumers.

According to the latest NPD report, Apple has secured over 70% market share for MP3 players. What's less well known, and more impressive, is the ratio of Apple's investment in the iPod platform relative to its return. Since 2004, Apple has added just one item to the iPod range, the iPod touch, making four pieces of hardware in all. In the same period, the catalog of available content (songs, TV shows, films) has increased 600%, to 4.1 million items. And—here's the pièce de résistance—the number of iPod accessories has increased tenfold, to 3,000. Apple collects fees for most, if not all, of those accessories, with third-party vendors and manufacturers paying to add the "Made for iPod" logo to a package or, in the case of connected accessories like speaker docks, a fee to use the proprietary Apple connector.

Many companies have tried to replicate Apple's success by imitating at the product level and focusing on the design of the object itself. Creative Technology has designed media players with simple geometric shapes, high-end details, and a polished look. Speaker docks from Altec, Logitech, JBL and Bose have tried to match (and keep pace with) the Apple color palette.