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Owning the Market

http://fireyourboss.com/steve-jobs-crazy-ipodmarketing-idea-that-worked/

This article sheds light on the motivation behind Apple’s famous iPod advertising campaign.

The article is based on a quote from Steve Jobs’ biography. Jobs said, “I had this crazy idea that we could sell just as many Macs by advertising the iPod”. This was the kind of risky and novel marketing ideas that Jobs was famous for. The success of his strategy can be explained by the ideas about technology acceptance that we studied in class. The first critical component to this strategy is the fact that Apple created what is now called a “Device Ecosystem”. This ecosystem idea started when the iPod was first released. The first iPod was actually only compatible with a Mac computer. So this original ecosystem contained every Mac OS computer and laptop, and the iPod. The beautiful thing about this idea is that owning one device in the ecosystem greatly increased the user’s value of every other device in the ecosystem. To apply this to ideas from class, the function r(x) = some constant C. Then f(x)= some variable N, where N=1+ the number of compatible devices in the same “ecosystem” that the user already owns. This model is very trivial when the ecosystem is as small as {iPod, Mac Computer} but it becomes much more interesting when the ecosystem is {iPod, Mac Computer, iPad, iPhone, Apple TV, etc}. It is easy to see in 2011 that this “ecosystem” idea has certainly been successful for Apple but now let’s explore why this it worked in terms of the original advertising scheme that Jobs employed.

Jobs had faith that by getting the iPod in the hands of young consumers he could grow his PC business. One way he did this was by outspending every other competitor on advertising which helped him completely dominate the digital music player market. In present day you never hear someone say they want an “mp3 player”, you hear them say I want an “iPod”. This part of the marketing scheme certainly worked to dominate the portable digital media player market but there is a downside. In the article it states that the money spent on the iPod advertising was completely out of proportion with the profits associated with selling the device. So if you consider the ads as a cost of selling the iPod, Apple was strictly losing money on the iPod department. But Steve Job’s believed in the “ecosystem” idea and it turned out to be a risk worth taking for him and the company. IPod sales did help make the Mac line grow. The iPod was sort of a proof of concept for Apple. Jobs knew that once he could get people to feel the ease of use of the iPod he could get them to buy Mac’s just based off their newfound understanding of the quality of Apple’s products. There are many reason why it is easier to sell iPods than PCs. They are much cheaper, and most people already had a computer but did not already have an mp3 player at the time.

So by selling more iPods, Apple sold more computers. This is a beautiful result that can be explained by what we have recently been studying in Networks. In 2011, you can see other companies like Samsung and Microsoft using the “ecosystem” structure to sell more similar products but Apple did it so early and so well that I suspect they have nothing to worry about in terms of losing market share for a long time. I encourage everyone to watch the markets for evidence of this and similar marketing strategies and to consider the company’s “ecosystem” next time you buy any kind of technology device because this surely is the future of electronics.

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