The application of information cascade and network effects in Apple’s story of success
[0]: http://www.businessweek.com/magazine/the-return-19972011-10062011.html
The article talked about the recovery and prosperity of Apple since Steve Jobs became the CEO of the firm in 1997. [0] Back then Apple was on the verge of failure, suffering from shrinking market shares (4% of PC market) and annual losses of more than $1 billion. When Jobs took over once again, he restructured the company by cooperating with Microsoft and reducing the types of PCs Apple manufactured. [1] He emphasized improved user experience and released some highly innovative and influential products: iPod, iPhone, iPad, MacBook Air and etc. He kept a close look on the media coverage of Apple and his personal life, so that both stories contribute to the company’s healthy image. Today Apple is seen as the stock market’s most valuable company in the world, with sales of $108.2 million for the current fiscal year. [2]
Both information cascade and network effects played roles in Apple’s story of success. People decide whether to buy a company’s products based on information like their prior experiences with the company, the previous performance of the company and other people’s reaction towards the launch of the company’s new product. The clever design and successful marketing of Apple’s products changed consumers’ perception towards Apple. Millions of people purchased the iPod and since then have become regular consumers of other Apple products (referred as the “iPod halo effect”). iPhone 4S had a record-breaking 1 million pre-orders in its first weekend, which not only extended but surpassed the record set by the iPhone 4. [3] As more and more people choose the iPhone 4S , as shown by its record sales volume, people later will tend to follow the crowd and make the same purchase decision. An information cascade of choices to buy iPhone over other smartphones has occurred. Some of the consumers choose iPhone not because they think iPhone is a product with superior functionalities, but because people around them all use iPhones. A chained fashion reaction takes place and owning an iPhone becomes an unavoidable trend.
One of the successful designs of Apple’s products is their extensibility. The strong connection between iPod and iTunes and between iPhone and the Apple Store makes these products connected to the rest of the whole world. As more people use iPhone, more apps are developed and more functionality is supported. Two iPhone users might be able to make use of products supported only on iPhone, like iMessage and FindFriends. This gives people incentive to buy iPhone when their friends are already using iPhone. An increasing number of consumers for a product might also help improve the client experience as it provides opportunity of more feedback from the users.
[2]: http://money.cnn.com/2011/10/18/technology/apple_earnings/index.htm
[3]: http://www.huffingtonpost.com/2011/10/13/iphone-4s-preorder-delay-verizon-att-sprint_n_1008905.html