Apple Lesson of the Day: Product Depth vs. Breadth

You don't become the largest tech company in the world without turning a few heads. That rise to the top inevitably comes with rivals taking stringent notes in the process, as you show them how it's done.

Apple (Nasdaq: AAPL  ) is accustomed to competitors mimicking it and plain ripping it off, which is hardly a shocker considering that if Apple were to stack its $97.6 billion money mountain as $1 bills, it would stand 6,160 miles tall. With the Hubble Space Telescope's orbital altitude at 353.5 miles, that means Cupertino's wall of Washingtons would stand over 17 times as high. Now that's a stat that might blow you away.

The second first 100 days
Fun facts aside, one of the most important strategies that Steve Jobs implemented upon his return was to quickly slim down Apple's product offerings by focusing on depth instead of breadth, which could also be viewed as choosing quality over quantity. That focus on putting more innovation into a relatively smaller number of products has proven critical to Apple's success.

Shortly after coming back, Jobs called a meeting and asked employees what was wrong with Apple. After no one was able to answer correctly, he provided it: "It's the products. The products suck!"

One of the gifts that I was fortunate enough to receive over the holidays was this print by Pop Chart Lab of a fairly comprehensive product map throughout much of Apple's history (what else do you get an Apple fan who already has too much iStuff?).

Source: PopChartLab.com, used with permission from Pop Chart Lab. Dark line represents approximate return of Steve Jobs to Apple, and was added by the author for illustrative purposes only.

The aspect that immediately jumped out at me was that you could clearly recognize Jobs' return based on the visible simplification of Apple's product strategy. Cupertino's jumbled mess of offerings was funneled into the families of lineups we see today.

3 vs. 145
Apple releases one iPhone model each year, with a few configurations, but ultimately one model. Compare that to its Google (Nasdaq: GOOG  ) Android and Microsoft (Nasdaq: MSFT  ) Windows Phone OEM competitors, which flood the market in comparison.

Including older models, Apple currently offers three iPhones: 3GS, 4, and 4S. Counting Android and Windows Phone handsets, LG has 27 different models currently listed on its site. Motorola Mobility (NYSE: MMI  ) has 15, while Samsung and HTC churn 'em out like there's no tomorrow with 53 and 50, respectively. That's 145 different models between just those top-four prolific OEMs, and don't even ask me to list them all out like I did with Apple.

With recent figures from Kantar Worldpanel ComTech showing Apple's market share of 44.9% has squeezed ahead of Android's 44.8% by a hair, and Windows Phone still struggling to top 2%, I think it's fair to say that Apple's trio is holding its own admirably against a veritable army of adversaries.

A change of heart
A pair of the aforementioned OEMs has had a recent change of heart. Earlier this month at the Consumer Electronics Show, Motorola CEO Sanjay Jha said the company is shifting gears this year and will be making fewer phones, focusing on better innovation within smaller numbers. The change would also allow Motorola to better concentrate its marketing bucks.

Across the pond, HTC has voiced similar intentions; HTC U.K. exec Phil Roberson said that the vendor will roll out fewer devices of higher quality this year. Roberson said, "We need to make sure we do not go so far down the line that we segment our products by launching lots of different [models]." He conceded that HTC tried to do too much in 2011.

Dollars and sense
Innovation costs money, and Apple makes its R&D dollars go a lot further because it's so focused on deeply developing its gadgets. Just compare its most recent quarter's figures to those of some of its rivals mentioned so far, in terms of absolute dollars and as a percentage of sales.

Company

R&D (% of Revenue)

R&D ($)

Apple 1.6% $758 million
Google 12.2% $1.3 billion
Microsoft 11.3% $2.4 billion
Motorola 11.1% $384 million

Source: SEC filings, figures as of most recent quarter.

Microsoft in particular has a problem developing ideas that may never see the light of day, or at the very least, not anytime soon. One example would be its work in its applied sciences lab on a Star Trek holodeck-esque magic wall (Microsoft must have read this article by fellow Fool Jim Mueller). Another would be Microsoft Surface, an enormous table-sized interactive touchscreen.

I'm not saying these technologies aren't cool; on the contrary, I want them in my living room. But ultimately, they're not the most productive use of shareholders' R&D spending since they're not commercially viable.

"Here's a dopey idea"
There's no doubt that Apple also comes up with goofy ideas. Just glancing at some of its patent applications is evidence of that. At Apple's Steve Jobs memorial, design head Jony Ive said, "Steve used to say to me -- and he used to say this a lot – 'Hey Jony, here's a dopey idea.' And sometimes they were. Really dopey. Sometimes they were truly dreadful."

The difference is that thinking up wild ideas, putting them on paper, and filing for a patent is far cheaper than dropping a couple billion per quarter.

Focus and depth have always been strengths for Apple, and it looks like some rivals are starting to recognize the value in that. If quality and quantity met in a dark alley and had a knife fight to the death, I'd wager on quality in this match any day of the week.

The mobile revolution is also set to become the next trillion-dollar revolution, with Apple leading the way. There are lots of companies that are set to cash in on it, but one in particular has excellent prospects. The company is one of a few players that will help power the mobile devices of the future, and it also has exposure to the explosive growth in China. I'm so bullish on the stock that I've given it an outperform CAPScallGet access to this 100% free report to find out what company I'm talking about.

Neither Fool contributor Evan Niu nor The Motley Fool receives a referral fee or any type of consideration if readers choose to follow the above link to purchase a print of the poster shown above, although it does look nice framed in Evan's home office. He owns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Google, as well as creating bull call spread positions in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (19) | Recommend This Article (48)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 27, 2012, at 5:16 PM, Hawmps wrote:

    "considering that if Apple were to stack its $97.6 billion money mountain as $1 bills, it would stand 6,160 miles tall"

    Well that's just silly; first of all good luck getting all the propper permits to stack your greenbacks that high, as soon as you get up to 200' FAA will make you put a blinking red light on top, and you'll end up disrupting the flight pattern of some migratory water foul which will be considered a "taking" and then we wouldn't be environmentally responsibe would we.

    Ok, it's Friday.... it's 5 o' clock somewhere, I just know it.

  • Report this Comment On January 27, 2012, at 5:21 PM, Hawmps wrote:

    Good article Evan. Strong case for quality vs quantity. It's the opposite philosophy of "don't put all your eggs in one basket". More like, why do you need more than one basket anyway? Hold onto your basket and guard it with your life. Apple has been very successful at guarding their basket and nurturing its contents.

  • Report this Comment On January 27, 2012, at 6:00 PM, TMFNewCow wrote:

    Hawmps,

    You got an actual laugh out loud outta me with the FAA bit. Nicely done, Fool.

    -- Evan

  • Report this Comment On January 27, 2012, at 6:06 PM, racchole wrote:

    Thank you for the reality check truthisntstupid. Too many AAPL articles without enough meaningfull comments.

  • Report this Comment On January 27, 2012, at 6:11 PM, mattack2 wrote:

    That poster isn't comprehensive at all! It's missing a lot of Apple II stuff.

  • Report this Comment On January 27, 2012, at 6:14 PM, Hawmps wrote:

    Evan,

    Sweet... we all gotta lighten up a bit anyway.

  • Report this Comment On January 27, 2012, at 6:58 PM, luckyhorse123 wrote:

    The point about R&D does not show me an emphasis on quality over quantity, it shows me a company that has foregoed innovation and is instead capitalizing on a now dead genius.

    The ipad and iphone are awesome and their success is a testament to the genius of steve jobs, however the more pertinent questions is where is this company going to go? Whats next?

    In light of their current low r&d and penchant for sitting on money, probably nowhere. Give it time and I believe they will fall and fall hard.

  • Report this Comment On January 27, 2012, at 7:28 PM, TMFBreakerRob wrote:

    Good article! I'd drop the irrelevant comparison (height of the pile). It's meaningless and doesn't illustrate anything about the buying power.

  • Report this Comment On January 27, 2012, at 10:14 PM, TMFNewCow wrote:

    mattack2,

    You are correct, but that's why I made sure to word it as such: "...a *fairly* comprehensive product map throughout *much* of Apple's history..."

    It starts around 1983, so definitely doesn't show the *entire* history, but the majority of it.

    -- Evan

  • Report this Comment On January 27, 2012, at 10:56 PM, bmillin wrote:

    If you have been reading the articles in the New York Times, you would know that Apple makes $440,000 profit for each employee.

    Also, that Apples major producer of Iphone, IPad etc, Foxcomm treats its employees under militaristic conditions that are close to slavery, including wages.

    Is this how you want Apple to be doing so well? From my point of view, it is unjust and immoral. With the economic power Apple and other electronic industries possess, they are in a position to push for change in China.

  • Report this Comment On January 28, 2012, at 12:36 AM, Mega wrote:

    Regarding the cool chart:

    If the MacBook belongs in a different family from the iMac, I'm pretty sure the iPad belongs in a different family from the iPod Shuffle.

  • Report this Comment On January 28, 2012, at 7:11 AM, commoncents33 wrote:

    <b>The point about R&D does not show me an emphasis on quality over quantity, it shows me a company that has foregoed innovation and is instead capitalizing on a now dead genius.

    The ipad and iphone are awesome and their success is a testament to the genius of steve jobs, however the more pertinent questions is where is this company going to go? Whats next?</b>

    That reflects a common misunderstanding: that Apple is only as good as the next rabbit it pulls out of a hat. Why in the world would someone think that simply staying on top of the hill with a smartphone and tablet...while coming on strong with laptops...would not make for a very long, profitable ride? Do you think that in a decade people won't be using those categories of computing devices? Look how long Microsoft has been able to milk the cash cow from Windows and Office. It hasn't had to continually reinvent itself; rather it's been surfing the same wave for three decades, and although the wave may be starting to show slight signs of breaking, there's certainly still a long ride left.

  • Report this Comment On January 28, 2012, at 12:50 PM, gilsh wrote:

    Although it is always fun hearing an Apple fan, I think a few important points are missed. I've mentioned some in the past, so I hope those who have read my comments elsewhere will forgive some repetition:

    (1) Apple might be the largest tech company in market value, but it is not the leader of the smartphone market -

    (a) Apple became the leading company regarding its technology in what is a very Technology intensive market.

    (b) this leadership has been under constant threat by very capable competitors.

    (c) the most growing platform in this market is not Apple, nor Apple related -

    http://www.mobilephonedevelopment.com/archives/1271

    (d) the biggest hardware units seller in this market was Apple, till october 2011, but not any more -

    http://websightstory.blogspot.com/2011/10/apple-is-no-longer...

    Samsung is the new king in this measurement aspect, so maybe trying to approach several types of customers and not just the richer ones has some point, after all.

    (2) although it is rather safe to assume that 2012 will not be a bad year for Apple, it was rather safe to assume that 2008 will not be a bad year for Nokia - the last Giant, who is currently still falling.

    (3) Talking about falling, 2012 is probably going to be the year in which Microsoft, Nokia and Rim are going to make their most significant effort at getting back to being relevant in this market, in the developed world.

    As Apple has been losing grounds regarding its technology leadership, it is everyone's guess where consumers will go in 2012.

    Apple will probably remain a very profitable player, especially in regards to the profit per unit sold,

    but it still remains to be seen whether the assumed continued growth of the smartphone market will keep benefiting Apple.

    (4) Regarding developing markets like China, Apple has serious difficulties there. unauthentic iPhones don't bring a penny to the company, after all. Rim and Nokia, on the other hand, are deeply entrenched there.

    In summary: in a market known for extremely intensive competition, proved volatility and poor customer loyalty, I wouldn't bet any single player to remain a leader for more than a few years.

    Especially a new market, very similar in some aspects to the cars vehicle of the early twentieth century.

    In short: I take a much more cautious approach

  • Report this Comment On January 28, 2012, at 2:10 PM, ajaykc wrote:

    Steve Jobs implemented upon his return was to quickly slim down Apple's product offerings by focusing on depth instead of breadth, which could also be viewed as choosing quality over quantity. That focus on putting more innovation into a relatively smaller number of products has proven critical to Apple's success.

    Its interesting how our arguments change with time. No one would have said same about diversification in 2000 when Microsoft was in mid 40's and apple was merely around 10ish. Back then growth came from having your software on every possible OEM and now it has changed.

    Sun rises and then goes to sleep and we have different stories for day and night...While day brings hope stories, night is definitely flooded with horror stories.

  • Report this Comment On January 28, 2012, at 2:21 PM, ajaykc wrote:

    @commoncents33

    I really feel sad when people say that apple is real innovator and other OEMs are not. People argue that other OEMs are mimicking apple's innovation. I think apple steals ideas from others and knows better packaging the same old stuff in a nicer looking hardware and definitely better at marketing. Apple knows how to hype...Apple didn't even know how a mobile phone works but still manages to sell millions of smartphones. It stole others technologies who didn't think of patenting them ahead of time until they realized that it was too late (example are samsung, nokia and others). The biggest example is that they are paying Nokia good amount of money for every iPhone, those dollars would have been much bigger if Nokia was in better position to fight its technology.

    So R&D does pay off, if companies know how to protect them before it is stolen. Apple stole them from every phone maker and used their influence in US judiciary system to pay the least $$ for that and accused others that they stole their ideas instead. Pathetic...

  • Report this Comment On January 28, 2012, at 6:14 PM, gilsh wrote:

    @ajaykc

    Microsoft was established on 1975.

    Apple was established on 1976.

    Apple is a closed-architecture advocate, while Microsoft, surprisingly enough, is an open-architecture advocate. In that aspect, Microsoft and Google are in the same boat. Not a pair I'd like to meet down a dark alley.

    And lets give the Cupertino guys their due: iPod, iPhone and iPad are super fine products, and Apple is the corporation who had the guts to put the money in making and delivering them, while all others thought the technologies are not ripe enough for assembly line products.

    @ommoncents33

    your statements regarding innovation make it clear: you underestimate the importance of R&D in technology based markets. That is a severe mistake for an investor to make.

    Lets remember Microsoft's past:

    Microsoft nearly lost its control of the O/S market in several key points in the last 20+ years:

    the passage from dos to windows, the becoming of the internet and the passage from the desktop to the laptop. In each of these steps, Redmond put up a great fight, and produced the best cost/benefit products in the market - windows 3.11, Internet explorer 4-5-6-7 and Windows 7. Despite of the mountains of criticism, each of these products was good enough to persuade the majority of decisions makers in homes and corporations around the developed world to purchase a Microsoft product once more.

    But Microsoft has been able to invent and develop in other areas as well -

    They have been able to keep an amazingly dominant position in the Office productivity market despite quite good completely free alternatives and awesome competition from giants, the most significant loser among them being IBM.

    Microsoft was able to enter the high-end servers environment almost a decade ago, and made Windows based servers a true option for datacenters, far from the rather lame solution windows servers were 10 years ago.

    Microsoft also penetrated the middle and high end database market and made sql server a true alternative to the dominant player - Oracle.

    and I'll spare you from talking about gaming, search and other areas where Microsoft has been able to hang in there, competing against other giants in other fields.

    one last word - surface is the future of the information technologies. Microsoft's putting money there is a clear indication for their intentions playing a leading role in 25 years time. That is true blue chip thinking.

    All of these are actions of a very competitive player which keeps reinventing itself, and is not only able to keep its stance at the top of the pack, but also enter new markets.

    These markets support existing moats and increase revenues in the middle and long terms.

    All this is done first by R&D. Huge piles of cash going to R&D.

    in summary:

    (1) without R&D, in a technology based

    market, Apple will lose their "top brand" niche in several years, and as Nokia now experiences, at the developed world, several years time can be the difference between king-of-the-pack and a tumbling loser. Take a look at NOK's stock price to fully realize the meaning of poor R&D on a technology based company. And Nokia is still a profitable business, right ?

    (2) Having said all that, I want to point out that the only R&D expenditure comparison that made sense was to Motorola. Google and Microsoft's R&D is much more diverse than Apple's. Google is making a clear effort to reduce the span of its R&D, but however you look at it, they and Microsoft are playing at fields which Apple has strictly avoided from entering.

    My critical thinking regarding Apple stems from other considerations than R&D expenditure. You can see it in an earlier comment,

  • Report this Comment On January 28, 2012, at 9:39 PM, Culiga wrote:

    Several technology managers of the past read a book by an ex-IBMer, The Mythical Man Month.

    One of the pillars of his thinking was that an excellent individual is more than an order of magnitude more productive than a good average individual. The reasoning was related to that author particular experience, which was in systems programming.

    To make it short, identifying outstanding individuals and keeping them delivering new products is part of some organizations (looks like Apple is one). The result of having a smaller research organization with the right individuals is less cost and lots of results...

    Many companies like Microsoft, IBM, GM, Xerox had huge research budgets, but not the right type of top management. Microsoft has lots of problems with each version of O/S that they release sometimes making people mad at their products. The last version of Office is full of gadgets... IBM had almost a monopoly of computer technology, and now is a services company. If we look at the man that fixed IBM, he was an expert in consulting services, so he did what he knew best, and transformed IBM into a really big services company. (Steve Jobs understood Apple so he could save it keeping the company in a similar direction) Xerox is a company that lost a huge opportunity in computing with the results of their research investiment. GM lost its way because a long time a go they decided to put a Finance Man in charge of an Auto company (Roger Smith in the 80's) and they could not react to the changes in the market they served.....

    Companies that generates their profits from products, should have a management team that understand the soul of their products, technologies and what makes the consumers love them. The amount of research investment may not the right indicator, but something more difficult to evaluate, that is the quality of their management team and their engineers.

  • Report this Comment On January 28, 2012, at 9:53 PM, Culiga wrote:

    I repeat my comment, some words were missing...

    Several technology managers of the past read a book by an ex-IBMer, The Mythical Man Month.

    One of the pillars of his thinking was that an excellent individual is more than an order of magnitude more productive than a good average individual. The reasoning was related to that author particular experience, which was in systems programming.

    To make it short, identifying outstanding individuals and keeping them delivering new products is part of some organizations DNA (looks like Apple is one). The result of having a smaller research organization with the right individuals is less cost and lots of results...

    Many companies like Microsoft, IBM, GM, Xerox had huge research budgets, but not the right type of top management. Microsoft has lots of problems with each version of O/S that they release sometimes making people mad at their products. The last version of Office is full of gadgets... IBM had almost a monopoly of computer technology, and now is a services company. If we look at the man that fixed IBM, he was an expert in consulting services, so he did what he knew best, and transformed IBM into a really big services company. (Steve Jobs understood Apple so he could save it keeping the company in basically the same direction, that is designing outstanding products and delivering them to the market) Xerox is a company that lost a huge opportunity in computing with the results of their research investiment. GM lost its way because a long time a go they decided to put a Finance Man in charge of an Auto company (Roger Smith in the 80's) and they could not react to the changes in the market they served.....

    Companies that generates their profits from products, should have a management team that understand the soul of their products, technologies and what makes the consumers love them. The amount of research investment may not the right indicator, but something more difficult to evaluate, may be the right indicator: the quality of their management team and their engineers.

    So maybe the guys that Steve Jobs kept at the top of Apple, may surprise many people.... Wall Street may have destroyed more American talent then anything, by the way it evaluates a company.

  • Report this Comment On January 29, 2012, at 6:59 PM, centryInvest wrote:

    Microsoft was established on 1975.

    Apple was established on 1976.

    Apple is a closed-architecture advocate, while Microsoft, surprisingly enough, is an open-architecture advocate. In that aspect, Microsoft and Google are in the same boat. Not a pair I'd like to meet down a dark alley.

    And lets give the Cupertino guys their due: iPod, iPhone and iPad are super fine products, and Apple is the corporation who had the guts to put the money in making and delivering them, while all others thought the technologies are not ripe enough for assembly line products.

    Apple,Microsoft both are good companies to invest in for a long time, but I like Steve Jobs most.

    http://usa-stocks.blogspot.com

    http://www.chistocks.com/tag/AAPL

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