Apple's Creeping Product Problem

Soon after Steve Jobs took over Apple (NASDAQ: AAPL  ) in 1997, he drew a box on a board with four squares. He wanted Apple to go from a sprawling product line to four products. Computers for work and home with only two versions -- mobile and desktop. He consolidated development  into these four main products:

 Type

Consumer

Professional

Desktop

iMac

Power Mac

Portable

iBook

PowerBook

This simple grid became a symbol of Apple's product line in the early years of its recovery. When the iPod was introduced, it had one form factor and just a few memory sizes. The next generations of iPods included Nano, Shuffle, and Touch, but there were still only limited offerings. The iPhone and iPads started as single products with three memory options -- that's it.

Today, Apple has expanded offerings to five different iPods, three iPads, three iPhones, five different Macs, and Apple TV. Walk into an Apple Store and you could walk out with one of 17 products, not to mention size variations and any number of covers and accessories Apple makes. Plus, there's word that more variations of the iPhone are in the works -- and who knows what on the TV front. The simple table above has become a solution for everyone, losing focus on only the most important things, something we used to call product creep.

The curse of the giant company
Apple has done some of this product expansion out of necessity. Samsung was taking smartphone share with larger screens at lower price points so Apple responded by keeping the iPhone 4 and 4S in inventory and growing the size of the iPhone 5. The next generation will reportedly come with even more varieties, both larger and smaller. It's a natural response to competition.

The Mac lineup has also grown as competition added options for customers. The Macbook Air for travelers, the Retina Display for premium users, the Pro for pros. Apple is making a product to fit every possible need.

Fighting product creep
The challenge for Apple is to not fight every fad or trend in consumer products. Google (NASDAQ: GOOGL  ) and Amazon seemed to be successful in expanding the tablet market to 7-inch devices, and Apple may have needed to respond with the iPad Mini, but where does it end? Google, in particular, can allow manufacturers using its OS to test markets and add products with less risk than Apple has with each product launch.

Smartphones are even more complicated. Google's operating system is being used by a number of suppliers and they can grow and shrink sizes and features with the trends of the market. Microsoft's Windows 8 operating system will allow a similar range of products for both smartphones and tablets. These two companies don't need to worry about form factor nearly as much as Apple, opening a world of possibilities for manufacturers.

The challenge for Apple
So, how does Apple respond to customer taste without making 50 different products? It comes down to management having the guts to keep it simple. But there's a double-edged sword. If Apple doesn't create more product offerings, it risks losing share to growing competitors. It's happened to others in the past.

This is how both Nokia and Research In Motion went from dominant market positions in mobile to passe brands overnight. Blackberry, in particular, was extremely popular, but the combination of hardware and software made it difficult to adapt to customer demands when new competitors like Apple entered the fold. Nokia has had to move to both Google and Microsoft for OS support after dominating mobile for years. The mobile consumer can have a change of heart overnight, a challenge for Apple.

When you're relying on so few products for your revenue, the rise can be fast and so can the fall. What Apple has to do is get every product right, something Steve Jobs had a very good record with, but given Apple's size it's a huge risk for the company and investors. If the look of iOS changed, can you imagine the response from that alone?

Foolish bottom line
I think Apple has tried too hard to be all things for everyone and it's hurting the simplicity that made the company so successful. Slowly, product creep takes focus away from the factors that made Apple the dominant company is has become.

This is a challenge for Apple and one of the reasons its stock has fallen so far in the last few months. There is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (7) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On January 28, 2013, at 7:12 PM, JKramarz321 wrote:

    I remember that grid!

    I gave a big sigh of relief when Steve presented it! No more Powermac 8600, 9300, 9700...with no idea which was better, etc.

    That was the day I bought AAPL!

    I see we DO have a few more products these days.

    I'm very wary of Apple having too many MODELS of products, but I don't think it's a problem now.

    In fact, look at it this way. When that grid was made, the product was computers. JUST computers, and they had a grid of 4 quadrants to show 4 products. Today, since phones are the biggest part of revenue, and bigger than computers ever were back then (late 90's?), shouldn't the be a grid for phones? Not just the previous 2 models for lower prices, but instead a new grid?

    Instead of "desktop " and "portable", why not "Large" and "small"?

    "Pro" and "Home" could be "high performance" and lower performance (maybe this could just be the prior models , like the 4s is now).

    Likewise, the Tablet business is bigger than the whole laptop/desktop market was back then too.

    The Mini iPad seems to hit the market well.

    Likewise, the Mac Mini was also introduced by the Guy Who Made The Grid. I'm not sure where the Mac Mini fit in the grid? Likewise the iPod seemed to find quite a few versions, though I remember Steve pulled the plug on the iPod Mini (best seller at the time) to introduce the Nano.

    The moral of the story is to keep it simple, but not at the expense of making money!

  • Report this Comment On January 29, 2013, at 1:44 AM, singaporenick wrote:

    It's quite wrong to state that Steve Jobs had "a very good record" with getting every product right.

    As with most visonaries,he had a lot of hits and misses.The Misses almost broke the company,the hits made it what it is today.In fact,post-Jobs,every product has been a hit.

  • Report this Comment On January 30, 2013, at 6:38 PM, ch1ckster wrote:

    AAPL, and they are not alone, is very similar to a restaurant where the menu goes on and on for pages beyond a person's attention span.

  • Report this Comment On January 30, 2013, at 11:23 PM, dwilh51183 wrote:

    You clowns (writers ) don't have anything better to do than constantly put AAPL down every day. You mean to tell me that GOOG OR SAMSUCK OR AMAZON WILL NEVER have any competition stealing their market share away.What you writers should be writing about is how when AAPL finally decides to start fighting back instead of letting everyone steal their ideas, and starts to pursue all customers with various styles and models, then they will steal market share from the KOREAN COPYCATS, AND GOOG, AMZN. All you writers have done is awakened a sleeping giant. If TIM COOK is any kind of CEO who cares about his investors, he will unleash 25 billion in cash and start buying back shares right now , creating one of the biggest short squeezes ever, forcing AAPL stock straight up to $800.00 a share and shut up CNBC, AND ALL THE NEGATIVE WRITERS OUT THERE. Also increasing the dividend to $3.85 per share - $4.25 a share would be great

  • Report this Comment On January 31, 2013, at 1:09 AM, sidlac wrote:

    absolutely correct add that 25 billion buyback now,streamline the line,creating a real short squeeze now and shut CNBC

    NOW AND pump up advertising BIG TIME with the best money can buy, You have the best products in the world but you must have a sense of urgency now and be very aggressive and everyone will

    support apple and only then!!!!!

    SIDLAC DO NOT WAIT !!!!!

  • Report this Comment On January 31, 2013, at 10:07 PM, Robayr wrote:

    Blah, Blah,and Blah. How many AAPL articles can your mill grind out in a week? Do you know how many other stocks there are?

  • Report this Comment On February 02, 2013, at 8:52 PM, Panth wrote:

    dwilh51183, You rant about apple products, then about the stock, Keep in mind, when investing, you are not buying the product, you are buying the company, I made a good chunk off AAPL, and sold it when the decline started. I may buy back in, if as your post says, the management does something with the large hoard of cash they are sitting on, either return some as dividends, or invest it to get better products, or a buyback. I have never actually owned an Apple product though, (my son bought an iPod, and I think he paid way tooooo much), but as long as others think the amount they are paying is ok, then the stock may go places.

    This is an investing site, not a product comparison site. Please do not drag up the competitions products, as you worship the great St. Jobs. If you have reason to believe the stock will rebound, let us know. I really do not know on this one, so welcome other opinions.

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