By now millions of words have been written about Apple’s new iPhones that were announced earlier this week and their stock got hammered (for now). But why?
Over several decades, I have observed a key phenomenon … The market for a company’s products is not the same as the market for their stock. This conclusion emerged when I was in charge of the vendor-side of the PC market at Gartner with over 200 companies worldwide as clients, especially with Apple … “It’s alive! It’s dead! It will soon be dead!”. Yada, yada, yada.
Origins
We did considerable retail (monthly) and consumer primary research (the latter over 50,000 households each year .. still going and the longest-running longitudinal study of high technology markets). Because of this, my interactions with reporters and the fact that some of my clients were also Wall Street firms, I got a very interesting view from four perspectives: press, financial analysts, companies themselves and consumers and I came to the conclusion stated in the headline to this post.
What is really interesting is that three of the four groups mentioned above don’t actually represent the market for products. Only consumers (or businesses in B2B markets) do and they vote with their wallets. The rest just “opine”, although they do have impact on stock price.
Perhaps more importantly, I also saw that each of these four were driven by expectations and keeping them in line with what a given company could actually deliver was critical (Apple’s Newton is a classic example of the failure that can result when this is not done).
Focus
For all the criticism that has been leveled at Apple, any company would do well to imitate how they deliver what we called the “Whole Product” at Regis McKenna. Consistent delivery of products that “just work” simply but allow experienced users to push the limits, unparalled support, an ecosystem of products and components that reinforce the user experience and a focus on who really is their market, are all “teachable moments” for all companies in high technology.
The latter is critical. A common issue for high technology companies is losing focus on their market. Apple has not lost this focus. They may only have less than 10% of the overall PC market as an example, but they don’t care. The last estimate I saw indicated that Apple had over 90% of the market for PCs selling for more than $1,000. Where do you think the profits are?
I do not claim to have intimately known Steve Jobs, but in the only one-on-one meeting I had, I asked him a question. The set up is that at that time many were questioning why more advanced microprocessors were needed when most users did simple tasks, not really requiring that power. So I asked how did he see how that power could be used. Steve replied, “We want to use that power to wrap the person in a seductive user experience”. I have never seen that quote anywhere else, but if you want a reason why Apple users are so zealous or loyal, you need look no further and could do well to do anything you can to do the same for your company. It is the core of their “DNA”.
Keeping Expectations in Line
Although Apple is stalked by more “technorazzi” than any other company and rumors about upcoming products abound, they produce no response out of Cupertino. Staying true to their historical policy, they simply do not talk about products until they are released. As is the case with their announcement of the iPhone 5C and 5s, this can lead to expectations that are far out of line with reality (like “low-cost” iPhones and new features), especially on Wall Street, where memories last only a “New York Minute and billions of dollars are traded on information so slim, it would make you cringe (at Gartner some of my clients were Wall Street firms and I have first hand knowledge). As the saying goes, “Insanity is when you do the same thing over and over again and expect a different result.” Nuff said.
What to do?
Apple has the brand, the cash and the patience to outlast these “mood swings” and demonstrate with their sales results whether or not their decisions were sound. We will need to wait and see about the new iPhones.
Your company is not Apple.
Lesson Learned
You can take away a lesson from all of this. If you are dealing with Wall Street, customers, the press, industry analysts, investors, partners, suppliers, management, or fellow employees, you should address as many unrealistic expectations as you can without tipping your intentions to competitors. Managing expectations is a key aspect of good high technology marketing, but it is not often considered properly. It might be unrealistic release dates, product roadmap features or a host of other things. You will be well-served by doing all you can to keep things as realistic as you can and help other management team members (cough, cough … CEOs) understand why this is a good thing.
One More Thing
If you are a public company, you have no choice but to work with Wall Street analysts and simply do the best you can to tell your story and try to keep their expectations as close to reality as possible. I have worked with them in two ways … at Gartner as earlier described and at two companies as a Section 16 company officer where I provided information under SEC rules, inn MD&As and at Quarterly Earnings calls with “The Street”, as well as meeting with them personally.
Do anything you can to have marketing be a part of of those discussions. The CFO can’t do it, and the CEO does not have the focus normally.
The trouble with the current crop of industry and Wall Street analysts is they have no “real world” company business experience and simply not enough talent to “connect the dots”, except in a very linear way. They consciously, or subconsciously, assume they are the market, or know the market and they simply don’t. You do (or should) and can politely nudge them in the right direction (or at least try).
As just one example from the recent Apple iPhone announcements, no one so far has even tried to connect the motion sensor (“Wadda I need that for, ‘ceptin for games?”) in the new iPhone 5s to the possibility of using it to block text messaging or calls when moving faster than walking or running. Or popping up a warning when the the speed limit is exceeded, or when driving or riding later than a curfew, etc. For a parent with a teen driver, this would be priceless.
As one of my first bosses said to me when I became frustrated with someone, “David, you have to learn how to deal with incompetence.”
Good luck!
