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Management

Here’s what we can learn from Apple’s decision to kill the 3.5mm audio jack on the iPhone

Companies that unify valuable products with one touchpoint simplify their offerings and lead market change

PUBLISHED : Friday, 04 November, 2016, 6:32am
UPDATED : Friday, 04 November, 2016, 9:12pm

Diversification has usually helped big corporations weather good times and bad. Conventional wisdom dictated that operating across industries and business lines meant that slowdowns in one area could be compensated for in another. This is particularly true in emerging markets, where ups and downs tend to be greater and access to valuable resources including financing more difficult. This enables big companies to leverage their access over a range of industries. Tata is involved in everything from chemicals, steel, cars and business consulting to telecommunications, and hotels. The Wanda group is in everything from property to cinemas and tourism. In developed economies, the benefits of diversification are much smaller and conglomerates have been disappearing.

Sometimes, subtracting rather than adding is a better strategy for innovative companies to capture the consumer’s attention

Spreading out can also cause challenges, especially for technology companies. Digitalisation carries the promise of value creation through integration of everything from gaming, entertainment and communication to refrigeration and heating. But instead of being valuable you can end up being a bit of everything to everybody, meaning nothing to nobody, as Sony learned. Sony has only recently started reaping the benefits of an ambitious turnaround effort to offset a long decline in consumer popularity and brand value. Technology analysts say Sony essentially squandered an opportunity to harmonise the valuable, but growing assets in its portfolio, such as consumer electronics, its recording label and movie studio to take on the likes of Apple, which came to dominate entertainment through its iPhone and other devices with music and movies or Samsung, which came to dominate hardware component industries. For the complexity that the expansion into different businesses brings, challenges not only management; it also carries the risk of overwhelming customers.

Sony is now focused on entertainment and rightfully so. Its games division under PlayStation recently helped the company to post an expectations-beating quarterly profit, led by successful monetisation of gaming, including through its “network”. It’s also shedding assets such as its batteries business, as well as slimming down its phone business.

Sometimes, subtracting rather than adding is a better strategy for innovative companies to capture the consumer’s attention. Innovations do not automatically create conditions for their adoption but the behaviour of the customer must be managed for it to succeed.

Apple has led the way in this regard. Its product portfolio is very focused. An Apple store today probably has fewer Apple stock-keeping units (SKUs) or items than Samsung has phone and tablet models. Apple has also been at the forefront of simplifying the customer experience as shown again with its recent decision to remove the 3.5mm audio jack from its iPhone, a 138-year old technology that allows users to connect any type of wired headphones to their iPhone to listen to their music. The alternative will be the AirPods, wireless headphones that will connect seamlessly with the device.

While this has led to conspiracy theories saying that a world without wires is actually an attempt by Apple to tether us closer to its technology and products, I would posit that the removal of the audio jack is also a lesson in making innovations succeed by changing the market, instead of trying to responding to it, as Sony tried to do.

Apple has been at the forefront of removing old technologies to simplify its offerings before. It was the first computer maker to take out the compact disc (CD) drive from its MacBook computers, making the MacBook Air the thinnest laptop on the market, while Sony was trying to move into traditional laptops with the Vaio, which was later discontinued.

Meanwhile, Apple stripped things down even further. Later it killed the 30-pin connector USB cable in favour of Lightning. At each stage it helped customers make the transition to its new technologies and managed the change, rather than responded to it, with adaptors and flashy new products they couldn’t resist.

Human beings are naturally loss averse. When comfortable with a technology, they don’t like to give it up. But as we’ve seen before, Apple is good at changing behaviours because it knows how to simplify life. Yes, AirPods last longer and are easier to charge than other wireless headphones. But the bigger innovation is the simplification of the pairing with the phone. They connect automatically to the phone when they are out of the pouch and the phone recognises when you wear them in your ears to send the sound to right output.

Still, this time could take a bit longer, especially if customers fear losing one of the AirPods. One big change in the strategy is that the customer won’t be getting these headphones for free with their new phones. They’ll get an adaptor to help them make the transition instead. This might make the transition a longer one, but it seems likely to happen in the end.

Apple’s transition to wireless music started with its acquisition of Beats and its range of Bluetooth headsets, which make travel and running a breeze. The AirPods are a way to mainstream this technology and behaviour, increasing the useability and comfort of using Apple devices, especially when exercising. The company’s interest in health and wellness is well-known. The Apple Watch carries a heart-rate monitor as well as step and sleep tracking. It is highly likely that the AirPods plus the Apple Watch will become the only companions a jogger needs, leaving the phone for other functions, especially since the Apple Watch can hold a music library of its own as well as carry out GPS tracking in the new Apple Watch Nike + version.

One could argue that Apple is trying to offset declining sales of its iPhone and the AirPods will prop up sales of its “other” category, which includes the Watch and iPod. Either way, the company is leading the way yet again – not with breakthrough technology, but with a solution that is user friendly and intuitive. It’s thus safe to assume that Apple’s customers are likely to get on board with it, especially those increasingly interested in health and wellness. Meanwhile, Sony is beginning to corner its market in games, but it will have to continue to look for ways to integrate many of its rich offerings to add customer value.

Markus Christen is an associate professor of marketing at INSEAD and the chair of the marketing area at the school

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