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Apple’s Ecosystem Competitive Advantage

The next big theme is “Apple’s Ecosystem Competitive Advantage,” but I’m not going to talk too much about Apple because the deep insight is more about what an ecosystem is.

I have another client who works in the tech space, and he always talks to me about how they want to beat Apple. I pointed out to him that, “Yeah, you want to beat Apple, but Apple is an ecosystem. Apple is entrenched because it’s convinced probably millions of developers to develop apps on their smartphone, which make those phones indispensable.” An Apple iPhone without those apps is pretty much a boring experience—a beautiful but boring experience.

When you want to compete against Apple, you’re competing against an entire ecosystem. If you want to take on Apple, you can’t just look at what Apple is doing, but you have to look at the entire ecosystem that reinforces Apple.

I spoke to Ram Charan recently, and we talked about how Apple has gotten the FDA to approve the algorithms behind their health initiative. That’s a big move because it means that when other companies want to build software and apps for healthcare services, rather than doing all of the work of writing out algorithms—which may not be approved and may be removed—they can simply license Apple’s algorithms or use it for free.

I don’t know how Apple is going to make money from it, but what’s important is that Apple sets the standard. If everyone is using Apple’s algorithms, most likely they’re going to be integrated into Apple.

That’s a big move. By doing this, Apple has created an ecosystem. Why is this important? When I talk to this client, he always says he’s going to beat Apple. He’s an accomplished guy, and I’m sure that with the right kind of moves, he can help his company displace Apple. Nobody is perfect, but when I point out to him that it’s not just Apple, it’s the ecosystem they’ve built, he says, “I’m going to beat the ecosystem as well.”

This is the mistake he’s making. In strategy, when you’re taking out a competitor, yes, you want to beat them. But you don’t beat them by doing what they do better. Instead, you serve customers better, in a way your competitor cannot serve them. But you don’t want to beat the ecosystem because the ecosystem is not the enemy. That’s like saying you want to beat your customers. You want the ecosystem to be pulled away from Apple slowly and then built around you. But you don’t want to beat the ecosystem. You don’t want to speak ill of the ecosystem because if you say, “All those developers who built apps for Apple are terrible and they’re destroying the world,” what do you think is going to happen? Do you think they would want to build apps for you?

When you’re competing against any company, you have to realize that with the way the world is set up now, digitally, it’s very easy to build an ecosystem around you of suppliers, providers, customers and so on. Successful companies do that so when they aren’t doing so well, the momentum of the ecosystem pulls them along and gives them new ideas. The fact that Apple could eventually have its algorithms for healthcare across 1000s of apps and healthcare providers means that it can see what those companies are doing. I’m not saying Apple is doing anything illegal. With consent, permission and not being unethical, they can see what these companies are doing and get ideas on how to better serve them.

When you want to compete against a company, you must realize that you have to strip away the ecosystem without alienating the ecosystem. That’s a big insight. Sometimes, I see there’s such a hatred for the competitor that executives make bold moves and bad decisions to alienate everyone.

For SCR-Advanced members, we have a big update coming where we’re going to have a very detailed analysis on how to respond to competitive threats. For Insiders, we have a very big update coming as well.

This is an excerpt from Monday Morning 8 a.m. newsletter, issue #24. Many of you have found Monday Morning 8 a.m. so useful that you’ve asked us to release a book version of these newsletters. We’ve obliged and released a Kindle version, which you can find on Amazon under “Strategy Insights.” It contains the insights from previous Monday Morning 8 a.m. issues, edited into a bite-sized format that’s very easy to use. And you can learn about other FIRMSconsulting books here

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