The iPod. A trendsetter, a fashion statement, a marvel of technology or as Steve Jobs puts it, a cultural phenomenon. How did Apple finally get it right, leave the competition miles behind and create, probably the most successful consumer electronics product ever?

These were all questions my team and I scrutinized while doing a course at MIT. As part of our project, we studied this market from its roots of the portable audio space to the arrival of the iPod. We then compared the iPod to all its rivals and finally we compared and contracted Apple, or the ‘iPod company’ with all its competitors. This is a summary of our findings.

The emergence of portable audio players can be traced back to the time when Sony introduced the Walkman in 1979. The arrival of Compact Disk technology in 1985 brought with it, the genesis of digital recording, a superior advancement in sound compared to its analog counterpart.

The growing popularity of the Internet popularized another digital recoding format called the mp3. The mp3 format allowed one to compress an audio files on CD to about 1/10th its size. It led to two major developments, online music sharing and the arrival of portable mp3 players.

The recording industry, threatened by dwindling sales, thanks to the growing popularity of online sharing filed lawsuits on companies that offered file sharing and began to crack down with little luck on online file sharing. After a decade, the industry now offers several legal download services like Musicmatch and MSN Music as an alternative to illegal downloads.

The late 90s also saw a growth of MP3 players, that offered no moving parts, no skipping of tracks and the ability to store numerous songs. There was no clear winner in this sector until the iPod took the market by storm.  

What did Apple do differently? Creative labs, Singapore, another pioneer in this field is a distant runner up. Last year Sony released Vaio Pocket VGF-AP1, touted the ‘iPod killer’. Sadly for Sony this device has hardly made a dent in iPod’s dominance. How did the old warhorse, Sony miss out on an industry it had dominated for decades? Another big failure in this space is industry giant Dell’s DJ. Dell recently pulled this one off the shelf. Why could Dell not make an impression?

Let us first look at Apple’s ingenious marketing strategy of the iPod. Steve Jobs called the iPod exactly what it has become, a cultural phenomenon. With its sleek looks and intuitive user interface, the iPod makes a fashion statement. It is affordable, particularly for the younger generation who are willing to pay a little more for the iPod to get more value for their money. Apple has leveraged its position further by encouraging a billion dollar fashion industry around the iPod and with endorsements from several celebrities. Finally, Apple’s iTunes music store offers 100 million songs, more than any other online service.

We did not focus on marketing. We decided to concentrate on the human factors within an organization that make a product successful. Our team examined three aspects of the maker of iPod and its competitors, namely management, team dynamics and innovation. We also had the opportunity to interview some industry insiders.

Apple has a tight knit management structure with 4 to 5 levels of hierarchy. While the hierarchy is clear cut there is also an informal network within the company for information sharing. CEO Steve Jobs himself is known for his hands-on involvement for all key decisions made in Apple. During the hiring process, potential candidates are hired more on the basis of behavior and corporate fit than on technical knowledge.

Most people in teams within Apple are in their early 30s. Teams within apple are close knit and run like families according to one insider. Confidentiality within teams is valued. There is immense pride in belonging to a team in Apple and showing off your product. Along with celebration and recognition, good performers are rewarded with generous stock options and bonuses. Upper management usually stays hands-off but receives continuous progress reports from teams. A 70 foot iPod commercial in most Engineering buildings helps to keep the team vision right at the center.

When a product is conceived, it requires a buy in from Steve Jobs and Apple’s industrial design group and its marketing groups. . Apple encourages hardware and software prototyping by balancing healthy pressure with giving teams an opportunity to show off their creation.

Sony on the other hand is considered a typical Japanese company offering lifetime employment. Management provides the vision and the lower level executes the plan. Achievement is rewarded with status rather than bonuses.

In Sony, the biggest challenge that new CEO Stringer faced was the disharmony among development groups. Groups within Sony often contested within the same space. Inherent in the disharmony is the lack of customer focus. It took a huge paradigm shift for Sony to abandon pushing its proprietary Mini Disk and move to hard drives.

According to some Industry insiders, this disarray is receding. For instance, just before Sony released Vaio Pocket VGF-AP1 last year, it quietly stopped production of its rival hard-disk portable audio device.

Creative labs, maker of the Zen Nomad, began as a Computer repair shop, moved to making sound cards and then into the portable audio space. Almost all of the management team for Creative is in Singapore. An R&D team of about 700 is in the US. According to CEO Sim Wong Hoo, his Singapore based employees are hard workers and can get things done. However, they lack creativity.

Veteran Computer manufacturer Dell has a matrix of sales and product groups. Quick decision making is the norm. Corporate culture is based on execution.  In Dell, management is more focused on sales than on innovation. Dell spends much less on R& D compared to other companies. Dell outsourced the manufacture of its DJ to Creative labs.

We finally concluded those creative ventures need a free flow of ideas among teams. Flat organization structures help this process. However, the ideas generated should be carefully evaluated for their marketability and feasibility. Cultural fit ensures that individuals and teams share common values and preferences. Coordination and communication among groups prevents duplication of effort and focuses the collective talents.

Acknowledgements

I would like to thank my fellow teammates, Takahiro Endo, Will Hagan, Michael Visée and particularly Aparna Chennapragada. Aparna did the bulk of the heavy lifting in researching this process.

References
http://www.postgazette.com/pg/05180/530332.stm
http://www1.us.dell.com/content/topics/global.aspx/corp/soulofdell/en/index?c=us&l=en&s=corp
Harvard Business Review Interview with Michael Dell, Chairman and Kevin Rollins, CEO
http://www.pocket-lint.co.uk/news.php?newsId=2075
http://www.engadget.com/2005/07/27/death-bells-ring-for-rio-as-theyre-cut-up-and-sold-to-sigmatel/#comments http://www.technewsworld.com/story/33569.html

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