Is Apple better at spending R&D money than everyone else?
On one side, we have Matt Asay of The Register. He thinks Microsoft,
Nokia, and RIM are wasting their R&D money. Forbes blogger Adam
Hartung sees it as
a failure of Microsoft to look forward to the future. And then we
have Martin Sosnoff, also of Forbes, who
likes General Motors better than Apple.
All spending on R&D and future products is a crap shoot. No one
knows when some new technology is going to wipe out their industry. A
horse-drawn carriage business owner may have thought expanding his
business was a great idea utnil the automobile came along.
Keep Your Eyes on the Horizon
The trick is to expand and keep your eyes on the horizon.
If the first example is too old, how about netbook manufacturers
trying to cope with
loss of market share to the iPad? How could that have happened? The
iPad is "just a giant
iPhone". That shouldn't have been innovative enough to affect
them!
If the netbook decline is due to the iPad (and other tablets), then
the industry failed to be prepared.
Could more innovation have helped the netbook business? Did they not
spend enough on R&D, or was all the money they spent wasted because
Apple came in and "ate their lunch"?
It wasn't a waste, because in business, you have to constantly
innovate to defend your products. It was a failure to keep an eye to
the horizon. The iPhone was out years before the iPad arrived.
Innovate or Buy Innovation
I strongly agree with Matt Asay that large corporations like
Microsoft are better at buying innovation than thinking it up
themselves, yet I can't agree that its billions spent on R&D ($8.7
billion in 2010) are a total waste. Microsoft cannot ignore its
cash-cow products and go chasing after the fantasy "next big thing" all
the time.
Large businesses like Microsoft, Google, and Nokia have to
constantly innovate their cash-cow products. The reason is that many
startup companies aren't about innovating, but matching the innovator
with a less expensive version.*
The startup doesn't have the same overhead costs as the established
business, and once the innovative work is done, it's pennies to the
dollars to copy the product. This is a great business model for a small
company, but it infuriates the hell out of the big guys - they always
see the little guys as stealing their ideas.
What If....
Imagine if, after releasing the first successful version of
Microsoft Office (for the Mac in 1989 - and a year later for Windows),
Microsoft stopped making any improvements. The feature set would not
grow, and the document format would not change.
In less than a year, everything would have been reversed engineered.
Cheaper alternatives would quickly replace Office. Office sales would
soon plummet, and all value would be lost.
Microsoft has survived by constantly innovating and making its
product more complicated. If you have ever tried using OpenOffice to open a document created
in Microsoft Office, you will find that most things work fine.
It will be the more complicated stuff like tables, formatting, charts,
etc. that don't look exactly the same - and in some situations the
information is completely lost.
Creating and maintaining that kind of incompatibility took a lot of
development work by Microsoft. Every year or two, new features and
formatting are developed to provide both marketing buzz and
incompatibility with older versions and competing products alike.
As far as Microsoft is concerned, people running Office 97 or 2004
are almost as bad as people running OpenOffice. Microsoft needs annual
sales to keep its investors happy, and that requires constant product
development.
Be Different
Apple has to spend money just like Microsoft to maintain its
existing products. What has been different is that Apple has done the
work with a smaller percentage of their sales. Apple can do it for less
because Apple uses a different strategy to protect its products from
being copied.
Apple has gone to a multiple defense approach to reduce the
complexity that Microsoft uses to defense itself. Apple uses a
combination of legal defense (DMCA, CDA, etc.), proprietary hardware,
short release cycles, and innovation.
As we saw when Psystar
tried to sell Mac clones, Apple used legal means to prevent another
vendor from using Apple's operating system on Psystar's hardware. This
is expensive, and it doesn't show up as an R&D expense. After
making an example of Psystar, Apple has little worry that it will be
challenged by HP or Dell.
Apple is saving money that Microsoft spends on copy protection and
product registration to fight piracy. Apple has invested virtually no
R&D money to fight piracy of the Mac OS. Even without buying the
family pack, I could have installed the latest single-user version of
Mac OS X on as many computers as I wanted to. Apple doesn't waste
money innovating against piracy like Microsoft does.
Hardware/Software Integration
Proprietary hardware linked to custom software - between the iPod
and iTunes, for instance - is an incredible advantage for Apple. It
allows it to grow both its
iTunes Store and iPod sales while at the same time fending off
competitors. A competing MP3 player can't use the iTunes Store to buy
music. Neither could you easily manage music on your iPod without
iTunes. Again, Apple's strategy saved it money and made for a simpler
system to maintain.
With the link between hardware and software, Apple has employed
frequent updates to keep its advantage. You can see this happening in
the cat-and-mouse game that Apple plays with the iPhone "jailbreaking"
community. Each time Apple updates iTunes, it patches the holes that
allow the phone to be hacked. Then the jailbreakers try to figure new
ways to break into the iPhone.
The constant battle makes it a hassle for people to rely on a
jailbreak to provide functions that Apple releases for free. There is
also a risk that a future update may break your jailbroken iPhone. In a
market where Apple sells itself as "it just works", it's hard to see
that Apple has to worry about the die-hard jailbreak crowd. Apple has
to innovate just enough to make jailbreaking a hassle. Pouring money
into developing a phone that can't be jailbroken would be a waste of
money.
Clearly comparing other big companies to Apple isn't a fair match
up. Apple has control of things its competitors don't. This has been
used to stretch Apple's R&D spending far beyond what its
competitors can achieve due to worry about imitators and piracy.
Still, you have to say that Apple has had an impressive return on
its R&D investment. You see a company like HP wanting to use WebOS
to create that same synergy and value. I wish HP well, but it also take
the vision of a CEO like Steve Jobs to focus the work into a product
that people will buy. Design by committee is usually a terrible
plan.
Innovation Plus Quality
More than the fact that Apple has saved billions by ignoring
imitators and piracy is the efficiency of its R&D to produce
innovative products.
Some thought the iPad wasn't innovative enough, but no one else came
out with a successful competing product before Apple. Everyone had time
to develop a competitive table after the iPhone was introduced, but no
one did.
While we can argue the merits of how much innovation goes into an
Apple product, clearly Apple has produced successful products with the
amount of innovation it uses, however large or small. This is simply a
combination of vision and design at its best.
What makes a luxury car better than an economy car? It isn't the
size of the engine, the type of fuel, or a better cooling system. It is
the quality of materials used when implementing the design to produce a
beautiful product over simply a functional one.
It is quite possible that great design combined with off-the-shelf
components can produce a better product than a product that was in
development for years but never was cost effective enough to produce.
These are tradeoffs that Apple has made to better advantage than its
peers because of Apple's reliance on design over functionality.
