Apple Inc. (Nasdaq: AAPL) didn't invent either the smartphone or the tablet PC. It just created such hot demand for its iPhones and iPads that customers now know every upgrade comes with a "limited supply" tag.
On Thursday, I visited a mall on the outskirts of Chicago, and a store attendant told me no outlet in the US had the newly introduced iPhone 4S in stock. It's a problem Apple rivals must wish they could experience, even if only in their dreams. How does Apple do it? I offer this simple explanation: Apple creates a need (demand) for its products, and then it meets that need (supply). Its rivals, on the other hand, manufacture (supply) their products and then go in search of buyers (demand).
Dean Kamen, founder of DEKA Research and Development Corp., helped me reach that understanding with a presentation at the annual executive meeting of the Electronic Components Industry Association in Chicago this week. Kamen, an inventor with hundreds of patents to his credit, said this while talking about getting students interested in technology careers: "It's not about supply and demand. It's about demand and supply. We create demand for technology superstars and get the supply of engineering graduates."
It's a simple theory, but it works for Apple. The company didn't care that smartphones existed before it introduced the iPhone in 2007, and it didn't doubt that it would be able to sell its phones once they were manufactured. That's because the smartphone suppliers at the time -- Nokia and Sony Ericsson -- were doing such a shoddy job of creating demand for their products. If you think I am being unfair to its rivals, please tell me if the term "smartphone" was as ubiquitous in 2007 as it is today.
What did Apple do? It created a product for which demand was guaranteed; for millions worldwide, the iPhone was a must-have. Once the demand had been assured, Apple got contractors to make (supply) the iPhone. The strategy worked so well that Apple repeated it with iTunes and with the iPad tablet, another market segment that had been around forever. Today, nobody remembers that other tablets preceded the iPad. Again, Apple created demand for its product and then had Foxconn Electronics Inc. make millions of units. And again, the result was a huge sellout.
By contrast, both Hewlett-Packard Co. (NYSE: HPQ) and BlackBerry (Nasdaq: RIMM; Toronto: RIM) found out consumers were buying a class of products called tablets and asked contractors to make some. That essentially was how we got the TouchPad from HP and the BlackBerry PlayBook from RIM. They made the products, supplied them to retailers, and waited for demand to pour in. It didn't. The TouchPad bombed. HP pulled it and exited the sector, and demand for the PlayBook cratered. (See: RIM Needs to Dump the PlayBook.)
Recently, RIM announced in a blog post that it would delay the launch of version 2.0 of its BlackBerry PlayBook operating system to February 2012. This sentence from the blog is instructive:
As much as we'd love to have it in your hands today, we've made the difficult decision to wait to launch BlackBerry PlayBook OS 2.0 until we are confident we have fully met the expectations of our developers, enterprise customers and end-users.
Does this mean RIM finally understands that it needs to have a product with somewhat assured demand before assuring supply? I hope so.
Another product launch, this time from Nokia, underlines the importance of creating demand before guaranteeing supply. This week, the company introduced its first Windows OS-based smartphone, the Lumia 710. It didn't make me feel illuminated, but one analyst felt completely different. Here's what Saverio Romeo of Frost & Sullivan had to say in an email about the Lumia and Nokia's overall strategy:
The Nokia Lumia is not just a Windows phone. It brings together some key Nokia technologies such as location, the design tradition of Nokia, the software from Nokia ecosystem and Mango from Microsoft. I had what I wanted; a clear strategy on the future directions of Nokia. On one side, there is a strong focus on emerging markets where the future opportunities of the mobile industry lie. On the other side, there is a decisive move into the smart mobile device battleground in the developed world with the clear intention to be back and as big as in the past.
I hope Nokia now gets that winning in the electronics market is all about demand and supply, rather than supply and demand.