Jonathan Durden: Apple pulls off a masterstroke

I was driving along Londons Regent Street last week when I noticed a line of frozen bodies lying on the pavement. No, it was not a rally of Big Issue sales people, but human ice lollies, patiently waiting for the release of the iPhone at the flagship Apple store.

Jonathan%20DurdenI was driving along London’s Regent Street last week when I noticed a line of frozen bodies lying on the pavement. No, it was not a rally of Big Issue sales people, but human ice lollies, patiently waiting for the release of the iPhone at the flagship Apple store.

Unlike Christmas “must have” gifts from the past, such as Pokémon or Thunderbirds’ Tracy Island, the iPhone promises to be hugely significant way beyond the holiday season and into 2008 and 2009.

It combines an iPod, mobile phone, video player and high-definition Web browser in a hand-held device with a large screen and soft buttons. The iPhone represents £269 worth of cool and I want one, despite the expensive O2 airtime package that accompanies it.

But the real genius lies in the marketing of its inferior sister product, the iTouch, which performs virtually identically to the iPhone, minus the lucrative mobile phone element.

The iTouch is to be marketed just after the launch of the superior product. Why Apple would cannibalise itself by undercutting its premium, more customer-sticky, product was a mystery to those in the US.

On the face of it, this looks like a case of marketing madness, but, in fact, it is brilliant. Apple considers Nokia to be its main competition, but the latter has not been able to get its version of this product ready in time, and it will be months before it does.

Given that most mobile contracts are set for 12 months, the iTouch gives Apple the opportunity to offer Nokia customers a taste of its own product in the interim. Thus many will be primed to defect to Apple mobile services when their contracts lapse, perhaps before Nokia has a chance to respond.

It also closes the inevitable gap formed underneath its product, which would surely be exploited by a competitor sooner or later.

This is a typical pattern for many markets. Predators rarely appear from expected places these days, and market leaders are usually only vigilant in monitoring the activities of larger companies like themselves. Yet the killer blow could arrive in their blind spot from a small start-up of four hippies in a garage in California, aiming, initially, at any neglected elements of the brand leader’s market share.

The property operation Craig’s List is an example of this. It is now active in 50 countries and 450 cities, and has virtually closed many US regional press titles by stealing their classified markets from under them. From recruitment to property, it offers a flat fee to advertise, and commands 5 billion hits per month to 10 million unique users. Craig Newmark is a very wealthy chap and eBay holds 25% of his company’s stock for good measure.

Unbelievably, Craig’s List still only employs 24 people in total. It is one of those “I wish I had thought of that” ideas, like eBay or Facebook. In a few short years it has changed the world, and the regional papers never saw it coming.

When City AM launched in 2005, I, for one, was dubious of its chances. In fact, to be honest, I’m still a little dubious, but the theory does hold water. It attacks the mighty Financial Times by reaching a neglected, less loyal part of its readership.

A freesheet available five days a week from Monday to Friday, it aims to reach younger city professionals in a more tabloid style than the institutional FT. Distributed via bins outside Tube stations and around Canary Wharf, it finds the right people at captive reading moments.

As readers begin to subscribe to more and more selected elements of their newspapers via products such as the iPhone and iTouch, it is monoliths, such as the FT, that should be worrying, given their huge investment in overheads and old methods of production and distribution.

Consumers seem reluctant to pay for anything these days, especially content, be it music, entertainment or the news. Whether City AM thrives or not, I bet the FT boardroom comments, when it started, included “Who?” and “Let the new boys struggle. We’re not worried”.

That’s often the default reaction in the face of the unknown, but, increasingly, it is an inappropriate response. It is precisely this sort of competition that represents the largest threat and the quickest route to decline, and not the efforts of the traditional combatants.

Apple’s marketing plan for the iPhone and the iTouch is brilliant, because not only is it an example of wonderful new product development, but the marketing strategy has foreseen the dangers from beneath and has pre-empted an inevitable vulnerability at the same time.

The queues and hype are so huge that even my 76-year-old mother knew what an iPhone was by Sunday evening, and I have never before now known her to show an interest in anything outside a new cake being released by Waitrose. Now that is an achievement.

Jonathan Durden is a partner at Miles Calcraft Briginshaw Duffy

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