When Sony released the original PlayStation in 1994, it didn’t know this console would end up selling north of 120 million units. Part of this success can be attributed to the strong alliances Sony built in order to distribute the PlayStation and also the games that come with it.
At that time, the CD-ROM player was making its first forays into the consumer market. Developed by Sony and Philips, this reader would allow Sony to deliver games in a smaller and cost effective package. It would eventually allow its users to play music, movies and other content throughout its successive generations.
The PlayStation 2 sold about 155 million units during its life, becoming the best-selling game console ever. But its successor, the PS3, only sold 83 million units all over the world.
The fourth generation of the console was released on 2013, and by now it has sold over 53 million units. Despite the good prospects of the PS4, there is something off with the PlayStation and Sony.
Sony, a Hostage of Its Own Partners
Before diving into Apple’s distribution strategy, I find it useful to tell an anecdote.
Last Christmas I received as a gift the PS4. I’m not a hardcore player, but have enjoyed the PlayStation console since its second iteration. I already knew it shipped with a Blu-Ray player, but nevertheless was utterly baffled by its presence.
Having an external slot for an optical drive is so… 2011? I’ve got a DVD player in my old MacBook Pro and I can count with the fingers of one hand the times I’ve used it in the last four years.
As a player, the PS3 started to bother me whenever I played a disc based game. Too much noise. Too much heat. And now, the PS4 brings the optical drive back from the tech graveyard for another 5-6 years.
So I started to wonder. Why keep the optical drive around this time? Isn’t digital distribution a much better alternative? Faster, cheaper, user and environment friendly?
It must be something else. Like its distribution partners.
I happen to be working with several companies that are trying to move beyond physical distribution to a mixed one. They are trying to get closer to the end client and make distribution serve their needs, not their retailers’ and distributors’. These so-called partners may have had the same agenda as my clients at some point, but now they have their own.
They are hostages to their own partners. Just like Sony is.
Imagine Sony announced a PlayStation V (of Victory, of course!) without any kind of physical drive for games and the only way to buy them was through a digital store, much like the App Store.
Distributors would riot. Their retail channels would close. Sony would have a hard time selling the PS V and face the criticism of players and game stores alike.
Sony is not in the position to control its own destiny. That looks like a hostage situation to me.
Apple: Lessons Learned from the 90’s
Apple’s distribution strategy wasn’t always what it is today. They learned the lesson the hard way. You can’t leave your product to be sold by someone foreign to your company, especially if it is a differentiated product.
Most retail employees are commission driven. You’d get your product pushed to clients that they really don’t need it or worse, isolated in a corner in favor of cheaper products or ones with a better cut for the sales person.
By the end of the 90’s, Apple was in the same position Sony is today. They had a great product, but were taken hostage by their retail partners and their agendas. Apple computers where marginalized in department stores, where untrained employees sold computers based on the price tag, not the operating system.
That is why Steve Jobs decided to enter the retail business in 2001, an initiative some people argued was a bad idea:
Apple’s problem is it still believes the way to grow is serving caviar in a world that seems pretty content with cheese and crackers.
But there is another very interesting paragraph in that article that can be traced back to the origins of Apple’s distribution strategy (emphasis added):
What’s more, Apple’s retail thrust could be one step forward, two steps back in terms of getting Macs in front of customers. Since most Mac fans already know where to buy, much of the sales from Apple’s stores could come out of the hides of existing Mac dealers. That would bring its already damaged relations with partners to new lows. In early 1999, Best Buy Co. (BBY) dropped the iMac line after refusing a Jobs edict that it stock all eight colors. Sears, Roebuck & Co. (S ) late last year dumped Apple, sources say, after concluding that sales were too hit or miss.
There you have it. So-called partners unhappy about Apple’s Mac sales just threatened to drop them. That is something a differentiated company cannot bear.
Apple’s Distribution Strategy: Letting Go of Liabilities
There is a reason why Apple’s closed strategy baffles so many people. And that can be attributed to Apple’s distribution strategy and how the company learned to avoid dependency on certain partners or technologies.
Of course Apple has some significant partners, like Foxconn, but they also try to balance their influence with other minor players like Pegatron. Same happens with Apple’s Ax chip series, where they have both Samsung and TSMC to build them.
But the need to play well with some doesn’t mean Apple will do the same with each and every one of them, always.
This attitude towards depending on others makes Apple uncomfortable. It makes them feel they are not in control of their own destiny. And that is why they try to let them go by either dropping their technology or raising the bar.
We can see Apple’s distribution strategy being deployed in its software too. When Steve Jobs announced a partnership with Microsoft and Bill Gates at the Macworld keynote in 1997, it did so in order to diminish its dependency on Adobe.
And since then, it has only grown.
A Strategy That Turns into Paranoia
This pattern has repeated itself several times later. Apple developed iWork as a way to provide its Mac and iOS users with a basic free suite of productivity apps. This lessened Apple’s dependency on Office.
Same happened with Evernote, Flipboard, Facebook, Spotify and others. Apple boosted its Notes app with some features that are enough for most users, released Apple News in order to have an interesting alternative to news content and made an acquisition that strengthened the strategic importance of Apple Music.
There is no doubt that this strategy requires lots of resources but also has a huge payoff.
The problem with it is that it makes the company become too vigilant, seeing inexistent threats. That is probably the reason why Apple is not doing all it needs to do with its App Store strategy. Some changes were made during last summer, but only to address a portion of the issues with the App Store.
Apple is content with this business so long it doesn’t challenge its own. So as long as games are the main driver, it is fine. But more serious apps, like productivity ones, need much more changes to the current rules of the game.
I believe Apple’s distribution strategy is being applied all over the company. It has proven successful, but in the case of the App Store, it’s hindering its true potential. All this in order to lessen Apple’s dependency on third parties.
Apple needs to let go of this policy with the App Store. Despite the changes look promising, a lot of more work needs to be done.
Image | Leon Terra.