While self-cannibalization might be ingrained into Apple’s DNA, it’s something that most established companies are averse to. Instead, they aggressive defend existing products against new offerings that could eat into sales. Photo credit: medically_irrelevant, flickr
By Oon Yeoh
In 2009, during an earnings report conference call, Apple’s Chief Financial Officer Peter Oppenheimer said that the company had expected consumers to lose eventually interest in MP3 players, which was why their features were being incorporated into the iPhone.
“We expect our traditional MP3 players to decline over time as we cannibalize ourselves with the iPod touch and the iPhone,” he said. Later, its then chief operating officer Tim Cook also used the word “cannibalization” to define the iPhone chipping away at traditional iPod sales.
It’s not surprising that “cannibalization” is a popular word at Apple. Its late founder Steve Jobs totally believed in the notion of self-cannibalization. This was best highlighted in the following passage from Walter Isaacson’s biography, Steve Jobs:
“One of Jobs’s business rules was to never be afraid of cannibalizing yourself. If you don’t cannibalize yourself, someone else will,” he said. So even though an iPhone might cannibalize the sales of an iPod, or an iPad might cannibalize the sales of a laptop, that did not deter him.”
While self-cannibalization might be ingrained into Apple’s DNA, it’s something that most established companies are averse to. Instead, they aggressive defend existing products against new offerings that could eat into sales.
A textbook example is Kodak, which ironically developed the world’s first digital camera but failed to capitalize on it. Eager to protect its then lucrative film business, it resisted going into digital products until it was too late. Instead, other companies had entered and dominated the digital photography scene.
There are many other examples of companies and even whole industries that dragged their feet as the march of technology continued unabated.
Borders was too slow in embracing e-books and eventually went bankrupt. Blockbuster, the video rental chain, also went bankrupt because it was too slow to embrace streaming video technology. And of course, the entire music industry was too slow to embrace downloadable music, resulting in the proliferation of peer-to-peer file-sharing sites which are still a bane of the industry today.
These are all distant, foreign examples. But I’ve experienced this resistance to self-cannibalization up close in two industries I’ve worked in: telcos and journalism.
I happened to join the telco line in 2008, a time of great impending change in the industry.
Apple had just launched its iPhone but had yet to launch its app store. At the time, the telcos had full control of the mobile content value chain and was reluctant to adopt an “open garden” approach. By the middle of that year, Apple launched its app store and the rest, as they say, is history. Today people buy apps, music and games from the app store, not from telco’s walled garden portals.
After my stint in the telco industry, which lasted two years, I rejoined the journalism industry which too was undergoing massive disruption due to the Internet. To my disappointment, I found an equal amount of resistance to change and a reluctance to prioritise the online version. Today, you find most young people reading their news online through tablets and mobile phones. And the news sites that have the highest traffic are the online only ones like Malaysiakin and The Malaysian Insider which do not have a legacy print edition to protect.
Although this resistance to change is also a common problem among American media companies, one publication decided to take the Steve Jobs approach. The Atlantic magazine decided to deliberately disrupt its own business rather than sitting by and watching some web upstart do it.
According to Atlantic Media President Justin Smith, the team imagined itself as a Silicon Valley start-up “whose mission was to attack and disrupt The Atlantic” and asked itself: “What would we do if the goal was to aggressively cannibalize ourselves?”
The result: traffic climbed, revenues almost doubled and, by 2010, it had become profitable again, the first time in a decade. This serves as positive proof that self-cannibalization is a sound strategy for surviving the digital age.
Oon Yeoh is a new media consultant. He has written books on emerging technologies, entrepreneurship and social media.