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How Apple manages Product Cannibalization

3 February 2010 5,377 views No Comment

Any new product announcement from Apple raises the following question – “Will it not eat into the market for …”. For instance, people asked that when the iPhone was released – “Will it not eat into the market for iPods?”. They asked that when the iPod Touch was released – “Will it not eat into the market for iPods and the iPhone?” – Now since the iPad has been announced, the same question is being raised – “Will the iPad not eat into iPhone/Macbook sales?”

Apple has been extremely smart about handling product cannibalization issues. From a very simplistic perspective, it boils down to the feature set and the target segment. Now both are related in a funny way. The feature set determines pricing, and pricing determines the target segment. To a large extent, this is true. By taking a really smart approach towards deciding the feature set, Apple has taken care of the whole product cannibalization issue in one shot.

Lets take the iPad as an example and see if the above argument makes any sense. We all know that the iPad is positioned inbetween the iPhone and the Macbook, and we all know its much closer to the iPhone than it is to the Macbook. Now, lets look at the feature set of the iPad and see how its a new product segment and hence it will not eat into sales of either the iPhone or the Macbook.

1. The iPad has no features of a Phone. Of course, you can probably make voip calls etc., but its still not a phone. Look at the smart usage of a Microsim card and not a Sim card. That indicates something? (Smarter People will rule out this logic, and just say, the form factor took care of the iPhone cannibalization issue, who on earth wants to carry the iPad as a phone? Just look at how big it is. We disagree. Its quite easy to imagine a scenario where an iPad structured device can be your primary phone. Its just that we havent tried doing it. How many of us would not like to open a livemeeting or similar instance on our phone?)

2. No multitasking and the absence of a camera – this deadly combination will take care of any possible cannibalization into the Macbook market. I mean, I need a macbook if I need to video chat. Period. Well, we still think the camera is going to be there – but still, the point remains. The iPad is not a replacement for your Macbook, even if you are the lightest Macbook user around.

3. Look at the pricing. Agreed, the target segment is exactly the iPhone segment – but wait. Its not the same segment – you dont need a contract! (mobile companies can give us tonnes of proof as to why that simple thing clearly puts people in different segments)

So, these devices would all play mutually exclusive roles in your life. You carry your iPhone, work on a Macbook / Macbook Pro when you work remotely, and use the iPad when you are lazy to boot up your Macbook. Thats the summary.

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