A harsh law of the high-tech jungle says only those companies willing to kill off their most successful products to make room for even better ones can hope to remain on top. Few chief executives actually follow that tenet, however. One of the exceptions is Apple Computer's Steve Jobs.
But then, Jobs isn't your typical CEO. He showed why a month ago, when he announced the supercool iPod nano on Sept. 7. That day, Jobs also announced that Apple had discontinued the iPod mini -- as of that day Apple's single hottest product.
"AUDACIOUS." It was a remarkable decision, with few precedents in the annals of tech. After all, Apple had introduced the iPod mini just 19 months earlier, and sales were showing no signs of slowing down. Rather, it served as the mainstay of one of the hottest, most influential new-product lineups in tech history. In the quarter that ended on June 30, the diminutive device brought in roughly 60 per cent of the iPod's $1.1 billion in revenue.
And if the discontinuation looked like a bold move from a strategic perspective, it was just as audacious in operational terms. Sure, cutting off the iPod mini cold turkey is easier in many ways than winding down sales as demand waned. The trick, however, would lie in ramping up production of the nano to hyperspeed without suffering a glitch -- not a single major manufacturing problem, parts shortage, or delivery miscue.
Amazingly, few -- if any -- observers questioned the wisdom of Jobs's call at the time. But surely some investors questioned it on Oct. 11, after the 10 per cent drop in Apple's stock that followed the release of the company's fourth-quarter results. While Apple sold 6.4 million iPods in the quarter, up 220 per cent from the year before, total iPod shipments fell short of Wall Street's lofty expectations.
Apple: Unexceedable Expectations
PRAGMATISM VS. HUNCH? Had Apple kept selling the iPod mini alongside the nano, at least for a while, it likely would have met or even surpassed those expectations. At least some shoppers would have opted for the slightly larger size and storage capacity of the iPod mini over the iPod nano -- and because customers would still be able to go home with a mini if for some reason Apple couldn't fulfill demand for the newer, smaller model.
Indeed, Piper Jaffrey analyst Gene Munster figures that Apple would have sold 7.4 million iPods in the quarter if the mini were still around. Apple executives weren't available for comment for this story, and during an analyst call they had declined to specify why it had been unable to meet demand for the nano.
So was Jobs wrong? One could easily argue his decision to put the mini out to pasture represented just the latest reckless move by a CEO willing to place his own hunches and stylistic preferences ahead of pragmatic product planning. He had done it before, such as in 2000, when Apple built up stocks of a cube-shaped version of Apple's top-of-the-line PowerMac that Jobs personally loved.
BUYERS MUST WAIT. And investors burned by the Oct. 11 sell-off could argue that Jobs was harebrained to think Apple could crank up nano production fast enough to avoid leaving sales on the table. Indeed, they would be right. Apple executive Tim Cook admitted that a component shortage had contributed to Apple's inability to fill "stunning" demand for the nano.
Indeed, Apple.com shoppers who want one of the popular 4-gigabyte iPod nanos get a notice that it won't be shipped for one or two weeks. That's a longer-than-expected lead time, given that Apple should have worked through the initial burst of orders by now, says David Carey, president of tech consultancy Portelligent.
Still, I think Jobs made the right choice. Apple investors should sooth their agita by considering that Jobs's decision to kill the mini points precisely to the one thing Apple's rivals can't match: the Steve Factor. His modus operandi entails swinging for the fences, doing whatever it takes to create home-run products -- the kind that can perpetuate the growth jag that is now nearly a half-decade old.
PRICE JUSTIFIED. That means betting big in R&D to create products designed to keep customers wowed and focusing Apple's marketing might on a few carefully nurtured projects -- not spreading it around on dozens of forgettable ones, as most large tech companies typically do.
If the price for making the nano a hit was to clear the iPod mini decks, so be it. Indeed, Jobs has been a stickler for simplicity ever since returning to Apple in 1997. At the time, he immediately nixed dozens of unremarkable product lines, replacing them with just four. Ever since, he has argued that Apple's success is as much a result of what the company doesn't do as what it does.
And by the way, Jobs is by no means just the wild-eyed product visionary of his youth. He has long since proved himself an operationally minded executive as well. Indeed, we will likely get a better understanding of the mini's demise as early as today, when Apple is expected to roll out a new member or two of the iPod family at a much-anticipated event in San Jose.
I'd bet that by the end of his keynote, few investors will be griping about last quarter's performance -- but will instead be handicapping just how well Apple can do in the next one thanks to its rapidly changing lineup of iPods.
Peter Burrows is Computers editor for BusinessWeek in the Silicon Valley bureau