Apple’s Customers Just Won’t Kick The Habit



Brian Cantor
02/08/2012

Let’s face it, Apple is addictive. Really addictive. Millions of customers are so hooked on Apple that they have forgotten what the word "quit" even means.

You might say Apple is like…

A cable company?

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That is the comparison put forth by Bernstein researcher Toni Sacconaghi, who contends that customer loyalty to Apple produces a purchasing desire so consistent that the brand’s revenue model can almost be likened to that of a subscription cable or utilities provider.

"We believe that rather than being a transactional company with volatile revenues, Apple is a platform company with stable, almost annuity-like revenue streams, driven by strong user lock-in," he explains.

Since its resurgence, and especially in its explosion over the past decade, Apple has been nothing if not consistent, sticking to a product development and promotional platform that almost takes it out of competition with the rest of the technology market. Instead of competing with other tech companies on factors like price, universal compatibility and raw computing power, Apple achieves customer demand through from its own unique perspective, and thus establishes itself as the only option for many users.

Consider this anecdote: The iPhone’s debut on Verizon lined up nicely with my contract renewal date, allowing me to happily jump onto the iPhone 4 last spring. Since then, Apple has released a very minor upgrade in the form of the iPhone 4s. Mobile companies like Samsung, LG and HTC, however, have introduced products like the Galaxy Nexus, Spectrum and Rezound, which include vastly-superior screens and blazing-fast 4G connectivity, not to mention the deeper open source catalog on the Android operating system. From a sheer tech standpoint, if I were to buy a new phone at the one year mark, it should 100% be one of the Android models.

Yet when I told my sister, also an iPhone 4 user (but an otherwise savvy customer), of my interest in shopping for a new phone, she remarked, "So you’re going to get the 4s?" As if these other, vastly-superior phone models did not exist.

Thanks to Apple’s brilliant handling of the entire process from product conception, to marketing, to customer support, examples like this are all too common.

Think of the tablet market, if one can even call it that. Demand is so blatantly centered on Apple’s product, it is probably more accurate simply to call it the iPad market.

And for as much as a product like Microsoft’s Zune found itself subject to mockery, if one actually compared the specs (particularly for the later models) to comparable iPods, he would hardly see the product as inferior to the Apple version. Yet, few iPod users jumped at the opportunity to grab a Zune.

Through a consistent product development mission (every product looks pretty, but the appeal isn’t about bells and whistles—it is about products that are simple, clean, straightforward and just…work), clever product synchronization (the iTunes connectivity was central to the market dominance of the iPod, iCloud is now making possession of an array of Apple devices attractive), feature-based marketing (yes, Apple ads are predicated on a certain "hipness," but far more than any other tech provider, Apple knows how to sell the value of its product features, even when they mainly consist of minor updates and new, free "apps") and a well-designed customer shopping and support experience (the Genius Bar is about as inviting as a customer service counter can ever be), Apple operates in its own ballpark and very much does "lock" users in.

Within Bernstein’s research report, Sacconaghi cites dazzling figures, including the previously-reported note that 90% of iPhone users plan to buy another iPhone as their next phone, and the fact that iPhone users tend to stay with their existing wireless providers longer than non-iPhone users do. Collectively, this combination of evidence and analysis indicates why the Apple brand will have consistent strength.

Whereas so many individual technology companies are competing to make their new product relevant for interested buyers, Apple has a built-in audience that presumes it will buy the next version, the same way a cable company’s audience anticipates it will pay its monthly bill. As long as the evolution of the Apple portfolio (and the accompanying service) corresponds to the same branding and strives to create the same valuable experience for customers, most will apply tunnel vision and stick with Apple.

As a result, the report estimates the customer lifetime value for Apple as follows:

iPhone: $700-$900 (replaced every 2 years)
Mac: $600-$650 (replaced every 3 years)
iPad: $275-$300 (replaced every 3 years)

Sacconaghi forecasts a total customer value of $204 billion by the end of fiscal 2012 and $373 billion by the end of fiscal 2014.

The researcher, correctly, admits that the introduction of a new, completely-different technology could throw a wrench into these forecasts, as users would naturally move away from Apple if it was not offering relevant technology.

At the same time, thanks to the usual product life cycle, Apple would have an opportunity to "catch up" and prevent a sizable portion of the bleeding should a viable new technology surface.

More importantly, one cannot discount the possibility that Apple will be the trend-setter for a new technological device and drive its users to add that product to their collections. Apple might not be known as the greatest powerhouse from a specs standpoint, but it absolutely made products like the iPad relevant when no one else could make tablets click. And even though it serves many of the same purposes as laptops and cell phones, many existing Mac, iPhone and iPod owners have dished out the money for an iPad.

Going forward, it will be interesting to see if any rival consumer electronics providers truly strive to recreate the Apple model. Companies like Samsung have begun making a slight effort to build a brand identity, but at the end of the day, far too many (especially in the mobile device world) have let the platform—not the brand—do the talking.

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