|The iPod family. Image: Apple
Greg Joswiak has what you might call a busy job — he’s charged with marketing two of Apple’s biggest hit products, the iPod and the iPhone. That might sound easy considering the buzz Apple’s product announcements generate, but there’s more to the task than promotion; he works with the company’s engineering teams to decide what the next iPods and iPhones will look like, what features they’ll have, and what they’ll cost. He’s also got a knack for product positioning; Apple (AAPL) insiders say that in his previous job managing Apple’s overall hardware marketing, he pushed for the company to produce a 14-inch iBook, despite the misgivings of CEO Steve Jobs. The product turned out to be a hit. To get his sense of the future, I talked to Joswiak about the iPod and iPhone’s holiday prospects, and the company’s plans for expansion.
For a long time you managed Apple’s Mac laptop business, which is also going gangbusters these days, and I know you were really involved in discussions about how those products were designed and positioned in the product family. How was that job different from managing the iPod and iPhone?
First of all I manage product marketing and product management — I don’t actually own the engineering. But we work very closely with them, as you know, on the features we create and what the product’s going to be about. I look in a lot of ways at some of the similarities.
The first similarity you’ve heard me talk about before: Apple is in a pretty unique position because we’re a world-class hardware designer and a world-class software designer. It’s rare enough to be on one of those lists, and we’re the only company I can think of that’s on both of those lists. So whenever we design a product, we try to take advantage of that capability that we have, to engineer the hardware and the software together so we can take full advantage of each.
As you know, a lot of companies have difficulty with that – if you’re a hardware company, getting the software company to do what you need; or if you’re a software company, to get the hardware vendors who can actually do the right hardware. We’re more fortunate. We can move faster, and we can create products that are, I think, a better experience for our customers.
What’s different? Right now I think the iPod’s U.S. market share is 77 percent, so obviously it’s been just this huge hit — 120 million of them sold. Obviously we had to deal with growing a much smaller market share with our Mac business, and of course that has been growing very nicely.
It wasn’t an easy road getting here, though. You guys put a lot of energy into laptop development, for instance.
We made some courageous decisions back when the market had gotten pretty tough for tech companies, back in 2000 and 2001. And I always like to think about the success that we’re having now, much of it goes back to decisions we made then. Because a lot of companies were laying people off, tightening the belt, and if you remember, we were very vocal about saying we were going to innovate our way out of this. And we made some courageous decisions. We didn’t lay people off. Instead we invested in our products like we never had before. We invested in the OS X transition.
And to your point, on portables, we invested in not only revamping the hardware line, but you could say we over-invested in portables, even though they were only about 20 percent of our mix then, with the realization that there’s no reason that they couldn’t sell as many portables as we could desktops. We created an applications division that was all about how to create software that was better on the Mac than anywhere else you could get it. And of course we started this whole music business, and we started a retail division. Those are all pretty dramatic things to do during hard times.
There are some fears, and maybe even some signs, that there are some more hard times on the horizon — maybe not on the order of 2001, but some tougher times, particularly with the consumer. How are you feeling about that?
Well, the iPhone’s gotten off to a pretty good start, as you’re aware. For the 74 days, to sell a million units, that took 22 months for the iPod. We tend to certainly, as product people, focus on creating great products. When we do that, it’s up to the market to decide, and so far they’ve been fairly positive about what we’re doing. I’m not an economist, but I believe in creating great products.
We reported pretty good earnings in October for the September quarter, a record quarter for Apple, and I think you can clearly see that this is the best iPod product lineup we’ve ever had. And now the iPhone’s not just selling in the U.S., but now we’re here in Europe having just launched it in the U.K. and Germany last Friday, and now of course bringing it to our French market on November 29th. You know, it’s pretty exciting.
The iPod has grown from being a single 5-gigabyte music player into a five-tier product line, counting the shuffle, nano, classic, touch and iPhone. Early on, you used to say that Apple was focused on just making a great music player. What are some of the risks you might face in continuing to push this beyond being just a music device?
If you remember, I think I used to say that we never wanted to forget that first and foremost, the iPod was a great portable music player. And a lot of times people will have a hit product and kind of lose their way, forget what the product was about.
That’s why I was always proud of, for example, the way we first brought video to the iPod with the fifth-generation iPod. We gave it a larger display, but we made the product smaller and we made the music quality better. So even though we were giving it this great new feature of video, we made the primary experience better. We just did the same thing with the third-generation nano. We gave it a bigger display, we gave it video capability, yet the product is the same size volumetrically as the nano it replaces.
That’s what I mean about being focused on what your primary use is. All along, from the early days, we gave the iPod other great things that it could do. We gave it calendars, to-dos and contacts and things of that sort. We have been relentless in the innovation we’ve brought to the stage, and every year coming up with something that seems to be a big hit for that holiday, and blowing people away.
I think the software development kit (SDK) that’s going to be available for the iPhone is very interesting, because we think that with the revolutionary multi-touch interface and the phenomenal product that the iPhone is, and certainly having OS X underneath it, that it’s going to be an unbelievable platform for developers.
Of course what we want to make sure we’ve done is keep the phone safe and reliable, and that’s why it’s taken us a little while to get this SDK out. Especially now that we’ll have a real SDK which means legitimate developers are going to come into the space. There are all kinds of fantastic and great things that they’re going to do.
What’s your philosophy on how best to handle an open iPod and iPhone? I know Steve Jobs has said you guys will have to balance openness with safety and security, and clearly there are a lot of developers out there who are determined to develop software for this thing, even if they’re doing it sooner than you’d like. What kinds of challenges will that present?
One of the things Steve talked about in his open letter is something Nokia’s doing, which is requiring a digital signature. That way if there’s something wrong with an application, you have a way to track it back to where it came from. So one of the things we want to do, again, is create a development environment that is going to maintain the security and reliability of the iPhone yet at the same time offer developers some really cool things that we can do.
And it is hard. Again, Steve commented on this in his letter, those two things can run in opposition to each other, and that’s why it takes some time to figure out how to do it correctly. That’s important to us, and I think we’re on a good path to that.
And checking IDs at the door is one way to do that, I guess?
Yeah. You know where it came from, and then it also keeps people more honest.
Something that strikes me about this holiday season is that it’s the last one before the iPod, through the iPod touch and iPhone, becomes a genuine open software platform. How does that influence the way you look at holiday sales of the iPod touch and the iPhone in particular?
You’re right, I think it’s a big deal for iPod touch, it is also a big deal for the iPhone. One of the things that was interesting when we brought out the iPod touch in September was, we had two kind of opposing questions. There were people who asked us if we were fearful that the iPhone was going to cannibalize the iPod touch, and some said are we fearful the iPod touch was going to cannibalize the iPhone.
And our response, which I think has turned out to be pretty accurate, was hey — one’s an iPod and one’s a phone. If you’re in the market for a phone, we think we’ve got the best phone in the world with the iPhone. If you want an iPod, we have a whole choice of iPods including the iPod touch. And they really are different, in that you’re either in the market for an iPod or a phone. And the sales for both responded well. Our sales went up pretty dramatically at the time when we decreased the price on the iPhone, and certainly we saw the iPod touch get off to a pretty dramatic start.
Developers see the opportunity already. You only have to look and see how many were creating iPhone applications without permission, when they actually had to break it, as it were, to do it. I think that was a good indication as to how much the developer community loves the iPhone, how much they see an opportunity to create great things. With the SDK, I think it’s going to bring more legitimate developers into it, as well as having the grassroots, small developers, which I think is awesome. Sometimes these one- or two-person teams have created the most dramatic things.
On the marketing front, I’ve noticed that the way you guys have been talking to potential customers about the iPod has changed over time. It started off talking more about speeds and feeds, about how many thousands of songs you could fit in your pocket, and the latest iPod touch commercial is different from that in the way the whole thing feels and sounds. Can you talk about how the marketing challenge has changed since the early days?
Sure, I’d love to. First of all, I don’t think we ever talked about speeds and feeds.
OK, I guess that’s true.
That was one of the things that we went out of our way to do. We gave capacity, because that was one of the things that was important for people to understand, but we actually tried not to make it like a computer. Much sometimes to journalists’ chagrin. They wanted to know, hey, what’s the processor, where are you getting this component, where are you getting that. We never wanted to get into that. We didn’t want to make it a speeds and feeds product, other than of course, people had to know the capacity.
I think what has changed over time is certainly early on, people had to understand what an iPod was about. You had to understand the whole message of a thousand songs in your pocket. So some of the early advertisements had to set up some of that foundation. In a market like the U.S., where we have 77 percent market share, that’s really not required. People understand what the iPod is – it’s become a cultural phenomenon here. So we can change the way that it’s marketed.
But when we go into other markets, sometimes some of the international markets, maybe our market share isn’t as high. It’s large in most of the big countries – the U.K. I think is about 58, Japan is about 60. But when we went into Europe a couple of years ago with advertisements, when France was in single-digit market share and Germany was in single-digit market share, we again had to establish the “thousand songs in your pocket.” We ran advertisements that were more foundational than the silhouette ads that we’ve done. And we saw market share rise pretty significantly — again, our latest French and German market share is about 28 percent each. That’s a pretty significant rise over a two-year period.
When you mention that, it sounds like you guys have plenty of headroom still in overseas markets to sell a bunch of iPods. Is that the way you feel about it?
Absolutely. I think that’s a huge opportunity for us internationally. Again, it depends on the country. I’ve mentioned the big ones where we’re either at or near 60 percent, Australia, Canada, U.K., Japan. But there are other markets where we’re in our 20s, at or near 20 or 30. That’s a significant opportunity because not only can we grow share, but we don’t have, in any of these markets, an incumbent to beat. We’re actually competing against “Other” – the off-brands that somebody’s trying to sell only on price, and not establishing any value in the market, which gives us a better opportunity because we’re the ones that are actually building value in the market. As a result, it becomes easier to grow your share against “Other” than it is against name-brand, well-established competition.
And it sounds like PC penetration is increasing in a lot of overseas markets where some people thought it never would. Is that a leading indicator for potential iPod sales since iTunes is a key piece?
Yeah, that’s certainly one of the metrics I look at. I certainly look at, to your point, iTunes as part of the experience, which means it goes back to having a Mac or a PC. There’s a pretty good likelihood if there’s a PC out there that iTunes is on it. There’s more probability then of getting an iPod.
Are consumer markets in Asia a place where you’re focusing marketing? Do you get much of a holiday season bump there?
Asia varies. Japan is obviously part of Asia, and we’re already very established there and we’re obviously still committed to trying to grow that market — we’re at or around 60 percent market share there, as you look at the weeklies in October. But in a market like China, I think we’re the number-one market share, but it’s like 8 percent – it’s a very fragmented market. So again, there’s lots of opportunity for growth there.
Are the holidays big in China?
Obviously there’s variability within countries, and within markets even within countries. Certainly, for example, the holidays have become much bigger in Japan. But we tend not to break out all of our sales, especially for the iPod, on a geographic basis.
Well, are you still having fun? The iPod is huge now. I remember when you guys were underdogs and every time you came out with something, people were saying, ‘This probably won’t work.’ Now whenever you guys are coming out with something, everybody’s saying ‘This is probably going to change the universe.’
Yeah … you know, I think sometimes there are still skeptics. When we brought the iPhone out, as much excitement as it had, there were people who wanted to nay-say. But you’re right. When we announced we were going into retail, back in those hard times that I talked about, people thought we’d be out of the retail business in a couple of years. When we were investing so much in portables, people were saying they didn’t get it because cheap desktops were where the sales were.
And the iPod — people thought we were insane. We launched it six weeks after September 11, if you remember. People thought, again, what are we doing launching a whole new business at a time when we ought to just be tightening the belt? We actually even ran TV commercials that first holiday quarter, even though there were only so many iPods to sell. So certainly opinions have changed over time, but there are always naysayers.
We do our best to try to understand what customers are going to want down the road. I’m fond of the Wayne Gretzky quote — you skate to where the puck is going to be. We try to understand as we develop our product road map, what’s going to be exciting in the future. And that’s one of the advantages we have over our competitors. Our competitors tend to put the cross hairs on where we are now, and by the time they come up with a product that tries to match where we are now, we’re beyond them. We’re one or two generations beyond, moving faster than they are.