What's in a Name? For Apple, a Focus on the Digital Living Room
Published: January 24, 2007 in Knowledge@Wharton

In my ongoing discussions of driving organic growth, I emphasize the importance of senior management defining the strategic space they want their company to participate in. Simple things like what you call your business can be critical. I can’t begin to tell you how many times I see that product or service driven companies/businesses –versus market/customer driven – label their businesses by what they sell or even worse, by what they make. This is incredibly limiting. The following is an excellent example of expanding a company’s strategic space affording the necessary “room” to sustain growth.

Apple's name change from Apple Computer to Apple on January 9 highlights the company's new reality: CEO Steve Jobs' strategy today revolves around converged consumer devices much more than around personal computers.

Indeed, Apple's recent announcements point to a consumer electronics company more than a computer maker. On the same day it announced its name change, the company launched the iPhone, a cell phone-iPod hybrid, along with Apple TV, a device to deliver video content downloaded through Apple's iTunes service to consumers' television sets. On January 17, Apple stated that it had sold 21 million iPods in its fiscal first quarter ending December 30. For Apple, the iPod and iTunes businesses represented $4 billion of the company's total $7.1 billion in revenues for the same quarter. Sales of Apple's Mac computers, in contrast, accounted for $2.4 billion in revenue. Apple shipped 1.6 million Macs in the quarter, below the 1.75 million Wall Street some analysts were expecting.

Experts at Wharton note that Apple's new moniker makes official a business strategy that has been underway since the iPod was launched in 2001. That strategy: Create devices that will form the hub of the digital living room, where audio and visual content will be available on demand and can be networked seamlessly across multiple devices. But just as it did in the PC industry, Apple faces tough competition. The same week that Apple introduced its iPhone, Microsoft -- which also has designs on the digital home -- unveiled the Home Server, a device that will back up digital content throughout one's house. Apple also faces other rivals such as Sony, which has delivered living room electronics for years.

Meanwhile, Apple has to walk a fine line between locking customers into its platform to boost profits while also making sure that its products work easily with other electronic devices.
Wharton management professor Sarah Kaplan suggests that Apple's name change doesn't have any direct impact on the business, but does accomplish the following: It signals to employees the company's long-term strategy, it clarifies the marketing message and it prods investors to compare Apple to consumer electronics firms rather than just computer makers. In addition, says Kaplan, "consumer electronics has always valued design, and that's what Apple's strength is."

But to Wharton marketing professor Peter Fader, Apple's name change is the equivalent of waving a white flag in the PC market. "How many Apple computers has the iPod sold?" asks Fader, alluding to the so-called "halo effect" where consumers who buy iPods may tend to migrate to Apple's computers. "The reality is that Apple is still a small part of the PC industry. The name change is recognition that it has lost the PC market."

Others say Apple's convergence strategy is blazing a new growth path as the PC market becomes commoditized. Eric Clemons, Wharton operations and information management professor, says the convergence of the PC, home entertainment equipment and wireless devices dictates that Apple gadgets such as the iPhone and iPod will be increasingly important. "Apple brings several things [to the market]: really sleek cool hardware, great software and a cool hip image," says Clemons. The company, he adds, "is trying to integrate a personal entertainment system [the iPod] and a personal online music store [iTunes] with more family-centric home stereo and home video."

And if Apple is successful -- Apple CFO Peter Oppenheimer noted on January 17 that the iPod controlled 72% of the digital music player market at the end of December -- it could have the last laugh over Microsoft. "As the convergence of PCs and consumer electronics moves ahead, you have a lot of complexity," says Kaplan. "And it's unclear if Microsoft can dominate. If Apple wins as markets converge, even if it has lost in the PC market, it will ultimately have the last laugh."