The Lessons of Apple's iPhone Launch for Today's Startup Founders

It’s common knowledge that Apple revolutionised the mobile phone market but did you know that subscriber growth slowed sharply after its launch?

Contrary to popular opinion Apple is not a cutting-edge provider of new technology but rather an example that proves Matt Ridley’s theory in How Innovation Works.

There are two lessons that founders must take from the iPhone story. The first is that your product is never finished and you should launch and let the market decide.

The second is that your success depends very much on how incumbents respond.

A Personal Journey

When we built OTAS Technologies we looked at putting an app on Bloomberg. The fees were high, the same 30% that Apple and Google charge creators, but we were not happy with the intellectual property protection. We remained standalone.

I’m told by people who work there that Bloomberg has a “kill wall” of applications that it wants to eliminate. After OTAS hit critical mass we featured on that wall and subsequent hires told us we held the record for the longest time on the wall without being destroyed.

Bloomberg’s response was to create copycat features and provide them as part of the existing subscription. While the analytics were of lower quality, this forced us to play defence and spend time and money justifying why we were better. This is significantly more difficult than being different.

OTAS was forced into a niche by the incumbent’s aggressive response to our success. The lesson for founders is to think about who your product will annoy and roleplay how they might respond.

Never ignore the risk that incumbents will lose money in order to put you out of business.

Apple and Mobile Internet

Steve Jobs announced the iPhone in June 2007 as a combination of three things:

1. A revolutionary mobile phone

2. A widescreen iPod with touch controls

3. A breakthrough internet communications device.

What followed was a mobile internet traffic arms race between iOS and Android apps, and Apple and Samsung. Did Jobs foresee this, Apple create it, or was it going to happen anyway?

How Innovation Works

The concluding chapter of Matt Ridley’s book begins with the quote:

Ridley argues that innovation is what makes free societies successful. As innovation is experimentation then progress cannot be planned. We do not know in advance what consumers will adopt.

Innovation is gradual and often disappoints in the early years before exceeding expectations later.

And because innovation is bottom up and a result of human exchange, it is near-market upgrades to existing ways of doing things that are often most successful. If there is a first-mover advantage it is short-lived because typically several people are working on the same idea at the same time.

Your Product is Never Finished

When the iPhone launched there were almost a billion mobile phones in existence and over three billion subscription agreements had already been signed. Jobs knew there was a huge market for phones (Apple’s launch year is highlighted in red below).

The market rate of growth from 1993 to 2008 was 54.7% per annum and thereafter slowed to 6.6%. Apple’s entry to the market both coincided with and caused a change in what it took to win a subscriber.

The primary reason for slower subscriber growth was Nokia’s failure to respond to the demand for both Apple and Samsung phones and the applications they housed. Nokia focused on low cost phones, eschewed software development and its hierarchical culture stifled innovation.

Nokia was convinced it had the finished product. Instead, its market share collapsed from 40% in 2007 to 2% in 2013 and it sold its mobile phone business to Microsoft in 2014.

Apple launched the iPhone with optionality; it could have been calls, music or the internet that drove adoption. Primarily it was the internet.

Apple didn’t launch with a stack of third-party apps but it pivoted to allow them in its war with Samsung that both won at the expense of others.

The lesson for founders is even one of the most meticulously planned and choreographed launches in history, and one of the most successful, required nurturing, innovation and change long after launch.

Your product is never ready and never finished. That is precisely the reason why you must launch it and adapt to customer demand.

A Reasonably Happy Ending

OTAS Technologies was sold to Liquidnet in 2017. The buyer abandoned the subscription model and deployed the analytics to augment the value of its desktop trading app. The technology survives today as part of the trading and investing offer of TP ICAP.

The lesson for OTAS’ founders was that they created an extremely useful set of analytics but that others were better positioned to take advantage of them.

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