Take A Lesson from Apple: A Strategy to Keep Customers in Your Ecosystem

Innovation from competitors is encouraging consumers to defect from the Apple ecosystem, but Apple continues to make it difficult to pull away from the integrated array of products and services.

With the iPad Mini, Apple has entered the small tablets market. This is both a defensive and offensive move for Apple. Amazon’s Kindle Fire and Google’s Nexus 7 are handsome small tablets with respectable content ecosystems, differentiated OS features unique to Android, and a friendly $200 price tag.  Apple’s had no small tablet offering to date, which has left it vulnerable to Amazon and Google to steal consumers in this new category. Apple no doubt sees the iPad Mini as an opportunity to attract more consumers to a broader range of tablets and further enjoy the benefits of  its ecosystem. The iPad Mini is another product from Apple that will further attract and lock consumers into its growing ecosystem of products, services, and content.

Despite analysts’ criticisms, many consumers will most likely shell out the extra money for the $329 entry price for the iPad Mini and enjoy the benefits of staying in Apple’s ecosystem. This is testament to the power of Apple’s ecosystem, not just the perceived quality of the product. In fact, 21% of iOS consumers say they’ll never leave Apple’s ecosystem. Most iPhone owners enjoy ecosystem integration of other Apple devices such as the iPod, Apple TV, and the Mac PC.  iCloud allows consumers to seamlessly share media across devices. Apple TV’s Airplay allows music or videos from the iPhone or iPad to be effortlessly shared over WiFi.  Additionally, the inconvenience of transferring media files to Amazon Cloud Player or Google Play further dissuades iOS consumers from switching.

This deterrence is called switching costs, which are the negative effect consumers incur when changing products or services. Switching costs come in many forms and companies create them to retain customers. For example, mobile carriers lock consumers into two-year contracts by charging early termination fees. While this discourages consumers from switching from carrier to carrier, it also creates resentment from many consumers towards their mobile carrier.

Apple has taken a different approach, though. They’ve created desirable offerings and features to create consumer lock-in and switching costs, but this hasn’t been due to a master plan laid out years ago. It’s not like Steve Jobs rolled out a calculated product roadmap ten years ago. Rather, he set a strategic target for Apple to be the digital hub for consumers. In hindsight, it’s easy to see that ten years ago, Apple had only a few ideas on how to do this. The rest came from a long series of experiments that created the ecosystem effects it desired. iTunes originally allowed consumers to play CDs and rip them to mp3s to be played on their iMac. It laid the foundation for the combination of iTunes and the iPod that created Apple’s disruptive digital music store. iMovie and iPhoto are software offerings that allow consumers to view and share video and photos across their own devices, and those of friends and family. Apple TV, long considered a hobby for Steve Jobs, has become increasingly popular. While not a huge money maker, it does leverage Apple’s content agreements by offering movies and music and integration with other content providers such as Netflix and Hulu. It also has its famous Airplay feature which allows Apple owners to easily play videos and music from their iPhone or iPad.

Many of Apple’s experiments have failed, too. In 2000, Apple launched iTools, offering consumers internet services, which later became .Mac, and eventually the infamously failed MobileMe.  However, these failed services provided essential learning for Apple’s iCloud offering. To grow music sales, Apple launched Ping, a social music service that also failed and recently shut down, causing Apple to retrench to its original iTunes offering. While this isn’t an exhaustive list of Apple’s efforts, it reveals a long road of successes and more importantly, failures that lead to success.

Any organization looking to keep customers within its ecosystem can learn from companies like Apple.

1.    Set focused, strategic targets. Many companies struggle to create strategic targets with a point of view and create generic targets like ‘Mobility’ or ‘Health and Wellness.’   Mercedes Benz isn’t such a company.  As the automotive industry experiences disruptions such as the digitalization of vehicles, new drive train options, autonomous vehicles, and global urbanization, it needs to respond accordingly or be left behind. Mercedes Benz has set strategic targets like giving drivers more freedom of access, freedom of information, and freedom of energy.  It’s piloting Car2gether, a peer-2-peer ride sharing service that leverages social networks to vet riders called in select US cities. It’s partnering with Tesla Motors to use its electric drive train systems for vehicles it intends to launch in 2015. And it’s also experimenting with new digital features that allow drivers from surrounding cars to share real time information about road conditions.

2.     Create a portfolio of experiments. Like Apple or Mercedes Benz, once you have focused, strategic targets set, create a series of experiments.  A general rule of thumb is the 7-2-1 rule:  one experiment should be big and relatively safe.  Two experiments should be slightly more risky and moderately sized.  Then seven experiments should be highly risky and low cost. These experiments can be scaled accordingly across teams, business units, and the entire company. 3M is one of the first companies to mandate that its employees spend 20% of their time thinking up blue sky ideas beyond its current lines of business and this is how Post-It Notes were born.  Art Fry, an engineer at 3M wanted to find a better way to manage notes in his hymnal on Sundays at church.

3.    Leverage learnings to inform new experiments. Facebook is well known for its hacker culture. Its employees are constantly experimenting and hacking together new solutions to improve and monetize its services. It is also famous for its failures, but perhaps less known for turning those failures into successful features. It failed at Facebook Groups and Lists. People didn’t want to spend time creating groups. So it created Facebook Lists that automatically did it for them. It launched and quickly killed Facebook Places, a Foursquare clone, but rapidly added the ability to update the location for images, updates, and posts.

Traditional strategic planning is insufficient for addressing today’s turbulent times where markets move quickly and competition is increasingly ambiguous. Sport companies like Nike or Adidas compete with digital entertainment providers such as MTV, because they both vie for people’s time outside work or school. Auto manufacturers consider Facebook a competitor along with traditional transportation providers. Cars have become less important to younger generations, because they connect with friends through digital services like Facebook. In today’s turbulent times, setting and achieving strategy requires agility, and experiments are a great tool for doing just that.

These three tactics can help you, too, develop an ecosystem that people won’t want to leave.

Forbes