Apple Versus Nokia: The Primacy Of Design

If you're a typical CEO, you probably find design to be somewhat of a mystery. In a thoughtful moment, you may have pondered whether there is a quantifiable return on the design of your products.

Here's one case where design has massively inverted the economics of a business.

Nokia and Apple reported Q2 earnings two weeks ago.

Apple offers two phone models. In the second quarter, the company sold 8.75 million iPhones for $5.3 billion in revenue. Forrester conservatively estimates that Apple's net profit in the phone business was $1.1 billion, for a net margin of approximately 21%.

Nokia offers over 86 different models of cell phones globally. The company sold 111 million phones in Q2 for revenue of $8.8 billion. We estimate its net profit in the phone business to be $286 million, for a net margin of 3%.

How can this be? You can point to Apple's stranglehold of AT&T, or its retail stores, or its formidable brand. But all of those advantages are muted without one essential element:  design. Of hardware, of experience, of software, of subtlety. 

Comments

Sony was there

When I joined Sony in 1997, my manager asked me whether I knew what the magic was behind the company's incredible success. I spent three years learning the answers but their global Design Center organization was one of the most important reasons. It amazes me how few technology companies appreciate this for what it can be worth, great highlight George!

Courage and design

Design is not objective -- you can't logic your way there. Perhaps that's why Sony's best design happened when Akio Morita was CEO -- he had a sense and and he had the courage and he had the power to take radical stands in design.

Not many CEOs have the courage to support design breakthrough.

How CEOs might alternatively think about impact

George,
Your point about design is well taken, and very good (Apple's design is iconic); and, good design certainly makes the user experience more enjoyable.

But, I don't think that margin or the kinds of financial numbers you bring up are necessarily the way in which CEOs that are personally or otherwise driven by a desire to leave a legacy might think about the two companies and their impacts on the world...During the last quarter, what do you think more revolutionized the lives of people around the world, $30 phones (that are often quite robust) or $500?

Good point Charly

Yes, you are right. Putting cheap cell phones in the hands of many people all over the world is having more societal impact than putting a beautifully-designed phone in the hands of a wealthy minority. But the point of my post centered on the financial return on design, not the societal return.

George

Thought provoking

A very interesting post--and a thought-provoking response from Charly. Makes me look at the whole thing differently.

Design and Profit: Correlation or Causation?

Good post, and I take your point that design is key to a successful product (and a successful business). However, design is necessary but not sufficient. Revenue and profit, for a corporation, come out of having done many other things well, or not.

An outstanding design may 'fail' due to poor strategy and/ or sloppy execution. A mediocre design may 'succeed' thanks to smart strategy and efficient execution. There is considerable evidence (in the history of consumer and industrial products) to substantiate each case.

So is the relationship between design and financial return (and we agree that such a relationship clearly exists) one of correlation or one of causation?

Design, profit, and execution

A great design with bad execution can generate good profits. A mediocre design with great execution can generate good profits.

Only when you can marry great design with great execution will you get the highest profit.

George

Keep IT Simple, do More with Less

That's what is all about there is.

Just keep IT simple, do More with Less.

You hit the nail on the head.

I think Apple has a 'no-choice' strategy

It is not necessarily related to design but to the fact that there are too many brands and phones out there. How can you really rationally choose one? You can't and therefore you go for the simplest alternative - the iPhone.

I elaborated this more here: http://meonthego.posterous.com/the-no-choice-strategy-of-apple

Good design is easier to spot than to create.

Unlike efficiency, good design is about taste. It's hard to measure, and subject to personal preference. Managing for good design has to be near-impossible.

I can tell you this -- good design requires somebody with authority making decisions. Compromise is its enemy.

Good design and the modern corporation...

So what you are saying Josh is that the modern corporation, which is driven by consensus, committees, and multiple check-offs, is built to create inferior design. Only when you get pushy large shareholders like Jobs will this dynamic be negated...

George