Apple, IBM and the Pareto principle

If you studied high school economics, you might have come across the Pareto principle, which many people merely refer to as the 80–20 rule. This Wikipedia summary is as good as any:

The Pareto principle … states that, for many events, roughly 80% of the effects come from 20% of the causes.

Apple’s growth so far with the iPhone and iPad has been astonishingly rapid, as the chart below shows:

iPhone and iPad growth

However, both curves have begun to slope less steeply, and the iPad one has essentially flattened in recent quarters. Growth so far has been driven by fairly basic factors: releasing compelling products on a regular basis, and expanding distribution over time. The iPhone base, and the distribution relationships Apple had built to sell the iPhone, helped the iPad to grow much more rapidly. But growth in both products has begun to slow, especially in percentage terms. Apple’s product and sales strategy for the iPhone and iPad has changed little since both products were launched, but these have led to very rapid penetration of the addressable market for both products.

This is where the Pareto principle comes in. At this point, Apple needs to make a strategic shift as it enters a new phase in the growth of these two products. The established strategies will continue to drive some growth, but it needs to augment these with new, more tactical, approaches to penetrate the remaining parts of the market where these established strategies won’t serve it as well. One obvious example of this is the enterprise, where Apple has so far fared very well simply through its existing strategies of creating compelling products for consumers and slowly adding support for enterprise use cases. But Apple will only grow so far in the enterprise as long as IT departments support Apple devices reluctantly rather than wholeheartedly, and the IBM deal is a way to change that. It won’t move iPhone sales by a huge percentage, but it’s one of many smaller strategic moves that Apple will have to execute on to drive the next phase of iPhone growth.

Another example of this strategy is the 8GB iPhone 5C Apple began to make available in March 2014. Again, it’s not going to move overall numbers by a huge amount, but it may well drive enough to make a difference. I’m expecting to see quite a few of these sorts of initiatives from Apple as we go forward. We’ll see a more complex and diverse set of growth strategies to drive the other 20% of growth, compared with the 20% strategies that drove the first 80%. Some of them will be announced with significant fanfare like the IBM deal, while others will be much less noticeable, but as a strategic direction, I suspect the IBM deal is the shape of things to come.

  • Mark Jones

    Thanks for the thoughts. Whereas many analysts want Apple to make a low-end product to compete in low-cost markets, Apple continues to aim at penetrating other high-end markets that are not reached by its current sales methods and distribution channels. This includes the high-end markets of emerging countries. I hope the analysts catch on and don’t cause Apple to be punished in the stock market when they don’t announce a cheap iPhone in September.