The Golden Circle and computers

Why are there two standards for computers, and why do Apple computers enjoy a cult following while PCs seem bland and boring and offer nothing but a low price? I think Simon Sinek’s theory of the Golden Circle applies to computer marketing and provides a good explanation.

Apple marketing starts with why they build things, proceeds to how they build them, and ends with what they are. PC marketing generally emphasizes compatibility and price, which leaves you vulnerable to someone beating you on price, and doesn’t build a following.

The Golden Circle and Apple

Golden Circle and Computers
Apple doesn’t sell computers. It sells a vision, and the status and lifestyle that go with it. Apple succeeds because it understands the golden circle better than most of its competitors.

I’ve always wondered what it was that Steve Jobs learned toiling away at a forgotten, obscure computer company in between his stints at Apple. The Golden Circle seems to be it. For whatever reason, it wasn’t until sometime after 1997 that Jobs put it together. But once he did, Apple went from the brink of going out of business to becoming unstoppable, delighting its fans and confounding people like me who like other things.

The way Simon Sinek explains it, Apple marketing messages generally say something like this: We believe in thinking differently. Our products are beautifully designed and easy to use. We happen to make great computers. Want to buy one?

Apple’s why statement is thinking differently. Its how statement talks about beauty and ease of use. The fact that the product is a computer, or a phone, tablet, MP3 player, or TV set-top box is almost an afterthought. Apple doesn’t sell electronics. It sells a vision.

The specifics change over time, but any Apple marketing campaign contains those elements, and most importantly, in that order.

Tipping points

The other question that often confounds people is how Apple can be successful with a relatively small market share. At one point, Apple only had three percent of the computer market. Today it has around nine.

Apple is successful because its other products are more successful than that. The market generally can be divided into five segments: early adopters, with 2.5 percent of the market; pioneers, with about 14 percent of the market; the early majority with about 34 percent of the market; the late majority with another 34 percent of the market; and the laggards, who are around 14 percent.

Apple completely writes off the laggards. It’s more profitable to let Microsoft try to figure out how to entice them to buy a computer. If anything, letting Microsoft alienate part of the majority by trying to appease people who really don’t want a computer drives more customers Apple’s way.

Those early adopters are happy to pay high prices to be first, to be part of something exclusive. By ceding the majority, Apple can introduce a model, sell it unchanged for years, and never lower the price. It’s profitable.

The early majority won’t buy in until something reaches about 18 percent market penetration. But once that happens, market share comes very quickly. We saw that with PCs in the 1990s. Dozens of computer companies thrived as 84 percent of the population rushed to buy one. Apple computers never matched that success, but its MP3 players, phones, and tablets did.

The Golden Circle and computers other than Apple

golden circle and computers
Acer sells more computers than Apple, but Apple is more profitable, because Apple applies the golden circle to computers. That leaves Acer, Asus, Dell, and HP to fight over price.

Microsoft has a hard time competing with Apple, but Microsoft isn’t completely inept. Microsoft achieved market dominance with inferior products. Digital Research had better stuff. Commodore had better stuff. IBM had better stuff. But Microsoft had better vision. And while Microsoft didn’t articulate its vision as well as Apple did, it did effectively hold to a vision of a world full of computers running Microsoft software, and methodically working toward that goal. The other three made great stuff, but they didn’t have Microsoft’s direction.

But why do PC makers fight to the death over the right to pay royalties to Microsoft while Apple thrives on selling overpriced boutique computers year over year? Because they take the other route through the Golden Circle.

PC marketing looks something like this: Our PCs run Microsoft Windows and millions of software titles. They come in your choice of two colors. And they’re an unbelievable value at a starting price of $399.

The trouble is, you’ve got four companies saying exactly the same thing. So whoever can undercut the others by 50 bucks at the most price points will probably win. There’s little to no brand loyalty. What’s more likely is someone will buy a PC, have trouble with it, and swear off that brand forever. Someone who has bad luck with Brand X but has good luck with Brand Y may stick with that brand and recommend it to others, but Apple-like devotion to a particular PC maker is rare. Acer computers don’t have a cult following.

Why Microsoft’s early competitors failed

80s technology - Amiga home computer
Amiga computers had great color graphics, sound, and multitasking in 1985. It took decades for everyone else to catch up. But technology for technology’s sake doesn’t win. Commodore didn’t understand the golden circle and never got much more than 3% market share with it.

We didn’t always have two standards for computers. At one time there were several. Some of them were far more innovative than Apple or Microsoft. But their vision was different. While Microsoft and Apple and, later, Google, had the vision of changing the world, those early competitors were building great technology for great technology’s sake. They had Apple-like cult followings. I was an Amiga zealot, myself. They lost because none of them had a product that could reach a market share of 18 percent and hold it long enough.

Commodore had some vision, stressing that computers should belong to the masses, not just the upper class who could afford Apple’s and IBM’s insanely high prices. When a Commodore setup cost $500 and an Apple setup cost $2,000, Commodore could sell computers faster than it could make them, and they shipped three million units a year. Once cheap IBM clones came along priced at $1,000 or less, Commodore’s computers lost a lot of their value proposition. Was it worth $500 more to be able to run the same software at home that you can run at work? Not for everyone, but you don’t have to convince everyone all at once. Once you convince 18 percent, that 18 percent pulls in the early majority.

I don’t think either Apple or Microsoft understood the golden circle and computers in the 1980s, but both of them came much closer than Digital Research, Commodore, Atari, or IBM did, so they were the ones who lasted.

Why Microsoft can’t shake Apple and Google

Apple and Google know one more thing that Microsoft doesn’t seem to realize. In game theory, there are two types of games. Sports are finite. All the players agree to a set of rules and the game is over after a set number of periods or innings. In an infinite game, you play to win.

Business is an infinite game. There are no agreed-upon rules, the game doesn’t end, and you don’t play to win, you play to stay in the game longer than anyone else. Apple and Google both play the infinite game well. So much so that they can both give their operating system away for free, which infuriates Microsoft.

Microsoft crushed all of its competitors except one, then realized being the bigger part of a duopoly was better than being a monopoly, so in August 1997 it invested $150 million in Apple, giving Apple a lifeline until Steve Jobs could figure out how to make money.

Both companies know they’ll never crush Windows. So they make money in other ways. But every time, Microsoft takes the bait and enters their markets with a competing product. Sometimes Microsoft has a better product. But it’s not the best product that wins. Amiga computers were 15, even 20 years ahead of their time, and they lost badly. Apple and Google sell a vision, not products. Microsoft wins enough battles to keep coming back for more, but so far, Apple and Google always win the war.

You don’t have to understand the golden circle and computers to stay in business. But as Google and Apple show, it’s easier to stay profitable if you do.

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