Apple’s longstanding perchant for secrecy is legendary. It’s also a myth. Granted, the company has a strict no-comment policy about future products, which isn’t so much about keeping information from seeping out but controlling who disseminates it. Something else: Secrets are impossible to keep when a company produces physical products overseas and depends on so many third-party suppliers. Controlled leaks, or strictly managing those that aren’t, lets Apple maximize marketing advantage.
The value cannot be understated, because Apple’s business model in 2014 isn’t much different from 2001 or 1995: Reselling to the same core group of loyal customers. The Mac faithful mattered when the company struggled to survive against the Intel-Microsoft duopoly and made the majority of profits from selling computers. Cofounder Steve Jobs wisely chose to expand into new product categories—iPod (2001), iTunes Music Store (2004), iPhone (2007), iPad (2010)—that freed Apple from monopoly bondage. But the core philosophy of selling to loyal customers, even while trying to grow their numbers, remains the same.
What Pricing Reveals
If Apple really wanted to expand against, say, Android on smartphones or tablets, iPad or iPhone prices would be lower. There’s a tried-and-true formula for growing market share: Sell for less. But the company only lowers prices as a product’s base expands, while selling something else that offers more to satisfy loyal customers. Consider iPhone 5s, which now is available for $99 on-contract, while 128GB iPhone 6 Plus pushes prices higher—$499.
If market share really mattered to Apple, iPad mini prices wouldn’t have increased by $70 across all models during the last release cycle. The move likely showed sales, shifting some to 9.7-inch iPads while bolstering margins. No company can take such drastic action without realistic confidence core customers will buy again and again as the user base expands.
Playing Off Human Nature
Groking this concept is fundamental to understanding many things Apple. For example: Why the company keeps Mac prices high, despite analyst recommendations to take them lower. Why Apple lowered iPod’s entry price as its market share expanded. Why Apple so often iterates across product lines rather than dramatically innovates. Iteration is its own form of innovation, just one often ignored by the minority of pundits and users demanding more. The tactic keeps margins high but works because of Apple’s success reselling to a slowly, but greatly, expanding number of loyal customers.
For them—and other people wanting to join the Apple fan club and to be the cool kid on the block, too—style and feeling part of something important matter much. Secrecy and rumors play off human emotions—mystery and desire to know. Curiosity kills the cat, they say. You and me, too. Leaks, whether directly from Apple or indirectly from third parties, create mystery and excitement that draw people in. But for a company selling to the same customers, there is another benefit.
Rumors, particularly those that are right, help ensure customer loyalty, which when analysts crunch the numbers will demonstrate to be hugely invaluable to iPhone 6 and 6 Plus, I predict. Earlier market research indicates that consumers want larger smartphones, with 4.7-inches the standard-size sweet spot and 5.5-inchs just right for tablets. Rumors about larger screens gave existing iPhone owners thinking of going Android for size reasons to wait. Apple sold 10 million units over the launch weekend.
When Microsoft Mattered
The phenomenon is nothing new, and Microsoft mastered its technique during the 1990s around so-called vaporware. My favorite example is release of a new WordPerfect Office version in 1996. At the time, WordPerfect’s market share led Microsoft Word. But I was struck by how tech news reporting focused on rumors of the next Office suite rather than the competing product just released.
Like Apple today, Microsoft was the tech news media’s obsession, particularly post Windows 1995. The software giant effectively used leaks, some silent and others from product managers, to tout forthcoming products. The strategy was clear: Convince existing and potentially new customers to delay purchasing the thing available now for something better—or supposed to be—coming later. The vaporware label stuck because Microsoft often delivered later than rumors indicated or less than they promised.
The Sales Plus
For Apple, which tech news media focus is like Microsoft’s 20 years ago, the value of iPhone 6 and 6 Plus rumors cannot be overstated. First benefit is free marketing. Second: Distracting buyers from competing products available in the present. Third: Discouraging sales of competing products. Fourth: Tantalizing human nature—desires to solve mysteries, to get something better than we have, and to be part of a something bigger and to be thrilled in the process.
Apple could never achieve so much marketing bang or levels of human excitement by issuing press releases about new iPhones days, weeks, or months in advance. I say that rumors help keep core customers excited and loyal—and that’s not to ignore Apple’s responsibility delivering something that in the end satisfies them. That’s a given, or the whole scheme collapses. Customer satisfaction is even more important.
You can be sure, and I’d like to see some consumer analyst conduct surveys to see, that millions of potential Android switchers stuck with smaller iPhones because of rumors. They waited for larger screens, and Apple rewards them. The magic formula is secrecy and rumors.
Photo Credit: Faris Algosaibi
Editor’s Note: A version of this story appears on BetaNews.