That’s Not an Egg!

Some time ago in this space I speculated that Apple needed to come up with the next Big Thing in personal electronic devices, and noted that while the iPhone has been the mainstay of their business model for several years, there is a limit to how far they can develop the smart phone using the current technology. They needed to come up with a new product that would renew the company’s previous reputation for innovation and cutting edge technology, and I really doubted that the new Apple Watch was going to be that new product. Although, to be fair, I also noted that I didn’t have any better ideas, and pointed out that I could be wrong about the watch…

Now, I don’t suppose it will come as much of a shock to anyone that the product development people at Apple know their customers better than I do; that is their job, after all. I’ve been using Apple equipment ever since my family got its first home computer (an Apple II+) in 1981, but I’m still not one of the fanatic Apple fans who will buy whatever the company produces and then tell everyone in the world that this is the greatest thing ever (even if they don’t know exactly what it does). I own an iPhone, for example, but I’m writing this post on a Windows machine. Based on the news reports we’ve been seeing lately, however, I’m pretty sure that no one in the Apple-using community, or even anyone from the company itself, was expecting that nearly one million people would purchase the Apple Watch during the first six hours of the pre-order period…

You can pick up the original story from the Washington Post website if you don’t believe me, and I can certainly understand why you wouldn’t. The Post is estimating that 957,000 people placed orders, and that at least some of them placed multiple orders, with an average of 1.3 units per order and an average sale amount in excess of $500. Customers who ordered any of the more expensive Apple Watch types went even higher, with an average sale price of over $700. If these numbers are accurate, the gross sales amount on this new product exceeded $481 million in just the first six hours they were available for pre-order…

Now, I still have my doubts about the long-term prospects of the Apple Watch. For one thing, it seems that fewer and fewer people are even wearing watches these days – a lot of my students tell me that when you carry a device around with you that has a time and date function on it, a separate device that just tells you the time seems redundant. There’s also the fact that you need to sync up the Watch to some other Apple device (usually an iPhone) to use most of its functionality, and the fact that most of those functions are already present on the iPhone itself. But what this argument does not consider is what else the development teams may have learned during the process…

One of the most important factors in any R&D project is what you learn by doing it, and while this often gets overlooked when we talk about product development research, all of the same points apply. Sure, the circular hotdog never made it into production because it was the dumbest-looking thing anybody had ever seen, but the company that invented it has been making money on products that make use of the same meat-extrusion technology for at least the last 30 years. Apple’s first attempt at a small electronic device (the ill-fated “Newton” personal digital assistant) cratered hard, but the experience in building compact electronic circuit boards, power systems, displays and housings paid off when it came time to build the first iPod, and then again with the iPhone. And even if the company’s first attempt at wearable computer technology had failed, there’s no telling what they might have learned in the process…

That doesn’t look like it’s going to be a problem in this case (957,000 orders in the first 6 hours?), but I think it’s worth pointing out to anyone else who might be considering public statements questioning the development of the Apple Watch…

Circular Hotdogs: A Fable

From time to time I’ll try to document the story about the round hotdog, just because I’d like to teach people about it; it’s such an appealingly goofy idea that it seems like there should be a lesson about it in business school. Unfortunately, there’s very little to be had, either from library or Internet sources; I only know the story because many years ago I had the privilege to meet and talk with one of the company’s R&D people, and he swore that this was true. I’m going to recount it for you here, because even if this tale isn’t altogether true, it still contains a valuable lesson…

Unless you’ve read Ray Kroc’s autobiography (I can’t really recommend that you do; it’s difficult reading in places), you may not know that Kroc himself was dead-set against McDonald’s ever selling hotdogs, and actually forbade the company to sell them, even if there was a demand for such products. This was because he regarded them as unhygienic; even today, most hotdogs are made out of scraps and odds-and-ends of meat that end up on the slaughterhouse floor, and back in the fifties and sixties the FDA regulations were even more of a joke than they are now. Food snobs may look down on McDonald’s food quality, but the truth is the company has been obsessed with food safety and consistency since the beginning; it’s one of the keys to making a product that is uniform and uniformly better than the competition. But the company has offered a limited number of hotdog products over the years; mostly at locations where hotdogs are traditional fare, such as ballparks and zoos. They’ve even experimented with bratwurst and corn dogs…

This led somebody to suggest that the company produce its own hotdogs, using its own suppliers, processors, factories, and so on. To make them look unique, and to keep from having build bun warmers in different shapes, the new product would be circular, like a doughnut. Prototypes of the new sandwich had been created, and the company had actually progressed to the point of looking into a slightly different bun for the new product (asking if its bakery supplier could make these) when several members of the management team actually saw one of these, and declared it the dumbest-looking thing every produced by a fast-food kitchen. Even more to the point, the same managers realized that if they marketed the new sandwich it was unlikely to bring in any new customers; sales of the McHot Dog would just cannibalize sales for their burgers – not to mention what would happen if people started questioning the quality and safety of the company’s primary product lines…

Now, I’m not trying to be critical of the R&D people at McDonald’s. The fact is, the company has sold (and continues to sell) some fairly strange food products around the world, and many of these do not bear even a passing resemblance to a hamburger. No one would have thought much of the fried chicken morsels known as “McNuggets” if they’d seen the way those are extruded into shape (and in fact it did take a while for the market to accept them), but that product has worked out quite well, and led to development of other big sellers like the McChicken sandwiches and the Chicken Snack Wraps. It’s possible that given the right market, and the right marketing support, that the McHot Dog would have been a winner as well. It is even more likely, however, that a single focus group discussion would have terminated the project’s development with howls of derisive laughter…

The lesson here is twofold, I think. First, just because a product is technically possible, that doesn’t mean there’s a market for it. Just because you can make a revolutionary new round hotdog, that doesn’t mean anyone is going to buy it. In this case, going to market with the product you need, rather than the one you have, is probably not an option. And secondly, keep a close eye on what product needs your R&D people can meet. After all, if there’s ever a market for circular extruded-meat products anywhere in the world, McDonald’s will be ready to roll before the competition has stopped wondering why anybody would ever want to eat such a thing…