TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Horace Dediu:

Disruption theory has taught us that the greatest danger facing a company is making a product better than it needs to be. There are numerous incentives for making products better but few incentives to re-directing improvements away from the prevailing basis of competition.

The reason for this is that once a product is “good enough”—it actually more than meets the customers’ needs—there is no basis for competing by making the product better. Instead, you have to compete by making it cheaper.1 The product becomes a commodity where price is the main differentiator.

That’s bad. There’s another risk, too: if, say, the PC as we know it overshoots the customer’s needs (browsing the web, email, doing basic word processing, et cetera), then not only does it become a commodity, but it provides an opening for completely different products to meet those customer needs while providing other advantages that the PC simply can’t, and therefore disrupt the PC market.

In this example, that other product would be mobile devices (smartphones and tablets). Since the PC had already fulfilled customer needs, something that we thought couldn’t ever compete with the PC started to eat its lunch. The iPhone or iPad will never be as powerful for certain tasks as a traditional PC, but they quickly became “good enough” for many of a customer’s main needs, like browsing the web and sending email. Since they’re good enough for that, and these devices’ very limitations—their small screens and hand-held form-factor—are actually huge advantages over the PC. You can carry it in your pocket. You can read books on it. You can listen to music. They’re more enjoyable to use. And so, a device-type that couldn’t ever compare to the PC began to eat into its sales.

The question Horace is asking is whether the iPhone has reached a similar stage as the PC—is it good enough now for what it’s meant to do, and so customers won’t be willing to pay for new features? It’s a good question; the iPhone has improved very rapidly in five years and is, I think, rapidly approaching its platonic ideal form. Horace’s conclusion, though, is it isn’t yet good enough, because customers still overwhelmingly purchase the new iPhone rather than last year’s, which is available for half the price. If that changes, we’ll know it’s become good enough.

He’s right. There’s still things that need improved and that customers want, and better networking is at the top of the list. (Of course, this is mostly a problem for the carriers and not for Apple.) WiFi could be faster. The camera could still be better.

But I think that there’s much less potential for improvement in the hardware than there is in the software. I’m not sure that the iPhone will look very different in a decade than it does today, because today’s hardware is quite good. But the software, I think there’s huge potential for change. We have the potential to do incredible things with these devices, like replace credit cards or control our homes or our cars, but all of these new uses we’re thinking up are possible today. We can build it with the hardware we have, with touch-screens, GPS, gyroscopes, WiFi and Bluetooth. Software is where the leverage is.

I think, too, that we need to begin developing other computing hardware to allow the rest of our world to connect. Nest connected our home’s heating and cooling systems to the web. We need more of that—our televisions, our cars. Why shouldn’t, for example, our car “stereo” expose an API over Bluetooth to our phones?

1. You can also compete on brand, like Pepsi and Coca Cola do, but that’s a competition for the customer’s mind, not in actually making a truly better product. At this point, competition has moved away from improving the product. [↩]