Latent Demand: Apple's Trillion Dollar Secret

Marketing Executive

Steve Carlotti is Executive Vice President of Marketing at Michaels Stores, Inc. He brings 20 years of experience working for consumer and retail companies. His work cuts across a range of functional areas including strategy, marketing, sales force effectiveness, and supply chain (especially when it drives customer satisfaction). Steve previously served as CEO of The Cambridge Group; as EVP of Global Practices and Consulting Services at Nielsen; and at McKinsey & Company in Chicago where he led the firm’s Midwestern Consumer/Retail Practice as well as its North American Consumer Marketing Practice. While in these roles, he focused on growth, strategy, and marketing issues for clients in the consumer products, retail, and automotive industries, among others.

Steve graduated second in his class from Dartmouth in 1988. He holds a Masters in Public Administration from Woodrow Wilson School at Princeton.

  • Transcript


Steve CarlottiApple is actually a really interesting example of thinking about the notion of latent demand.  And I’d like to actually talk about two examples.  I’d like to talk about iTunes, and I’d like to talk about the iPad.  Because I think they illustrate very different ways of coming at latent demand.  So let me first talk about iTunes.  iTunes was an example of latent demand, but also an example of emerging demand.  Where emerging demand is demand that you can just start to see if you look at the world in the right way.

So if you think about iTunes, one of the things that was very unique about it was it took the music experience, which had historically, at least for purchase, been a bundled experience, and it made it an unbundled experience.  So you could buy an individual song.  It also made it a curated experience, so you could buy Steve’s favorite mix tape. You couldn’t do that in the world pre-iTunes, except for Napster.  So Napster actually had a very similar experience to iTunes in terms of the core value that the consumer sees.  Now, I’ve never met Steve Jobs.  I can’t tell you whether Steve Jobs saw Napster and that had anything to do with the creation of iTunes, but with the benefit of hindsight, you could have looked at Napster and seen some of the core value proposition elements of iTunes.
So it’s a great example of a market evolution where the market went from bundled for money, to unbundled for free, to unbundled for money, where the core element of the consumer value proposition was the unbundling and the curating rather than the free.  So I actually think one of the great historical mistakes that people make is they sometimes talk about the value of Napster is that it was free, and it was peer-to-peer, and it was shareware.  I actually think, at least in the case of music, the value of Napster was it was the first time that music was publicly unbundled and curated. And what iTunes proved, is that the consumer was willing to pay for that.  It didn’t need to be free, because the value that was created through unbundling and curating was high enough that consumers were actually willing to pay.
Now, if you think about the iPad as an example of latent demand, you get a very different story.  The iPad is a great example of gaps within markets.  So you have the cellphone market on the one hand, you have the PC market on the other hand, and the iPad is a great example of something that exists in the gap in a market.  So there are dissatisfiers in both the cell phone market for many users, and in the PC market.  In the cellphone market, many users will say, “Well the screen is too small.  It’s hard to use.  It’s hard to read.  I can’t really watch video on it because the video’s very small.  And for a long time, there was this battle between the PC platform and the cellphone platform as to who was going to compete for video.
Enter iPad, which is a great example of finding the gap.  It’s sort of smartphone plus, at the same time it’s kind of PC minus.  And interestingly, if you watch consumers use their iPad, there are consumers who use their iPad a lot like a phone.  They search on it, they Skype on it, in Apple’s case they FaceTime on it.  But they use their iPad much like a phone.  It’s primarily a sort of data acquisition and communication device.  There are also consumers who use their iPad much more like a PC.  It’s a productivity device.  They’ve got a keyboard connected to it.  They’re actually very engaged in sort of the transmission and creation of content, much more so than they are in the portability and sort of communication element of it.  So I think in a way, iPad is a good example of latent demand, but it’s also a good example of a tool whereby sometimes you can find the gap in a market as a way of uncovering latent demand.
Directed / Produced by
Jonathan Fowler & Elizabeth Rodd