Apple's watch offers less than meets the iPhone

The Apple Watch does fewer things than the iPhone but is smaller, and more expensive. Photo / AP

There are only two ways to make money in business, a wise man once said:

1. Bundling

2. Unbundling

Apple, after creating what was billed as the ultimate bundle in the form of the iPhone, is now in the unbundling phase. Or at least the shrinking-the-bundle phase. The Apple Watch does fewer things than the iPhone but is smaller, and more expensive.

Why is Apple doing this? Because it had to come up with something new to sell, dummy!

As everybody's favourite graduate student in rhetoric and composition, Freddie deBoer, put it on Monday on Twitter: "Having saturated the market with devices that supposedly consolidated your gadgetry, the de-consolidation becomes [a] commercial necessity."

So that's one form of unbundling. Another is what's happening in TV, with HBO announcing the details of its standalone streaming service on Monday and cable and satellite providers in general looking to pare and differentiate the bundles they offer. As Dish Network's Charlie Ergen put it in a conference call with reporters and analysts last November:

"It's not going to be a marketplace where everybody has exactly the same thing, and it's just about a price. I think some people are going to say, well, they're geared more towards families and kids, some people will gear more towards sports, some people will gear more towards entertainment."

In fact, new digital technologies seem to be enabling the unbundling of lots of different industries. Higher education is being unbundled by online courses. The media industry outside of cable already has been unbundled by online competitors.

And, oh yeah, some people wish the Federal Communications Commission would take the new regulatory authority over broadband that it has just granted itself and force cable companies to unbundle their local loops, letting other providers offer Internet service over those lines.

Unbundling often gets presented these days, in fact, as a sort of ideological imperative because it empowers consumers. Yet it's easy to find examples where bundling gives consumers a better deal. Unbundling is also often depicted as inevitable, though that's not really true.

Back in the 1990s, Microsoft's bundling of Word, Excel and PowerPoint into a single package called Office was seen as giving it an insurmountable competitive advantages - and Office truly has been an amazingly durable and profitable bundle. So was its bundling of the Internet Explorer browser with Windows, which has proved less successful, although partly because the courts intervened.

Apple's staggering success over the past decade has been all about assembling attractive new bundles that together do stuff that no single existing product could.

And of course Apple's staggering success over the past decade has been all about assembling attractive new bundles that together do stuff that no single existing product could.

Scholars and consultants have since the early 1990s expended huge quantities of ink and pixels trying to explain when bundling makes sense and when it doesn't. One famous account is that of Clayton Christensen, who identified two approaches in technology that he called integration and modularity - and concluded that technology products have to "evolve towards a modular architecture" to compete:

"Do you remember in the early years of the PC industry Apple with its proprietary architecture? Those Macs were so much better than the IBMs. They were so much more convenient to use, they rarely crashed, and the IBMs were kludgy machines that crashed a lot, because in a sense, that open architecture was prematurely modular.

"But then as the functionality got more than good enough ... you could back off of the frontier of what was technologically possible, and the PC industry flipped to a modular architecture ... It's kind of like you ran the whole industry through a baloney slicer, and it became dominated by a horizontally stratified population of independent companies who could work together at arm's length interfacing by industry standards."

This framework indeed explains a lot about the evolution of the computer industry from the 1960s through the 1990s. But it also caused Christensen to completely whiff on Apple's resurgence-through-integration in the 2000s.

Image 1 of 9: Apple CEO Tim Cook explains the features of the new Apple Watch. Photo/AP

It may be that the better way to look at this is as a cycle. And apparently in computing there is something called the cycle of reincarnation (or wheel of reincarnation), although it's really more about system design than how you sell stuff. More broadly, though, as technologies and tastes change, the right combination of product features inevitably changes as well. It's a moving target, and in trying to hit it companies always find themselves moving in the direction of more bundling or less.

Which brings us back to the wise man cited at the beginning of this piece. His name is Jim Barksdale, and he was chief executive officer of Netscape Communications back when Netscape was the most exciting company on the planet (before that he had been CEO of McCaw Cellular, which became AT&T Wireless, and chief operating officer of FedEx).

During the roadshow that preceded Netscape's legendary 1995 initial public offering, he and chief financial officer Peter Currie found themselves winding up a presentation at the Savoy Hotel in London. As Barksdale described it to me last year:

"We got through and took all their questions, and I said, 'All right, one last question,' 'cause we were in a hurry. And this fella, he says, you know, 'How do you know if Microsoft isn't just going to bundle a browser into their product,' something to that effect. And I said - really just to end the conversation - I said, 'Well, gentlemen, there's only two ways I know of to make money - bundling, and unbundling.' And I said, 'We've got an airplane to catch,' and we left.

"And Peter Currie was walking out the door, he said, 'Those people are looking at you, Barksdale, like you're crazy.' He said, 'What did you just say?'

"I said, 'Well best I can tell, most people spend half their time adding, and other people spend half their time subtracting. So that's what works out.' "

So should you be adding, or subtracting? Never mind. Just make sure you're doing one of them.

- Bloomberg