The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.

Wall Street is demanding a transformational new Apple product that will drive increases in the technology giant’s valuation. At the tail end of Apple’s high growth decade, speculation that its key markets are rapidly maturing has led to a 25% fall in share price within the past year. With no disruptive successor product in the pipeline, Apple must defend its core business while reinvesting proceeds in high-potential products.

Apple’s current product strategy relies on significant improvements in reliability and processing speed to drive market share increases. However, recent stagnation in hardware innovation has caused saturation across the smartphone industry. In fact, Apple warned investors that iPhone sales growth will fall in 2016 for the first time since the device’s launch in 2007. With over 66% of its revenues stemming from the iPhone, the impending maturation of the smartphone segment has caused Apple’s status as the world’s most valuable public firm to waver.

With pressure from investors to diversify its product portfolio, rumours of Apple Cars, iTVs, and Virtual Reality headsets have surfaced. But, the solution to the company’s smartphone woes is not product diversification, a strategy that would distract Apple’s focus from its core revenue generator and dilute the brand’s image. Instead, significant opportunity lies in focusing resources on spearheading the adoption of a disruptive new technology: 3D printing.

Accounting for 14% of global annual gross domestic product (GDP), or roughly $10T, the global manufacturing industry must react to consumers who demand customization now more than ever before. To capitalize on this trend and respond to threats to its core business, Apple should invest in implementing 3D printing at the end-stage of its value chain. Ultimately, Apple’s next frontier should be to position itself as the leader of the upcoming mass-customization market by commercializing a consumer-friendly 3D printer. If pursued, this opportunity would generate rapid, sustainable growth while simultaneously revolutionizing the manner with which consumers interact with the products they purchase.

The Changing Face of Apple’s Core Consumer

Guided by Steve Jobs, began to understand that technological innovation alone is an unsustainable competitive advantage. This realization inspired the company’s core brand promise: sell dreams, not products. The Apple of today leverages this idea to deliver an unrivaled lifestyle of interconnectedness, convenience, and style. This strategy has allowed Apple to capture the loyalty of its consumers and sustain growth through a rapidly changing technology climate.

Now, Apple faces the challenge of understanding a more demanding consumer than it has ever encountered. The company’s primary market is millennials aged 18- 34, a segment to whom customization is becoming an increasingly important facet of the buying process. Bain & Company recently reported that over 25% of the millennial market demands customization. Most importantly, consumers who customize become more emotionally invested in the product and, thereby, loyal to the brand that created it. By introducing customization, participating companies can successfully drive demand to their products from rival offerings.

LG is seeking to capitalize on this trend through its release of the G5, the world’s first modular phone. By creating substitute audio, camera, and battery expansion packs, the G5’s modularity enables users to modify devices based on personal hardware and aesthetic preferences. Google, having also detected this opportunity, is poised to enter the customizable smartphone segment with their own modular initiative, ‘Project Ara’, set to launch in 2016. In contrast, Apple is responding to these competitors by increasing its stock-keeping units (SKUs) to offer more variety to consumers. The company introduced eight new models of the iPhone and over 50 Apple Watch combinations in 2015.Technology companies trending towards developing more fashionable products with shorter lifecycles is a trend mirrored in the fashion industry. In particular, Nike has proven that the integration of fashion and technology is increasingly demanded by customers. With the launch of NikeID, Nike’s customizable shoes, to the mass market in 2012, the company has seen direct-to-consumer sales increase by 30%.With technology becoming increasingly fashionable and vice versa, consumers are demanding game-changing variety, customization, and ease of integration from all product purchases. However, Apple’s complex value chain is inherently inflexible and unable to respond to this demand; as a result, customization will come at a cost.

A New Supply Chain

As Apple increases the number of products it stocks, they must simultaneously adjust their supply chain. Traditional manufacturing is built off of economies of scale; as a result, mass customization is by definition mismatched with this format as it increases costs and lead times.

3D printing, or the production of customized products using material inputs and a computer-aided design (CAD) file, is increasingly looked upon as a method of disrupting this rigid manufacturing process. This is because 3D printing’s unique value proposition lies in product customization as users can change the aesthetics of their product by merely altering its design file. As a result, 3D printing would enable mass customization while circumventing the increased lead times inherent in changing mass manufacturing processes.

By incorporating 3D printing into the end stage of its value chain, Apple can economically customize the size and aesthetics of its products after critical hardware elements have been created. The question then becomes: how can the company encourage mass market acceptance of this disruptive innovation?

Enabling iDevice Customization: a Mass Market Use for 3D Printing

In early 2001, Apple was challenged by Steve Jobs to expand into the portable music industry. But, the company faced a critical barrier: how could customers store, access, and download digital music files? Shortly thereafter, Apple boldly transformed the music distribution industry by launching iTunes for Macintosh computers. The company then leveraged this existing base of content to launch the iPod with resounding success.

Apple can apply a similar market entry strategy to enable device customization by creating the 3D printing industry’s first standardized platform for CAD file distribution. Just as consumers did not have a widely accepted method to store digital files prior to the launch of iTunes, there is currently no mass-adopted centralized CAD file storage system that connects the average user with printable, customizable designs. This absence of legitimacy in CAD file distribution is a key reason for low adoption rates because it prevents consumers from easily integrating 3D printing into their daily lives.

Apple faces a significant challenge: it must create a software that demystifies accessing, creating, and editing CAD files for the average consumer. In the short term, this platform should be populated with unique iDevice casing shapes, wristbands, and designs that customers could browse, purchase, and print in an Apple retail store. In this manner, consumers would be able to seamlessly customize and re-customize nearly every visible aspect of their device with the click of a button.

With the market for customization rapidly growing, Apple can create the first mass market use case for 3D printing through iDevice customization. Thereafter, the company can leverage its established capabilities to enter a more lucrative and disruptive segment: consumer-oriented 3D printers.

3D Printing Today

Despite introduction in the 1980s, the 3D printing industry’s high growth potential is inhibited by poor user experience leading to low adoption in the consumer-oriented segment. Although leading players have recently begun to shift into consumer markets, affordable units are not yet advanced enough to serve more than a hobbyist segment. Consequently, feasible 3D printing applications are limited to product design and prototyping in the manufacturing sector. 3D printing industry is dominated by two players representing 52% of sales: Stratasys and 3D Systems. Collectively, they have a market capitalization of less than $3B and annual R&D spending of less than $157M. The segment still suffers from two issues: a lack of standardization in the 3D printing ecosystem and poor user experience on both the software and hardware fronts. No major player has committed significant enough capital to refine 3D printing technology into a consumer-facing device with a low learning curve. Moreover, existing online CAD-file repositories suffer from low usability for the average consumer or an ill-defined model that fails to prevent copyright breaches. Though the industry has vast potential to disrupt global manufacturing, a lack of consumer-oriented innovation stands in its way.

This critical barrier to growth can be overcome by Apple’s extensive resources and proven track record developing exceptional user interfaces. In fact, the company’s recently launched Apple Pencil and 3D Touch technology can be leveraged to seamlessly design and manipulate 3D models via touchscreen. Moreover, perhaps responding to rising interest in the 3D printing industry, Apple patented a consumer-oriented 3D printer in 2015.Ultimately, Apple is uniquely positioned to capitalize on the 3D printing ecosystem by developing an accessible CAD file repository, integrating 3D printing into its value chain to create a use case for the technology, and, finally, commercializing a consumer-friendly 3D printer.

Apple’s Next Frontier: Designing the Future

In a world that is constantly seeking customization in nearly every segment, 3D printers are the solution to consumers’ dissatisfaction with mass manufactured products. With a 3D printer, consumers can print customized retail, accessory, home appliance, and replacement products in-home.

Though incorporating 3D printing into Apple’s value chain is a compelling short-term solution, it will ultimately not enable the company to capitalize on its brand promise: leveraging its product suite to deliver a highly interconnected, customizable, and convenient experience to its customers. As the mass market responds to millennials’ increasing demand for customization, Apple can act immediately to position itself as the long-term leader of this segment.

The most scalable and economically viable solution for enabling this customization is through the commercialization of 3D printers. This addition to Apple’s product suite can be achieved by leveraging its iTunes-esque CAD file repository to collaborate with major brands in the fashion and retail industry. As with iTunes, Apple must negotiate with the fashion, retail, and consumer packaged goods segments to develop a significant base of content from recognizable companies. This service would then act as a repository for 3D models generated by brands and artists alike, with consumers purchasing the models and printing them at home using Apple’s machine.

Diversifying with 3D Printing

Market maturation indicates that Apple must both implement a short-term strategy to reverse stagnation while, in the long-term, diversify its product line away from affected segments. By spearheading the development of the product customization market, Apple can revolutionize traditional manufacturing. In addition to capturing immediate-term revenue increases, pioneering this technology will enable the company to modernize its approach to developing a symbiotic ecosystem of technological efficiency for the mass market.

iCustomize: Apple’s Next Frontier

Swimming through New Channels

Interview: Douglas Allison