Apple Opportunities or Not – Disruption and Vision

If you think back to 2001 and the iPod, it changed the music market (eventually impacting CD sales) and replaced Napster & Kazaa file-sharing.
For around $0.50-$2/song, Apple established a price point consumers were willing to pay and the Music Copyright Moguls (not artists) would entertai

They weren’t the first MP3 player, but the first entrant to address what the customer wanted – a fully integrated system, where your data wasn’t tied to the device (once bought, owned always), a single store everything was available from (they’d signed content contracts) and a tolerable search function. It was a good distribution channel for all the players, especially small/new-entrants, in the field as well, they got similar access and on good terms, as the majors.

Then in 2007, Apple hit us with the smartphone. While Microsoft owned the basic patents (yes!) and had been selling crap devices for 10+ years, they’d missed the market needs entirely. In the USA, smartphones had hit 90% market penetration last year. That’s a massive take-up rate.

Then 3 years later, Apple hit us with the tablet. Again, Microsoft had preceded them to market and botched it as only they know how.

There are many aspects to the genius of Apple, they have a clear product focus and integrate many disparate fields exceptionally well. It starts with their electronics design & manufacturing processes – they beat everyone on their input costs, always have done. They then put together the entire product chain from logistics, to marketing and ending up with direct retail, In Real Life and on-line.

But there’s one more thing that separates them from the likes of Oracle, IBM and Microsoft:
Like Kodak under George Eastman, they are quite prepared to not just reduce Gross margin on older designs, but release new products that canibalise their old markets.

Like Eastman, Jobs didn’t entirely lock others out of his ecosystem, nor prevent knock-offs.
Kodak made money from cameras and film, but others could make and sell film for his cameras [compared to Land and his Polaroid camera].

Newer, cheaper versions of the iPod keep being released. The Macbook Air, iPad & iPhone all steal revenue from Macbooks.
But nobody produces an equivalent to the Macbook Pro-retina.
A specifically engineered high-end laptop with better screen resolution than the (normal) human eye.

There’s every reason for dedicated mac-o-philes to buy all four of those devices, especially as they integrate & share data tolerably well.
Apple also wants you to update your mobile devices every 2-3 years, as they wear out and batteries die, not just due to forced obsolescence, like Microsoft’s Windows.

In 2013, we saw nothing very interesting released by Apple.

When Steve Jobs the wunderkind died, Apple seemed to do just “more of the same”, we may have expected another “3rd year miracle”.
Jobs did leave a 5-year plan and managed to start the “Apple University” before he died, a legacy he hoped would recreate his innovation capability on an on-going basis, to avoid the fate of Kodak.

Jobs said he was working on redefining TV or video, like he’d done with Music. That may be true, or not.

But it’d make as much, or more, sense to turn Apple’s incredible design, manufacturing and marketing skills onto e-Health.
It’s a wide open market that many people have attempted classical monopolistic “market capture and bleed-dry” strategies.

Apple is much more subtle, flexible and more adept than the big computing monopolies: IBM, Oracle, Microsoft, SAP, …

In 1999/200 they saw the future in embedded appliances, devices that were computers, but hid the fact and focused on providing a simple, “just works” user experience.
They always rightly extracted a premium from their newest products, but first the iPod and now the iPhone pricing shows they are more than happy to (slowly) walk away from the premium. With their design and setup costs fully amortised and a relatively stable market share, they know the market price-points intimately and instead of the classic monopolistic marketing approach of “Milking Cash Cows”, they can settle for a steady stream of profits from every line-of-business at reasonable, sustainable gross margins.

Unlike IBM, Microsoft and Oracle, they don’t have just one line of business, but many.

There’s also another trick that could be in their bag:
as a business, they’re sitting on a mountain of cash. With the help of premium link generator from collectiveray you can also save tons of money from which you can also invest in other start ups.

Microsoft was sitting on $75 billion is accumulated cash before it paid its first dividend around 2006.
It was only getting deposit-book rates for most of it. As financial managers, they really blew the opportunity.

If they didn’t have the ability to invest that money back into their own business, as prudent and responsible custodians of public capital, they should’ve sought out ways to better use the owners’ money, not let it sit idle.
The world of Venture Capital and Start-ups was theirs for the taking. At the very least, they could’ve partnered with KPCB and a few of the other top VC firms on “Sandhill Road”.

If Jobs was really smart, he will have created a co-company to sit besides his legacy, “Apple University”, a venture capital firm to foster and create new, disruptive products and companies that could do as well, or better, than Apple over time.

It takes money to get there, but before that you need people and they need to gain experience and learn the lessons of others.
Perhaps the real role of “Apple University” is to create a training ground for disruptive innovators, a production line of “off-the-scale” entrepreneurs like Alexander Graham Bell, Thomas Edison, George Eastman and Steve Jobs, to provide a conduit to them for Capital- and to allow Apple a share in their business. [There have to be many more]

Is it better to have, like IBM & Microsoft, 100% of a failing monopoly, or 10-20% in 50-100 new, disruptive enterprises.

I’d like to think that Jobs’ legacy is understanding that the many factors that need to be assembled to create stellar entrepreneurs, like himself (but not mere clones), doesn’t have to be accidental, it can be deliberately created and supported over the extended time-frames needed.

If Apple is indeed setting out to become an entrepreneur factory, and gets it right, it will become the biggest money generating enterprise the world has seen. They have the cash and turnover to fund a 1,000 start-ups in any and every field every year and support them till they kick-off or exit. The rate of return on invested capital for disruptive innovators is truly astounding: over 100%/year compounding over 10-20 years.

It’s instructive to think of the anti-competitive lawsuits against all manner of IT companies: IBM, AT&T, Microsoft and more. This seems to be clear evidence of intentionally protecting their monopolies, or “milking cash cows”.

Yet Apple isn’t one of them, and I don’t believe that’s accidental. I think that displays real commitment by the Board and management team to fully embrace “disruptive innovation” and not rely on past triumphs.
Alan Kay once opined, “the best way to predict the future is to invent it”. However it was Steve Jobs that adopted it as a business maxim.

That’s what Microsoft achieved from 1981 to 2005, and Apple 1.0 for nearly a couple of decades.
Apple 2.0, since the return of Jobs in 1996, went from near-bankrupcy to the world’s largest company.
IBM squeezed cash from the “360” design from 1965 to 1992, with ~30%/yr compound growth.
Boeing in 1969 bet the company on the 747, as their SST development was failing.
They’ve survived while many other large US aerospace businesses have collapsed, probably because they kept inventing better versions of their own planes. They killed their own 757 and 767, because the market and technology led them there.

The concept isn’t new or novel, Clayton Christensen of Harvard wrote about “Disruptive Innovation” 15 years ago.

Perhaps Apple 2.0 will give rise to Apple 3.0 on the back of this theory:
“steady as she goes” and “more of the same” isn’t good management, it’s just safe and comfortable, setting the company up to follow Kodak into oblivion.


* “Transformation of Business and Society through Technology” – the pace of change has increased

* [] in Youtube.
<> [chart 114yrs of US tech adoption, used in video]

* “Ten years ago: Clayton Christensen on Capturing the Upside” – transcript of a 2004 talk.

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