January 20, 2011 Leave a comment
To be or not to be, that is the question! Will Apple survive the absence of Steve J0bs?
Before I share my thoughts on this topic, I’d like to mention that the timing of the announcement was superb; only Apple could have done it.
I’m sure this has been in the works for some time, and it is possible that because of his poor health, SJ did not show up in NYC for the launch of the Verizon iPhone. It has also been rumored that of late, he has been coming to 1 Infinite Loop only about twice a week, having lunch in his office rather than at the company cafeteria, etc. It is quite probable that Tim Cook has been running the entire Apple operations, behind the scenes, for some time.
Announcing his indefinite medical leave on a stock market holiday in the US gave investors time to mull over the impact of Apple without SJ, and with Tim Cook running the company. While Apple stock in foreign markets dipped almost 10% on the day of the announcement, it was down only by less than 2% in the US at the end of the first post-announcment trading day. I have no doubt it will regain its value soon.
The timing was also perfect as it was the day before the 2011 Q1 results announcement, where Apple was supposed to blow past the WS expectations, and it did.
Would Apple be the same without SJ? Probably not. Would AAPL sink or not grow as much as it has been in the recent past? Also, probably not.
SJ is the kind of individual who appears amongst us only once in a long while. The greatest genius of SJ is his instinct to foresee the needs of consumers down the road, even when they themselves, or Apple’s competitors, may not be aware of it. As SJ himself said, it is better to be where the puck (of ice hockey) is going to be, than to be where it is now.
iPad is a good example. In 2005, Bill Gates announced that within the next five years, most of the computing would be done on tablets, but his wish wasn’t granted. It took SJ, and Apple, to create a third mode of computing while the mobile computing (in laptops and netbooks) was still flourishing, despite being criticized for creating just a bigger iPod Touch which is not capable of replacing the PC. The sales were predicted to be dismal.
Besides his vision, SJ is also a charismatic speaker, and his passion for his products is obvious. In addition, the attention to detail he gives to these devices as well as the quality of Apple’s merchandise gives confidence to the buyer. As of now, while Mac is only 9% of the entire PC market (used to be 2-3% in 1990s), it commands 90% of the $1000 and above segment.
In mid-1990s, an AAPL share used to be in single figures, and the company’s annual earnings less than what they are every quarter now. The stock is trading over $300 now and Apple is the biggest tech company in the world, and the second firm largest in the US, with a market cap over 300B.
iPod is another great example of his foresight and tenacity. The criticisms of it were greater than of the iPad. Who’s going to spend $400 to buy a MP3 player? Even though the sales have dipped a shade over the last year, the iPod is still in the lead, capturing over 70% of the MP3 player market.
But the iPod story also shows us a side of SJ that will be hard to replace: his negotiating skills. Only SJ could have managed the coup de theatre that had the music industry agree to sell single songs, rather than only albums, on iTunes for 99¢ each. Later, they dropped the DRM requirements as well. Today, iTunes is the biggest store selling music and its sales top that of even the CDs. This coup de grace to the Big Albums could only have been given by SJ.
The other thing SJ is famous for is his ability to say no. When he came back to Apple in 1996, there were over two dozen models of Mac PCs; he slashed them to just four. This speaks of the confidence he has in his vision, and the sales of Macs have risen ever since. He also nixed the Newton, the granddaddy of all PDAs, although a lot of its technology was advanced to build touch-enabled devices like the iPhone and the iPad.
Finally, this confidence of saying no and flying against the wind has had a big impact on several industries, and has often changed them. As Henry Ford famously said that if he he had asked his customers, they would have wanted him to build a faster horse. The iPad and the iPod are obvious examples, but so is the iPhone.
Before 1997, when the iPhone debuted, all phones copied BlackBerry. Even the first Android was rumored to look like the BB8700. Since then, however, all phones try to look and behave like the iPhone. Flip phones that were all the rage, like the Motorola StarTac and Razr, are so passé now.
The iPhone changed the whole mobile paradigm. I remember having WiMo and Palm devices, and then the BBs. While they were great, the iPhone brought the whole new meaning to ‘mobile computing’ with a real mobile web browser and then apps. While Android is catching up fast, it still is behind the iOS eight ball. The first iPhone was about five years ahead of the competition, but is only about six months or so ahead of an Android device now. With Verizon carrying the iPhone now, however, I am sure the Android OS will suffer.
(An interesting aside: the Verizon homepage lists three kinds of phones they carry – the Feature phones, Smartphones and the iPhone! It was Google that wanted to call the Nexus a ‘Superphone’.)
Besides the iPhone, Apple has spurred on industries by being the first to use USB as their only I/O port and the first to use Wi-Fi in all their computers. It has also killed, by eliminating in it’s products, the floppy drives (both 5.25 and 3.5). All these, any many more changes, were met with initial resistance, but are industry standard now. I fear for the extinction of optical and hard drives in the next few years, as Apples discontinues their use.
Not widely known is his involvement with movies, another industry SJ changed. Having bought Pixar for a mere $10,000, its first animated movie – Toy Story – won accolades and awards. This was at a time when computer animation was in infancy and ignored. All of the movies from this studio have been box-office hits since. SJ even had Disney agree to have Pixar as a co-brand on all movies and merchandise. He is now Disney’s largest shareholder, owning 7% of the stock.
Certainly, it is not possible to have all these qualities is a single individual. However, I am certain that the executive bench at Apple have most of these qualities in committee. It is also certain that the company has been preparing for a succession for some time.
Furthermore, SJ is only the public face of Apple. He would not have succeeded without the industrial design genius of Johnny Ive or the inventory management expertise of Tim Cook. There are many others who add to complete the experience that is Apple. So Apple is prepared, IMO, to bear the brunt of SJ’s departure.
Nevertheless, while design, quality, and deliverance of new and exciting product may be assured from Apple going forward, with or without SJ, the biggest hit the company will take is the force of personality SJ brings to the negotiating table.This would be very important for Apple going forward as the company wrestles with media, print and video, to enlarge and solidify its ecosystem to provide for the iDevices and its foray into the living room with Apple TV and the rumored Apple HDTV.
In addition, no one else at Apple will have the authority and decisiveness to say no or yes to any major decision. Like the military, great corporations are not democratic.
Perhaps that is why SJ has retained the title of CEO while on medical leave, and has indicated that he will have a say in all tactical decisions at Apple, while Tim Cook runs the day-to-day operations.
All good things come to an end and it has been painfully obvious that companies deteriorate when founders leave, as it happened with HP and MS. On the bright side, there are companies, like Disney, which have maintained the vision and vigor of their founder.
Apple is now a big cap company but still acts like a startup. Companies like this don’t grow 71% year-over-year, as Apple has reported on the 18 January Conference. In addition, SJ has been notorious at keeping teams small, about a hundred or so. That is why there are delays often, as the same teams work on all OSes, from iOS to OSX. However, this is good for the Mac platform as a whole, because the same people carry over experiences from one side to the other, unlike at MS.
The management structure at Apple will be studied in business schools for decades to come. There are never more than two or three layers of managers, so each worker has an easier time to share his idea/work with the top layer.
(Another interesting aside: Messrs. Hewlett and Packard introduced the concept of ‘coffee break’ to the American workplace. The idea was to have all levels of employees, from workers to managers, gather at one spot to share ideas; the company provided the coffee and doughnuts. Other H&P innovations: retirement plans, share in the company and flexible working schedule including work from home.)
It is a surprise that a $300B company employs only about 50,000 workers worldwide.
In conclusion, I see no danger to Apple or AAPL in the short or medium term. Who knows where we will be in 10 years?