Tim Cook: Apple’s tinkerer-in-chief

Tim Cook is no Steve Jobs, and that’s why Apple is the world’s most valuable company


 
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Justin Sullivan/Getty Images

Justin Sullivan/Getty Images

Apple’s US$18-billion first-quarter profit was an all-time record—not just for the company, but for any company. Ever. It sold a record 74.5 million iPhones, generated record revenue of $74.6 billion, and pushed Apple to a record valuation: $740 billion, making it the most valuable company in the world, worth more than Microsoft and Google combined.

Yet, more impressive than the numbers themselves is the very un-Apple way they’ve been achieved. Ever since the late Steve Jobs pulled an iPod out of his jeans pocket back in 2001, proclaiming a “quantum leap” in portable music, it’s been assumed Apple’s success flowed directly from its ability to deliver novel, game-changing devices and services. But his successor, Tim Cook, has instead spent much of the past three years tinkering with Apple’s existing product line-up—bigger iPhones, smaller iPads, improved software—and massively growing sales by pushing into huge new markets like China. Sure, the company has unveiled a smart wristwatch, and there are even rumours of some type of Apple-branded electric minivan in the works, but neither has contributed a penny to the company’s phenomenal success.

In other words, Apple has behaved like any other big company in a market-leading position—supposedly the kiss of death in the fast-moving technology world.

Some argue what we’re witnessing is “peak Apple,” and that it’s only a matter of time before it’s overtaken by a smaller, more nimble competitor—just as Apple overtook BlackBerry so many years ago. But others question the tech world’s (and increasingly corporate America’s) near-religious zeal for relentless innovation, particularly of the “disruptive” variety. The theory, popularized by Harvard professor Clayton Christensen in his 1997 book The Innovator’s Dilemma, warns that successful companies are inherently vulnerable to being “disrupted” by new entrants, and the only way to avoid such a fate is to replicate the risk-taking, pizza-devouring culture of upstart firms. Apple famously did that under Jobs, when it hived off part of its staff to secretly build the iPhone, a device that aimed to “disrupt” both the mobile phone business and Apple’s own iPod sales. Now, everyone from Amazon to General Electric is trying to follow suit—although no one has yet enjoyed anything close to Apple’s success. “Disruption is not pretty, and it’s a tough environment to operate in,” says Glenn Rowe, an associate professor at Western University’s Ivey Business School. But an alternative explanation, and one that Apple appears to be in the process of demonstrating, is that disruptive innovation isn’t the only path to corporate success in the 21st century.

Apple CEO Tim Cook introduces the new Apple Watch in September 2014. (AP Photo/Marcio Jose Sanchez)

Apple CEO Tim Cook introduces the new Apple Watch in September 2014. (AP Photo/Marcio Jose Sanchez)

It’s difficult to overstate how well Apple is doing. Although it commands just 15 per cent of the smartphone market, compared to more than 80 per cent for devices running Google’s Android software, the company is responsible for more than half the profits earned by smartphone manufacturers worldwide (some estimates now put the number as high as 93 per cent). Users of Apple mobile devices also account for about 60 per cent of all mobile web traffic in the United States, compared to 33 per cent for Android devices, according Piper Jaffray analyst Gene Munster. Most important, a survey last year by WDS, a Xerox-owned firm, showed that three-quarters of iPhone users stick with the brand when upgrading their devices, compared to 58 per cent for Samsung.

Add it all together and you have the most successful company on the planet. And despite Apple’s lofty share price, up 60 per cent to $126 over the past year, some experts believe Apple is still being grossly undervalued by investors. Legendary corporate raider Carl Icahn argues that Apple’s stock should trade at around $216, based on the valuation multiples other companies in the S&P 500 enjoy. “It is now plainly obvious to us that there will be no stopping Apple’s peerless innovation track record and best-in-class ecosystem of services, software and hardware,” said Icahn, who has been pressuring Apple to buy back more shares, in a letter addressed to his 206,000 followers on Twitter. If he’s right, that would make Apple—today’s Apple—a trillion-dollar company.

Few expected Apple to be able to repeat the initial boom it enjoyed when the iPhone first took off with consumers five years ago. When Jobs died of pancreatic cancer in late 2011, questions swirled about Cook’s ability to fill his former boss’s giant New Balance sneakers. Though described by many as an operational wizard, few believed that Cook possessed Jobs’s knack for recognizing consumers’ future wants (often before they did) and his ability to act as technology tastemaker, convincing millions that beauty equalled no buttons and acres of pricey brushed aluminium. And, for a time, it appeared the skeptics were right. The growing popularity of cheaper iPhone-like devices running Google’s Android OS quickly ate into Apple’s market share, which once stood at nearly 30 per cent. Moreover, rivals like Samsung were increasingly the ones driving innovation, offering devices with bigger, brighter screens and software that can sense when users are looking at it.

But that all changed last fall when Apple introduced the iPhone 6 and iPhone 6 Plus, complete with larger, Samsung Galaxy-like 4.7-inch and 5.5-inch screens. Suddenly, consumers couldn’t get enough of the iPhone again, despite its newly hiked price tag. Cook told the Wall Street Journal that fewer than 15 per cent of the iPhone 6 and 6 Plus phones it sold in its first quarter went to existing customers. The rest were people who switched from Android-powered devices. Not bad for a game of catch-up.

There are a couple of possible explanations for why Apple is defying expectations without any truly innovative, new products. The first is that the business world’s current fixation on innovation is based on a questionable premise. Jill Lepore, a Harvard history professor, wrote a lengthy takedown of Christensen’s theory in a New Yorker article last year that accused him of misinterpreting his own case studies, which ranged from steel manufacturers to disk-drive-makers in the 1980s. “In the longer term, victory in the disk-drive industry appears to have gone to the manufacturers that were good at incremental improvements, whether or not they were the first to market the disruptive new format,” Lepore wrote. “Companies that were quick to release a new product, but not skilled at tinkering, have tended to flame out.”

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Another explanation for Apple’s ongoing success is that it was never a disruptive innovator in the first place. Marc-David Seidel, a professor at the University of British Columbia’s Sauder School of Business, argues that Apple’s rise wasn’t due to technological prowess, as many assume, but best-in-class marketing and design. Put another way, Apple didn’t invent touch-screen devices or mobile apps; it assembled them in an eye-catching, easy-to-use package and sold the resulting devices in cool-looking stores. “The marketing side is what’s winning in that space,” Seidel says. A variation of this explanation is also offered by Horace Dediu, an analyst who follows Apple closely. He has argued that Christensen’s theory, while generally true, breaks down when it comes to consumer products, since consumers don’t always behave rationally. Their purchase decisions are influenced by marketing and what their friends buy.

That said, Seidel argues it’s only a matter of time before history catches up with Apple, as it did previously when Apple lost its desktop crown to rival PC-makers. “At some point, almost every large company gets displaced,” he says. However, he adds that successful firms can stave off this eventuality for a long time by buying smaller competitors or licensing new technologies. Microsoft, for one, has successfully employed such a strategy for years, and has managed to double both sales and profits over the past decade.

Cook’s innovation chops will be put to the test when Apple begins selling its recently debuted smart watch this spring. The device, essentially an iPhone peripheral, lets users checks messages and view health- and other apps from their wrist. It won’t be the first smart watch to hit the market, “but certainly, there’s been none that have changed the way people live their lives,” Cook noted at a recent Goldman Sachs investor conference.

Innovative? Perhaps. But what really counts, as it always has, is whether Apple can convince consumers to rush out and buy one.


 

Tim Cook: Apple’s tinkerer-in-chief

  1. It’s smart for Apple to shift to polishing its existing products rather than new products. What is there left to do? They did music and phones. I would like to see them (or someone) revolutionize television, but that’s about the only remaining area in consumer electronics that hasn’t been revolutionized yet.

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