WHO INVENTED WHAT in the history of the graphical user interface is a well-worn
debate. But Apple was clearly the first to successfully market a mainstream
computer with windows and a mouse. Microsoft just happened to be around at the
time and, as court rulings years later have decided, did not copy, steal or
blatantly rip off the Mac OS in any way. Well, maybe a few ways.
Various reported conversations between
Steve Jobs and Bill Gates have the latter making the point, in essence, that
being first, working hardest and shipping the best product didn’t actually do
Apple any good. Microsoft got wind of what Apple had learned from Xerox’s labs
while the Mac was still in development, and was able to announce its own GUI a
couple of months before Apple’s was available to the public. The fact that
Windows 1 - which didn’t actually appear for another two years - was a clunky
mess, featuring windows that didn’t even overlap and very little practical
functionality, didn’t prevent it from starting to build up a user base across
the burgeoning PC clone market (initiated by IBM, ironically, in response to
Apple’s earlier personal computer launches). Had Apple rushed out a similarly
basic product, maybe it could have got ahead. ‘But our stuff is cooler,’
protests Jobs at a 1983 meeting, as depicted in the movie Pirates of Silicon
Valley. ‘You don’t get it, Steve,’ replies Gates. ‘That doesn’t matter.’
Steve
Jobs and Bill Gates
For years, while Microsoft and its
good-enough-but-not-cool software dominated the market, this argument was frustratingly
plausible. Now, however, Apple looks like getting the last laugh. As technology
has escaped from the IT manager’s domain into the home and the street, buyers
increasingly familiar and comfortable with technology are making more
autonomous choices based on look, feel and usability, not just price and lists
of features. Suddenly having the coolest product does matter. It matters a lot.
If this is true on the desktop, it goes
double for mobile. When Apple released the iPhone in 2007, running the adaptation
of OS X (formerly Mac OS) that would later become known as iOS, nobody compared
its specs to those of Windows. The iPhone was just an amazing new thing to hold
and use, and the way its touchscreen interface worked felt absolutely right.
Aspects of user experience (UX) that had never really been considered by
Windows’ developers, such as inertial scrolling and the ‘bounce’ when a moving
element reaches its limit, were central to the appeal of the device - the
software, more than ever, working in harmony with the hardware.
After this, clunky but functional would
never be good enough again.
IT MAY NOT
have won the first round back in the 1980s, but by sticking to its principle of
aiming for the best, not the fastest-selling, Apple has ended up a quarter-century
later creating products that are the best and the fastest-selling. To date, as
announced at WWDC last month, there are 400 million iOS accounts. The App Store
hosts 650,000 apps (225,000 of them designed specifically for iPad), and 30
billion apps have been downloaded, from which Apple has paid out $5 billion to
developers. These numbers would be impressive in any industry, and indeed Apple
has raised its sights from merely beating every other tech company to beating
every other corporation in existence.
Apple's
WWDC, June 2012
So not only is Apple winning, but it finds
itself on the right side of history. Microsoft had years knowing that unless
something radically changed in the IT landscape, it would continue to dominate.
Perhaps that was its downfall: inertia began to seem like a good thing. Today,
Apple knows it’s dominating precisely because the IT landscape is changing - in
ways that favour Apple.
Even if the tide were somehow to be
reversed, or a wrong turn left Apple beached, the enormous wealth it’s built up
in recent years gives it the ability to keep spending to get itself back on
track. The $45bn it’s giving back to shareholders through dividends over the
next three years is likely to be exceeded by its profits, keeping its cash pile
of around $100 billion intact. Microsoft, by comparison, holds some $59bn - and
CEO Steve Ballmer’s tendency to make expensive and unhelpful acquisitions won’t
grow that figure.
A year ago, when Microsoft bought the
loss-making Skype, industry pundit (and former Apple executive) Jean-Louis
Gassee wondered in a Guardian blog: “Why did Microsoft pay $8.5bn -10 times the
company’s revenue - for a business that has changed hands so many times, never
made money, and comes with substantial debt?’ This was after a year in which
Microsoft’s online business had already lost $2.5bn.
APPLE DOESN’T FIND itself with so much cash merely because it got lucky. And it’s more
than luck that gives it the ability to spend it wisely. The company has
decisively pursued margin over unit sales, and once again aiming for the harder
of two targets has resulted in it hitting both: it’s now selling very large
numbers of devices and making more money from each one than its rivals.
While analysts disagree wildly about the
market shares of Android and iOS, who’s currently ahead and which way things
are moving, there’s no doubt that Apple is doing vastly better out of it all
than any other manufacturer. The profits made by the iPhone alone account for
73% of the market, according to Asymco (bit.ly/LSbaz2). ‘Two years ago the
vendors generated profits of $5.3bn in the first quarter, and last quarter they
generated $14.4bn,’ notes Asymco’s Horace Dediu. ‘Seen this way, the story
isn’t so much that Apple “took the profits from the incumbents”. Rather, it’s
that Apple created a vast new pool of profits.’
Making huge amounts of money where there
was none before isn’t likely to escape the notice of Wall Street, and Apple is
something of a golden child to the stock market these days. While the dollar
value of a share is fairly meaningless in isolation, it’s not uninstructive to
compare Apple’s share price of $575 at the time of writing to IBM’s $192,
Microsoft’s $29 and Nokia’s $2. As recently as 2004, Apple would have been at
the bottom of that bunch. But in 2007 its market capitalisation (the total
value of all its shares) rose above IBM’s for the first time, a lead it would
establish firmly by 2009, and in 2010 it overtook Microsoft. By this measure,
it’s currently the number one company in the world.
NOTHING SUCCEEDS LIKE success, and Apple’s riches allow it to invest to keep the ball
rolling. Surprisingly, the company doesn’t spend a higher than usual proportion
of its income on research and development. In the first quarter of 2012, for
example, it reported an R&D spend of $758 million. That may sound a lot,
but compared with the $46.3bn of sales in the same period it’s not enormous.
Microsoft, whose quarterly profits Apple overtook a couple of years ago, spent
$2.3bn in that quarter; Google $1.3bn. Even struggling RIM and Nokia spent more
in proportion to their income.
There, perhaps, is a clue to Apple’s
thrift. It doesn’t need to spend a fortune developing products because it
focuses narrowly on those it really needs to do. It may have the occasional
flop - including, Jonathan Ive recently indicated, prototypes that never see the
light of day - but by and large each of its relatively small number of products
sells well and makes money, so little effort is wasted.
It’s when putting its designs into
production that Apple is prepared to get its wallet out. The world only has so
much capacity to build advanced components such as the latest type of screen.
By planning ahead and buying up output for its next launch, Apple can maximise
its economies of scale, guarantee sufficient deliveries to meet demand, and
make it difficult for competitors to rush out ‘me too’ products with similar
specifications, because the parts are spoken for.
It sounds a clever thing to do, but is
Apple actually doing it? Although the company is notoriously cagey about its
operations, when big money is involved a certain amount of information has to
be disclosed. Last year, Apple announced in a quarterly earnings call that it
would invest $3.9bn in ‘inventory component prepayment’. CFO Peter Oppenheimer
explained: ‘During the September and December quarters, we executed long-term
supply agreements with three vendors through which we expect to spend a total
of approximately $3.9 billion in inventory component prepayment and capital
expenditures over a two-year period.’
Whether that was for LCDs, flash memory or
some other component, it’s the kind of investment that rivals would find very
difficult to match. Not only that, but committing to that level of expenditure
upfront means having a high level of confidence in the success of unreleased
products and the ability of your supply chain to deliver them. It’s no
coincidence that supply chain management is the speciality of Tim Cook, who had
a massive impact on Apple’s manufacturing efficiency long before he rose to the
head of the company.
Bring
the noise Apple Stores are beginning to pop up across China
ANOTHER SPECIAL INTEREST of Cook’s is China. With hundreds of millions of potential
customers among an increasingly affluent middle class, it’s a counter-argument
to the gloomy observation that no company can grow like Apple forever. In a
TIME cover story, ‘Made in China: Why Apple’s future depends on the world’s
biggest market’, Hannah Beech wrote this month: ‘So far, much of Apple’s growth
in China has been a lesson in how to prosper without really trying.’ You can’t yet
buy an iPad 3 in China; the iTunes Store doesn’t work there, though it’s
just opened to 12 other Asian markets; and
Apple is still negotiating to sell the iPhone through China Mobile, the biggest
network operator, although the smaller China Telecom carries it. In January,
stores had to be closed when scuffles broke out on the first day of sales of
the iPhone 4S after overnight queueing - a familiar Apple phenomenon.
Things don’t always move quickly in the
People’s Republic. Exactly two years ago, Apple said it planned to open 25
stores in the country within two years. So far, it has only six, points out
Beech - but ‘four of those are its most profitable stores worldwide.’
The potential can hardly be overstated.
Last quarter, Apple’s not-really-trying in China generated $7.9bn of sales. In
2009, just 2% of the company’s revenue came from the territory; in 2012 it will
be 20%. Plans for India and Russia are also being drawn up. Whatever it is that
sets Apple apart, the next few years will reveal just how universal its appeal
may be.
