A comeback prodigious
On Thursday, August 2, 2018, Apple became the first company in history to exceed a trillion dollar market capitalization. It is now worth slightly less than the entire gross domestic product of a nation like Mexico. After a record quarter, in two days of trading, it added $80 billion to its overall stock value which passed the announced $20 trillion milestone. XNUMX years ago the Cupertino company was on the verge of bankruptcy.
In a 2010 interview, Steve Jobs recalled that Apple in 1997, that is, at the time of his return to management of the company, only had money for 90 days. “We were broke – recalls Jobs – It was much worse than I thought. The question wasn't so much getting Apple back on track, but: could we make Apple great again?”.
If something didn't happen then there would be no alternative but to take the books to court. But something happened and help came from the arch-enemy Bill Gates who, with his ubiquitous Windows, riding the devastating steed of the network effect, was leading the entire Silicon Valley to irrelevance and Apple, its historical competitor, to the failure. Gates bought 150 million shares of Apple and pledged to bring Office to the Mac. Jobs thanked to the astonishment of aficionados, and lines of credit reopened for Apple. A famous cover of "Time" instagram this moment.
As soon as he arrived at Apple, Jobs closed 70% of the projects conceived by his predecessors (including the Newton), to concentrate on a handful of highly innovative products focused on simplicity, diversity and industrial design. Then came the multicolored iMacs, the MacG3, a slender desktop computer, demurely transparent and with two handles to lift it, although very light for a computer of that size. The inside was even more captivating than the outside. That of the handles to move and carry the computer was a obsession of Steve Jobs. The first Mac had it, and the iMacs had it. Another obsession of Jobs was the search for perfection in things that cannot be seen. At the time of NeXT Jobs had told his collaborators who got irritated by their boss's perfectionism even on the most hidden details: "If you're a carpenter you don't stick a sheet of plywood on the back because it's not visible anyway."
Le two seminal choices
Along with the new Mac Jobs line, he made two other hugely seminal decisions to set Apple on the road to the trillion. He decided to rebuild the entire Apple system and application software infrastructure on the one developed by the NeXT team in the decade of exile from Apple (from 1985 to 1996). NeXT's technology and its software libraries are still found today (30 years later) in the iPhone operating system and Application Development Kit. So in 2001 Apple came out with its new operating system, Mac OS X, based on the NeXTSTEP architecture. Software returned to the center of Apple's strategy, even if it was not immediately perceived, distracted by the appeal of the hardware. There was a beautiful body, but there was also great intelligence.
The second fruitful idea was service. Okay Hardware, okay software, but also services to support products and, why not?, services as services. All in one. And here in January 2001 Apple opened the iTunes Store, a shop, separate from the web, where you can buy songs, movies, videos and listen to podcasts. iTunes wasn't a throwaway store just to make a few extra bucks, but it was tightly integrated with all Apple hardware and with the iPod, a pocket-sized device for listening to music and podcasts. Also integrated to protect the contents, which the Internet began to plunder scandalously depriving the creative industry and its players of resources.
The software would pave the way for portable devices and iTunes would provide the model for all subsequent services developed by Apple, first of all the AppStore for applications which today is a goose that lays golden eggs
At the time of these events, Jobs' pay was one dollar a year plus stock options, the latter non-existent until 2001. Today Tim Cook's pay is $13 million (3 million salary + 10 million bonus), without considering the value of the shares in its possession. Steve Jobs did the job and then walked away as the Knight of the Lonely Valley. An analogy in some ways amazing with our Sergio Marchionne whose conduct and personality have many similarities with the vision and leadership of Steve Jobs. Marchionne also did the "hard work" and then went off like the knight of the lonely valley.
Una epic ride
It took twenty years to go from minus 3 billion dollars (value in 1997) to today's trillion, and twenty years is a long time, but very few cases like this have been seen in modern industrial history. It has been an incredible ride, that of Apple as Jack Nicas does not fail to remark in the "New York Times" when he writes: "Apple's rise from the bankruptcy threshold to the most valued company in the world has been an astonishing industrial tour de force, marked by frenzied innovation, a series of bombshell products and the creation of a sophisticated, global and capillary production chain capable of bringing to market an enormous volume of cutting-edge products in a regime of careful cost control”.
During this journey, the big press and analysts have not been kind to Apple. From backdated stock to Jobs' illness, from production relocation to China to exploitative conditions for workers building iPhones, from doubts about the durability of the business model to analysts' obsession with iPhone sales, Apple's race has been littered , as Jack Nicas always writes, from "controversies, challenges and tragedies", but it has never stopped, not even with the untimely death of its undisputed leader. Job had been accused of not having a line of succession and instead there was.
Jobs would not have been enough for Apple to become what it has become. When Jobs introduced the iPhone in 2007, Apple's market capitalization was $78 billion, a price he added in a day after Q3 2018. He needed the team and the team was there. It was Tim Cook who reorganized the entire industrial chain that solved Apple's atavistic problem, that is the hiatus between the success of its products and their success on the market. Lags and delays have been overcome by the production machine conceived and created by Cook which brought the entire production chain to China, the only industrial system, as Jobs himself told Obama, capable of keeping pace with Apple. The trade war between the United States and China is now a major concern of Apple management and shareholders.
The scheme of Apple products
Every Apple product follows a precise pattern worked out by Jobs ever since he was in his father's garage with Wozniack. It is an architecture that consists of the total and essential integration of all the components of a product that must be designed, built and put together in the context of an organic and finalized project. In this scheme there is also marketing and distribution, which is the final part of every project. In this way each component can be controlled, customized and adapted to the needs of the others and thus brought to its maximum implementation. Only with this architecture can that continuous product innovation and differentiation from the competition be able to create a new market and undermine the existing structures. “People often don't know what they want until you show them,” was one of Jobs' mantras, when someone suggested he create a focus group to understand consumer trends.
It may happen that the Apple hardware itself is inferior to that of its premium competitors, that the software of some innovative start-ups has better characteristics than that of Apple, that the services provided by specialized structures have more advanced features than those of Apple, but all put together and optimized produces something that is perceived, and in fact is, largely superior to what can be created simply by assembling the best third-party components which, produced independently and with different corporate strategies, have no ambitions of integration. In this case the invisible hand is a less efficient glue than the visible hand which is the one that produces the differentiation. “We are the only ones who own the entire trinket, hardware, software, operating system and distribution. We can do whatever we want,” Jobs said in a 2005 interview.
And it is precisely the differentiation created by this enveloping architecture designed by Jobs, which seemed to be Apple's Achilles heel, that has brought the Cupertino company to the trillion dollar mark. Also, as has happened, each part of the project pushes the other, the service supports the sales of the hardware, the hardware brings customers to the service, the software is the nervous system and connects them as in a living organism.
It is no coincidence that one of the first decisions made by Jobs upon his return to Apple in 1997 was precisely to put an end to the licensing program of the Mac operating system to third-party manufacturers who were actually building systems better than that of Apple. The same happened to IBM when the supplier of its personal computer operating system began to supply the same software to all manufacturers who requested it. It was then that Compaq killed the personal IBM, because IBM hadn't had the ability to lock Microsoft into an exclusivity deal. But neither could he.
Today Apple is a battleship powered by four turbines that produce revenues in the billions of dollars: the iPhone, services, wearables, and Macs. Of the 53 billion dollars in sales of the last lucky quarter, the iPhone contributed with 29,9 billion and with 41 million units sold, the iPad and other products (Apple Watches, EarPods, accessories) with 8,1 billion, services with 9,5 billion dollars and finally Macs with 5,3 .2017 billion, the latter sector down sharply compared to the third quarter of XNUMX. Unfortunately, the correct choices were not made on the Mac, in an attempt to push customers to move towards iPad pros. But Apple is remedying this flaw in strategy.
…one last thing
An accurate analysis of the data communicated by Apple carried out by Ben Thompson, on his very popular blog Stratechery, shows a fairly well-defined market trend which in the end proves right the strategy adopted by Tim Cook who, rather than focusing on striking new products, aims to maximizing the monetization of existing resources and "squeezing" loyal customers, leading them to join all the programs of the Apple ecosystem. Thompson analyzes revenue trends in relation to iPhone average selling price (ASP) over a 12-month period (TTM).
It happens that when the average price is higher, as in the case of the iPhone X, the highest sales are achieved in terms of revenues at substantially stable or slightly declining quantities. The trend in revenues was somewhat detached from the quantity of units sold. This means that the upper part of Apple's customers has no qualms about buying new products regardless of their price, or as Thompson writes "Apple targeted high-end customers, who proved to be not price sensitive at all".
Indeed, the average price of iPhones grew by 15% in the first quarter of 2018, by 11% in the second and by 20% in the third. In monetary terms: + $101,85 in the first, + $73,36 in the second and finally +118,40 in the third.
A clientele that no longer looks at the price is the dream of every company and its shareholders. Hats off, Apple. But how will it maintain this level of performance over time? This is the biggest challenge, similar to the one Jobs faced when he was recalled to drive a half-failed Apple.
