What's Happening at Apple: Steve Jobs 13 comments
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In part two of my “What’s going on at Apple?” mini-series, I’m wondering what the move to end the decade long tradition of the Stevenote speech at Macworld means to Apple (AAPL) and its ongoing strategy. While Apple always has its own developers conference and events for the iPhone and iPod product lines as well as its so-called “Special Events," there is no gathering quite like the MacWorld Expo. While in my previous post, I argued that pulling out of MacWorld is just the next logical step in a decision to minimize investment in tradeshows, it is undeniable that the MacWorld Expo is at least a little bit more important than the rest. Only at MacWorld, did average consumers, fanatics, and general press willingly gather to listen to Steve Jobs (and, hopefully, to Phil Schiller this year) set the tone for the coming year’s consumer tech products. It was, in many respects, a state of the union address both for Apple and consumer tech.
MacWorld Expo is where Steve Jobs ™ was born. That is not Steve Jobs, the Apple co-founder or CEO, but Steve Jobs ™, the visionary and deliverer of salvation from bland tech products. No company, not even Microsoft (MSFT) with Bill Gates or Google (GOOG) with Sergei and Larry has a CEO that more embodies the term keyman as Apple does with Steve Jobs. Whether or not this is true, we all know that the company was an uncompetitive also ran in the personal computing industry before Steve Jobs returned from exile and transformed the Apple into a consumer tech juggernaut. It was his passion for typography and design, which inspired MacOS. Eventually, the beautifully designed and easy to use product hit parade that techies and non-techies alike have enjoyed for the last decade, and particularly in the last five years.
More importantly, the emergence of Steve Jobs ™ created a powerful competitive advantage for Apple in that Jobs himself has become a trendsetter for the entire industry. His adoring fans hang on every last word, and fall in love with any new gadget he holds up in the air. Marginal products - internet enabled phones, MP3 players, solid-state memory - become legitimate industries all with a few slides in a Keynote presentation.
Whether healthy or not, the decision to pull out of MacWorld will, in some ways, mark the end of Steve Jobs ™. After all, there is no longer a ready-made pulpit for Steve Jobs to espouse on what’s hot in tech and what’s new in Apple-land. New product announcements and other PR will be handled through the Apple website and Apple retail stores. It seems that Apple consumers and investors are finally being weaned off Steve Jobs ™ and being faced with the fear of losing Steve Jobs all together.
I wish Apple could have chosen a better way to do this. A surprise withdrawal from MacWorld Expo is not necessarily the best way to inspire confidence especially when there is already concern over the CEO’s health. In the long run, this could be a good move for Apple. Steve is 53, and hopefully, he has many good years left, but everyone gets tired and everyone ages. Bill Gates is also 53, and has already stepped away from operations at Microsoft.
A company is not built on the back of one man. In our closest example, Microsoft doesn’t seem to have missed a beat after Bill Gates stepped down. Granted, some may argue the company was already mature and no longer needed a visionary leader so much as a manager for the business. Apple is still a company very much focused on growth and diversification of its product base. Furthermore, its success is not built on entrenched, mission critical software as much as it is on hot products and a desirable brand. In this sense, it will always need a management team that shares a Steve Jobs-like mentality focus on design, innovation, and user friendliness.
The question for investors is whether or not there is someone or several ‘someones’ who could fill Steve Jobs’ shoes, and continue to execute and evolve its very solid business strategy in the event that Jobs does eventually decide to take a lesser role in the business. The problem for investors is that Apple refuses to be forthright about Jobs’ health, his intentions going forward, or any succession plan at all. While this isn’t something we ask of most companies, who would succeed Eric Schmidt if he became technology czar or 64-year old Larry Ellison? It is an issue for a company, which has willfully decided to turn its CEO into its greatest salesperson and the symbolic source of its intangible competitive advantages. For now, all we can do is speculate.
Full Disclosure: Author was long shares of AAPL and GOOG at the time of writing.
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This article has 13 comments:
It may have been that Apple is obliged to commit to next year's MacWorld before the current event; the bulk of exhibitor commitments at trade shows are generally obtained by offering discounts at the same event the prior year. This can only work for Macworld if the organisers can say to exhibitors: "Apple is already signed". So it may well be that, in order not to kill this year's Macworld, Apple were forced to make a last minute pre-show announcement that this is the last one.
Finally, remember that this is the Mac's 25th anniversary year, and Apple is clearly transitioning to product announcements unsynchronized with MacWorlds. Apple has prepared a giant hole in its OSX product line between iPod touch and Macbook, and with the netbook challenge, this gap will be filled at some point.
Unless Steve is at death's door (highly unlikely), they have only huge UPSIDE coming from this. Time will tell.
Really? think closely about what you just said. When I see Ballmer, I see a loud-mouthed frat boy who: 1) couldn't move the flagship product (Windows) to UNIX and spewed forth Vista instead 2) launched abortive products like Silverlight and Zune 3) Continues to bankroll the money-losing XBox white elephant 4) Couldn't convince the Yahoo board to roll over and commit hari-kiri before the Mighty Microsoft 5) gave us those inexplicable Jerry Seinfeld ads.
Maybe I made a semantic mistake in choosing to describe the community of Apple users as "adoring fans" of Steve Jobs. My point is basically that up until now, it's hard not to deny that Apple Fandom has been tied to the Steve Jobs as Chief Executive at Apple. There are few brands in the world that have a regular online following, multiple high-traffic rumor blogs, and a tradeshow circuit devoted entirely to their products and peripherals made for their products. This is most definitely the result of terrific execution and a tremendous foresight. I believe that Apple will survive beyond Steve Jobs, but I do think that it needs to (and has begun to) transition away from its reliance on "Steve Jobs (tm)" as its iconic salesman.
Arnold,
I do mention the WWDC and Apple Special Events in this post. Maybe you thought I should have made a stronger point on their viewership?
TimboM,
I agree and I think most investors agree with your point. The stock fell 7% but has rebounded quickly and is really trading roughly flat with prices pre-announcement. A lot of negative sentiment is baked in and Apple is in a perfect place to wow us with a tremendous set of product announcements and a healthy Steve Jobs appearance. But, inherent in the fact that they "gave away almost no information" is the fact that the information they did give away
Tom B.,
Microsoft continues to deliver strong earnings and revenue results despite perceived flubs in marketing and product development. Microsoft's bread and butter remains its entrenched enterprise software business for which the foundation was laid during the Bill Gates era. It's future success will ultimately be determined by how well it captures consumer and internet market share, but I think it's a bit early to judge this or to tie recent failures directly to the loss of Bill Gates.
Also, if you do think that Bill Gates leaving Microsoft resulted in its fall from grace, then it doesn't really help your contention that Apple will continue to thrive regardless of having Steve Jobs' as Chief Executive. Steve Jobs has been taking a slightly lesser role (at least publicly) for the last year or so (i.e. inviting other executives to speak for him at engagements and even on earnings calls) and will probably continue to transition away in coming years. How can this not be at least a minimal concern to a long-term investor?
I didn't make that contention. Apple needs "critical mass"-- enough momentum to eventually displace MSFT even in Eneterprise-- and they are still a few years off from that point, though I believe they will beat MSFT in market cap in 2009.
As for Gates: his biggest talents were: 1) being in the right place at the right time, by getting IBM suckered into DOS, then Windows 2) Being predatory enough to expand his empire through monopoly tactics the '80s and '90s-- less easy to do now with more regulators watching. Gates was never about technology or innovation.And the reason they have HELD ON to Enterprise so long is that it doesn't take fancy computers to word process, send E-mail, and make Powerpoint slides. Enterprise's needs are VERY basic.
" Let David Pogue do the Keynote" No, Andy Inkhnatko-- funnier; or Bob LeVitus-- more knowledgable.
On Dec 22 10:07 AM The Curious Investor wrote:
> Sleepyg,
> Maybe I made a semantic mistake in choosing to describe the community
> of Apple users as "adoring fans" of Steve Jobs. My point is basically
> that up until now, it's hard not to deny that Apple Fandom has been
> tied to the Steve Jobs as Chief Executive at Apple. There are few
> brands in the world that have a regular online following, multiple
> high-traffic rumor blogs, and a tradeshow circuit devoted entirely
> to their products and peripherals made for their products. This is
> most definitely the result of terrific execution and a tremendous
> foresight. I believe that Apple will survive beyond Steve Jobs, but
> I do think that it needs to (and has begun to) transition away from
> its reliance on "Steve Jobs (tm)" as its iconic salesman.
>
> Arnold,
> I do mention the WWDC and Apple Special Events in this post. Maybe
> you thought I should have made a stronger point on their viewership?
>
>
> TimboM,
> I agree and I think most investors agree with your point. The stock
> fell 7% but has rebounded quickly and is really trading roughly flat
> with prices pre-announcement. A lot of negative sentiment is baked
> in and Apple is in a perfect place to wow us with a tremendous set
> of product announcements and a healthy Steve Jobs appearance. But,
> inherent in the fact that they "gave away almost no information"
> is the fact that the information they did give away
>
> Tom B.,
> Microsoft continues to deliver strong earnings and revenue results
> despite perceived flubs in marketing and product development. Microsoft's
> bread and butter remains its entrenched enterprise software business
> for which the foundation was laid during the Bill Gates era. It's
> future success will ultimately be determined by how well it captures
> consumer and internet market share, but I think it's a bit early
> to judge this or to tie recent failures directly to the loss of Bill
> Gates.
>
> Also, if you do think that Bill Gates leaving Microsoft resulted
> in its fall from grace, then it doesn't really help your contention
> that Apple will continue to thrive regardless of having Steve Jobs'
> as Chief Executive. Steve Jobs has been taking a slightly lesser
> role (at least publicly) for the last year or so (i.e. inviting other
> executives to speak for him at engagements and even on earnings calls)
> and will probably continue to transition away in coming years. How
> can this not be at least a minimal concern to a long-term investor?
I agree completely with your view that Apple needs "critical mass" in order to continue to grow and take market share both in the consumer and enterprise market. In fact, I believe I make that contention in the next part of this post series when I discuss potential successors to the Apple CEO position. In fact, I believe the Company is so well positioned today as far as reaching a "critical mass" of consumer users (and this is really their focus, not enterprise software) that, even without a visionary presence at the firm directing future strategic initiatives, any decent executive could manage the Company's product lines effectively enough to be profitable for a considerable period of time going forward. Hence, the argument for someone like Timothy Cook over Joni Ive.
All this aside, I think we can agree that Bill Gates was a driving force strategically at Microsoft and steered the Company to a very defensible business segment (enterprise software) that continues to be the source of its strengths today. Now, Microsoft is struggling to defend its enterprise business and at the same time identify new business areas to grow into.
Steve Jobs has similarly steered Apple to success over the last ten years and created a defensible position by establishing the Company's reputation for innovation and style. These strengths, unfortunately, are much harder to defend than enterprise. As you describe yourself, enterprise needs are easy to target. Consumer purchasing decisions are much more difficult. Just look at Crocs, for example. What's hot today may not be hot tomorrow.
Given that Apple's success has come only during periods of time that Steve Jobs has been providing the motivating direction at the firm, how can we as investors feel comfortable about Apple's ability to defend its business going forward?
I realize that Crocs isn't the best comp with Apple. But, Apple is as much a retailer as it is a tech business. And, it will continue to be more a retailer until it truly reaches critical mass within the consumer market and can capitalize on the network characteristics of inherent in its products (the key difference between making trendy apparel and making aspirational personal computing products). These days, as I contend in this post series, Apple's products are more just luxury substitutes for generally available computing products - a mobile computer, a personal computer, a personal media player.
Once again, I realize that Apple is not simply a company that puts a pretty package on Apple has the benefit of not just making personal computing products. It also controls proprietary file types, operating systems, and other software that go into the whole user experience which differentiates its products from the rest of the pack. This allows them an advantage over a plain-jane retailer like Crocs or maybe more appropriately HTC, a maker of very cool cell phones, mobile computers, and portable media devices. Apple's advantage is that theoretically they should be able to use their proprietary systems to lock-in their user base both through the establishment of a critical mass (network characteristics of tech products) and through individual consumer dependence on multiple products.
It's hard to say how successful Apple has been on this part of their business. In the end, iPod and iTunes usage didn't explode until after it was released for PC. Apple eventually released Safari for PC as well. The so-called "halo effect" everyone predicted since 2005 did not really appear until the last two years. There is, however, serious evidence that users are starting to finally buy into the whole Apple experience, not just individual products. Mac sales have outpaced broader PC sales. Safari browser share continues to climb. And, the iPhone is all but synonymous with the mobile computing market. This is why I continue to hold my stake in Apple, but cast a wary eye on anything that could potential derail execution of a strategy which will extend and strengthen the Company's competitive advantages including the potential loss of one of the most innovative and influential executives in the last twenty years.
As long as the person at the top understands their business they will do fine. By that I mean not just a person who has an MBA but someone with long exposure to Apple. There are many unique businesses in the world. Businesses that occupy a special niche. In these businesses it takes someone familiar with the particular model to run such a company. Too often a new CEO comes in from outside the industry and tries to run it like other businesses he ran in the past and everyone suffers. In a nutshell this is what happened when Scully took over Apple. He tried to treat it like a mature industry generating cash. Perhaps Apple is large enough now and has enough momentum that a bad manager couldn't do too much damage.
Apple after Steve will be different, but not necessarily worse.
Some ideas of what might happen: more ports on the computers, more variety of computers including a headless iMac, better support for legacy technologies.
I agree with others that there is not really a cult of Steve. There is tremendous respect for him. But after the keynotes most people leave the auditorium. You don't see people mobbing the stage like he was a rock star.
On the product side, you forgot to mention the sinking of MSFT's flagship product, Windows Vista. Need I say more?
On Dec 22 09:17 AM Tom B wrote:
> "In our closest example, Microsoft doesn’t seem to have missed a
> beat after Bill Gates stepped down."
>
>
> Really? think closely about what you just said. When I see Ballmer,
> I see a loud-mouthed frat boy who: 1) couldn't move the flagship
> product (Windows) to UNIX and spewed forth Vista instead 2) launched
> abortive products like Silverlight and Zune 3) Continues to bankroll
> the money-losing XBox white elephant 4) Couldn't convince the Yahoo
> board to roll over and commit hari-kiri before the Mighty Microsoft
> 5) gave us those inexplicable Jerry Seinfeld ads.