The Thing About Apple
It always seems impossible until it’s done - Nelson Mandela
Something extraordinary happened this week. Apple became the first tech company in the world to cross the $2 trillion in market cap. Some of us have been running a small side bet on which will be the first amongst the FAANG/FAAMG to cross that milestone; no prizes for guessing my bet. It’s ironic that in the world of mega aggregators like Google, Facebook, and to some extent - Amazon, it was a brand that won the race.
It’s a crazy milestone.
Apple is a unique company. And I mean that objectively. Rather than talking about their exceptional financial results - which certainly are unprecedented; or the adorable line of products they make - which definitely is a tremendous feat to achieve; or the legends (like Steve Jobs, Johny Ive etc.) who have worked there, about which enough has been written already; I want to talk about three things they do that is contrary to how most other successful companies operate.
1. The vertical integration approach that defies the conventional wisdom
It is believed that once a product matures, it’s better to modularise production, that is, to start outsourcing pieces of the product to third-party manufacturers who can manufacture efficiently at-scale, thereby reducing costs.
Apple, though, decided to go in the opposite direction. They started with and, to this day, continue to be a vertically integrated company, which means they are deeply involved in the design or manufacturing of all parts of the products.
Now, Ten years later, the conventional wisdom itself has flipped. Integration, it seems, is the best way to go.
2. A radically different culture.
Culturally, Apple operates quite differently from all other companies - which is a complete antithesis to everything that modern silicon valley folklore worships.
- Transparency - Apple has a very opaque culture with minimal information flowing across the company. There are top secret projects with information buried under layers of secrecy.
- No move fast break things - This could primarily be because they make physical devices, so they need to be extra careful with what they ship. But even their software development follows the philosophy of shipping perfect things.
- Not Agile - Apple doesn’t follow the modern dictum of building iteratively and shipping quickly and learning by throwing an MVP out there. It relies on the old waterfall model of development where things are prioritized months, if not years, in advance.
3. Deep understanding of its customers
Some people buy an iPhone every year; some buy once in two years; others buy it only when their existing ones break. Nearly all, buy another iPhone. The same is nearly true for all other Apple products, be it iPod, iPad, or MacBooks.
This helps immensely when launching new products and pricing them. It explains why Apple is not interested in making a cheaper iPhone for masses, even though the media pundits keep recommending it endlessly. On the contrary, Apple increased its flagship phone price by $349 with the launch of the iPhone X in 2017. The result? Apple saw a higher sale of the more expensive iPhone X model than the iPhone 8, which was launched the same year along with iPhone X.
Apple understands that for its best customers, price is no object. Having such great clarity about its customers in itself is a competitive advantage. Not every successful company understands it that well; remember the Coke’s New Coke debacle in the 80s?
At its heart, Apple is a design & engineering company. To obsess about design and beauty is part of their DNA. It’s also their unique competitive advantage. There goes the story about Steve jobs that he wanted the chipset designed to be put inside the original Mac also to look beautiful, even though no one would ever be able to see it. Maybe that’s the kind of obsession it takes to build path-breaking products.
A lot of folklore about Apple has been around Steve Jobs and his magic. But I believe that the company has done quite well in the post Jobs era, which suggests that - contrary to the popular opinion - it was not a one-man wonder to begin with. Or, that Jobs’ magic did successfully transcend into the culture of the company.
Either way, Apple has been successful in keeping the innovation engine going on. At least so far.
But as they often say - your biggest strengths are also your biggest weaknesses. The problem with Apple - or any product company for that matter - is that success in one category doesn’t guarantee success in another (the network effects are loose at best). And hence, it needs to continue building new products as old ones become obsolete.
There is no denying that Apple has been on a tear for the last 20 years (ever since the launch of iPod in 2001). The question is - can they can continue doing it for another 20 years?
As a big-time Apple fanboy, my money and my best wishes are with Apple.
Best,
Kaddy