Don't be fooled, Apple stands on the precipice of failure

I should read Harvard Business Review more often. There, Juan Pablo Vazquez Sampere offers insightful and fresh perspective in post: "We Shouldn’t Be Dazzled by Apple’s Earnings Report". Of course, I would agree, having written something similar in past posts. Point is the same, just the context changed. I lack his prestige and venue, and that's okay. The observations we both make aren't rocket science, or shouldn't be.

Simply stated: Atop the pinnacle of success, Apple stands at the precipice of failure. The scrappy innovator is gone, replaced by the, ah, Establishment cofounder Steve Jobs and his renegades challenged with years of guerrilla tactics. Apple has in this decade achieved huge success. But managing success is challenging, if your business model is innovation. The two objectives often work cross-purposes.

Apple defenders will rap this post, waving around the recent quarter's fantastic results: $74.6 billion (£49bn) revenue; $18 billion (£12bn) net profit; 74.688 million iPhones shipped. The numbers are amazing. Consider this: Apple profits equaled Google revenues ($18.1 billion) for the same time period. The fruit logo company is a juggernaut, and that's the long-term problem.

David Becomes Goliath

Sampere presents a quick, and appropriate, recap of disruptors versus incumbents. Apple has moved from the former to the latter category, where holding onto loyal, high-end customers matters more than innovation for all. In May 2014 BetaNews analysis "Why Apple no longer innovates", I said something similar and recanted my December 2009 post: "Why Apple succeeds and always will". That company is gone, standing as Goliath—no longer David—seeking to preserve the status quo rather than adopt new rules of engagement that disrupt the Establishment.

I sympathize with the dilemma CEO Tim Cook faces. He's a logistical genius, and preserving Apple's success plays to his strengths. Successful companies, particularly those that are publicly traded and which come to dominate a category of products used by a large number of businesses or consumers, are less inclined to take risks. Incumbents don't want to tip over the cash cart, while upstarts have less to lose and can risk more.

Last month, I asserted that "Apple is boring", observing that's recipe for current success. But the past (innovation) and future (little disruptive innovation) is the other perspective worth flushing out—and how Apple waves around fabulous data to obscure tactical shortcomings.

Sampere sees in Apple's calendar fourth quarter earnings report attempts to distract from fundamental problems. In April 2014 analysis "Tim Cook pulls off a Steve Jobs", I make similar point about a different set of quarterly numbers. Both of our posts even use magician art. But his story is more important because of context: Record quarterly earnings. He writes:

By dazzling us with dollars, it seems that Apple’s leaders are deliberately trying to divert our attention. By making such a communication effort to let us know how much money they’ve made—instead of what they’ve done to change the world recently—they are inevitable forcing us to ask ourselves, is this what we get from the new Apple?

Risk Nothing

The answer: Yes. That's what you get. He is right to write: "Announcing boatloads of money, as if that were point, makes us think Apple no longer has the vision to keep on revolutionizing". Apple Pay isn't revolutionary. Nor is Apple Watch. Bigger smartphone screens propelled the quarter, but demonstrate status quo thinking: Preserve existing revenue streams without taking risks.

Risk-taking defined Apple under cofounder Steve Job's leadership. Some examples:

  • iMac (August 1998)
  • iTunes (January 2001)
  • OS X (March 2001)
  • Apple Store (May 2001)
  • iPod (October 2001)
  • iTunes Music Store (April 2003)
  • iPod mini (February 2004)
  • iPod nano (September 2005)
  • iPhone (June 2007)
  • App Store (July 2008)
  • iPad (April 2010)

I asserted three days before the iPhone 6 and 6 Plus announcement:

This launch is when CEO Tim Cook proves whether or not he can be an innovation leader...Risk must define the next-generation iPhone, and more—other products coming on Tuesday. I don't suggest Cook should dump older iPhones, like Jobs did with iPod mini in late 2005. My point is taking design-innovation risks that defy established conventions and define new ones.

Apple took no such design risks with iPhone 6 or 6 Plus. The Cook era is, so far, one of stewardship rather than innovation. Apple's CEO chooses to preserve and extend rather than innovate and expand. Given the recent quarter's blockbuster results, there is much to be said in favor of the status quo.

That said, Sampere is right. Whatever Apple was it isn't anymore.

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