On August 2, 2018, Apple made history by becoming the world’s first $1 trillion company measured by market capitalization. While it see-sawed in the second half of the year, losing over $450 billion in the last quarter of 2018, it has since recovered most of that amount and now stands at $967.87 billion as of September 2019.
Since 2010, Apple (AAPL) has been one of the most valuable companies in the world. It has occupied the top slot on an annual basis from 2012 onwards, with some occasional jockeying for position between it and Exxon (XOM). The reason Apple is valued so highly is simple on the surface: the company makes popular products with generous margins. However, if the curious reader digs a little deeper, she will find mistakes, overthrown CEOs, and much more. In this article, we’ll look at the story behind Apple’s success.
- Steve Jobs and Steve Wozniak co-founded Apple in 1977, introducing first the Apple I and then the Apple II.
- Apple went public in 1980, but Jobs was later ousted by the company's board of directors - only to triumphantly return several years later.
- Apple's success lies in a strategic vision that transcends simple desktop computing to mobile devices and wearables.
- Both performance and design are key drivers of the Apple brand and its ongoing success.
From Apple I to Steve Jobs 2.0
Before understanding why Apple is so successful today, it is first useful to take a look back at its origins and history. From the first Apple computer (the Apple I, which was just a motherboard without a monitor or keyboard) to the latest iWatch, here is a brief overview of the chronology of Apple's innovative products:
- Apple, founded by Steve Jobs and Steve Wozniak, started out in the business of kit computers with the Apple I. This initial production run, although popular as a collectible now, will mainly be remembered for helping the company get enough capital to build the Apple II in 1977 – the same year Apple officially incorporated. Wozniak primarily built both these computers and Jobs handled the marketing side.
- The Apple II drove the company’s revenue until the mid-1980s despite the hardware remaining largely the same. Apple attempted updates like the Apple III and the Apple Lisa, but these failed to catch on commercially. Although the Apple II was still selling, Apple as a company was in trouble when the 80s began.
- The 1984 release of the Macintosh was a leap forward for Apple, but in the intervening years between the Apple II and the Macintosh, IBM had caught up. Disappointing revenues from the Macintosh and internal struggles for control led to Apple’s board dismissing Jobs in favor of John Sculley. Jobs left Apple to work on NeXT Inc. Under Sculley, Apple started growing its product lines.
- Sculley served as Apple’s CEO until 1993. During those years, Apple enjoyed strong growth as it created new products, including laser printers, Macintosh Portable, PowerBooks, the Newton, and much more. Apple products continued to sell at a premium, so the margins were generous for Apple and led to strong financial results. During the same period, however, cheap computers running Windows were serving a much, much larger middle market for people who wanted home computers but could not afford a Mac. By comparison, Apple seemed to be stalling even though it was making money.
- Two CEOs, Michael Spindler and Gil Amelio, failed trying to turn the tide on the relentless spread of IBM clones running Microsoft. Microsoft's operating system, Windows, was becoming the industry standard and Apple’s OS was showing signs of age.
- Amelio set about addressing the OS issues by buying NeXT Inc. – the company run by none other but former Apple founder Steve Jobs. (For related insight, read more about Steve Jobs and the Apple story.)
The Second Chance CEO
From the introduction of the Macintosh onward, Apple has either been a reflection of or a reaction to the management of Steve Jobs. In the Macintosh, Apple was trying to create a machine that made computing simple and enjoyable for the user. Job’s, in particular, was out to create a user experience that would convince everyone to buy a Mac. Jobs believed a truly revolutionary product couldn't depend on customers’ needs and wants because the customer can’t understand the quality of the product until he or she is holding it. Unfortunately, he was ahead of his time in 1985 – precisely 12 years ahead of his time.
When Jobs overthrew Amelio and took the reigns of Apple once more in 1997, the hardware had caught up to his vision for all things digital. He launched the iMac with a strong marketing campaign featuring the “Think Different” slogan. Although Jobs is often given credit for spending the money and time on marketing, Apple has always been excellent at marketing and branding. The real difference between the iMac and all the products preceding it was the beauty and design.
It was not a tower and monitor setup like every other PC on the market. The iMac almost looked like a racer’s helmet photographed at speed, a colorful blur sweeping back from the screen. In 1998, the iMac was the most aesthetically pleasing machine on the market. It was the computer no one knew they wanted until they saw it. It was elegant and, thanks to the OS upgrade, it was user-friendly.
The iMac was just the start as Apple released a string of hit products that reflected the new focus on elegance and user experience. These included the iBook, the iPod, the iPhone, the MacBook Air, and the iPad. The iPod became the category killer in MP3 players, the iPhone essentially launched and then dominated the smartphone market, and the iPad somehow convinced millions of people that they needed yet another screen to consume content on.
All of these devices were perceived as being better in quality – and certainly in design – than competing products. Jobs was relentless on design and indoctrinated the entire culture of Apple into the art of design. The other point he brought Apple back to in his second tenure is the ease of use. After a few minutes of using the wheel on an iPod or tapping icons on an iPad, these new forms of control became part of the simplicity that makes Apple so appealing. Now every product update from Apple is anticipated by the media and the general public in addition to the fans that the company had from the start.
More importantly, all of these products moved Apple into a new business model of creating a tight ecosystem of hardware, software, and content. Apple didn’t create iTunes to be a simple program for users to transfer MP3s onto iPods, as was the case with many of the other manufacturers’ offerings. Instead, the company attacked the concept of an album by breaking them into songs that would be sold individually at a fraction of the price of the whole album. The same process took place with software. Many popular computer functions could be done on Apple’s mobile devices using stripped down apps – available of course, on Apple’s App Store.
Being the first big mover into many of these markets, Apple built the stadium and set the rules for the game. When you pay for books, movies, apps or music on an Apple device, Apple gets a cut. Of course, this business doesn't generate as much revenue as selling an iPhone or an iPad where the markup is much more generous.
That said, it is the content you buy through Apple that locks many people into buying Apple again when their i-device gets on in years. So the content part of the ecosystem pays off for Apple in the short-term and the long-term. Once you migrate to Apple because of the design or the simplicity, it is the integration with your content that keeps you there.
The Post-Jobs Era
Steve Jobs died in 2011 of pancreatic cancer. Serving as CEO until shortly before his death, Steve Jobs turned the reins of the company over to Tim Cook. The post-Jobs era at Apple has nonetheless been a success by most measures, with Apple continuing to be the dominant tech company in both market share and stock price.
However, some analysts feel that without Jobs as the creative force, Apple has become solely iterative in its tech releases rather than transformative. The major release of the post-Jobs era has been the Apple Watch. In the absence of a groundbreaking new product, Apple is heavily reliant on the production cycle of the iPhone to power its financial success. Critics say that without Steve Jobs at the helm, Apple has lost its innovative edge in recent years and is riding on its brand to drive sales. Its Apple Watch, for instance, has not drawn the same enthusiasm and cult following as its iPhone did when it was first launched.
On September 10, 2019, Apple held a social media event in which it announced new services and upgraded editions of familiar products. In many respects, the 2019 announcement was more of the same. Apple did reveal a new subscription service for video games called Apple Arcade and an update regarding its Apple TV+ streaming video-on-demand service, first announced in March of 2019, but other upcoming offerings focus on upgrades to existing products. The 7th-generation iPad, for instance, includes an expanded 10.2-inch Retina screen as well as some added multitasking features, though it is not a wholesale revision of the popular tablet. The 5th-generation Apple Watch also includes an upgraded display. The product that investors and customers alike are perhaps most keen to learn about, however, is the latest version of the iPhone, Apple's iconic smartphone. The iPhone 11 is expected to maintain the same basic design of the phone as the last two upgrades, which has prompted some investors to yawn, according to CNN.
Yet, the company still produces some of the best products with the most integrated ecosystem, but the gap between Apple and competitors like Samsung and Google is no longer as pronounced as it once was. Indeed, companies like Samsung are increasingly poised to take the lead when it comes to product innovation: just days ahead of Apple's iPhone 11 announcement, Samsung revealed a new line of 5G and foldable smartphones.
The Bottom Line
There is a fairly good chance that you are reading this article either on an Apple device or with one near you. Maybe you are doing it on a MacBook Air while listening to an iPod touch and occasionally glancing at the newest Apple Watch for alerts from the iPhone 8 in your pocket. The reason behind that – and behind Apple’s success – is that its devices are beautiful to look at and a pleasure to use. That's why the company has such a powerful brand and lofty stock valuation. The marketing helps and the media and fan frenzy never hurt, but it is the quality of the products that drive Apple's success. Add to this the iEcosystem that makes it much easier to stay with Apple than try something new, and you have a story of success that is going to continue for quite some time. (For related reading, see "Apple's 5 Most Profitable Lines of Business")