Will Apple follow Microsoft and Nokia, or a new different drummer?

By: Marty Anderson, Senior Lecturer in Management

About a year ago, I wrote a blog piece that argued Apple’s Mountain Lion exhibited a “command” structure that was heavily based upon the social network patterns of American teenagers, and that it could easily be a limiting factor for the company, as it entered global markets with very different social and communication network patterns.

My sense was that Apple was standing at a cliff, an inflection point, and it was choosing complexity and attempted control of users, over the creativity, freedom, and simplicity made the company amazingly successful.

Mountain Lion was a clear attempt to link IOS devices and OSX devices in “The Clouds”. And it was messier than most Apple OS upgrades, because it had too many moving parts, and it tried to limit users to Apple’s own proprietary iCloud.

My note was picked apart by Harry McCracken of Time, and lambasted by the anonymous critic “The Macalope” (surprise).

Harry suggested we would see if I was right by waiting a year. So, I got to thinking about that this morning.

My complaint about Mountain Lion was that it was attempting to control the behavior of its users, beyond the PC or device, into their communication space.

Apple, like many companies that are seeing their growth slow, is trying to forcefully induce people to add more Apple services to Apple devices. It is also trying to make it harder for Apple device customers to use the services of other companies. The battle among Apple, Microsoft, Verizon, ATT, Comcast, Google, Microsoft, Amazon, and a host of other maturing companies has shifted from devices, and core services, to the attempted control of users’ electronically mediated social, intellectual, and entertainment behavior.

Those of us who have been working with companies around the world for decades will recognize this as a classic reaction on the part of senior management when they run out of entrepreneurial magic. All companies hit sweet spots, then slow down. The next step is a crucial test for management. Do they try to do the same old thing faster and more forcefully? Or do they get past their fear, and large paychecks, to find something completely new?

This process is especially difficult for companies whose stock is listed in US or London exchanges, because (since 1985) the analysts in these markets rarely care about long term value, they want churn, churn, churn. Most make their money on stock trades, not on long term value created for customers. This means it is a rare top management team who can ignore the voices screaming from The Street for better quarterly growth. Making entrepreneurial shifts in large companies usually means slowing top line growth to grow smaller hot segments. Wall Street rarely has the vision to see this as necessary. Top management often finds it very difficult to jump off the entrepreneurial cliff, and they try to satisfy all stakeholders, which reduces long term value to all.

More than 80% of the management teams in large American companies fail to make their companies more entrepreneurial at these inflection points. They try to use their market and supplier power to protect their historic status quo.

What was Microsoft’s reaction to Netscape? Bolt a browser onto Windows, and then use their sales force and pricing power to push this combination into the marketplace. For 16 years, Microsoft has been using a variation of this strategy, designed to protect its Windows monopoly cash cow. It was amazingly obvious that Microsoft had monopoly influence only in the “enterprise” segment, and was weak in the creatively emerging “social” and “apps” spaces, especially in mobile.

But Microsoft kept pushing 10 flavors of “msn.com” and its Windows/Powerpoint monopoly.

It was only last month that Microsoft truly reacted to the “internet revolution” of the 1990’s. It announced a reorganization that recognized Windows may be an anchor, not a sail.

Nokia had the dominant share of mobile operating systems worldwide. It stuck to devices. See result.

AOL, Lycos, Novell, IBM, RIM, Yahoo, ATT, Comcast,….all of them and their competitors have hit this wall at some time. Most are slow motion versions of their younger selves, with only limited new entrepreneurial additions.

So, where is Apple a year later?

Stock price down 40%. I don’t blame this on Apple, it is an external aberration, driven by the way Wall Street hypes everything for trading volume. Stock prices are the newest American “pop religion”…..a “faith based” institution.

Unit volume slow, despite a rapidly growing global tech market. This may be a management problem.

Most people don’t understand that Apple’s extraordinary success was based upon very low volumes of special devices (and simple services). They were selling largely against cumbersome competitors (monopoly Microsoft), so Apple only needed to get about 10% of the buyers in the PC and device market to buy Apple at extraordinarily high prices, and Apple got insane margins.

Simply put, Apple leads in the sub-segment of “smart phones”, but as all phones “get smart”, Apple can’t get the same high profits if it pursues blind volume. Over its history, as Apple became a “volume” player it lost out. See the Scully years.

The “Pad/Pod” market is slowing, and Apple seems to be half-exiting the “keyboard” market….sort of like trying to be “half-married”. Their laptop devices are down. The iTunes links among devices have gotten complex and buggy. They still don’t let iTunes play well with other companies…while Amazon creates better and more flexible cloud options that work on Apple devices. Quality reputation is down. All this suggests early stage management schizophrenia. Probably having interesting debates in their confidential meetings.

Apple’s user culture loses passion on Mountain Lion. See user reviews. Many sound like people who took out a large loan on a shiny new car, only to find that it is frequently in the shop for repairs.

iCloud probably too complex and not well executed across all users, and facing stiff competition against more flexible competitors. Notice the detailed complaints on sync across devices, iTunes controls, problems with messaging controls, etc. There is not a revolution here, but the user reviews of the many parts of the operating system, and the cloud, mail, messaging array are more like those of Microsoft than those of Apple past.

Hints that design integrity is confusing to the new management teams. Go to the details of customer complaints, leaks of screen sizes, conflict between Adobe and IOS, etc. No big disasters, but lots of annoying mosquito bites are replacing praise for Apple.

Bottom Lines:

  • 10 years ago the personal connectivity market was largely about devices and a limited number of content and social network options. Apple’s magic was well-designed devices…linked to a few slick…very clear…. iTunes-like network apps…..at low volume.
  • Apple is still a very successful company, but its magic is visibly slowing down. The cost of complexity I mentioned last year is clearly at work, for Apple and users. This is not in doubt and is evident in financial results, sales unit volume, and the wide range of things customers now have to complain about. Apple has its toes in many more markets and products than it did a few years ago; the results are obvious in the data.
  • Apple may surprise us all with some kind of magic device-content-network move this fall or winter. But most of these would require a big move, like acquiring fixed cost networks, or content.
  • Apple TV? Really? I could be wrong, but what would be so exciting about entering a non-mobile, low margin, high content price, lawyer-infested, government regulated, saturated market like TV?… that would also make Apple dependent on heavy network “plant”….. Maybe if Apple TV could do time travel…..?
  • Health Care? Sure, but why not let the users suck Apple into the market, as they are now doing. Apple just needs to keep their devices “system agnostic” to be successful in health care.
  • If Apple was really gutsy, we would see it intentionally cut back on its content and social network complexity, to focus on the artsy stuff it does well. Then it could spin out the “enterprise” and “entertainment” work into separate companies in a “keiretsu”…letting these innovators work freely…without forcing them to try to match some increasingly-average corporate strategy. This is effectively what Steve Jobs did the last time Apple developed an “average” strategy. Scully tried to “Pepsi” the company. Jobs was forced out and planted seeds in a “keiretsu” of NeXT, Pixar, Disney, et al. Then using what he learned from the keiretsu, he came back and “de-Pepsi-ed” Apple and launched the social connectivity probes of ipad, itunes, etc.

I stand on my observations of last year:

  • Mountain Lion was just one piece of the increasingly complex spaghetti that is now the Apple social-technical footprint.
  • The network array Apple built is designed on an American, urban, high bandwidth, younger, advertising-driven, fickle culture.
  • Like all the “social networks” of the past 15 years, these cultural configurations are volatile, and companies who have tried to freeze them in products like iCloud, all experienced the classic 70% entrepreneurial “failure” rate.
  • Apple is seeing the limits of this culture-bound short term strategy.
  • If they re-invent, and anticipate many different global communication cultures, as the “other 7 Billion” grow, then they will do fine.
  • If they continue to try the Microsoft “bolt Explorer to Windows” strategy….not so much.