"We thought we were betting bold. We didn't bet high enough." - Apple CEO, Tim Cook
Unless you are living under a rock, by now you’ve heard all of the platitudes about Apple’s jaw-dropping earnings that are so big, they make my head hurt.
$46.33 billion in quarterly revenue, $13 billion in quarterly profit, and $17.5 billion in cash flow from the quarter. This on unit sales of 37M iPhones, 15.43M iPads, 15M iPods and 5.2M Macs.
In fact, in the annals of largest quarterly profits of ALL-TIME, this is #4, and Apple is the only example in the Top 20 that is NOT an oil and gas concern.
In other words, conventional wisdom that Apple can’t win is dead, and thus, it’s high time that we start to ‘think different’ about what makes for great user experiences, great products and great companies.
But first, let me shine a light on the fundamental biases that have colored Apple’s skeptics over the years:
- Apple can’t Win: The basic premise here is that by dint of a magical asteroid hitting planet earth, Apple first stumbled upon an iPod, then an iPhone, and then an iPad. But now that the competition has figured out what they’re up to, Apple’s can’t possibly win. The conventional wisdom here is that every product is destined to become a commodity, and when it does, a company like Apple, which has built its business on creating proprietary differentiation, must lose. Honestly, this one should have been laid to rest with the other bit of conventional wisdom about consumers not buying ‘premium’ products in bad economies. If the recession taught us anything it is that consumers won’t be frivolous, which simply means that they won't buy cheap crap that doesn’t last, OR over-priced goods that don’t deliver true value. Few consider Apple products to be in the low-value category, and increasingly, Apple has learned how to deliver that value without leaving pricing overhang for the competition to outflank them, a lethal combination. Ironically, in the area where Apple most clearly lost, the PC wars, the price of winning has been death or outright market abandonment for Dell, HP, IBM and Toshiba! Meanwhile, Apple hums along with the Mac breaking all-time unit sales records and outpacing the growth of the PC industry as a whole (+26% year-over-year for the Mac vs. 0% growth).
- Android is Inevitable: This bit of conventional wisdom is the kin of the 'Apple can’t win' mantra, and it’s driven by two fundamental bits of misunderstanding. One, Android vs. iOS is not Mac vs. Windows all over again, as so many non-thinking analysts and media types regurgitate mindlessly. Case in point, Android’s success in smartphones has hurt Apple’s iPhone business not one iota. If anything, by Android accelerating the demise of the feature phone, that catalytic event has driven more consumers, more rapidly into Apple’s arms. Further, owing to the fractured nature of Android, whatever benefits users have seen with their Android phones is NOT translating into any 'halo effect' or loyalty for that same buyer as they start contemplating tablets (where the lure of carrier subsidies do not exist). Contrast that with iOS, where entire families standardize on iPod touch, iPhone and iPad because it is a no-brainer owing to the curation of the platform, the range of both media and apps, the tight integration of services (iTunes, App Store, iBooks, iCloud) and the friction-free nature of its logistics from developer tools and distribution, to discovery, monetization and cross-pollination between devices. Put another way, if Android is winning, then Apple must feel terrific about 'losing' to the tune of 315M cumulative iOS devices, with 62M devices added during the holiday quarter.
- Horizontal is Best: As alluded to above, it is held as gospel that the path to market success is to build just a piece of the solution, be the best at just that piece, and then look to third-parties for the rest. The sad irony is that this thinking has pushed solution providers farther and farther away from their customers, led to product experiences that are confusingly-complex at best, babble-speak at worst, and manifested in sales and support channels that are blind, deaf, dumb and stupid. Very clearly, the Apple model of innovating the big idea, building the entire solution, and then tying the entire value chain together, down to the level of retail presence, is so at odds with conventional wisdom that it simply demands that conventional wisdom change.
- Open will Always Prevail: This little bit of double-speak has been proffered in recent years by Google who, let the record show, is open-ish in areas that they seek to commoditize, but quite happy to remain closed in the areas that they monetize (e.g., AdWords, AdSense, Search algorithms). In fact, smart folks should bucket this one with the false bit of conventional wisdom that you can’t beat free. As privacy advocates are quick to note, free is often too high a price to pay when the true price of free is someone selling YOU (and your data) as the customer to advertisers, direct marketers and the like. Hence, in the post-PC universe one envisions a world bifurcating between well-rendered, well-supported products where the customer pays for the product, but knows exactly what they’re getting; and free products, where you get what you pay for; buyer beware. In truth, customers buy outcomes: they don’t buy attributes; and open, which has many conflicting interpretations, is an attribute. Buy the full dining experience, not the raw ingredient.
- Without Steve Jobs, Apple is toast: Like Walt Disney and Henry Ford before him, Steve Jobs is a once in a 100 years type of leader. Hence, it must also follow that once he is no longer in the picture, Apple will return to its mediocre ways. While it’s way too early to gauge the efficacy of this one, what conventional wisdom does not account for is the fact that: A) Apple (under Jobs) built a very strong, and deep management team, virtually all of whom have been indoctrinated into the Apple Way for a decade or longer; and B) With Jobs battling cancer for the last eight years of his life, the transition plan was implemented in practice on a regular basis, what with three different health-related breaks forcing the issue.
Netting it out: My hope is that in all industries, not just tech, business leaders will take the time and have the intellectual courage to reboot their sensibilities about conventional wisdom, and what they have been taught to think is the 'one right way.'
It’s time to Think Different, inasmuch as Apple has proven yet again that there is another way, and it delights customers, creates serious halo effects, leads to game-changing new products, creates institutional leverage, and makes the creator a shit-load of money.
Who wouldn't want to emulate that? Our differentiated economy depends upon it.
- Independent Analyst Andy Zaky of Bullish Cross deserves serious props for calling this earnings blowout back in December. What I love about Andy is his analysis is crisp and clear, and unlike the folks that write 27 different position pieces, and then spotlight the two that are right, conveniently ignoring the 25 that are wrong, he writes 1-3 pieces per month. The full piece is worth a read.
- Tim Cook has consistently asserted that the iPad and tablet market is destined to be a bigger market than the PC, noting that iPad outsold the US PC market in the recent quarter. Along those lines, he had a great comment where he noted that you can SEE how the iPad is winning in market-by-market in segments like consumer, retail, pharma, education, and financial services, and cited lots of specific use case examples to prove the point. I'm certainly seeing this playing out in my daily travels, aren't you?
- For all of the banter about Apple’s legendary secrecy, it’s ironic that their earnings calls are so transparent relative to earnings calls at Amazon, Google and Netflix. Whereas prying metrics from the other companies is like pulling teeth, Apple seems more than happy to breakout product lines, geographies, channels, market segments and the like. You know the axiom that you can’t improve what you don’t measure. Perhaps another appropriate axiom should be that you can’t really trust what you can’t measure, and Apple is very trustworthy in this regard. No fuzzy metrics.
- One clear change in todays call was that for the first time, Apple acknowledged that they are now in ACTIVE mode in figuring what to do with their massive pile of cash, which is approaching $100B. Nothing specific was cited, but it’s perhaps a tacit acknowledgement that they either have more cash than they know what to do with, or that they are contemplating something game-changing that will take a lot of cash (buying Comcast, DISH or DirecTV?).
- I was heartened to hear that per store sales are rocking at Apple Retail, hitting $17.1M in the last quarter versus $12M in the year-ago quarter (up 43%), which to me suggests that the impact of halo effects are tipping into another gear, as people default to the stores and buy for their entire family, as opposed to piece meal buys just for themselves. The company tracked 110M visitors to the stores vs. 76M the year before, which translates t 22K visitors per store per week. Cited was the role of Easy Pay in enhancing the ability to handle sales of in-stock items on busy periods, and the ability to order online and pick up at retail, all of which are subtle indicators of how even in a seemingly played category like retail, Apple continues to tweak and evolve. Mind you, the holiday period is an outlier relative to the other three quarters, but Retail is a game-changer when it works, and it is working big-time for Apple.