If Apple, Amazon and Google ⎯ my tech industry standard-bearers ⎯ were each confronted with an existential threat, who would fare best, and why?
What is an existential threat? In short, it's a doomsday scenario that threatens one's very existence, changing the rules of the game for survival going-forward.
I came to ponder this topic after I read Andy Zaky's excellent analysis of Apple's stock price performance, where he convincingly argues that Apple is the single most undervalued large-cap stock in America.
Reading it, I struggled how to wrap my head around why a dollar of Apple earnings were worth only 68 cents relative to the Google earnings dollar, and a truly feeble 14 cents relative to the Amazon earnings dollar (based upon each company's price-to-earnings ratio).
Don't get me wrong, intellectually I get it, having written on investor dead zones many times over the years.
That stated, it simply begged the question of whether Apple's investors are so skittish on the company's future prospects that they are blithely willing to dismiss its current performance, especially in light of Apple's tremendous acccelerated earnings growth.
Then, I read a Wall Street Journal piece on how Google is planning to compete with Amazon Prime via a one-day shipping program to be orchestrated in tandem with third party retailers.
This brought me back to the myriad of Google initiatives over the years that while seeming to have a larger purpose in the company's core business, lack the rigor of experiential focus and more pointedly, the 'show me' factor of direct pressure to produce real oxygen in the form of sales and profits.
The juxtaposition of these two stories transported me back to a conversation I'd had years back with one of my co-founders in a company that we'd recently sold to the '800 pound gorilla' of the segment.
Ruminating on whether we should hold onto our stock from the sale or cash out, my partner raised a question that I'll never forget.
"Do you think that if XYZ (name witheld) faced a major disruptive threat, that they have the DNA, secret sauce and intestinal fortitude to re-group and rebound?"
I didn't believe that they did, and that was that.
Rise to the Challenge, or Wither Away?
The lessons of the past is that there is no 'one right way' when faced with overcoming existential threats, as evidenced by how differently Intel, Microsoft and Apple responded when faced with potential doomsday scenarios.
In the case of Intel, the strategy when confronted by the commoditization of their original DRAM business was to re-invent themselves as a Microprocessor company.
In the case of Microsoft, threats such as the emergence of network operating systems, the rise of TCP/IP as a global communications protocol and the ascendance of the Web-browser and web-based apps were reconciled via an "embrace and extend" platform-centric strategy.
In the case of Apple, the strategy was highly pragmatic. First, they shored up the 'mother ship' Macintosh business by embracing their tight integration of hardware and software, and then they leveraged this position to invent the future via a 'halo effect' approach of self-cannibalization, new product creation and derivation, coupled with managed distribution channels (e.g., Apple Store, iTunes, App Store).
Most companies, however, lack the necessary combination of acumen and ego attenuation to make such reboots, and as such, the tech industry is littered with the remains of once-great companies that are either dead or strategically irrelevant, such as WordPerfect, Novell, Borland, Nortel, Motorola, Netscape, AOL, Sony and Yahoo, to name a few.
Where do Apple, Amazon and Google Fit in this Mix?
To the extent that Apple has faced multiple existential threats in its history, and A) has emerged bigger and stronger than ever from its experience; and B) has multiple members of its management team who remember the dark days, common logic says that the company has both the DNA and culture to overcome such threats.
Similarly, the company's strong track record of R&D is anchored by a rigorous focus on only pursuing new product initiatives that have a long-term path to economic durability, which bodes well for them relative to their peers, Steve Jobs or no.
What about Amazon? Interestingly, the company has been repeatedly battle-tested in segment after segment as a e-commerce provider, each time emerging stronger than ever.
Moreover, the company has been pronounced dead by investors more than once in its history, toughening its skin, and equally important, fomenting a culture of continuously improving the core business, while expanding into new domains.
And while the company's R&D acumen is not quite to the level of Apple, Amazon has been able to accomplish its moves in a segment where wafer-thin operating margins are the norm, shielding it somewhat from the 'fat and lazy' mindset that has undermined many a company.
Where does that leave Google? The short answer is that we don't know. The company has never faced material risk to its primary revenue-generating ad business, and even though many (most?) would agree that the core Google search service is less magical and a bit long in the tooth, there are, for the moment, no direct threats to that business either.
Simply put, the company has never been battle-tested for operating in adverse environments, and frankly lacks both the R&D proof points that they can create new product lines which generate material sources of revenue and/or a cohesive sense of how the various piece parts fit together holistically. I would, however, give them credit for getting better on that latter point under Larry Page, as I wrote about here.
Netting it out: If a company's stock is a reflection of its current performance relative to its past, measured against its prospects and risks for managing for a better tomorrow, it seems clear that Apple is the gold standard in managing through existential threats, Amazon is the silver, and Google is the great unknown.
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