Apple’s finite loop

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Finite loop

As a 20-year Apple user who has “infected” almost everyone close to me with convincing reasons to abandon subprime computing platforms, it hurts me to have to group and introduce the reasons why I think Apple’s loop, after (and some time before) Steve Jobs’ passing, is turning gradually finite.

Toss the pageantry of false positivity

Now, one could take this message as a negative or a positive depending on which side of the competition of technology innovation you are on. Yet, I am neither a fair-weather friend nor a weapons-trader in its competitive war. I am an independent thinker more worried about the only thing that matters: value to customers. I (still) admire Apple for its unique, albeit not always perfect, desire and pursuit of authentic innovative value.

This article is meant to be an honest appraisal of the business of innovation and to ensure innovation’s role in delivering authentic socioeconomic value is one the public can trust. And with Apple as the spiritual and commercial leader in innovation it should expect not only to be held to the highest of standards by the public, but also be intrigued by someone in their court who, when they had a lot less wind in their sails, was rooting for the company for fundamental reasons without all the proof-points in place just yet.

The trigger

The latest price reduction in the MacBook Pro line forced my hand to collect and share the many finite patterns I see developing at Apple. Some patterns may not be immediately obvious or covered by the pundits, but may be useful in helping Tim Cook drive new levels of economic excellence we ought to expect from a leader.

The trigger came from the pageantry of false positivity by which one would applaud the recent price reduction of the MacBook Pro sold to customers. And even though the MacBook Pro 13″ Retina is truly a product worth buying (I have reviewed it personally), the underlying economics of a $200 price reduction are a bit startling.

Act different

Apple is a producer of prime technology, with a unique proprietary blend of hardware and software, that can demand premium pricing for its products when that innovation delivers consumers a more compelling computing experience and evolution.

But a person who connects the dots and sets their own standards of excellence has to wonder. Why does Apple deploy the equivalent of modern-day slavery in China to save cost – arguable at the expense of American manufacturing – if the consumer value and margin can withstand no less than a $200 price reduction?

Apple succeeds because it is macro-economically different from any of its competitors today. It is the most profitable technology company on our planet, not because it competes on price (downside) but because it competes on value (upside). Apple can continue to do so because it sells to the pertinent needs of an 80% adoption greenfield that has no respect for the past of technology (and thus has no respect for standardization), but the ability of its newly envisioned future.

Apple’s future is secured when it continues to drive the renewable margin-of-value over the finite margin-of-market-share.

The pattern

The pattern I see develop at Apple now is a dangerous one, one that trades the infinite evolution of upstream innovation for the development of finite operational efficiency.

Here are the signals that contribute to the pattern I detect:

  • Since Steve’s passing Apple has not delivered any upstream innovation of significance to top-line growth, but an abundance of downstream optimizations derived from Steve’s long lasting upstream vision, perhaps to comfort a nervous Wall Street. Perhaps dividends will help calm people down too, this quarter.
  • Tim Cook spends too much time publicly discussing details of operational capabilities without the balanced exposure to, and invention of upstream product deliverables that pays the bills. Managing Apple for a long-term strategy means aligning prime resources to vision and upstream innovation. Apple’s execution today is a mediocre extrapolation of what current managers think Steve Jobs would have done, rather than a diligent execution of leadership that knows how to take control.
  • All of Apple’s operating systems are in dire need of re-invention. iOS, OSX and server software need fundamental change, upstream innovation that makes them come to life in serving the digital media hubs we as people otherwise need to manually manage. The improvements are discombobulated and the alignment to a few sets of vectors Apple bets the business on, are eroding and even missing.
  • Some of Apple’s products, by what appears to me lack of deep-dive oversight, despite Tim’s claim to the contrary, are turning mediocre. An address book that holds six-thousand contacts freezes up on every device it is synced to, and sends mail, calendar and other applications in a 40 minute tailspin when you add a single contact. Features prevalent in the distribution of internet content (RSS) disappear from one Safari release to the other, making its users flee to competitive browsers. Shell wakeup and Power Nap differs depending on what MacBook you own. iPhone5 material is sub-par, scratching easily. High level product management decision making has sunken into the deep-dark catacombs of subordinates. Apple is failing exactly on the basis of the prime computing experience and the attention to detail that made it beloved.
  • Apple, despite many proclamations to want to do the right thing, is actually in blatant violation of free-market principles in the distribution of music, books, movies and other digital media. Perhaps because many technologists do not understand the finite nature of greater-fool economics. Those violations in addition to fixed pricing mechanisms and collusion are artificially restricting supply and demand for media, and reduces the viability of creative freedom to Apple’s flawed understanding of freedom. Worse, in the end Apple’s rigid stance in digital media is therefore finite, and by virtue of its stronghold, so is the future of the majority of artists that submit or depend on Apple’s stance.
  • Price erosion. Less than two days after Steve Jobs’ passing I was offered a business discount on Apple products. Not because I wanted it or desired it. Because the reason for me to buy Apple has always been value, not price. For the first time Apple also put previous generation products and next generation products in the same keynote slide, to catch the buyers who can’t afford current generation products. A slap in the face of renewable value.

There are many more signals I could list that contribute to the pattern I see. But for the sake of time I will now stop here. A complete log of the finite loop signals of Apple can now be found here. All my articles on Apple, including positive, are here.

I gain nothing by criticising Apple. I do not get paid to write this article, and I don’t advertise. I have friends at Apple who will frown at me, and I have a book to finish (on Renewable Economics™) that will get delayed by this distraction. And, I pledged my hard-earned allegiance to Apple way before the masses did.

I want Apple to continue to do well. I want Apple to grow up, to become the responsible adult it needs to be to appease new customers with incredible and renewable innovation. In fact, all of us in the technology business need to learn a hard lesson that to encircle the world, we better learn how to embrace it. The lesson Apple is fortunate enough to face first.

And if that requires me to be the tough daddy to get all of us in the technology business there, so be it. Happy Valentine’s.

 

 

We encourage comments that are relevant to our observations, conclusions and the specific topics discussed in this blog, either in agreement or disagreement. Leaving your insightful comments here will ensure others can learn from them too.  Keep in mind however this is not a place to spew your own theories (go write your own blog), but the best place to question or approve our observations.

About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.

  • Brent

    “And if that requires me to the tough daddy to get us there, so be it”. Tough to whom? Apple’s board?

    • http://venturecompany.com/ Georges van Hoegaerden

      Tim or the board, depending on whomever at Apple can separate the merit of realism over the pageantry of false positivity and stifling partizan negativity.

      Tim needs to realize that to build a strong company moving forward, he needs people who dare challenge him, and can bring the best out of him in taking Apple to the next level. The next level of ensuring at least Apple’s technology innovation plays an authentic role in the pursuit of a global meritocracy. The economics of which I am sorry to say, Steve Jobs had no exposure to nor appetite for. Steve did a remarkable job in recreating Apple, now Tim needs to take it to a much higher economic relevance. With products that from the beginning support how the world is going to evolve. That means product managers are no longer the sole decision makers on product strategy moving forward.

      I’d be happy to jump on his plane with him and teach him a lesson or two.

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  • Arun V Mathew

    Dear Mr.Hoegaerden,

    Nice to see your this article. Your article just echoed my thoughts, when I seen this price reduction circus, in the broadsheet today.

    This in my view, reveals only that, the organization is fast losing confidence in its inherent ability to innovate. It is mentally slipping from its leadership posture to me-too attitude.

    Once they start entering the fray of price war field, they may even run out of needed thoughts and funds to innovate.

    In fact, you’ve rightly pointed out that, the Apples customers look for quality and not price – which I guess, they have forgotten. They need not frown upon you, but thank you for reminding that.

    For any organization, understanding who their customers are, is the key point of doing business.

    If Apple don’t take this cue from you, they might face the same JC Penny faced – where, when Johnson removed the SALE concept, JC Penny’s customers who were used to that concept, moved away.

    Hope Apple don’t chase away its customers.

    So, it’s high time to take a decision for them, whether they need to continue as kings or as subjects.

    One can’t be both. Once again, I congratulate you for this article.

    • http://venturecompany.com/ Georges van Hoegaerden

      Thank you.

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