Apple is Boiling The Competition’s Frog

Apple has an uncanny tendency to start modestly and build. That’s true for its products, but also for its financial growth. The Q4 results punctuate the turning point: Apple has slowly boiled the competition’s frog and is on pace to reach US$100B in annual revenue, perhaps as soon as next year.

It only took ten years.

Back in 2000, Apple was in the unenviable position of having quarterly revenues that were about the same as Microsoft’s profits. Today, both Apple’s revenues and profits are very much in line with what Microsoft produces - and poised to leave Microsoft well behind.

In other words, as Steve Jobs has said in the past, Microsoft doesn’t have to lose for Apple to win.

Even more exciting is the fact that Apple has been successful in laying a foundation on which to base all its new products. For example, while RIM and Google partners struggle to develop a tablet OS, iOS moved seamlessly from iPhone to iPad. This technical infrastructure is what allows Apple to steadily gain traction and grow while competitors work in disarray. For example, as Steve Jobs said today, Motorola and HTC are developing proprietary UIs for their Android phones to differentiate themselves. That leaves customers to figure it all out — including the 100 or so different versions of Android out there.

Growth in an aggressive, growing consumer market, like smartphones and tablets, depends on how quickly a vendor can deliver coherent products and new products with seamless updates and new technologies. Using iOS on the new Apple TV is a prime example. Here’s another: Mr. Jobs today doubted the wisdom of 7-inch tablets. In his opinion, they’re too small to be a good tablet and too big to be a good phone. Apple user testing suggests that the human finger will have a tough time dealing with tablet functionality and key tablet presentations and features on such a small screen. That could result, he said, in vendors giving up, backtracking, and moving to bigger screens — leaving older products in the hands of annoyed customers and the software, perhaps, orphaned.

The fact that Apple is vertically integrated means that Apple is able to create a 9.7-inch tablet at competitive prices. The competition may be finding that it has to limit itself to 7 inches to be price, performance and battery-life competitive.

Even Google says not to put the current version of Android on these tablets, but vendors are, Mr. Jobs suspects, going to do it anyway. They pocket the revenue and customers are left to rationalize why they bought an inferior product. This is why Apple retail stores are shoulder to shoulder with customers on the weekends.

All that bad decision making, all the poor integration of hardware and software, and the lack of pre-planning for fabulous development tools is what slows the competition down and is what allows Apple to build on growth.

That compounded growth is now coming to the forefront and validates Apple’s strategy for the last ten years. What’s even more important is that this growth is going to continue while the competition remains in general disarray, always playing catchup, always regretting their lack of investments in fundamental technologies, always hoping that Apple will stumble so they can back into success. Annual revenues of $100B for Apple are not far away.