Looking back at Apple’s unprecedented financial success over the course of this century, I found myself asking: What were the key big decisions that Apple made over the past 12 years that most contributed to its astounding ascent? What were the pivot points where, if Apple had gone in another direction, the company would likely be standing in a very different place today?
I put together such a list, consisting of six items, based on my personal assessments. Before revealing the list, let’s take a moment to reflect back on Apple’s financial path over the course of this still young century.
Apple’s stock history since 2000
When the twenty-first century dawned on January 1, 2000 (unless you count January 1 2001 as the true start of the century, but let’s not go there), the big technology news was that the world had easily survived the dreaded “Y2K bug.” Much less noteworthy at the time was the selling price of Apple stock. On the first day of trading for the year, it closed at a respectable $111.94 per share.
You might think that, with Steve Jobs having been in charge for the past few years, with Apple’s iMac a big success, and with Mac OS X on the verge of being released (the public beta would become available in September), Apple’s stock was set to begin an upward trajectory. If so, you’d be wrong.
After a stock split in June of 2000, Apple’s price fell to $14.88 by the end of the year (twice that value, adjusted for the split, but still much lower that the $111.94 starting point). The price remained stable, staying close to a $15 value, into 2003.
It was only in the latter half of 2004 that Apple’s stock began a significant climb, ending the year at $64.40/share. By this time, the iPod was over three years old and was well on its way to achieving a crushing dominance of the MP3 player market (the iPod mini would be introduced in January 2004).
The stock split again, for a final time, in February 2005, leaving it with a closing price of $44.86. From here, Apple’s stock took off — rising at an increasingly accelerated pace. By the end of 2007, the year the iPhone went on sale, the stock had risen to $198.08. Today, it is selling for more than $560/share (having attained an all-time high, earlier this year, of over $640). To put it another way, if Apple’s stock had not split twice, it would be trading for more than $2200/share!
Apple is now the biggest company in the world, as measured by market capitalization (given Apple’s history, I am still amazed each time I contemplate this fact). The end is not yet in sight. According to at least one noted analyst, Apple’s stock could potentially break $2000/share by 2015.
Apple’s top six best decisions of the 21st Century
The following list represents my choices for the products and technology decisions, since 2000, that were most critical to Apple’s current financial success. I present them in approximate chronological order. A few of the items on the list are no-brainer obvious. Others may seem less so. I am particularly fascinated by those decisions where Apple could have easily gone (and almost did go) some other way.
• The iPod. This is ground zero — Apple’s breakout product. For the first time, Apple had a success on its hands that was not a computer (although you still needed a Mac to use it). The simplicity of the iPod design, and its ability to hold “a thousand songs in your pocket,” put the device in a different league from any of its competitors. This was the beginning of Apple’s transition from a computer company to a consumer electronics company — taking on the likes of Sony and similar firms — a trend that continues to this day.
And what a success it has been. As an MP3 player, it has virtually no competition. As of October 2011, Apple had sold over 300 million iPods. The iPod retains an incredible 78% share of the market.
• The iPod for Windows. As spectacular and successful as the iPod was out of the gate, it would have never achieved its ultimate levels of galactic dominance if Apple had stuck by what it always had done in the past: Keeping the iPod as a device that only worked with Macs. Even if everyone who owned a Mac had purchased an iPod, it would have amounted to small potatoes overall. To really light up the scoreboard, Apple needed to open up the iPod to Windows users.
As cited in Walter Walter Isaacson’s biography, Steve Jobs was very much opposed to the idea of iPod for Windows. He continued to view the iPod as a means of selling more Macs, rather than as a stand-alone product: “By keeping the iPod for Mac only, it was driving sales of Macs more than we expected.” “At one point he declared that Windows users would get to use iPods ‘over my dead body.’”
Most of Apple’s top brass had a different view and pushed for Windows compatibility. From their perspective, restricting the iPod to Mac users was like entering a horse in the Kentucky Derby with two hundred pounds in handicap added. You can’t win. Fortunately, Jobs ultimately relented. This meant porting the iTunes software to PCs, another bold move for Apple at the time. But it all paid off. If Steve’s initial position had prevailed, I doubt that Apple would be anywhere close to where it is today.
• The iTunes Store. Speaking of iTunes software…when the program was initially released in 2001, there was no iTunes Store component. The program was just for music you obtained from CDs or downloaded from the Internet. It wasn’t until two years later, in April 2003, that the iTunes Store was born.
This was another watershed moment for Apple. The music industry was in a panic — with the likes of Napster threatening the collapse of their entire financial model. Apple offered the iTunes Store as the industry’s savior. Apple asserted that users would be willing to pay for downloading music — if it was cheap enough, convenient enough and offered a superior quality product. With individual songs available for $0.99 apiece, and with sound quality guaranteed, the iTunes Store was all of those things.
The iTunes Store has gone on to become “the largest music vendor in the United States in April 2008 and the most popular music vendor in the world in February 24, 2010, when it served its 10 billionth song download.” Today, the iTunes Store is also a popular supplier of movies and televisions shows.
Some in the music industry have been critical of the iTunes Store, complaining how Apple’s control over pricing and distribution has hurt them. They continue to lament that, by unbundling songs from albums, album sales have plummeted. But they are wrong. Apple’s iTunes Store rescued the industry from a self-imposed destruction. At the same time, of course, Apple has tremendously benefited from the iTunes Store. It is now the thousand-pound gorilla in the room, when it comes to music and (increasingly, although Hollywood is fighting back here) for video as well.
• Apple retail stores. When Apple opened its first retail store in May of 2001, you would have been hard pressed to find more than five people (outside of Apple) that expected the venture to be a success. As again detailed in Isaacson’s biography of Steve Jobs, this was a project that Jobs began to work on as early as 1999. There was certainly a need for these stores. In a world dominated by Windows PCs, Apple had had no luck in getting other retail outlets to offer an inviting presence for Apple’s products. As I have described previously, the Apple sections of CompUSA stores were a notorious example of just how crappy the experience could be.
Jobs initially met considerable resistance from his Board of Directors on the Store idea. With good reason. Attempts by other computer companies to offer their own stores had been a failure. For a while, it was uncertain if Apple Stores would ever see the light of day. Happily, Jobs prevailed (as he usually did!).
When the first store finally did open, most journalists and analysts predicted doom. Today, of course, we know that Apple Stores have become a shining star of Apple’s success. There are now 364 stores with at least another 50 planned for the near future. Customer traffic is at a level most other retailers can only dream about. Each store averages about 2,500 customers per day! And probably more than any other thing Apple has done, the Stores have contributed to getting PC users to switch to Macs.
• The iPhone. The year 2006 was the 30th anniversary of the Apple I, the company’s first retail product. If you looked at a list of all Apple had accomplished in those thirty years, it would consist almost entirely of Apple and Macintosh computers. The lone major exception was the iPod, introduced only a few years earlier. Granted it was a huge exception, but it still did not alter the perception of the company as primarily selling Macs.
The iPhone changed everything. The idea of melding the iPod with a phone, eliminating the need to have two separate devices, seemed a natural. As always, the devil was in the details. The first attempt at such a device was a Frankenstein monster called the Motorola Rokr. If you took the worst parts of iPods and phones — and combined them — you would pretty much have a Rokr. If this was the best that could be done, it was not a harbinger of any good news to come.
But then, in January 2007, at a spectacular Macworld Expo keynote, Steve Jobs introduced the iPhone. Competitors were initially skeptical. I’ve read that RIM executives simply refused to believe that the iPhone could do everything Apple claimed and still have an acceptable battery life. They were wrong. Many analysts were similarly less than enthusiastic at first. A Bloomberg columnist wrote: “The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks.”
Happily, Apple again ignored the naysayers. And, with the luxury of hindsight, we know how laughably mistaken those initial critiques were. The iPhone has gone on to become one of the most successful products of all time. Apple sold over 35 million iPhones in the first quarter of this year. Since 2007, Apple has sold over 172 million iOS devices (including iPads and iPod touches). iOS devices now account for 76% of all the revenue Apple generates! When you consider that a super majority of Apple’s Mac sales are MacBooks, this leaves traditional desktop Macs (like the iMac) as almost irrelevant to Apple’s bottom line. What a change from a dozen years ago!
• iOS App Store. When the iPhone was first released, the only apps you could run on it (other than second-rate-citizen web apps) were the Apple apps that shipped with the iPhone. And Steve Jobs wanted to keep it that way. Once more, as described in Isaacson’s biography (and as I have commented on previously), Steve was firmly opposed to allowing third-party apps on the iPhone: “Jobs at first quashed the discussion. He didn’t want outsiders to create applications for the iPhone that could mess it up, infect it with viruses or pollute its integrity.” Only after developing the idea for a “walled garden” App Store — giving Apple “the benefits of openness while retaining end-to-end control” — did Steve change his mind.
I have heard people claim that it was always Apple’s intent to open an App Store. They just weren’t ready to do it at the time of the iPhone launch. Nope. Apple came very close to passing up on, or at least significantly delaying, allowing third-party apps on the iPhone. Had the company done so, it would have been a huge mistake. Instead, the App Store opened in July of 2008.
The App Store created a new category of software: the iOS app — leading to an explosion of apps that can do everything from play games to check your blood pressure. The iPhone today is a digital Swiss Army Knife for the 21st century.
In the end, I believe the App Store is the single most significant component of the iPhone’s success. Without the advantage of the more than 500,000 apps in the Store, the iPhone would be a far more limited device — and it would be far easier for other phones (such as Android) to compete with it. As a bonus, Apple gets 30% of the revenue of every paid app that gets downloaded from the Store.
Need more convincing? Consider this: “iOS devices comprise eighty-four percent of mobile gaming revenue.” More generally, the iPhone accounts for 80% of the profits of all smartphones. Meanwhile, RIM, the company that led the smartphone revolution with the Blackberry, may not be around to see another new year.
Not on the list
A few comments about potential candidates that did not make it to my list:
No Mac model is on the list, not even the MacBook Air. My rationale here is that the Mac alone, no matter how great the product, would have never led Apple to anywhere near where it is today. To the contrary, Apple’s success depended upon moving away from its focus on the Mac.
I also did not include Mac OS X — partly for the same reasons as just stated. Also, even though OS X was released in 2000, its roots date back to Apple’s acquisition of NeXT, which predates this century. So I disqualified it on a technicality. It is true, however, that OS X’s influence extends beyond the Mac itself. iOS is essentially a variation of OS X. Without OS X already established, the iPhone story might have been quite different.
Finally, I did not include the iPad. I believe the iPad’s influence is enormous. In terms of disrupting the workplace — from medicine to education to cockpits to boardrooms and beyond — its reach may be even greater than that of the iPhone. However, I consider the iPad to be a direct offshoot of the iPhone. In fact, Apple was reportedly developing the iPad even before the iPhone was released. Once the iPhone was a success, the iPad was inevitable. As such, although it was a close call, I didn’t see the iPad as a separate item on the list.
From the iPod to the App Store, this collection of products and technologies described here amount to a perfect storm for Apple’s success. They have combined to vault Apple from a dark hole that almost resulted in the company’s bankruptcy in the 1990’s to the almost gravity-free stratosphere where it exists today. And there’s no sign that this upward trajectory has reached its peak yet.
[Note: I will be on vacation for the remainder of May. See you in June when I return.]