Top Five Reasons Why Apple’s Right and Wallstreet is Wrong!

3:38 pm, July 23rd, 2008, Leigh McMullen

Wall Street’s reaction to Apple’s traditionally conservative guidance by the brain trust that drives the US equities markets has further convinced me that most of these jokers (and our economy) would be better off if they all just played roulette. Taken with the bitter pill that better than 80% of fund managers out there can’t manage to beat the S&P 500, and it’s no small wonder that the investment banks are falling out like teenage girls at a boy-band concert.

Apple’s business strategies are as foreign to Wall Street as fiscal accountability, but there is no denying Apple’s success.

Hit the jump, and I’ll explain the top five reasons why Apple is not just the best consumer products company, but one of the best run companies out there period.

Apple defies conventional wisdom when it comes to running a company. When most experts are advocating openness, they’re the definition of closed. Where most feel that transparency and lack of hierarchy cultivates innovation, Apple is a totalitarian dictatorship. When the entire PC industry was focused on low-cost commodity hardware, Apple, seized the most profitable niche right at the top.

#5 Slow and Steady wins the Race.

Apple’s growth since the Return of Steve has not been explosive. It’s been steady growth, even when market forces were eroding it’s competitors businesses. While Dell has been squeezing vendors, its rapid growth in the 90s caused its internal support staff to balloon. Apple’s disciplined slow, steady growth has limited the growth of it’s internal bureaucracy, while it continues to manage vendors.

Expect more of the same. Despite its cash on hand, Apple will not be buying Tivo or Circuit City/Blockbuster. Instead, it will focus on internal R&D and small point acquisitions.

#4 The Anti-Microsoft Approach to the Enterprise

Microsoft’s “Developers, Developers, Developers” motto is more than just the chorus of the Monkey-Boy Dance. It has been the foundation of Redmond’s business strategy for 15 years. Visual Basic was the Plymouth Rock of this strategy. It enabled developers to create productive business applications quickly and easily.  From this MS has grown a suite of platforms that makes it appear intractable from the enterprise.

Not so.

Someone in Cupertino has been reading their Sun Tzu: Fight your enemy where they are not. There are two routes into the enterprise: Developers and End Users. Trust me here: End Users are a MUCH more compelling force.

#3 Build, Refine, Dominate, Refine More.

This has been Apple’s strategy from the get-go. It enters a segment, refines its position in that segment, and then dominates the segment. Rinse and repeat — Apple then continues to innovate.  Examples: iPod, Multimedia, (Final Cut, Logic Pro, etc), personal creativity (iLife).

Expect exciting things in the emerging segments of productivity and mobility.  iWork and Filemaker Pro / Bento  will continue to evolve, until they are something more akin to Final Cut Studio, rather than iLife. Similarly, iPhone is merely the first hit in the mobility game that will likely culminate in a true cloud computing based mobile platform with a variety of devices.

#2 No Opening of the OS.

Opening the OS is a non-starter for Apple. It would dilute its core revenue stream, as well as opening up a Pandora’s box of troubles. One could argue that the new revenue streams might offset the bottom-line ding, but there’s no arguing that supporting the Tower of Babel of PC hardware would be problematic, and the hit to the “goodwill” of the company in the form of customer satisfaction would quickly erode those gains.

That said, 33 percent is the magic number. After Apple passes one-third market share it’s going to start getting pinged for its “closedness.” Apple’s total control over the whole platform, which makes the Mac awesome today, will begin to look anti-competitive in the future (look to iPod / iTunes lawsuits for examples).  Allowing other OSs to run on Mac hardware provides Apple some Kevlar on this account but not much. Mark my words: there will be calls to open the OS up to other platforms.

The solution: Look for “Unbreakable OS X” — a version of OS X that runs on native Apple hardware, and / or licensed 3rd party hardware configurations, and an “Open OS X” variant, without the support, or claims of bulletproof-ness of the current version.

#1 You.

There is only one other company that creates anything close to the amount of customer loyalty and passion as Apple: Harley Davidson. That said, I strongly suspect that most Bikers weren’t listening to their recent earnings call with baited breath, dissecting nuanced allusions to “Future Product Transitions”, or flooding the Harley blogosphere with transcripts of analyst calls and analysis.

Unlike Harley, which strives to be a company “Of Bikers for Bikers,” Apple’s strategy has been to stay far in front of consumers, and daring us to try and catch up. It’s a subtle, but effective manipulation, that constantly leaves us wanting more.

That’s my list, but I want to hear from you, what do you think are the keys to Apple’s success?

Posted by Leigh McMullen in Apple | Comment on this article