Disciplined innovation: How Apple became a $1trn tech giant

3 Aug 2018

Apple logo on MacBook Air. Image: Emka74/Shutterstock

Apple nearly imploded in 1996. Today, it is the most valuable company on Earth. How did that happen?

In 1997, during a summer vacation in Boston, I found myself sitting in the great library of Harvard University and, with little else to do, I found a computer and looked up the news. The big news in tech on that eventful day (6 August) was that Microsoft had effectively rescued Apple from the jaws of defeat with a $150m investment.

The Cupertino tech icon had endured several years of woeful decline and strategic misdirection. The final straw for those of us who admired the company greatly was that it was about to license its operating system for other manufactures to clone Macs. It was looking like Apple was heading towards an ignominious end. The writing was on the wall.

At that point in the great compute continuum, Apple had already achieved historic status, having moved the needle on personal computing in the late 1970s before PCs became a thing from 1982 onwards, thanks to IBM and Microsoft with the Windows operating system. Even still, the exploits of Steve Jobs and Steve Wozniak were legendary.

On that fateful day in 1997, the real news wasn’t the investment by arch-rival Microsoft. No, it was the news that the prodigal son, Steve Jobs – who had been cast out more than a decade earlier and occupied his time with a new computer company NeXT as well as investing in Toy Story creator Pixar – was returning to the helm.

Today (3 August), almost 21 years to the day, Apple is now the most valuable company on Earth having last night achieved a valuation of $1trn. The tech company’s stock jumped 2.9pc to end the day at $207.39, giving it a market capitalisation of $1.002trn.

Earlier this week, the company reported third-quarter revenues of $53.3bn, up 17pc on last year. It booked a profit of $11.5bn largely due to sales of high-end iPhone X devices.

In the course of 21 years, the Cupertino tech giant staged a turnaround unparalleled in business history.

So, what are the core lessons of this?

Apple focuses on a few good products

Jobs’ return to Apple wasn’t just historic in terms of the compute continuum, it heralded a design revolution. One of the first new products to emerge under his leadership was the distinctive new personal computer called the iMac.

On his return, he hunkered down on design and put his faith in a young designer called Jony Ive. Their first creation was the beginning of the end of beige machines.

The iMac debuted in 1998. It was an all-in-one computer, circular in shape and distinctive thanks to a translucent shell that came in a variety of colours. To my memory, it was the first time that people actually desired a computer, and the company went on to sell 800,000 units in just five months.

Simplicity and usefulness are at the heart of this revolution and Apple has gone on to design a handful of core products without making things too complicated, including today’s line-up of the iPhone, the iPad, the Mac, the Apple TV and the Apple Watch.

Build ecosystems from the ground up

Reflection of Steve Jobs on an iPhone. Image: Stefan Holm/Shutterstock

Reflection of Steve Jobs on an iPhone. Image: Stefan Holm/Shutterstock

When you look at the success of companies such as Google, you have to tip a hat to Apple in terms of the methodical groundwork it puts into creating ecosystems from the ground up. It is a template that other Silicon Valley companies and start-ups all over the world replicate whether consciously or unconsciously.

Many dismiss the company’s closed loop software and hardware ecosystem as puritan and prudish, but it is in fact genius. The creation of the iPod, iTunes and the eventual creation of the iPhone and the App Store are a case in point.

Around the turn of the century, Jobs occupied himself with convincing the music industry to buy into a new licensing and sales model for music that would accompany a new portable digital audio player called the iPod.

Remember, at that time, Napster had already shaken the foundations of the industry, enabling wholesale music piracy while the record labels were circling their wagons.

Jobs had not only steered the creation of a brand new form factor for computing – basically a hard disk in your pocket – but he convinced the labels to take a chance on a new way to sell music.

The iPod debuted in 2001 with online music downloads of $0.99 a song. Within five years, Apple’s iTunes Store was the world’s largest music retailer, with more than 5bn downloads under its belt and growing. This methodical approach was the template for what was to become the biggest revolution in software.

Not long after Jobs debuted the iPhone in 2007, Apple created the App Store to allow software developers to sell applications for mobile devices, packaged in a way that could be installed on phones via cellular or broadband data.

You have to remember that up until that point, software was bought and sold on disks and could only be installed via computers. Apple had transformed the software economy forever.

The same methodical approach was applied to the creation of the Apple Watch and the company went back to the basics of watch design, respecting the heritage of horology. This can be seen in terms such as Complications to describe apps on the device. The company also noted that watches are intimately personal devices and that people want choice in terms of materials, so the Apple Watch can veer in price from $329 to tens of thousands, depending on what materials you want, including pure gold.

Don’t buy into fads, engineer it your own way

Having caught the world’s attention with the iPhone in 2007 and subsequently the iPad in 2010, the company was creating platforms that had the potential to disrupt so many industries, from publishing to TV and more.

And people wanted more. They wanted Apple to create an Apple TV. The company has thought long and hard about this, and still there is no actual Apple TV per se. Rather, Apple realised people already had TVs but they wanted better content and, as a result, the Apple device that plugs into TVs and pulls down content via broadband can be part-credited with sparking the streaming revolution that has enabled players such as Netflix to tower over traditional broadcasters. In its own way, Apple helped kill linear broadcasting.

The company is now doubling down on funding its own content, hiring top Hollywood producers and striking deals with figures such as Oprah Winfrey.

Despite people clamouring for an Apple TV, the company held firm and focused on disciplined innovation, refusing to be distracted.

Sacrifice sacred cows

When the Roman legions were on the march, they used to send scouts in all directions to discover where the enemy was. When the scouts never came back, the legions simply didn’t march that way.

That brutal approach to warfare is a handy metaphor for the way that tech giants such as Apple think. And the best example of this brutally simplistic outlook is the iPod.

Having revolutionised music discovery and purchasing, the death knell for the iPod as we knew it was sounded when the iPhone came along. Over time, the storage capacity of the iPhone meant that the iPod existed in spirit inside the phone and gradually, the iPod began to sell in fewer numbers. Today, it gets barely a mention in Apple’s earnings results.

Apple still makes the iPod Touch, and music is still a big deal to Apple with a rebranded iTunes now known as Apple Music. The company’s music player is a key feature on iPhones, Apple TVs and iPad devices, and is central to experiences on the HomePod smart speaker and the wireless AirPods.

Apple is a realistic company and doesn’t hold on to sacred cows, however revolutionary.

Servicing the future

The latest flagship iPhone X. Image: Halfpoint/Shutterstock

The latest flagship iPhone X. Image: Halfpoint/Shutterstock

The next epoch for Apple is services and, while the company has been synonymous with hardware, its prowess as a software and data company is about to become abundantly clear.

If you studied its recent financial results, Apple reported stellar growth in its Services sector, with sales up 37pc to $8.5bn during the third quarter. Apple Music sales were up 50pc as were iCloud services revenues. Apple is on target to double its Services revenues from 2016 by 2020.

Look closely at your iPhone and you’ll notice Health and Home hubs on the device. Many cars today feature CarPlay functionality. While rumours persist that Apple is working on an Apple Car, and it may well be, the backbone of all future forays by the tech giant will be driven by software and services – hence the investment in renewable-energy-powered data centres.

What products Apple will create to maintain its position as a $1trn tech giant for the foreseeable future is anybody’s guess, because only Apple really knows.

But a few things are clear: Apple will continue to build hardware and software ecosystems from the ground up, and it is not afraid to sacrifice familiar cash cows if the signals point to the end of the line for a product family.

Crucially, Apple is a company that will continue to reinvent itself. That is because it is a company where simplicity and elegance work hand in hand with engineering and innovation.

At its heart? A tradition of disciplined innovation espoused by the late Jobs and carried on by CEO Tim Cook, characterised by the ability to “think different”.

Apple logo on MacBook Air. Image: Emka74/Shutterstock

Updated, 12.39pm, 3 August 2018: This article was updated to clarify that Apple received its $150m investment from Microsoft 21 years ago. 

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years