Tim Cook's Apple: A Perfectly Ordinary Company
No question about it: This is a great time for Apple. The stock is up 63 percent so far this year – triple the Nasdaq's rise - and several analysts expect it to top $1,000 a share by next year. By one count, the iPad commands a 70 percent share of the tablet market, and the iPhone 5, widely expected to be unveiled Wednesday, could sell 170 million units over the coming year.
As Apple prepares for its latest event in San Francisco, the company seems assured of strong growth for the next couple of years. At the same time, however, we're starting to see more clearly what kind of company Apple will be under Tim Cook. The answer is, well, ordinary, guided more by conventional rather than unconventional thinking.
In several ways, Apple has been an extraordinary company. In its earliest days, it offered a vision of how we would interface with computers almost four decades later. Later, after some years, it mounted an unlikely comeback, a rarity in the fast-evolving world of technology. It went on to shake up not just one but several industries, like music, and mobile phones and digital content. And it's recently reached $100 billion in annual sales while growing 44 percent a year and holding operating margins above 30 percent. Few companies can make even one of those claims.
As control of Apple passed from Jobs to Cook, a long debate raged over how the company would fare without its founder at the helm. Over time, most came to believe that Cook – backed by a team of executives like Phil Schiller, Scott Forstall, and Jonathan Ive – would maintain a course to build on Jobs' vision. The company's DNA wouldn't change, and many key people were still holding to its high standards of innovation.
So far the early consensus has largely proven true. But there were also some who wondered whether Apple might fall into a kind of entropy, that the company might balk at the really tough decisions. An whatever magic touch – or luck – Jobs displayed in leading the company through past challenges might not be replicated by Cook and the team supporting him.
Throughout its history, Apple has faced its share of challenges, and usually managed to emerge stronger from them. And it's facing them even now. The company is seeing, for example, stronger competition in tablets from Amazon, a company led by another CEO with an unconventional approach to strategy. It's contemplating its strategy in areas crucial to its future, such as the convergence of TV and the Internet. It's also positioned to expand into even more areas, such as online payments.
Which is why it's worrisome to see early but telling signs that Apple under Cook is looking less and less like the extraordinary company making bold and cunning moves that change industries to a more ordinary company that makes decisions aimed at preserving the status quo.
The first sign came in March, when Cook appeased shareholders, who had long been demanding a dividend. At the time, many thought the move was overdue. After all, Apple's years of profitability had amassed a $100 billion pile of cash. And besides, offering a dividend allowed Cook to show he could break from Jobs' longtime aversion to paying dividends.
But handing $45 billion over to shareholders during the coming three years doesn't offer many strategic benefits to Apple, beyond quieting whiny shareholders. Dividends are usually paid by slow-growth companies that need to placate antsy investors. Jobs' rationale for not paying one was that he preferred to hold onto cash for the security it offered Apple when it was facing big risks. It was also a gesture showing Wall Street that Silicon Valley didn't necessarily have to play by its rules.
Jobs refusal to pay dividends was also a statement about the importance of risk-taking. Cook's break with that view suggests he's taking a safer course, and many on Wall Street share the view that offering a dividend was prudent, given Apple's growing cash holdings. But that's the thing: It was exactly what most other companies would do.
Another shift in Apple's approach is starting to emerge in its retail stores. After MacRumors reported that Apple had been laying off or reducing hours of employees at its retail stores, leaving many stores understaffed, the company admitted that it “messed up.” A few weeks later, ifoAppleStore said Apple was cutting store maintenance budgets and altering performance measures in an effort to improve revenue and profits at retail stores.
Here again, there's nothing inherently wrong with these moves. They are sound business strategies. Many retailers look for ways to get more profit from their stores. But when Apple set up the stores, it aspired to re-invent retail, emphasizing the customer experience over everything else to strengthen the Apple brand in consumers' minds. The more Apple shifts its retail focus from consumer experience to profits, the more it becomes like other retailers.
Apple has also been having troubles negotiating with media and cable giants for rights to their video content. The heel-dragging by media giants is reminiscent of the talks Apple had for music rights several years ago. After music labels insisted on crippling and complex DRM technology, Jobs posted his “Thoughts on Music” post that led to an era of DRM-free digital music.
Apple's struggles with media giants over video is complicated by the competition it faces from Google, Amazon and others. And the company lacks a popular video device like the combination of iTunes and the iPod that gave it leverage with music labels. But these days, it's also hard to imagine the company taking a risky move like Jobs' Thoughts on Music rant, which could easily have pissed off the labels. The more prudent course is to keep negotiating with video-content owners – which is what everyone else is doing.
Because Apple is one of those companies that inspire strong feelings – for and against – in many people, let me be clear: I am not saying Apple is doomed, or that Cook is doing a bad job as CEO, or that he should try to be more like Steve Jobs.
What I'm saying is something that I suspect any startup will realize at some point. The really tough decisions are the ones that matter. They separate the big successes from the ordinary, merely successful companies. They require that rare mix of boldness, cunning, and blind luck. And they involve heart-pounding risk. Whatever you think of Apple and Steve Jobs, the company has made more than its share of those bold decisions. It was even ready to scrap the iPhone at one point.
Under Cook, Apple is starting to take a safer, more prudent course. That may be appropriate for a company worth $620 billion. But it overlooks another extraordinary thing about Apple in recent years: For such a huge company, it acted a lot like a startup.
Maybe not so much anymore. Instead, Apple is becoming a very successful, although very ordinary company. Which is too bad. Because the Valley already has a lot of those.