Apple’s Business Model: Before and After Jobs 2.0


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With the recent passing of Steve Jobs, one question lingers in the minds of techies and business leaders alike: what will happen to Apple without Jobs at the helm? More specifically, what products will Apple release and how will the company’s business model change without Jobs to direct the company into new sectors? How long can Jobs’s vision last?

We still have time to see if Apple’s offerings change significantly. The iPad, iPod, and iPhone will remain important consumer devices even without a new product to wow consumers, and if recent rumors about an Apple television prove true, this will extend Jobs’s vision into a new product market for a while. Additionally, we have no way of knowing how many other ideas cooked up by Jobs are standing by, waiting to be released in the next few years.

The company’s business model, however, is more volatile. With Tim Cook at the helm, there is a chance that a new management philosophy will steer Apple away from Jobs’s vision relatively quickly. Cook can do this in a number of ways: by changing the company’s supply chain, its marketing strategy, its market position, or its pricing strategy.

It’s too early to know how Cook’s vision for the company differs from Jobs’s, but there was a time when Apple was without its founder. From 1985 to 1997, Apple had three CEOs lead the firm without Steve Jobs there to guide them.

Some Apple fans call these the lost years for the company, and for good reason. While Apple remained in relatively healthy financial shape, it lost market share and the technological head start that its GUI operating system gave it over Microsoft DOS and the so-called IBM Clones. Jobs himself complained that Apple lost its advantage when Microsoft released Windows 3.1 in 1992. By the time Windows 95 appeared, the Mac was a microniche product for artists and graphic designers. By the end of 1995, Apple’s stock was trading at around $8 a share.

The rise of Apple from Jobs’s return in 1996 to his recent death has become a corporate parable retold in office corridors just as legends of Achilles and Beowulf were retold in mead halls in previous millennia. Now we face the question of whether Apple can maintain this momentum without its hero.

To answer this question, let’s compare Apple’s business model before and after Jobs’s return. In the next two posts, we will analyze Apple’s business model with and without Jobs to see what direction the firm should take in the future.

As you will see, the differences are massive– and telling. Cook would be keen to try to replicate Jobs’s business strategy as best he can, but this strategy can’t last forever within the ever-changing technology sector.

Apple’s Business Model without Jobs

In 1984, one year before Jobs departed from Apple, the company unveiled the Macintosh, which would remain its bread and butter until years after Jobs returned and unveiled the iPod. Thus Apple’s product line was already in place for a post-Jobs Apple.

Three years later, John Sculley shook up the company’s business model by shifting the company’s strategy away from the Macintosh and towards peripherals in the hope of increasing margins and profits. The quickly forgotten Apple Scanner is a good example of this.

However, Sculley’s business model strategy didn’t work. One of the important things about a business model is finding your niche and keeping your market position in that niche. Steve Jobs and Steve Wozniak created their niche–the personal computer–only to find their product increasingly threatened by competitors trying to poach market share. By 1985, IBM and IBM-compatible computers equipped with Microsoft DOS and Windows offered an alternative to the Macintosh.

As a result, Apple’s niche changed; no longer having a monopoly on the personal computer, it was now a competitor in the much wider PC market. This produced a new, smaller niche: the Macintosh OS platform, which remained the preferred option amongst educators and graphic designers.

Sculley’s initial response to this change in the market was to expand by producing non-PC peripherals. The assumption behind this decision was that diversifying the product line would increase the company’s market presence and, accordingly, increase revenues. It is true that Apple’s revenue from sales increased tenfold during his tenure at Apple, but it is likely that such growth was inevitable at a time when the personal computer was first beginning to penetrate companies and households.

More damning to Sculley’s reputation is the fact that the company’s margins shrank as the firm experimented with portable CD players, speakers, PDAs, televisions, digital cameras, and he beloved but unprofitable Newton.

The lesson here is that Sculley, unlike Jobs, did not focus on expanding the business within the niche as he watched the niche change form.

By the time Michael Spindler replaced Sculley as CEO in 1993, the company was in freefall both in terms of profitability and market share. Spindler ultimately failed to change the company’s direction, largely because he continued with Sculley’s strategy of expansion without direction. Now the company was producing new software alternatives, such as an online portal to compete with America Online and the short-lived A/UX, an operating system that never caught on. Spindler arguably made the matter much worse by licensing Macintosh clones in a misguided effort to expand Apple’s market penetration. The opposite happened–the Macintosh clones started to eat up Apple’s PC sales, which remained its most profitable operation.

After less than three years of poor performance, Spindler was replaced by Gil Amelio.

Amelio had a firm technological background that helped him to understand the problem with Apple’s business model: it failed to adapt to changes in the IT marketplace by providing new products based on technological advances. Instead, Sculley and Spindler had simply tried to diversify the company’s market share by releasing products that already existed. He decided that the company should return to its core product–the Macintosh Operating System–and improve it by bringing in new technology from a competing firm. He tried to do this by buying the BeOS from Be Inc., but after talks stalled, he brought Steve Jobs back after taking over Jobs’s firm NeXT.

Finally, with Jobs back at the helm, the company could cease cannibalizing its own market share and shrinking its margin by focusing on improving a core product line. Apple was back.

Apple’s Business Model with Jobs

Shortly before returning to Apple, Jobs said in an interview that he knew exactly what needed to be done to fix the company. When Apple bought NeXT and promoted Jobs to CEO, it was in desperate need of direction. Steve Jobs gave that direction by fixing Apple’s biggest problems immediately. He killed the Macintosh clones. He shifted the company’s focus back to the Macintosh, and started to streamline everything about the company.

One of his biggest decisions was to make the computer beautiful. Understanding that PCs were personal more than anything else, he realized that a big gray box would not appeal to the mainstream consumers who were just then starting to buy PCs to access the Internet. At the same time, Jobs began an aggressive campaign of buying digital production programs from competitors so that Apple could release a Macintosh that would work right out of the box. This wasn’t enough for Jobs. He saw the promise in a young industrial designer named Jonathan Ive, who produced the first iMac, with its translucent blue casing and unibody design. The two became inseparable afterwards, and their teamwork produced the iPod, the iPad, and the iPhone.

Thus Apple’s revival was the result of a convergence of strategies to make the Macintosh better. Jobs saw the need to make the product prettier, easier to use, and more powerful. These goals involved technology-based and design-based solutions, instead of simply diversifying the company’s product line in the hopes of increasing market share. He knew that the only way to do this was to utilize the talents of his best employees, and elevate their position in the company (since Jobs’s return, the design division of Apple has had authority over all other divisions).

With its focus back, the Macintosh slowly gained market share from 1997 to the present day in the personal computer market, just as that market share began to plateau in the 2000’s as consumers shifted from PCs to mp3 players, cell phones, and, most recently, tablets. While Steve Jobs did not anticipate these new markets, he opened them up by creating products that shared the new Macintosh’s emphasis on design, ease-of-use, and functionality.

Essentially, the new production ethos for the Macintosh became scaleable.

The nature of the PC market changed enormously in the 1980s, 1990s, and 2000s, but each decade brought similar challenges for Apple: as the technology sector grew and became more mainstream, more competitors threatened to make Apple’s niche smaller and smaller. While this horrified Apple’s other CEOs, Steve Jobs remained focused on completely dominating his niche by improving a single product in many different ways.

Nowadays, new challenges face Apple. The recent patent wars from Samsung and others will continue to be a headache. Competition from Android–which was an obsession for Jobs–may shrink the iPhone’s market share just as Windows marginalized Macintosh over two decades ago. Even the iPad is facing challenges from the Kindle Fire, and the latest Macintosh OS has failed to inspire.

The company has plenty of challenges. However, Apple has newfound strengths that it never had before. It has always been financially solvent, but nowadays Apple has over $65.8 billion in cash sitting around. Apple fans have always been loyal, but the cult of Mac is stronger than ever. Apple has become the most recognizable brand in the world. Apple has never been a more desirable place to work than it is today. Siri is simply amazing. The firm’s supplier contracts, market position, and monopoly on software markets with its App Stores have created several difficult barriers to entry for any would-be competitor.

Cook, then, would be wise to adopt Jobs’s obsession with improving a small product line to create a scalable development model. Since Cook’s background is in supply chain optimization, this may be second nature to him. However, he would also be wise to see how technological advances and changing consumer behavior will create new markets in the medium and long term. If he can do that, the legacy of Steve Jobs is secure.

Republished with author's permission from original post.

Jim Muehlhausen
Aside from his books "The 51 Fatal Business Errors and How to Avoid Them" and "Business Models for Dummies," Mr. Muehlhausen has been published in various publications including Inc., Entrepreneur, The Washington Post, MSNBC, The Small Business Report, The Indianapolis Business Journal, Undercar Digest, Digitrends, and NAICC Journal.


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