According to Hoyle...

Apple in the Post-Steve Jobs Era

February 2009

by Jonathan Hoyle

http://www.jonhoyle.com

The economy is down. We have the highest unemployment since 1992, sales are steeply declined, and companies, even very successful ones, are laying off in record numbers. Some say that this is the worst economic crisis since the Great Depression. Whether you buy into such statements or not, most believe that things are going to get worse before they get better. Perhaps much worse.

And yet, Apple posts record revenues and profits for Q1 2009!

It seems very difficult to get a handle on what Apple will do next. Throughout the 1990's, many of the major prognosticators were predicting Apple going out out business "in five years". It was always five years away, whether the claim was in 1990, 1995 or 2000. Even as late as 2002, one columnist predicted that Apple will voluntarily exit the computer business by 2008.

Yeah, so much for the genius of us columnists.

Not that the Pro-Mac fan-base fared with any better. With each new product release, some blogger somewhere speaks of Microsoft now being "doomed" and that Apple will take over the market, again "within five years". Although Macintosh marketshare has recently spiked (one in every five portables sold today is a MacBook), overall share still remains shy of 10% (lower than it was ten years ago during the Mac clone era of the late 1990's). Hardly a take-over. Sure, Microsoft Windows no longer holds 90+% of the market as it used to, but it is still the dominant OS. And it appears very unlikely that that will change in as short a period as five years.

And as if Apple weren't unpredictable enough as it is, we now have CEO Steve Jobs taking a leave of absence for health reasons. And what if he doesn't come back for a while? Or ever, if the unthinkable were to happen? As we are all mortal, this is something that must be considered. Can anyone forecast what would become of Apple under such an eventuality? This (hopefully) hypothetical is the subject of this month's discussion.

So what makes me think I can do a better job at foreseeing what is going to happen than others who have miserably failed at it? Actually, I doubt I can do any better. I estimate that my predictions about Apple has an accracy rate of about 40%. Not a great batting average, I admit. However, I know what I will NOT do: I will not apply conventional wisdom and standard business expectations to Apple's current situation to forecast its future. People who do this have always been wrong about Apple. (Which is why Apple never actually went out of business in any of those previous times.) I instead will apply my knowledge of the company history, customer base, and just plain gut feel. (Hey, how much less accurate can that be than from what these other talking head geniuses come up with?)

The Steve Jobs Effect

Before predicting the effect the absence of Jobs will have on Apple, we should first consider how his presence affected it. Some people are quick to overestimate it, even coming out and saying Jobs is Apple itself. Essentially: The Fall of Steve Jobs = The Fall of Apple. Although I would agree that Steve's influence has been quite profound, it should be remembered that in the 25-year history of the Macintosh, Steve Jobs was involved in only half of it. Macintosh fanatics abounded throughout the John Sculley, Michael Spindler and Gil Amelio eras, and most certainly will continue to do so after Steve leaves. Moreover, Mac OS marketshare reached its peak during the period when Steve was still at NeXT, and reached its lowest (~3%) while Steve was in charge.

Having said all this, there is little doubt that Steve Jobs was instrumental in turning Apple around from near-death to the booming business it is today. The master marketeer, Steve was able to create interest and spin a business plan like nobody's ... uh, well, business. Could Apple have created the iPod and the iPhone in the same way under anyone else? Could anyone else make them such household names? Pretty darn unlikely.

So, Wall Street sees Steve Jobs as essentially equal to Apple. When it was announced that he was taking a medical leave of absence, Apple stock dropped nearly 7%. Never mind the fact that its business emained solid, as evidenced by its record numbers in an otherwise terrible economy. Never mind that Apple remains the toast of the town in the tech world. No, what matters is: "What's happening to Steve?"

After all, Jobs brought genius and unpredictability to the show. Steve took gambles, and won more often than he lost. His gambles changed the face of entire markets (including portable music players and cell phones). And Mac OS X finally made the Mac the clear winner in OS market.

So Prediction #1: Even with the same numbers and the same profitably, Apple stock price will be significantly lower without Steve Jobs at the helm, than it otherwise would under similar circumstances with him, as Wall Street's expectations will be lower.

Respect

For the longest time, Apple never got any respect. I remember about 10-15 years ago, my Windows friends would constantly call my Macintosh a "toy", whilst their Windows boxes were "serious machines" (despite the fact their OS was simply a wholesale rip-off from the Mac). I think this lack of respect also played into the widely-held belief that Apple was going out of business in five years. Whenever I'd hear that suggested, I would remind my friends: "You said the same thing five years ago, and five years before that. Yet Apple remains in business". These friends just laughed and said, "Well, I'll probably say it again five years from now."

Notice that no one is saying it now.

Competitors take Apple very seriously today. Even a behemoth like Microsoft targeted Apple when it launched its ill-advised $300 Million Gates/Seinfeld ad campaign, as a response to Apple's Mac/PC ads. These Microsoft ads were so poorly received that they were replaced by the current I'm a PC ad campaign, again to combat Apple. These newer ads were much better and might have actually improved things for Microsoft, if it weren't for someone leaking the fact that Macs were used in creating these very Microsoft ads. But I digress ...

With Steve gone, would Apple return to being the Rodney Dangerfield of tech companies? I don't think so. If nothing else, the iPod and iPhone have made Apple a very powerful mover in the business world, and those products are here to stay, at least for the foreseeable future. No matter who is Captain of the ship, Apple will get its respect.

Prediction #2: Even with Steve gone, pundits will continue agreeing that Apple will be around for quite some time.

The Customer Base

Apple's customer base is very loyal. Always has been. Mac users in particular are known for their zealous, near religious, fervor. And it should be remembered that this customer loyalty is not due to simply Steve Jobs' presence. Note that Mac-o-philes have been this way for decades (even whilst Steve was abscent, never expected to return). But there remains no question that Steve Jobs has won back the Mac user base. Despite this though, there have been times in which Macintosh community has seen Steve misstep, causing him to change direction.

Heretical sounding? Well, true none-the-less. Consider some of Steve's less than brilliant decisions:

The Round (Hockey-Puck) Mouse. Yeah, remember that one? That pretty boneheaded move took place not long after Steve Jobs returned to Apple. A simple user study could have disabused him of any delusions regarding this product prior to its launch. It took Steve three (friggin!) years to finally reverse this decision, and then only thanks to the users (voting with their dollars to buy other vendors' mouse products), to essentially forced his hand.

Rhapsody. At the 1997 Apple Worldwide Developer Conference, Steve Jobs attempted to kill the Mac OS and replace it with the NeXTStep operating system, repurposed for Macintosh hardware and renamed "Rhapsody". All Mac developers would have had to rewrite everything from scratch. A huge developer revolt took place, once again forcing Apple's decision to switch gears and instead create a new operating system: Mac OS X, which combined the best of lassic Mac OS, NeXTStep and other new innovations.

The G4 Cube. This little painful item was overpriced, incorrectly marketed and had no real user base. It was display-less and non-upgradeable, a combination that didn't appeal to the high end user it was targeting. Cancelled and quickly forgotten, it was replaced by the far more successful Mac mini.

What is my point with regard to these three examples? It's not that Steve Jobs isn't brilliant (because he most certainly is). It's that the Mac customer base is extremely strong and loyal, and a mistake by any CEO (even the great Steve Jobs) will result in a very loud response. Hey man, we Mac fanatics are not afraid to express our opinions. The above three failed products are proof of that. We are not simply sheep following blindly (as many PC pundits like to suggest); stupid decisions will cause user reactions, regardless of who is CEO.

Prediction #3: The next CEO will be carefully scrutinized with each product announcement. Stupidity will have its consequences. The high expectations people have had with Steve Jobs is likely to make any mediocre rollout appear disappointing in the eyes of Apple devotees. Advice to new CEO: It's going to be tough out there. Better wear a cup.

The Macintosh

I don't care what anyone says, Apple's most important product will always be the Macintosh. Yes, I know iPods outsell Macs by an order of magnitude (they should, as they're an order of magnitude cheaper). And iPhone contracts are a huge revenue source. But in the end, it is development in Mac OS X which drives the technologies of everything else Apple has.

So what impact would the departure of Steve Jobs mean for the Mac? In my opinion, not as much as you might think since Steve has been "gone" from the Mac for the past 2-3 years now. Since the beginning of the iPhone's early development, Jobs had pretty much delegated Mac development efforts to others. One merely has to compare the last few WWDC and MacWorld keynotes with previous ones to see what I mean.

The highly controlling Steve Jobs had previously been on top of everything to do with Mac technology since his return to Apple. Every keynote demo was timed for effect and just the right words were used for marketing. Even as late as 2005, his last minute decision to leave IBM's G5 processor behind and switch the Mac architecture to Intel was masterfully marketed. Compare that to WWDC 07's keynote, in which he followed notes written out for him in his Mac demos, and WWDC 08's keynote, in which he skipped the Mac completely.

Sure the very high-end movements for the Mac have to be cleared by him, but he appears to be happy letting Bertrand Serlet and Scott Forstall make the day-to-day decisions. Unless the next guy is also a micro-manager, I believe that things will continue in the same manner.

And what will that course be? One important aspect I believe has to do with its MacBook line. Although overall Mac sales climbed this past quarter, Mac desktops fell a whopping 20%! It was fortunately made up for by a staggering 30% increase in portable sales. As time goes on, I believe this trend will continue, and MacBooks will soon become Apple's most important Mac-based product. Gone will be the days that Apple can simply poor more power into their tower machines. They are going to need to keep their portables very fast and very light.

Prediction #4: Mac OS X, without Steve Jobs, will emphasize performance improvements over glitz and keep one step ahead of Microsoft Windows. I am sure there are still a number of really cool new features started under Steve which have yet to make it out of the pipeline and into our hands yet, but an emphasis in cleaning up the features that already exist will be as important.

Conclusion

Apple without Steve Jobs is almost impossible to imagine. He has single-handedly brought Apple back from life-support and placed it ahead of the pack in technological wizardry. Added to that Microsoft's blundering of it latest operating system (Vista), Apple is actually sitting pretty well right now. Desperate times had called for Jobs to perform desperate measures, but the times are no longer quite so desperate (at least not for Apple). Steve has done a magnificent job, and his successor should hopefully be ready for the transition.

Final Prediction: Apple without Steve Jobs will be more about evolution than revolution. That's not to say there won't be new insanely great products. But the volatility of such dramatic changes for Apple will probably cool for a while. And although the fun of revolutions may be missed, maybe a little while of evolution will be a good thing after all.

Coming Up Next Month: Software Development Jobs in a Down Economy! See you in 30!

To see a list of all the According to Hoyle columns, visit: http://www.jonhoyle.com/maccompanion

http://www.maccompanion.com/macc/archives/February2009/Columns/AccordingtoHoyle.htm