Jean-Louis Gassée:
Once upon a time, Apple offered an easy-to-understand business model. The company made personal computers, small, medium, and large. Successfully positioned in the affordable luxury market sector, Apple devices sold well with healthy margins. Those margins helped finance strong R&D investments and took good care of employees, investors, and Uncle Sam.
All of Apple’s other services and accessories had but one raison d’être: raise the sales volumes and margins of the company’s personal computers.
And:
In Fiscal Year 2006, the year before the iPhone, iPod sales exceeded Mac revenue $7.7B to $7.4B. Before it became the iPhone company, Apple was all about the iPod.
Most importantly:
Behind the scenes, the iPod blazed the trail for the iPhone. Culturally, it created a taste for miniaturized devices; technically, it drove the Supply Chain Management discipline and connections that would become essential for the success of the iPhone.
The iPod marked a shift in Apple’s workings as a company and, of course, set them on an incredible growth path. Tim Cook joined Apple as Senior VP for worldwide operations in March 1998, bringing in a critical understanding of supply chain management. The iPod shipped in October 2001, the first real test of those skills.
Then the iPhone happened and Apple insiders had an almost religious epiphany: iPhone apps are digital files, not unlike a song in the iTunes Store. Somehow, everything had been preordained to work for an Apple store: The infrastructure, the payment system and, just as important, customer behavior. The iTunes Store begat the iPhone App Store.
Another shift:
The App Store became more than an iPhone support function, it became a gigantic business in itself. One that Apple doesn’t disclose but bundles into the Services category. The Services number includes much more than the undisclosed App Store revenue, it encompasses services such as iCloud and Music revenue, Apple Care, and the more visible Apple TV activities.
And:
The iPhone’s phenomenal success created a problem by weighing too much in Apple’s books: too seasonal, too risky because a so-so or worse model would have too much of a negative impact. Adding all sorts of services to the exploding App Store created the perception of recurring, sticky, less-seasonal revenue that would buffer Apple’s financials against iPhone uncertainties.
The shift toward services raises this question:
What happens to priorities, to company culture? What will be sacrificed and what will be preserved? For example, if budgetary restrictions are needed, what will be prioritized: the next Ted Lasso or the next Apple Silicon processor? Crises always happen and almost always come out of nowhere, a big intellectual property lawsuit, a mediocre iPhone, a big Augmented Reality flop, a stillborn Apple Car… In reality, a crisis tends to be something no one could have imagined, otherwise it would have been handled preventively.
And:
I naively hope Apple won’t lose its device-centered culture, where the sharpest tech candidates still dream of working on the next iOS version or the next Apple Silicon processor, as opposed to working on Hollywood deals.
Jean-Louis does a terrific job capturing Apple’s shifts over time, raising significant questions about Apple’s priorities as it evolves. A great read.
