Why Apple is Winning

After Apple posted a profit of $770 million in Q2 of 2007, even some of the sterner eyebrows on the PC side of the fence were raised. Q2’s are typically slow in the consumer electronics industry because they fall in the spending cool-off between the holiday and back to school shopping frenzies. Not traditionally the quarter where companies expect record growth.

From Apple’s financial earnings statement:

Apple shipped 1,517,000 Macintosh® computers and 10,549,000 iPods during the quarter, representing 36 percent growth in Macs and 24 percent growth in iPods over the year-ago quarter.

“The Mac is clearly gaining market share, with sales growing 36 percent—more than three times the industry growth rate,” said Steve Jobs, Apple’s CEO. “We’re very excited about the upcoming launch of iPhone in late June, and are also hard at work on some other amazing new products in our pipeline.”

“We are very pleased to report the most profitable March quarter in Apple’s history,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the third fiscal quarter of 2007, we expect revenue of about $5.1 billion and earnings per diluted share of about $.66.”

And with that, I think everyone’s eyebrows are finally raised at this point. And by everyone, I mean Michael Dell and all of his wannabes. And all of the people who have judged Apple solely on their market share numbers since Jobs left.

And Microsoft?

Sort of. Bill Gates had to have seen it coming for a while; he’s too smart to not pick up on that trajectory a bit earlier than his industry counterparts. But regardless of what happens in the OS and hardware wars, Gates still has his stake claimed in business software. The epic Microsoft vice-grip on that industry isn’t going anywhere. Probably ever.

(sidenote: does anyone find it bizarre that Bill Gates is probably the nicest guy on the planet yet his brainchild defines the term “corporate behemoth?”)

While the PC industry was busy figuring out more efficient ways to cannibalize itself, Steve Jobs was busy laughing from way outside the box…

Daniel Turner over at Technology Review has an extremely poignant article that speaks to this point.

It’s a bit dense, but he begins with a Steve Jobs saying he wanted Apple to be “an undisputed leader in industrial design.” This was uttered just before the release of the Apple II.

Everyone knows what happened after that. But Turner links that instant success to Apple’s commitment to design and their polar-opposite attitude from even the big gun PC manufacturers at the time:

Through much of 1982 and into early 1983, Jobs searched for a sympathetic design partner; he finally found one in Hartmut Esslinger of Frog Design. Together, the two companies developed the “Snow White” design language that was meant to give Apple’s products a coherent visual ­vocabulary, the appearance of being related.

Once Jobs left, this mantra left with him, as evidenced by Apple’s descent into a creative holding pattern in terms of design evolution while Jobs was absent.

Once he came back, he picked up right where he left off: outgunning everyone at the factory-level:

“Apple takes an amazing interest in material selection and how things are manufactured,” [Frog Design SVP Mark Rolston] says. “They continually ask what a manufacturer can do for them.” Frog Design’s experience with PC maker Packard Bell, he says, was much different, given the company’s emphasis on economy: “We had to ask what the factory already did and how we could accommodate it. We found out that their case came together at the last moment, so we made that part of our design decision and focused on snap-on faceplates.”

But Apple, Rolston says, “will change a whole factory’s process.” What’s more, he adds, the company keeps its eyes open for new manufacturing possibilities, no matter how obscure. One example is the “double-shot” method of combining layers of different or different-colored materials. Apple “saw that a manufacturer had a special process for this on a small scale,” Rolston says, and incorporated layered materials into its designs–for example, the clear plastic layered over colored materials in iPods and older iMacs. “[Apple] pushed them to do it on a much larger scale. Apple helped the manufacturers master the process and product.”

And from this seconding coming of Jobs came forth the iMac, the iPod, a host of stunning laptos, and soon – the iPhone.

Jobs undoubtedly benefited from sitting on the side lines for a while. See what everyone else is doing wrong, and then do it right. I think you have to add “maniacal” to the genius moniker Jobs has already earned to have such a singular vision and execute it to perfection.

The other big advantage that makes the lofty Snow White concept a distinct reality is that everything at Apple is done in-house. No outsourcing, no control issues. And no copycats because they also make the software. It would be like Microsoft, Dell, and Sony getting together and agreeing on everything.

On a smaller scale, admittedly, but there’s no denying that Jobs’ astronomical ambition is finally morphing into market-share-gobbling, year over year, revenue growth. They are currently impenetrable on Wall Street, bouncing back big after the announcement of Final Cut Studio 2, despite the much-maligned delay of OS X 10.5 (aka Leopard) to a September 2007 release (from an originally targeted June date).

Nevermind that the decision was made in favor of stealing resources from OS development to ensure the on-time release of the iPhone, which will likely be the the most wildly successful consumer electronic phenomenon since…well…the iPod.

History is repeating itself – a rare feat in such a volatile market. Not many companies can lay claim to just one decade/generation defining technologically revolutionary product release.

Apple could have its third in as many decades on its hand when the iPhone debuts (after the Apple II and the iPod).

The bottom-line is that Apple has managed to capture the imagination of consumers again, shattering perceptions of what people thought were possible with a computer for the 2nd time over. The ability to do so consistently ties back to design, and that has been what has set Apple apart visually as well as what facilitates their reputation for creating devices that are a perfect hybrid of engineering and functional superiority.

It was only natural that the emphasis on aesthetic appealed to creative professionals first. Through the stalwart support from the professional creative industries, and some ridiculously clever marketing, they have convinced the buying public that they exist one level above the rest of the crowd, hovering in a realm where “everything just works.”

Their recent TV campaigns (approaching Star Wars level of “you haven’t seen that???”) have all but solidified the notion that Macs are the ultimate machine for unlocking your hidden creative prowess while PC’s are utilitarian in their ubiquity, sharing the sluggish faults of Windows uniformly across all brands, each offering varying only in its shade of blah.

I’m not a Mac fanboy by any means. Really. But I certainly have become a believer, a member of the Cult of Jobs. I’m waiting to purchase a shiny new MacbookPro laptop as soon as the next revision hits. Ditching the Dell desktop.

Slowly but surely, millions of other people who just want to manage their personal life with ease and could care less about the new Excel formula bar in Office 2007 are following suit.

Hot damn, I hope that kool-aid tastes as good as it looks.

~ by CK on Wednesday - May 9, 2007.