Business

Apple’s finite loop

Georges van Hoegaerden is an entrepreneur, venture catalyst, serial CEO, and venture capitalist-turned-innovation economist.

As a 20-year Apple user who has infected almost everyone close to me with convincing reasons to abandon subprime computing platforms, it hurts me to have to group and introduce the reasons why I think Apple’s once-infinite loop is turning gradually finite.

Toss the pageantry of false positivity

Now, one could take this message as a negative or a positive depending on which side of the technology world you are on. Yet I am neither a fair-weather friend nor a weapons-trader in this competitive war. I am an independent thinker more worried about the only thing that matters: value to customers. I still admire Apple for its unique — if not perfect — desire and pursuit of authentic innovative value.

I’ve written this editorial as an honest appraisal of the business of innovation and to ensure innovation’s role in delivering authentic social economic value is one the public can trust. Apple is the spiritual and commercial leader in innovation, so it should expect to not only be held to the highest of standards by the public, but also be intrigued by someone who, when they had a lot less wind in their sails, was already rooting for the company.

The latest price reduction in the MacBook Pro line forced my hand to collect and share the many finite patterns I see developing at Apple. The trigger was the pageantry of false positivity applauding the recent price reduction of the MacBook Pro sold to customers. Even though the MacBook Pro 13″ Retina is truly a product worth buying (I have reviewed it personally), the underlying economics of the $200 price reduction are a bit startling.

Act different

Apple is a producer of premium technology with a unique proprietary blend of hardware and software that can demand premium pricing for its products when that innovation delivers consumers a more compelling computing experience and evolution.

But one who connects the dots and sets their own standards of excellence has to wonder.

Why does Apple deploy the equivalent of modern-day slavery in China to save cost — arguably at the expense of American manufacturing — if the consumer value and margin can withstand no less than a $200 price reduction?

Apple succeeds because it is macro-economically different from any of its competitors today. It is the most profitable technology company on our planet not because it competes on price (downside) but because it competes on value (upside). And Apple’s future is secured when it continues to drive the value over market share.

But the pattern I see developing at Apple now is a dangerous one that trades the infinite evolution of upstream innovation for the finite development of operational efficiency.

The pattern

Here are the signals that contribute to the pattern I detect:

  • Since Steve’s passing Apple has not delivered any upstream innovation of significance to top-line growth, but an abundance of downstream optimizations derived from Steve’s long lasting upstream vision, perhaps to comfort a nervous Wall Street.
  • Tim Cook spends too much time publicly discussing details of operational capabilities without the balanced exposure to and invention of upstream product deliverables that pay the bills. Managing Apple for a long-term strategy means aligning prime resources to vision and upstream innovation. Apple’s execution today is a mediocre extrapolation of what current managers think Steve Jobs would have done, rather than a diligent execution of leadership that knows how to take control.
  • All of Apple’s operating systems are in dire need of re-invention. iOS, OSX and server software need fundamental change: upstream innovation that makes them come to life in serving the digital media hubs we as people otherwise need to manually manage. The improvements that we do see seem discombobulated and the misaligned.
  • Some of Apple’s products are turning mediocre. An address book that holds six thousand contacts freezes up on every device it is synced to, and sends mail, calendar and other applications in a 40 minute tailspin when you add a single contact. Features prevalent in the distribution of internet content (RSS) disappear from one Safari release to the other, making its users flee to competitive browsers. Shell wakeup and Power Nap differ depending on what MacBook you own. iPhone5 material is sub-quality, scratching easily. Product Management has sunken into the dark catacombs of subordinates. Apple is failing exactly on the basis of the premium computing experience that made it beloved.
  • Apple, despite many proclamations to want to do the right thing, is actually in blatant violation of free-market principles in the distribution of music, books, movies and other digital media, perhaps because many technologists do not understand the finite nature of greater-fool economics. Those violations — in addition to fixed pricing mechanisms and collusion — are artificially restricting supply and demand for media, and reducing the viability of creative freedom.
  • Price erosion continues. Less than two days after Steve Jobs died I was offered a business discount on Apple products. Not because I wanted it or desired it: The reason for me to buy Apple has always been value, not price. For the first time since Steve Jobs’ passing Apple put previous products and next generation products in the same keynote slide, to catch the buyers who can’t afford current generation products. A slap in the face of renewable value.

There are many more signals I could list that contribute to the pattern I see. But for the sake of time I will now stop here. A complete log of the finite loop signals of Apple can now be found here. All my articles on Apple, including positive, are here.

I gain nothing by criticising Apple. I do not get paid to write this article, and I don’t advertise. I have friends at Apple who will frown on me, and I have a book to finish (on renewable economics) that will get delayed by this distraction.

The only thing I want is for Apple to grow up, to become the responsible adult it needs to be to appease new customers with incredible and renewable innovation. In fact, all of us in the technology business need to learn a hard lesson that to encircle the world, we better learn how to embrace it. The lesson Apple gets to face first.

And if that requires me to be the tough daddy to get us there, so be it.

This article was originally published at The Venture Company.

Georges is an entrepreneur, venture catalyst, serial CEO, venture capitalist turned innovation economist (by fate) and the inventor of renewable economics that will re-authenticate and re-inspire the world, the subject of his first book. Georges’ insights have been generously lauded and covered in major online publications and trade media, such as The Wallstreet Journal, The New York Times, Forbes, Business Week, Fortune, NPR, San Francisco Chronicle, Reuters PEHub, AltAssets, Pensions & Investments, Investors’ Business Daily, Portfolio and hundreds of distributions across the globe.

photo credit: boogah via photopin cc


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