Last week, Apple crossed the $2 trillion valuation thus becoming the first company to do so. In fact, the jump between $1 trillion and $2 trillion came in just about two years, Apple having reached the one trillion dollar valuation mark in 2018. In fact, reaching, $1 trillion took nearly thirty eight years for Apple since it came out with its first public offer in December 1980. There could be a debate on whether Apple deserves a two trillion dollar valuation or for that matter many other firms which are on the verge of following in its footsteps. Yet, the very fact, that market has placed its confidence in Apple itself is a significant sign. There could be many reasons why Apple apparently scores over the rest. In fact, Alphabet with its ubiquitous Google still commands just over a trillion dollar valuation whereas Amazon and Microsoft hang over in the $1.5 trillion market capitalization club.
Apple emerged as the innovator and creator of ecosystem. Critics might contend lack of significant innovation post Steve Jobs, but disruptive innovation does not happen frequently. It is the incremental innovation that drives daily life with disruptive innovation emergent in cycles. Apple delivered when it mattered. As Henry Chesbrough once pointed out, Motorola positioned its mobile phones for its aesthetics that did give it big head start. Yet, this was imitable and substitutable thus making it possible for other firms to compete on aesthetics and neutralize the first mover advantage secured by Motorola. Apple on the other hand with its iPod and iPhone did not merely create a new product but manufactured a new ecosystem in itself. As the Resource-Based Theory would put it, these i-appliances from Apple were not just rare and valuable but non-imitable and non-substitutable. They built upon a base that created a cult around the Apple in the past and enabled to make its move into expanding to a wider audience. An iPhone or iPad would not just attract customers with the offerings they had on play but through executing a lock-in by drawing them to an ecosystem from which escape seemed impossible. This escape was not impossible because Apple locked them in, but the experience which they accumulated in these ecosystems would find it difficult to replicate outside. Having used to the system, the cost of switch over was high thus sort of customer retention.
Chesbrough might have used Apple’s illustration to further his pitch for Open Services Innovation yet Apple’s innovation cycle has anything that. It represents a classical instance of closed innovation paradigm in driving its innovation big. In fact, Google’s open approach, an instance being Open Handset alliance, better demonstrates the Wozinak’s vision of open internet than that of Steve Job’s vision of Apple in his second innings. For most part of late 2000s and 2010s, the battle between Apple and Google represented two contrasting approaches to internet and consumer choice. Yet, iTunes demonstrated a liberation of consumer choice from the Big Five of the music industry that thrived in the twentieth century environment. Albeit, there was a trade-off, it being a migration into a tethered environment rather than an open generative environment. Yet in comparison to Amazon’s Kindle, iPhone or the other i-Applicances were less sterile. In Zittrain phraseology, if Kindle would be sterile, iPhone would probably be less sterile or more generative. Google’s open handsets or Microsoft’s Windows embedded PCs or laptops were generative.
There is widespread talk about the movement towards software. There is without doubt, a global movement wherein the software would be reframing the world. The distances would be a measure of geodesics than physical. Yet software would be irrelevant without the corresponding piece of hardware. Microsoft managed its monopoly through control of the operating system- DOS, later Windows, which were the sine qua non for accessing the features offered by the personal computers or the laptops. Therefore, the control of essential resources in certain state of the value chain enabled the gain of monopoly. Apple precisely follows a similar modus operandi. Yet rather than controlling the operating system, it decided to control the hardware essential to access the features of the net. The operating system was part of the package. It did mean a radical shift from permissionless innovation that Wozniak had envisaged, but served Apple’s objectives as it sought to control the new market driven by ‘hand-top’ appliances. These were to good extent accentuated by the people becoming increasingly mobile and convenience substituting for desk work. The trade-off perhaps was the screen and some other features possible on desktops or laptops but in good measures compensated by the convenience and ease of use during the course of their mobility.
The Chinese pandemic is shifting in good measure the nature of work. As the work shifts from the conventional office space to private individual workspaces or from home, the role of Apple’s appliances would perhaps be increased. They are uniquely positioned to capture this space of hardware driven software ecosystem. No doubt, it would be challenged by Google with Amazon and Microsoft controlling the cloud, but the battle would be fascinating and Apple does not seem to have any major disadvantages. This sift in the nature of work is accompanied by a shift in the nature of consumption of entertainment goods. With theatres closed down, sports venues closed for spectators, the action is shifting to e-sports and watching live action on the mobile. This is where Apple can further score through its i-Appliances. The market valuations just seem to put a stamp on the Apple’s process of appliancization.
To add, Apple has reasonably de-coupled itself from the Chinese economy. The geo-political equations are shifting fast with countries eager to move their supply chains away from China. In the general population too, there is at least an air of hostility towards China given its apparent role in spreading the Wuhan pandemic. Therefore, as techno-nationalism flourishes, firms are moving their supply chains back home or into those countries which are aligned in their strategic interests. As one makes his or her way in a gated globalization, Apple seems to be having a first mover advantage. It has reasonably weathered the supply disruptions beginning with the lockdown in China in the early part of this year. It has begun shifting its supply chains to Vietnam. Its partners in manufacturing are availing the productivity linked subsidies in India. Therefore, Apple’s success in diversifying itself away from China is adding to its lustre.
In any event, there are push and pull factors. While Chinese moves and the need to respond to Chinese moves might have been a catalyst to Apple’s jump in valuations, it would not be possible without a pull factor from within. It is the Apple’s culture that perhaps signals something to its ability to prosper in the post-COVID and post-China world. Far from being unique, Apple is merely the first one to cross the mark. As the rise of techno nationalism continues, one might see other players like Microsoft, Amazon, and Alphabet too making their way into this exclusive club. This is not ruling out, some new entrants who might begin making their way into the trillion dollar club. Their strategies would revolve around diversification of supply chains, thus a movement in countering the fat tail production risk. This risk as Chinese pandemic demonstrates might be rare yet can disrupt the entire global economy with its accompanying malfeasant influences. The way the economy plays out in the next few years would determine the trajectories of the technological giants as they seek to capture a larger pie of the global economic bounty.
Thoughts on Theory and Practice 