“Size is the enemy of growth. It is one of the unwritten laws of business, a matter of simple percentages. After all, when a company has $1 billion in yearly sales, an extra $1 billion doubles its size. Add $1 billion in new business to a $10 billion-a-year company, and it amounts to just 10 percent growth. The size-growth tradeoff seems inevitable, an inescapable force like gravity,” Steve Lohr reports for The New York Times. “Try telling that to Apple, the corporate giant that two weeks ago reported a 71 percent jump in quarterly sales. Apple generates revenue at the rate of $100 billion a year.”
“The software and services that work on Apple’s hit products are accelerating its extraordinary expansion,” Lohr reports. “Apple provides the underlying technology and marketplace: iTunes software and the iTunes Store for managing, downloading and buying music and media; iPhone and iPad software for creating applications; and the App Store for sampling and buying them.”
Lohr reports, “The more people buy iPhones and iPads, the more software developers and media companies want to write applications for them, as various as games and digital magazines. And consumers are more likely to buy iPhones and iPads when more entertainment and information applications are available on them. The combination of hardware, software and services is what corporate executives, economists and analysts call a platform. Successful technology platforms sustain and reinforce growth. And this self-reinforcing cycle is known as a network effect. It helps the platform owner and raises a barrier to competitors.”
Read more in the full article here.
Apple still has a lot of market share to get (look at what Nokia still has) and a lot of Halo Effect to expand sales of all devices for years. Lots of time to continue expanding growth. Long AAPL!
“It helps the platform owner and raises a barrier to competitors.”
Oh yeah!
Casual to the most obvious observer.
Apple has all cylinders firing and it has just started !!!
The secret weapon, quicktime, was at the center of a pivotal moment in history. Known as the “you want us to kill the baby” moment. Once M$ lost that crucial battle, Apple began a systematic takeover of the windoze OS. It began with quicktime, followed by iTunes and most importantly – bonjour.
Apple supplanted the m$: media layer with quicktime, apple’s own file system with iTunes and Bonjour to replace the sad m$ networking system.
Basically Apple pwned m$ and there was nothing they could do.
Now the constrictor has been tightening the coils ever so slowly. So. Very. Slowly. The time to plan an escape from the final, fatal suffocating squeeze has long, long ago passed.
It’s like watching NatGeo.
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But will Apple able to produce enough resources to keep up with the growing demand of their revolutionary products?
You better believe it!
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“Size is the enemy of growth.” The percentages nonsense he mentioned isn’t the reason, the reason is that each brand has its own market, and the market itself doesn’t grow infinitely, so as more competitors enter the market, (which they will) growth is capped. Not many companies have the technical versatility (hardware/software) that Apple has, to be able to jump into new markets every year.
If a company makes car tires, and is established with a strong brandname (Michelin), there’s only so many ‘new’ markets they can get into.
The problem with the ‘percentages’ argument is one of real world logic (common sense): if a company has revenues of 10 million in year one and 20 million in year two, it’s just undergone a MASSIVE growth spurt; tons of new customers, and sales channels, and tons of new products. That wasn’t just a 10 million dollar increase, but a DOUBLING of everything.
Five years later, it’s just as hard to DOUBLE your revenues, but an increase of 10 million is easy. Obviously.
Eg. It’s f*cking hard to double your revenues, no matter how big or small you are. The opening hypothetical is effectively useless.
What the analysts don’t realize it that they start product development years beforehand.
This mean that the next generation of products are in the pipeline.
Every other manufacturer reacts to new products whilst Apple develop the next generation.
The reason for Apple’s growth is that they (almost always) push into a new market with the intent to define or RE-define it. That’s why Apple has such strong growth… even when they are NOT the “first mover,” they still attain the first mover advantage. Apple NEVER uses the “copy existing popular product and compete based on pricing and volume” strategy, which is basically what everyone else does.
With iPod, Apple was not “first” with digital music players, but Apple was “very early” and defined that market. Apple might was well have been first. Everyone else played catch up, and then mostly gave up.
With iPhone, Apple was somewhat “late” to smartphones (after RIM, Microsoft, Palm, and Nokia). However, Apple redefined smartphone design with iPhone, first with the multi-touch interface and then with the App Store. Therefore, Apple attained that first mover advantage and made the existing players play catch up.
With iPad, the situation is more like the iPod case, but it is also like the iPhone case. This is amazing, because Windows-based tablet computers have existed for years; there were a few models more than ten years ago. Apple redefined “table computer” with iPad. Yet, Apple might as well have invented the concept and (either way) Apple again has the first mover advantage.
Note: The only major (recent) Apple product not following this strategy is Apple TV. It’s still innovative (and successful), but Apple has no first mover advantage there. That’s why Apple is still calling it a “hobby.” No doubt, there is some future plan for Apple TV.
When you have “first mover advantage,” you get Apple’s growth because you have both high volume and profit margin. When you play “catch-up,” volume and profit margin are both much lower.
“And this self-reinforcing cycle is known as a network effect.”
Sounds more like the Perfect Storm to me.
Trees don’t grow to the sky they say in investing. So Apple cannot double or triple again, right?
Wrong. Look at the headroom left in terms of Market share in the various arenas the company competes. Then there are the new markets the platforms imply, such as replacing credit card companies. We still have a long way up.
@ dijonaise
I believe the exact phrase MS used to Apple was “knife the baby”.
This was a big part of Avie Tevanian’s testimony against MS in the DOJ’s anti-trust suit.
They didn’t knife it, and the rest is history.
iPad = Phase 1 of 4 of Product Cycle ……
iPhone is in Phase 2 or Product Cycle …..
Apple TV has not made it to Phase 1, YET ….
As all of us here at MDN have been saying for years – tipping point.
Apple doesn’t just have a “platform,” it has a symbiotic ecosystem of interlinked hardware and software platforms that, in turn, connect to external platforms, such as television, video content, etc.
Long term Apple users saw this coming in the early 2000s after the Mac OS X, the iPod, and iTunes were released. The components were there for everyone to see. But the trolls were vocal in their derision then, as they are now. I’m thinking that 2011 just might be the year that shuts many of them up.
Forget all that useless platform stuff. Steve Jobs just announced he wasn’t feeling very well when he got up this morning. Shareholders are in a panic dumping shares and the result just slashed another $30 and $20 billion in market cap from Apple stock.
iTunes and platforms be damned. Wall Street realizes none of that platform stuff works properly without Steve Jobs sitting behind his desk saying things like “amazing” and “awesome”. Apple may be firing on all cylinders, but take away Steve Jobs “gas” and it quickly stops running. Apple is the only company in the world that requires the CEO be present to provide value to the company and keep it in motion.
@ KingMel
Good points.
Apple have evolved inthe last 13 years to be truly spectacular. I would say that the following were critical to that success:
1. The iMac – Back in 1997 Apple turned the PC world on its head with attractive and functional PCs. It also proved to Apple that design is important to them.
2. OSX – from the very beginning this possesses the capacity to be developed and evolved quickly. Now the backbone of every iOS and OSX device it has been critical to provide the support for new technologies in Apple devices.
3. iPod – Apple demonstrated that they could turn their expertise to an CE device.
4. iTunes – created a way for Apple to be visible to millions of PC users by providing a cross platform experience. Note that iPod sales took off when iTunes became available of windows machines.
5. Intel Macs – the foresight of developing an X86 OSX in parallel with the PPC versions allowed Apple to quickly transition to Intel machines once it was really obvious PPC chips were holding them back. Note again that Mac sales really took off after this.
All of this was achieved through years of planning and development. No other CE or PC company spends that long to bring products to market.
Excellent article. As a business major, the author makes a true realistic approach toward Apple’s platform strategy.
And I have mastered Objective C.
But I’m just onecleveranimal.
Ampar? Welcome back buddy….
Hey Ampar, I was just thinking how I don’t post here much anymore and then I thought of you.
Awwwwww
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Not clever enough to get your post…
Apple is a reaction to Microsoft the way that Marx wrote his communist manifesto as a reaction to capitalism.
Would apple be as good today if m$oft had been weak and the market had been fragmented?
Jobs drive to beat the idiots at M$oft should never be underestimated.
Sorry, Just another idiot anal—yst.
“SIZE is the enemy of growth. It is one of the unwritten laws of business, a matter of simple percentages. After all, when a company has $1 billion in yearly sales, an extra $1 billion doubles its size. Add $1 billion in new business to a $10 billion-a-year company, and it amounts to just 10 percent growth. The size-growth tradeoff seems inevitable, an inescapable force like gravity.”
Only to an idiot. If Apple owns 70 % of the world market for mp3 players and the market shrinks 3% per year….. it still owns 70 %. PERIOD. Its not the end of the world. Then you add iPhones and iPads to the number of mp3 players and suddenly Apple is growing again. Just a stupid lack of really knowing what one is talking about.
Sorry for the ramble, but these people that write articles and just repeat others dumb ramblings “just do not get it”. Actually it scares me as to how many people do not get it…
Just a thought,
en
@Ampar,
Don’t you mean oneCleverAnimal?
I wonder if the Beaver was one CleaverAnimal.