Ben Thompson on possible Beats buy: Is Apple losing what makes Apple, Apple?

“The standard response of Apple’s defenders is confidence that the ‘next iPhone’ will solve the growth conundrum. After all, Apple created the Mac, iTunes, the iPod, the iPhone, the iPad, surely something else is just around the corner. But while I agree that Apple is a black swan, uniquely able to create revolutionary new products, this confidence sells the iPhone’s massive success and place in history short,” Ben Thompson writes for Stratechery. “If you look back over the history of technology, there have been four epochs: the mainframe, the PC, the Internet, and mobile. Each of the first three lasted for about 15 years; we’re in year seven of mobile, and there are no challengers in sight. Based on history, I think it’s fair to assume that iOS and Android will be the primary platforms until 2020, give or take a few years.”

“In other words, I believe the iPhone will be Apple’s chief revenue driver for at least the next five years. Something like the iWatch may be interesting, but it’s unrealistic to expect it or any other product category to drive Apple’s growth in a meaningful way, at least in the short term,” Thompson writes. “So Apple needs lots of small revenue drivers in place of one big one. And that means accessories. This, then, is the first justification for buying Beats. As I noted immediately after the iPhone 5S launch, Apple has clearly decided to position the iPhone as an aspirational device, embracing its upmarket status and emphasizing its ‘coolness.’ And, given that positioning, it’s difficult to think of a better accessory than Beats.”

“As I’ve contemplated this acquisition, I’ve returned often to my time at Apple University. A central tenet the team emphasized again and again was that Apple was an interlocking organism that relied on multiple characteristics to make it go. One of these was that Apple was functionally organized; there were no product divisions, and the only P&L was the one reported every quarter by the CEO,” Thompson writes. “However, Joel Podolny, the head of Apple University, repeatedly noted that Apple was so big now that change was inevitable; managing and understanding that change would be paramount.”

“Apple Computer the name may have been retired in 2007, but Apple the personal computer company is 38 years old, and very well may have grown as big as it can grow. Is it doomed to simply slowly fade, delivering massive profits and interesting side projects along with a stagnant stock, much like Microsoft in the 2000s? It wouldn’t be a failure of Tim Cook, but more the natural order of such things,” Thompson writes. “Or are we witnessing a reinvention, into the sort of company that seeks to transcend computing, demoting technology to an essential ingredient of an aspirational brand that identifies its users as the truly with it? Is Apple becoming a fashion house? Think about it: you have Jony Ive as all-up head of design, the equivalent of a Tom Ford or Donatella Versace. There is the hire of Angela Ahrendts – why would she leave the CEO position of Burberry for a Senior VP role? You have an iPhone framed as an experience, not a product. And now you acquire an accessory maker differentiated almost completely by its brand, not its inherent technical quality.”

Thompson writes, “I worry that Apple is losing what makes Apple, Apple, especially that desire to make the power of computing accessible for normal people. But I also know that stasis means stagnation, and over the long-run, death.”

Tons more in the full article – highly recommendedhere.

MacDailyNews Take: As we just asked an hour ago:

Why can’t Apple be both innovative and also buy profitable companies?

[Attribution: Fortune. Thanks to MacDailyNews Reader “Arline M.” for the heads up.]

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  1. Steve Jobs. Earnings Conference Call. October 2010. Discussing cash use. “We’d like to continue to keep our powder dry. We strongly believe that one or more very strategic opportunities may come along.”

  2. For some reason Thompson and many alike like to think that apple can just be one or the other… Fashion, or innovation….As if they are mutually exclusive !
    Where they miss the boat it they are not . There is no rule that says this is not possible to be fashionable and innovative !

    Im skeptical Of the Beats acquisition..for mainly one reason. It is not consistent with Apples mantra of “we will only make and sell the best.”
    My concern has nothing to do with fashion or innovation! It has to do with compatibility with Apple image and slogan !

    Acquisition of beats does not indicate that apple has lost it innovative ways or is mainly concerned about fashion.
    It could just be a mistake that does not help the image of the brand ! Not its innovation capability !

  3. Off the cuff I’m wondering about the acquisitions made under Jobs’ lead as the iPod and iPhone were ramped up. We know that Siri and a handful of other apps were brought on board under Jobs, so why is it that those are not seen as evident of Apple’s stagnation but they are under Cook?

  4. Tim Cook. Earnings Conference Call. April 2014. Discussing acquisitions. “We look for companies that have great people and great technology and that fit culturally. And we don’t have a rule that says we can’t spend a lot or whatever. We’ll spend what we think is a fair price. What’s important to us is that strategically it makes sense and that it winds up adding value to our shareholders over the long haul. We are not in a race to spend the most or acquire the most. We’re in a race to make the worlds’ best product that really enrich people’s lives.

    So, to the tune that acquisitions can help us do that and they’ve done that and continue to do that, then we will acquire it. And so you can bet that you will continue to see acquisitions and some of which we’ll try to keep quiet and some of which seems to be impossible to keep quiet.”

  5. Again. Geez, calm down. Apple is now a mature company and as such is looking for acquisitions that make sense to its long term vision. If every analyst out there would stop “micromanaging” every Apple move and take a much longer view, they’d easily see that this will be a nice asset to acquire.

    Do any of these guys remember that SoundJam is where iTunes incubated and then was acquired as well? What’s wrong with a nice acquisition and then bending it to fit an Apple-centric vision? Or, taking it much further by giving it Apple-legs?

    1. Because a different set of rules apply to Apple under Tim Cook than to Apple under Steve Jobs, and under Apple period to all other companies. And that rule is: Anything that is a good move for anyone other than Apple, and Apple under Tim Cook specifically, is NOT fine for Apple.

      You are absolutely correct about Apple, and iTunes. But anything Apple does is automatically wrong in the eyes of the public, with no time given to see if Cook and Company actually have a plan.

      It’s pathetic. It’s frustrating. But it’s the world we live in. So you and I, Mtnmnn, we’re going to ride it out and see that they actually do know what they’re doing. And it’s gonna be great.

      1. bah! Mac, iMac, iPod, iPhone, iPad…all under Jobs. There’s no “different set of rules.” You either produce or you do not.

        Under Cook: gay rights parades and “great new products in the pipeline.” Wake the fsck up while you’re “riding it out.”

  6. Yup. Who gives a crap about being a techie company? The future is about material science and fashion, and Apple already has it’s pieces in place.

    Also in the works: medical and energy, both of which lean heavily on the material sciences.

  7. If Apple is done innovating why spend the time and money on converting iOS to 64 bit operations? In and of itself, it’s an invisible spec bump that might impress a few techies, but really is not significant enough to warrant the time and cost. But like Apple has done in the past, I believe it will be the forehead slapping, light bulb going on experience we’ve had in the past with seemingly irrelevant or useless Apple features and products. At some point it will become abundantly clear why 64 bit operation was essential to Apple’s road map. The Beats acquisition may be another one of these irrelevant and useless moves by Apple. Time will tell.

  8. One of the comments under the source article suggests Beats should maintain their identity and that this might be the beginning of Apple the conglomerate. One reason this makes sense is because fashion like clothes, footwear, etc. and tech are merging and these products could have a unique label. For example, in the future the material in clothing might be able to change patterns and colors when paired with an iOS device. It would make sense to sell these products under a separate label with their own stores. I can not imagine purchasing Apple branded computer pants in a crowded Apple store.

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