Apple: It's time to leave Neverland

Apple has lost its Peter Pan, and that means that it finally has to grow up.
Written by Jason Perlow, Senior Contributing Writer
This article is an expanded version of Jason Perlow's arguments in ZDNet's "Great Debate" Series. The above musical video in my opinion embodies the fundamental philosophy of Apple, Inc. It fits the company like a glove. Given Jobs' intimate involvement with Pixar and the Walt Disney company I'm actually surprised "I Won't Grow Up" was never used in the company's advertising. If Apple had a corporate anthem, that song from the 1958 musical Peter Pan would be it. For the past 15 years, Apple has been a consumer product-oriented company that reflected the vision of a single iconic leader -- Steve Jobs, its dreamer and Walt Disney-like figure who created its current success formula. After the company mourns its main source of perspiration and inspiration it needs to figure out what it wants to be when it grows up. Yes, consumer products should continue to be an important focus area, but Apple cannot continue on just great toys alone. If we have learned anything at all from the company's most recent 3rd quarter sales figures, we must ultimately recognize that Apple's revenue is highly based on an annuity or semi-annuity model of repeat customers. Repeat customers are bread and butter, but it does not create growth. Post-Jobs, Apple must exist in a world of constantly improving commodity technology being created by its competitors and enterprises seeking next generation, integrated mobile and desktop solutions that the company is not currently offering: Products which are arguably more open and can more easily attract the partners needed to create solutions. And it should go without saying that Apple cannot compete by continuing to use the intimidation tactics of its departed founder, no matter how many tens of billions it has in its expansive larders. Anything other than moving on to the next Insanely Great thing should be considered an unnecessary distraction. Great Debate: After Jobs, can Apple maintain the momentum? | Jobs left future plans for next-generation Apple products | TechRepublic: Three reasons Apple will succeed after Steve Jobs | In the battle for the living room, the ghost of Steve Jobs looms large | Steve Jobs: A retrospective It would be very easy to argue that due to the company's huge $80B cash larders and dedicated customer following that the Apple will keep its momentum despite the loss of the company's founder and head "Imagineer". However, the reality is that the company is at an inflection point and has an annuity-based revenue model where existing customers upgrade to the latest and greatest version of an i-product every 2 years, and that iPads really are cannibalizing the sales of not only Apple's competitors' notebook computers but also their own MacBooks. To maintain momentum, Apple not only has to keep banging out the "hits" with new and exciting versions of its existing product line but it also has to expand into new markets. I have suggested elsewhere that the enterprise would be a great place for Apple to do this but it would take a radical shift of company ideology to approach anything other than new consumer markets. It is also worth mentioning that not only is Apple facing challenges of expansion but it is going to face heavy competition with ever-improving versions of Android (which according to recent market reports has been making a sizable dent in the iPad's tablet market share and continues to occupy the #1 position in smartphone market share) and also Windows Phone and Windows 8. I am also not going to under-estimate what Jeff Bezos and Amazon are capable of doing either, as evidenced by the very strong initial sales of the Kindle Fire and the sales projections for millions upon millions of units to be sold in CY 2012. So what should Apple do to counter these external forces? From a pure cash standpoint, Apple is looking very good, and could use these $80B liquid assets to purchase companies and expand into new markets. Apple currently has a very strong engineering team that is capable of continuing to produce excellent products. iCloud also shows some promise in being able to tie all of the vertical integration Apple has into all of their products into a single seamless experience, provided that the resiliency of that infrastructure actually holds up. While a huge cash war chest certainly gives the company a tremendous advantage over its competitors, particularly in being able to swallow up key technology/component vendors and also to secure or monopolize a supply chain, the company has to be very careful as not to attract too much attention to itself as being monopolistic, not only in the United States but also in Europe and Asia. It also goes without saying that the litigation and vast assets the company is using as a weapon to try to "Destroy Android" as per Steve Jobs' Mevillian wishes should be carefully re-examined by Tim Cook and other influential people in Apple's management and Board. The patent suits and other litigation is bringing the company a tremendous amount of ill-will from the industry and governments as a whole and could potentially backfire on them. Android is a White Whale that no longer has an Ahab to pursue it. And Tim Cook shouldn't be Captain Hook relentlessly chasing Tick Tock either. Instead of disruption through litigation, Apple should disrupt through innovation alone. One of the ways that disruption can occur is through executing Jobs' final dream: to have full digital convergence between the Cloud and Television. I have no doubt that some sort of product that utilizes television and content consumption technologies that are convergent with iCloud and other services is going to be launched. Whether that is some sort of new, more advanced set-top than the current Apple TV or an actual television with various Apple technologies integrated into it remains to be seen. I have argued in the past in my own writings that it is likely that something along the lines of a super high-resolution display the size of a 42" or larger HDTV with Apple branding may make an appearance. However, should a product like this get launched it would not be without its own challenges. 1080p 24fps 42" to 55" HDTV's have become heavily commoditized in the $500-$1500 price range. Apple would have to provide a tremendous amount of value add (such as 3D and other technologies, such as the rumored 2560 pixel resolution) in order to challenge the SONYs, Sharp's, Samsungs and Vizios of the world. After all, for those companies TV sets are their bread and butter and they know this industry better than anyone else. Besides the price points for such a device, one has to consider the complex content relationships that would have to be forged in addition to agreements with the service providers to carry a lot of streaming traffic. Apple may have to buy or create their own CDN infrastructure in order to pull this off accordingly, at least for the customers that will have the bandwidth to be able to use a product like this in the first place. And what of product growth for the company's biggest cash cows, the iPhone and the iPad? I think it is reasonable to expect that both iPhone and iPad will continue their very strong annuity stream for the next two years, especially if there are significant product enhancements coming down the pipeline. However, beyond the next two years, things are likely to change as Android (in its various flavors, including Google's own and Amazon's "mutant") continues its growth by stealing smartphone market share from the declining RIM in the consumer space and increases tablet mindshare with Ice Cream Sandwich 4.x and future versions of the OS. Google's Android will also likely continue to be the leading platform for 4G wireless. Handset OEMs will be willing to make any number of compromises that Apple would refuse to make in order to address business and consumer users' thirst for high speed mobile data. That is, unless, Apple is also willing to compromise now that Jobs is no longer there to throw tantrums when design choices are made that do not fit in with his sense of product perfection. While there is some cause for concern that the reception to Microsoft's Windows 8's radical "Metro" UI may initially be lukewarm on enterprise desktops, enterprises will almost certainly start to look towards Windows 7.x Phone and Windows 8 ARM tablets as being actual enterprise-capable mobile products. This will prove to be a sticking point with complex IT environments if these competing platforms are better suited to the BYOD model than Apple's products if Microsoft (or Google) makes better tools for provisioning and security partitioning available, such as with the use of mobile hypervisor technology. This gets us back to the issue of whether or not Apple is even capable of addressing enterprise needs in terms of device and application integration. Also Read: I have argued in recent articles that addressing the enterprise (by making iOS more integrated with line of business applications produced by 3rd-parties or by even making Mac OS X Server more robust and run on 3rd-party server hardware) would be the logical thing for Apple to do in order to break into new markets. If anyone has the DNA or wherewithal to do this, it is Apple CEO Tim Cook, who has the Insane Greatness of a Steve Jobs hand-picked management team behind him as well as his own twelve years of experience creating and developing enterprise partnerships at IBM's Personal Systems division. To do this, however, will require a great deal of work in as well as money and time in terms of being able to cultivate partnerships, something that Apple has never been good at doing. Apple stinks at this precisely in the way that Microsoft or even Google doesn't "Get it" when it comes to consumers, to use Steve Jobs' own language. It will require a lot of work and a lot of money to make a footprint in a part of the computer industry that Apple in the past has failed to be able to do and has no guarantee of success in, and it will also require some loss of control and partner assistance in order to pull off. In the age of Steve Jobs the very idea of losing any kind of control was impossible. Under Tim Cook, who knows. I believe Cook will be an excellent maintainer of Apple and for the time being, will be the Harry Truman to Jobs' FDR. He will continue to apply his skills of streamlining the company and keeping it running like a well oiled machine. But at some point he needs to assert his own vision and plans for the company's growth and expansion, and whether or not he is capable or willing to deviate from what Jobs has told him to execute on already. So how could Apple pull off an enterprise coup? They need to shed the arrogance. They need to be able to work and cultivate partnerships. They need to be able to give enterprises powerful toolsets for device and desktop provisioning and management. They need an App Store and enterprise developer ecosystem that will do the same for enterprise applications and 3rd-party enterprise software developers and integrators that they have done for the consumer. Mac OS X Server has to "grow up" and have the same technologies that are required to make it a robust enterprise-class OS, whether it is deployed in the Cloud by Apple or a partner, or in private infrastructure. And even though Apple doesn't need to produce enterprise hardware, it has to be certified to run well on IBM's, HP's, Dell's and even Oracle's hardware and industry-standard hypervisors such as VMWare and KVM. All of this clashes with the Jobsian closed system and completely vertically integrated worldview. That type of consumerization strategy will work on a certain group of customers, but not everyone. It only makes sense as long as people are willing to tolerate one or two flavors of a particular hardware/software device profile. The very fact that Apple is unable to penetrate Android's 41 percent and climbing market share is because with Android, consumers and business users have more choice over form factors and other differentiating product features. Additionally, Apple has never been about delivering the most high-end components in their devices -- they always put in "Just enough" in order to keep their costs down. With Android or even with Windows Phone/Windows 8, there will be much more product differentiation and choice over hardware features. While the one size fits all will be sufficient for some part of the consumer population, a large part of that population will want choice and variation in configuration and form factors.

[Next: The Apple of the Future]»

Beyond future products and new markets for Apple, there is also the 800 pound gorilla (or should I say giant crocodile with a ticking clock in its belly) sitting in the room and the issue of post-Jobs management philosophy starts to come into play.

I'm not sure if Apple possessed the technology to extract Steve Jobs' DNA and grow clones a la "Brave New World" that you would be able to churn out executives to think precisely like Jobs, which is what the company now seems to be obsessed with in their Apple University. At least, not unless you get them to be abandoned at birth, allow them to become tortured young adults who experiment with weird vegan diets, have them all drop acid and send them off on quests to visit yogis at Indian ashrams. And then allow them to grow to adulthood and become inspirational control freaks that are willing to bend reality and schedules that nobody really enjoys working with because they see all human beings as disposable. Even with that I am not sure you can exactly reproduce the Jobsian talent for understanding what customers wanted. There's an awful lot of intangibles here that just cannot be taught. I believe it is very important for Apple and their key management to continue to remain creative. But there is also a "Not invented here" type of thinking that was very typical of Jobs that arguably was harmful to Apple and has been harmful to other companies such as Palm and Research and Motion. If the company could somehow still remain creative and playful, but also be able to embrace ideas that do not originate from within the company, perhaps they can continue to cultivate leadership that still Thinks Different. For the time being retaining the current management team is very important, particularly VP of Industrial Design Jony Ive who Jobs doted on as his own personal aesthetic imagineering guru. If the future of the company depends on anyone at least for the next two to five years, it is probably Jony Ive. Retaining his services is extremely critical, as it is of other key staff members, such as VPs Scott Forstall (iOS lead) and Eddy Cue (Internet/iCloud). At the same time, while Apple is full of brilliant industrial designers and software engineers, the product teams will now have to second guess themselves every time they have to rev a product design because they won't have Steve Jobs around to give them the final sign-off or to tell them "This is a piece of sh*t, send it back to the drawing board and do better." In terms of management bench it is painfully obvious that Apple is run as a very tight and integrated team, like a pit racing crew. While the company generates a huge amount of revenue and is highly valued by Wall Street, It is not a comparatively large, monolithic and ivory-tower type environment like a Microsoft or an IBM with large multiple divisions that work semi-autonomously and is able to continuously breed talent. So Apple is more vulnerable to executive poaching than companies with much larger and more complex management structures. Everything we have heard about Tim Cook is that he is a genuinely nice guy who is well organized and works really well with others and who is much more willing to actually listen to people. He appears to share Jobs' traits for meticulousness, but that's about the only area in which they are similar. That alone is going to create a completely different dynamic at the company. I think he should focus on his strengths and build more of a culture of consensus and agreement and become a purely engineering company focused on creating high-quality products. Apple should aspire to be more like the original HP of Walter Hewlett and Dave Packard, the company that Steve Jobs had huge admiration for. And to some extent, I think the Apple of Tim Cook should try to be more like Google, despite the fact that Jobs had an immense distaste for the way they do things. Sometimes creative chaos, when controlled, can produce positive results. There is no question in my mind that the absence of Steve Jobs will create confusion and possibly result in some less than optimal design decisions. But it is an exercise that they are going to be forced into doing no matter what, so they are going to have to figure out how to resolve those moments of indecision or "What would Steve Want?" one way or another. The Jobs vacuum may force several "Alpha Geeks" to surface at the company as opposed to just one, which may create some interesting results. By allowing Ive or Forstall to make the final call in their respective areas, we might end up with better products. And what about Apple's ability to control its supply of components and maintain its pricing advantage going forward? I think it goes without saying that the tens of billions of dollars in the war chest will help secure volume pricing as well as the supply chain for Apple products but it is not the only company that is capable of doing this. However, the more Apple continues to sue and alienate potential suppliers and manufacturers in Asia (Such as Samsung and Foxconn) the more self-reliant it is likely going to have to become and possibly have to become a component manufacturer itself and use its cash assets in order to build the infrastructure to guarantee that supply line. All of this is likely to drive up costs. So what is Apple going to look like in 5 or even 10 years? I think it will be a somewhat if not very different company in 5 or 10 years. No company is immune to change, particularly after losing someone that was essentially the company's heartbeat. Apple is going to be forced to adapt to change, or it has to become a change agent in and of itself. Nobody can predict exactly how internal and external forces are going to affect them, because the industry itself is in the middle of undergoing a lot of changes as a whole.

Steve Jobs was Apple's equivalent to Walt Disney, but he was also the computer industry's embodiment of Peter Pan. He never wanted the company that he founded to grow up. And that is what made him and his company special.

While "Stay Hungry and Stay Foolish" may have worked for the last 15 years of his second turn at the reins of Apple, and it was a Jobsian-centric philosophy that worked well while he alone stayed at the center of the company's universe, Steve Jobs is no longer with us.

For all of us that cover the computer industry, it's a hard fact for all of us to swallow, and a loss that is difficult for us to comprehend, never mind Apple's own management and engineering bench that always had Steve to rely on to bless every product release or major business decision.

They won't have him to turn to now, and will have to make the important decisions completely on their own.

The company has to return from Neverland, without its Peter, and that may include the culture shock of actually leaving their traditional consumer-only comfort zone and to enter completely new markets such as the enterprise in order to sustain growth.

Tim Cook may never be Steve Jobs, but that might not be such a bad thing either. He's a sharp businessman who understands team building and plays well with others, something that's going to be needed in order to build the framework of a harmonious Apple corporate culture that will last another three decades and beyond.

Does Apple need to return from Neverland now that it has lost its Peter Pan? Talk Back and Let Me Know.

Editorial standards