Apple juggernaut just keeps rolling

By John Naughton

Once upon a time, when Apple was mainly a computer maker, people used to liken it to BMW.

That was because it made expensive, nicely designed products for a niche market made up of affluent, design-conscious customers who also served as enthusiastic - nay, fanatical - evangelists for the brand.

It was seen as innovative and quirky but not part of the industry's mainstream, which was dominated by Microsoft and the companies making the PCs that ran Windows software.

This view of Apple was summed up by Jack Tramiel, the boss of Commodore, when Steve Jobs first showed him the Macintosh computer.

"Very nice, Steve," growled Tramiel. "I guess you'll sell it in boutiques."

That was a long time ago. Now, with a market capitalisation of just over US$331 billion ($450 billion), Apple is the second most valuable company in the world - bigger than Microsoft (US$220 billion), Oracle (US$167 billion) or Google (US$196 billion). Ahead of Apple is oil major Exxon Mobil.

The quirky little computer company has grown into a giant. But not necessarily a giant of the Big Friendly variety, as the world's magazine publishers have recently discovered and as the music and software industries have known for some time.

For Apple now controls the commanding heights of the online content business and it looks like doing the same to the mobile phone business. At the moment, it looks as though nobody has a good idea of how to stop it.

Every year, Fortune magazine polls a sample of US chief executives asking for their opinions of their competitors. The results for 2011 have just been released and they show that Apple is the "most admired" company in America. This is the sixth year in a row that it has held that title.

The reasons are obvious. On the product side, Apple creates beautifully designed, highly functional and user-friendly devices that delight customers and provide fat profit margins; it has a corporate culture that reliably delivers these products by specified dates; it's much more innovative than any of its competitors; and it has a unique mastery of both hardware and software.

On the strategic side, the company has displayed a deep understanding of technology and a shrewd appreciation of potential devices and services for which people will pay over the odds.

Most CEOs would kill to run a company that possessed a quarter of these competencies. Apple appears to have them all.

Its current dominance is built on three big ideas. The first is that design really matters. It's not something you can outsource to a design consultancy - which is what most companies do - and design is as much about ease of use as it is about aesthetics. The second insight was that the maelstrom of illicit music downloading triggered by Napster couldn't last and that the first company to offer a simple way of legally purchasing music (and, later, other kinds of content) online would clean up. And third - and most important - there was the insight that mobile phones are really just hand-held computers that happen to make voice calls and that it's the computing bit that really matters.

Most of the media commentary about Apple attributes all of these insights to Steve Jobs, the charismatic co-founder, on the grounds that Apple's renaissance began when he returned to the company in 1996.

This may well be true, though it seems unlikely that such a comprehensive corporate recovery could be the work of a single individual, no matter how charismatic.

What's more plausible is that Apple's corporate culture took on some of the characteristics of its CEO's personality, much as Microsoft was once a corporate extension of Bill Gates, with all that implied in terms of aggression and drive.

Apple's iTunes Store gives it control of the tollgate through which billions of paid-for music tracks and albums, videos and apps cascade down to millions of customers worldwide. It levies a commission on everything that passes through that gate. And every Apple mobile device sold can only be activated by hooking up to the gate.

This gives Apple unparalleled power. Lots of other organisations offer paid-for downloads, but none has the credit card details of so many internet users. This was one reason why proprietors of print magazines began to slaver when the iPad appeared. Here at last was a way of getting people to pay for online content: just make it available on iTunes and let Apple collect the money.

Sure, it rankled that Apple took 30 per cent, but - hey - at least it would bring to an end the parasitic free riding that was endemic on the web.

Henceforth, the web was dead: publishing magazines as iPad apps was the future.

Then Apple abruptly changed the rules, stipulating that any publisher selling a digital subscription on a website must also make the same subscription offer within the app, from which Apple would take a 30 per cent cut.

Publishers have been furious about this, but there's nothing they can do about it.

Umberto Eco once wrote a memorable essay arguing that the Apple Mac was a Catholic device, while the IBM PC was a Protestant one. His reasoning was that, like the Roman church, Apple offered a guaranteed route to salvation - the Apple Way - provided one stuck to it. PC users, on the other hand, had to take personal responsibility for working out their own routes to heaven.

You may think you own your lovely, shiny new iPhone or iPad, but in reality an invisible virtual string links it back to Apple HQ at One Infinite Loop, Cupertino.

You can't install anything on it that hasn't had the prior approval of Jobs and his subordinates. And if you are foolish enough to break the rules and seek your own route to salvation, then you may find when you next try to sync it with iTunes that it has turned into an expensive, beautifully designed paperweight. If that isn't power, then I don't know what is.

100 million

Apple iPhones sold

$1

CEO Steve Jobs' pay

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