Silicon Insider: The Secret to Apple's Success

Steve Jobs, Apple's stock plunge and why the competition hasn't caught on.

ByOpinion By Michael S. Malone

Jan. 17, 2008 — -- Well, as predicted last week, MacWorld wasn't quite as earthshaking as the last few -- and just as predictably, Wall Street lightly slapped the company for not being able to change the world once a year.

That noted, it has been lost on most people in tech that despite not coming up with the iPhone or iPod this year, Apple's announcements -- including downloadable movies and the superthin MacBook Air laptop computer -- are still better than just about anything being introduced by any other company in the electronics world. And of the few that have come up with sexy products recently -- Dell, LG and Nintendo -- none have managed to do so in more than one business.

So, you have to ask yourself: Why aren't more companies as innovative as Apple? After all, it's not as if Apple engineers are superhuman. I live just down the street, have them as neighbors, eat at the same restaurants -- and trust me, they are no different from any of the other engineers around Silicon Valley.

Frankly, most of the ones I know are less Apple-obsessed than the company's customers: Most are just happy to have a job in such a successful company, enjoy being the object of envy by their peers, and do their best to stay out of Steve Jobs' line of sight.

In other words, there is no structural reason why Apple should be more innovative than its competitors, who always seem to be one step behind the Cupertino giant. So that would seem to give credence to the longheld notion that the real source of Apple's success is Steve Jobs. After all, Apple was a great innovator during the first Jobs tenure, then lost its way during the decade under John Sculley, then came back to even greater glory with Jobs' return.

So let's take this one step further: What is it about Steve Jobs that makes Apple unique? It's not as if Jobs is designing the products himself -- as much as Apple likes to hide its product creators from the public and leave Jobs as the cynosure of all Apple-related coverage, we still know the names of the guys who designed the iMac, the iPod and the iPhone. So, what Jobs seems to actually contribute is the creation of an environment that welcomes radical thinking, innovation, elegant design and just general swinging for the fences technologically. Further, whatever the difficulties there are in dealing with his mercurial nature, they are overcome by the excitement and challenge of working in this environment -- which is why Apple keeps coming up with one innovative product after another; the least of them clever, the best of them earthshaking.

OK, but anyone who has followed Apple closely has long accepted the analogy of Jobs as corporate impresario.

So, my question is: If we know the secret to Apple's success, why don't his competitors copy it?

For years, I used to think that the reason nobody imitated Apple was because strategists at Apple's competitors had long ago sat down, crunched the numbers and smugly concluded that this business model wouldn't work in the long run. I thought I saw evidence for this attitude in Apple's plummeting market share in computers. I imagined Compaq and Dell, HP and Sony executives publicly professing admiration for Apple's clever products, while secretly laughing at the foolishness of such a suicidal business strategy. My best guess is that they believed they could cherry-pick any interesting new ideas from Apple, incorporate them in their own products, then crush Apple through better distribution, a larger customer base and price-bombing.

This myth of "smarter competitors playing along with Apple's misguided plan" started to evaporate in my mind when Jobs & Co. turned their business around and began carving market share off Apple's bigger competitors. That left me with only three possible explanations:

1. The competitors are stupid. That, I suppose is the explanation preferred by Apple fanatics and casual observers. But I know a lot of the guys who run these other computer companies -- and they are anything but dumb. In fact, they are some of the brightest people I've ever met. And while I can possibly imagine them being blindsided by, say, the iMac, I cannot accept that what Apple has accomplished over the last decade hasn't registered with them.

2. The competitors don't want to respond. At the heart of this would be the notion that Apple can't keep pulling rabbits out of its hat forever; that someday it will fall flat on its face, as it did during that run in the early 1990s with Newton and laptops that self-ignited, or in the 1980s with the Apple III and Lisa. That might have been a reasonable strategy in 2003. But again, I'm hard-pressed to believe the shrewd, tough and hypercompetitive executives at Apple's competitors still think they can bet the store on an Apple meltdown. Surely they must have abandoned that notion several years ago.

3. The competitors are unable to respond. This is the most interesting, and disturbing, possibility. After all, if you know how Jobs does it, all you have to do is copy his style. That is, create a work environment that rewards risk taking in product design and that is willing to identify vulnerable new markets and attack them with paradigm-shattering new products. Why be risk-averse when Apple is proving over and over again that embracing risk is the key to success? And if you don't think you've got the horses to get you there, then go raid Apple for talent -- that's the high-tech way. And yet, this isn't happening, and the few raids that have taken place on Apple, notably by Palm, have yielded few results. So what if, even though competitors want to be like Apple, most simply can't ?

My gut tells me that the answer is No. 3. But even if we know the explanation, we still don't understand why Apple's competitors -- not just the big computer companies but MP3 player makers and cell phone companies -- mostly seem paralyzed in the face of Apple's onslaught, and forever after playing catch-up. Why do none of them throw caution to the wind, subsidize radical innovation, and try to leapfrog Apple in the same way Apple has leapfrogged them?

The best answer, I think is that they are scared. The corporate culture in which they find themselves places too high a penalty on failure -- a punishment far greater than for merely being second-rate and late to market. In such a scenario, prudent managers will always choose mediocrity. Jobs, on the other hand, for all his flaws, has reversed the calculus: at Apple. Punishment is for those who don't go far enough.

In practice, what this means is that Apple has moved itself inside the "decision curve" of all its competitors in every field. The company is now moving so quickly that by the time its competitors respond to its latest innovations, Apple is already working on the next ones.

This can go on almost indefinitely. The only scenarios now by which Apple loses its extraordinary advantage are if, overextended by having to maintain this pace in too many markets, Apple either stutter-steps and falls out of its tight trajectory or makes a catastrophically bad product decision (which is why Jobs is so important: His duty is to make sure that doesn't happen), or some truly gutsy competitor risks everything and takes the inside track on Apple.

My guess is the first. As I said last week, I think this is the year Apple slips. It's had a longer run on the inside track than almost any company in history. Was this year's Mac Expo just such a stumble? No, but Wall Street was right: It was a slight stutter compared to recent years. Will any of Apple's competitors have the insight to see this opportunity, and the guts to make their move? We'll see, but I'd keep my eyes on two of the revitalized innovators, LG and Dell. And I'd be watching Samsung too.

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This work is the opinion of the columnist, and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the Silicon Insider columnist since 2000.

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