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Understanding Apple #2: Success = (O +V) * F

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Understanding Apple #2: Success =  (O +V) * F

Why are Apple (NASDAQ: AAPL) products so successful? The answer is simple and complex.

You may love Apple and their products, or hate them to the core, but what cannot be denied is that Apple now has the highest market cap of any company, their products are trend setters, and currently they are trading at rather low multiples, especially regarding forward earnings.

Warren Buffet has the maxim: “Invest in what you know!” So, for those who want a unique perspective on Apple’s success, I have a series of articles 'Understanding Apple.' I hope you will find them helpful and provocative. Part-1 was a brief outline of Apple’s history.

In Part-2 I discuss the reasons for their success. Part-1 listed mostly indisputable, historical facts. Here I am more subjective, giving readers my unusual viewpoint. Though not entirely original, I’ve been saying this for many years.

Why are Apple products so successful? The answer is quite simple.

  • Apple builds innovative products that delight their customers.

Of course the investor wants to know how they accomplish this. So the real question is “How do they do this?”

I suggest:

S = (O + V) * F

Success = (Opportunity + Vision ) * Focus

Opportunity arises when a technology arrives that can be exploited to provide a radically new product.

Example: Inventor Chester Carlson, found an obscure article by Hungarian Pál Selényi, developed it for decades until in 1959 the Xerox (NYSE: XRX) 914 was introduced. This launched one of the most successful companies of the 20th century. This was only possible because of the current state of technology. It could not have been done 50 years earlier.

  • For a radical new product to be produced, there needs to be the opportunity of the enabling technologies.

The Apple Newton was released before the technology was available. It was bulky, slow, problematic. Yet several years later, Palm ruled a PDA dynasty with a similar product.

Apple had been working on the iPhone for years. They did not release it, however, until the technology was available to realize its potential.

Vision:

In 2006 many companies were making cellphones. Some even making what they called smartphones (today’s feature phones). (Nokia, Research in Motion, LG,Samsung, HTC, etc.) Yet they were notoriously difficult to use, requiring a steep learning curve, if not outright training. Every single one of those companies had the opportunity to break the mold and create a new, user friendly interface. The technology was there –new processors, touch screens, etc. – but none of them moved forward radically. Apple, however, saw the opportunity, and had the Vision to conceive a totally new design for a phone. The rest is history.

Further back, Jobs and others from Apple went to visit the Xerox PARC labs where they viewed new interface technology. Jobs had the vision to think that someday all computers would have a GUI. They then worked hard on it to commercialize it in the Mac.

 

Focus – a factor of many levels

Above I noted:

Apple has succeeded because they build innovative products that delight their customers.

I was tempted to talk about quality, but I decided focus is better, because it encompasses several areas, some not directly related to one particular product.

It is indeed Focus that leads to the quality that delights the customers. Jobs frequently said that Apple’s mission was

“to create insanely great products.”

This, precisely is the object of their focus! It is the fanatical dedication to this goal that has led to their success. Now some people may think that “insanely great” is a bit over the top (perhaps it is), but the number of people who have flocked to their products and the extraordinarily high “very satisfied” ratings they receive shows this is not far from true.

The odd thing is that their ability to ignore the nabobs of negativism whose comments have always surrounded them, is precisely what has led them to the top. They never aspired to be the top. Before the iPod they never imagined they would be where they are. They just wanted to make the best, easiest to use, most delightful products they could. Finally, with the iPod, the general public became familiar with these products.

There is one very, very important thing to understand here.

 

Creating intuitive interfaces is not easy!

People think, “this is so easy to use, so obvious, it must have been obvious to design it this way.” But that is far from the truth. Just as a great dancer makes the dance look effortless, hiding the years of extraordinary effort, so too the elegant GUI design appears effortless, but disguises years and years of struggling over every element, repeatedly refining every detail. This takes incredible focus.

Another level of focus: focus on which problems? Jobs said “We continually reject many great ideas to focus on the few we can do.” [paraphrased] This, in my opinion, is what was needed to get them done well –  needed to get the quality – total focus on the task at hand.

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There is yet another level of Focus that is of particular interest to investors, because they spend so much time following analysts and the press/bloggers. One of Apple’s core principles is this:

Pay no attention to the analysts/press.

This is also related to Vision, of having faith in your vision. Apple has their vision. By definition, forward vision is shared by few. So why waste any effort paying attention to those others? They do not get it. Ignore them. Apple has famously done this.

One of the amazing things about Apple is that they have succeeded precisely by ignoring the analysts and press. Imagine if they had shut the doors of the first Apple Retail Store based on the first reviews? Today they earn by far the highest income per square foot of any major retailer – period.

Every single product they have launched has been met with derision and doom saying. Oh yes – the iMac has been a dismal failure! The iPod even worse! The iPhone worse yet!

All points above on focus are what have given Apple the ability to focus on the one thing they do care about – the user experience. Into this they have put their whole heart and soul with passion and discipline. Every minute aspect of the product is treated with an obsessive attention to detail. This is what has led detractors to complain that Apple products are merely style. But what the discriminating user sees is that this beauty is NOT just skin deep. Rather it permeates all levels, from packaging, to design, to the operating system, to the internal layout.

A long time buddy, a Unix engineer of highest caliber, always a PC man, finally broke down and bought a Mac Pro for video editing. He told me, “You know, I opened it to put in some hard drives, and it was just so beautiful inside. I mean, not ONLY was it laid out cleanly and logically, so easy to service, but everything was simple and beautiful. I was practically breathless!”

This is what the discriminating customer appreciates. Even the casual user appreciates that so much effort had gone into designing the OS so that it’s logical and easy to learn. 

And so, succinctly put, the source of Apple’s great success is this. They have the vision to recognize great opportunities, and the focus at all levels of the company and the design process to deliver exceptional products. Consumers recognize this and respond.

Let me know what you think.

 

Here is an interesting article.

http://the99percent.com/articles/7074/Vision-Without-Obstruction-What-We-Learn-From-Steve-Jobs

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Malcolm Manness has a Masters degree in Computer Science, and has worked for 14 years in development, technical publications and software quality assurance. He has been investing for 20 years. His short fiction can be found (under pseudonym J. Seunnasepp) at http://50CentFlash.com/.

 


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