Apple Risks

As you know, Apple has been enjoying a very nice ride over the last couple of years. When you took over the company again in 1997, the future looked bleak. Today, however, we have a market cap of 105 billion, ahead of Dell and behind Intel. Our iPod device owns more than 70% of the MP3 player market. Four billion songs have been purchased legally from iTunes. The iPhone is changing the entire wireless industry. And even the Mac OS, once thought to be dead, has doubled its US market share from 3% to 6% since 2003.

All of this should be cause for incredible optimism. But danger lurks on the horizon. As we look forward, the same factors that have propelled our rise in recent years, could also accelerate our fall, unless we are careful.

Historically, Apple has distinguished itself through the quality and innovativeness of its products. From the first personal computer to the first GUI OS to the first point-and-click mouse, Apple has been on the leading edge in creating products that consumers love and can easily use. However, we must learn from the mistakes of the past. In the late 1980s and 1990s, we quickly lost our initial lead in the PC business to IBM and the OS war to Microsoft, despite a superior product. IBM accomplished this by licensing their product design to other clones, while Apple kept its product proprietary. We tried to maintain a higher price but our competitors soon caught up to us technologically and we could no longer charge a premium price. At the same time, Windows emerged and aligned itself with Intel. The Wintel machine soon became standard and our own Macs increasingly became irrelevant. Microsoft succeeded and became the dominant industry player that it is by turning their inferior OS into the platform and letting the network effect (of everyone using Windows) lock people in who might otherwise switch.

Today, our competitive advantage is that we again have a set of products that are superior in design, functionality, and style. We have continued to innovate and we are able to charge a premium for our innovations. We showed that we learned from our past mistakes by making some of our products interoperable,