Apple’s Amazing Comeback

How Apple Catapulted Beyond Microsoft, Google, Dell, Sony, IBM, Amazon, and HP in the Hearts and Minds of Customers

by Patricia Seybold, Scott Jordan, and Jonathan Seybold

I wanted to tell the story of Apple’s rise from the near dead and to trace the company’s astounding success since Steve Jobs’ return to the helm fourteen years ago. How did Apple go from being a has been to becoming the most revered (and valuable) company in modern history?

How did Apple’s products become the benchmark for customer experience and customer delight?

Apple's Design Duo: Jonathan Ive & Steve Jobs

To wrap my head around this phenomenon, I reached out to a stalwart and usually vocal group familiarly known as “Patty’s Pioneers” and began emailing questions about Apple. A fascinating week-long email discussion ensued, in which the most passionate and spirited contributors turned out to be my brother, Jon Seybold, and my colleague, Scott Jordan. Others chimed in as well. So this article is the result of a week-long collaborative discussion about a topic many of us find fascinating. What has Apple done that is working so well?

2010: Apple’s Amazing Performance

Apple’s Market Cap

As of September 26, 2010, the value of Apple ($267B) had surpassed that of Microsoft ($214B), Google ($168B), IBM ($169B), Intel ($108B), Amazon ($72B), Nintendo ($39B), Nokia ($39B), and Sony ($31B). “Apple’s valuation is now not only higher than any other technology company but it’s nearly the most valuable company on the planet,” asserted Horace Dediu in a recent post, Apple’s Growth vs. the Top 10 Largest Market Caps, pointing out that only Exxon Mobil currently surpasses Apple in total stock valuation.

What amazes me is that Apple’s valuation not only leads that of other technology firms, but also that of major retailers (Wal-Mart $197B, Tesco $56B), and entertainment companies (Disney $64B, Comcast $52B, News Corp $37B, Time Warner $35B).

As Horace Dediu points out, it isn’t just Apple’s market cap that’s impressive but the continued rise in the company’s earnings per share:

“The company showed 93 percent EPS growth over a five year period and has a P/E of 22.” The company with the next highest total value (Exxon Mobil) had 0.5% growth with a P/E of 12. The company with the next lowest total value (Microsoft) had 13.3 percent growth with a P/E of 12. For an ultra-large cap, Apple’s growth is unprecedented and extraordinary. It’s in fact off the scale. The average growth of the other 9 top caps is 3.6 percent!”

~ Horace Dediu

Apple’s Performance on the American Customer Satisfaction Index

Apple also took the prize for the seventh straight year in the authoritative University of Michigan American Customer Satisfaction Index (ACSI) released on September 20, 2010.

In describing the ACSI findings, Professor Claes Fornell commented:

“Apple continues its dominance, leading the PC category by a wide margin for the seventh straight year. Customer satisfaction with Apple’s computer products, including the iPad, rose 2% to an ACSI of 86—the highest score ever for Apple. The company now has a 9-point lead over its nearest competitor. No other company in the ACSI has as formidable a lead within its own industry.

Innovation and product diversification, along with strong customer service, have long been at the center of Apple’s success. At times, demand for Apple products has outstripped supply, with over 3 million iPads sold in the second quarter alone. At the same time, sales of Mac computers set an all-time quarterly high, which suggests that the popularity of the iPad has not impacted Apple’s desktop computer business. The company’s net income rose 78% in the second quarter and stock price, despite recent volatility, was up about 50% compared with one year ago.”

~ Claes Fornell

We have long contended that there’s a close correlation between the value of a company, its customer satisfaction index, customers’ loyalty, and its customer momentum (a growing number of delighted customers who refer other customers).

We have long contended that there’s a close correlation between the value of a company, its customer satisfaction index, customers’ loyalty, and its customer momentum (a growing number of delighted customers who refer other customers).

1996/1997: Apple’s Near-Death Experience

Apple is such a darling now. Many of you may not remember when Apple was considered both a niche player and a “has been.” That was in the mid-‘90s. By 1997, after three CEOs had tried and failed to revitalize the company, Apple had seemingly lost its way and was losing ground in the personal computer market. Sales of Apple Macintoshes had fallen to 75 percent of their year earlier levels at a timewhen the personal computer industry was growing by 10 percent.

Steve Jobs, who had been ousted from Apple back in 1985, was invited back by Apple’s Board of Directors as Interim CEO in 1997.

I remember this period in Apple’s history well. I was one of many industry pundits who offered unsolicited advice to Apple at the time. In my book, Customers.com, which was published in the fall of 1998, I provided a prescription for Apple. Looking back on what I said then is embarrassing because it bears no resemblance to what Steve Jobs actually did to mount the most successful comeback in the history of modern-day business.

Of course, Steve didn’t take my advice then. At the time, he had his hands full turning Apple around. His focus was, and always has been, on the quality of the interactive experience customers have with Apple’s products. Perhaps if I had paid more attention to understanding Apple’s DNA at the time, I could have been more prescient.

Apple’s DNA: Transforming Industries

Creating a Vision of What’s Possible

Steve Jobs’ innovations are typically not customer-led innovations. By and large, Jobs has been way ahead of customers in appreciating what technology could enable and in packaging that technology to be as usable as possible.

My brother, Jonathan Seybold, describes it this way:

“Apple has been so successful because its product conception and development are NOT customer-driven in the sense that you advocate. They are driven by an uncanny ability to look at where technology is going, to form a vision of what might be possible, and to relentlessly execute that vision. This has always involved pushing the technology a step or two further and faster than anyone else had thought possible. And it has always involved Steve demanding a product that is finished and polished and refined in a way that no other company would have done.

This is the nature of a disruptive product. You don't get disruptive products from customer input or focus groups. You get them from people who can see the thing that people don't yet know that they will want or need — and who will push through all obstacles and all objections not only to make that thing happen, but to keep pushing until it is a polished gem.

What is startling about Steve Jobs is that he hasn't done this once; he has done it consistently over and over again.

This is extraordinarily hard to replicate. This is why everyone worries about what will happen to Apple after Steve Jobs — whenever that is.”

~ Jonathan Seybold

Disruptive Innovations across Industries

Jonathan is right. Steve Jobs’ genius lies in his ability to transform an industry, not to evolve it. Scott Jordan, a nanotechnologist with a background in business innovation and turnarounds, also jumped at the chance to characterized Steve Jobs’ industry innovations:

“Most legendary entrepreneurs satisfy themselves with creating or revolutionizing one industry. A very few impact more than one. Only the rare Edison comes along, maybe once a generation, to yank the steering wheel of history multiple times with light bulbs and electric generation and gramophones and moving pictures. Steve Jobs is one of those. Like Edison, many of his innovations leveraged others' work. Like Edison, he has an instinctive ability to reach across fields to bring ingredients together. Edison didn't invent the light bulb, but he made it a success in business by building the necessary workgroups with the necessary diversity, assembling the necessary ecosystem with the necessary breadth, and finding the necessary message with the necessary appeal.”

~ Scott Jordan

In his remarkable 44-year career to-date, Steve Jobs has transformed these industries:

• Personal Computing. Act 1: The Apple II & VisiCalc, Act 2: The Macintosh; Act III: the MacBook
• Publishing: Desktop publishing with the Macintosh, Adobe Postscript, Linotype fonts, and the Laserwriter
• Movie Animation: Pixar with Toy Story and many subsequent hits
• Music and Radio: the iPod and iTunes
• Retailing: The Apple Store Experience
• Mobile Phones: the iPhone
• Computer Software: the iPhone App store which has changed how applications are developed, priced, and sold 
• Personal Entertainment & Emotional Connections: iPad and FaceTime
• Movies & TV: iPod, iPad, iTV

Steve Jobs’ Track Record in Revolutionizing Industries

As Scott points out, this list above (and he gave me an even longer one) is amazing.

“This list of industry innovations is an astonishing record, and there are revolutions gestating before our very eyes with things like the iPod Nano wristwatch and Apple TV. And he's still a comparatively young man. Compare him to his

contemporaries: Bill Gates accomplished an impressive flip of someone else's operating system, and later pasted a graphical user interface onto it. Larry Ellison built a database empire. Ross Perot built a data-processing services empire. Rod Canion, Adam Osborne, and Andrew Kay jostled for the transportable-computer crown. Philippe Kahn brought programming to the masses and patented the camera-phone. Jim Truchard made dataflow a platform for invention. Akio Morita put a transistor radio in everyone's pocket and, later, a stereo cassette player.

And I'm here to tell you that none of these magnificent entrepreneurs has a track record anything like Steve Jobs’.”

~ Scott Jordan

What Steve Jobs seems to do is to perceive opportunities to improve the experience of doing things. Whether that’s listening to music, animating movies, developing and distributing software, or tucking your kids in at night.

In each of these improved experiences, he sees a way to re-structure an entire ecosystem.

(An additional 15 pages of analysis follows...)  If you'd like a free copy, email me (use the link below my photo, top left on this blog) and I'll email it to you.

Comments

[David Lance]

Some historians think Edison's greatest invention was the Menlo Park, New Jersey R&D lab.* He recruited the best technical minds to live in a boarding house across the street from this lab and proceeded to lead many all-night work sessions there.

They worked together, brainstormed together, and innovated at a pace unlike any group had ever done before. (And they probably perfected the lightbulb, on that Sprengel vacuum pump at the left of the photo, for purely selfish motives.)

When a single person wants to achieve a lofty goal - they move forward one idea at a time. When a group wants to achieve a similar goal, they can elect to throw all their ideas into a central arena for reflection, and then select the best one. That way the ideas are better, the strides are longer and more frequent, the distance covered greater, inertia is thrown off earlier, and momentum is stronger.

How much better the process when a Steve Jobs or a Thomas Alva Edison is forming the vision in the morning, and working with a competent team to execute it at night.

*http://upload.wikimedia.org/wikipedia/commons/5/59/Menlo_Park_Laboratory.JPG

And speaking of Randall Stross and Edison, here, in my opinion, is the best book about Edison: http://www.amazon.com/Wizard-Menlo-Park-Thomas-Invented/dp/1400047633/ref=sr_1_2?ie=UTF8&qid=1287082183&sr=8-2#reader_1400047633

[Howard Davis]

I just noticed that though Scott Jordan writes highly of Edison, he makes the mistake of repeating the falsity that Edison did not invent the light bulb. I have been thinking about this a lot since lately there has been an effort to denigrate Edison and the charge that he did not invent the incandescent light bulb is one of the most often written. If you read the 1880 patent you will find that Edison claimed a carbon filament of "high resistance". The high resistance was the key that no one else had found. It was because of this insight that he was able to do what a Royal British inquiry led by Lord Kelvin had claimed was impossible. All incandescent light bulbs are still based upon this principle. Yes, there were light bulbs before Edison, but they were not based upon this principle and were not incandescent light bulbs by the definition we have today. Except for the substitution of tungsten (again of high resistance) for the carbon filament successfully used for almost thirty years. the incandescent light bulb has remained essentially the same. The best book on Edison's invention of the incandescent bulb that I have read is:

The Incandescent Light: A Review of Its Invention and Application (Hardcover)
by Floyd A. Lewis (Author), et al.

[Patricia Seybold]

Several of you have pointed out this timely article from Sunday New York Times, What Steve Jobs Learned in the Wilderness http://www.nytimes.com/2010/10/03/business/03digi.html?_r=1&emc=eta1, by Randall Stross--
In which he says, "the Jobs of the mid-1980s probably never could have made Apple what it is today if he hadn’t embarked on a torment-filled business odyssey."

[Patricia Seybold]

Thanks for the arithmetic lesson, Victor! Good catch!

Patty

[Victorpanlilio]

"In his remarkable 44-year career to-date"

Steve Jobs is 55 and didn't start Apple until he was 21. If we count only since then, his career spans 34 years. If we include his first high school summer job at HP, it spans ~40 years, if Wikipedia is accurate

http://en.wikipedia.org/wiki/Steve_Jobs

[jp solyom]

To innovate, build your business on the edge of chaos. Nobody can predict where the next disruptive innovation will come from.

Jobs and Apple have created quality tools that empower millions of individuals to explore their own creativity - and - provide them with venues to put their creations in front of enormous audiences at a very low cost. It is this empowerment that allows the many sparks of genius to grow and reach the critical mass necessary for sustainability.

Jobs is the Levi Strauss of the modern gold rush. You can't know where the next vein of gold will be discovered... But you do know what the miners will need on their voyage for getting there...