Managing Technological Change: An Apple Case Study.
Managing Technological Change: An Apple Case Study.
Management strategies and ideas for Founders in dealing with changes in technology in the 21st Century, with notes on YouTube and the advent of AI.
A few months a go we wrote a short essay subtitled: “The birth and death of Industries and How to Build Goliath”, where we discussed how knowledge is discovered and cultivated in certain industries and how these industries generate tremendous amount of wealth for those who find them. We acknowledge the work it takes to find gold and mine it for the benefit of oneself and others, we also recognized the opportunities that one industry can create for another. But what happens when the circumstances that created the opportunities found in that industry, change?
This question may seem trivial, but in a rapidly mutating industry like the technology industry it is a question every technology founder or manager must re-visit, if not every day, at least every year.
With the rise of Artificial Intelligence to the forefront of the technology space, certain prominent individuals have raised concerns or made moves that has made the rest of us question whether the things that have been true for over a decade in the industry still remain true?
Marcus Brownlee, a tech focused YouTuber popularly known as MKBHD, has for one made us question whether the “ship first, iterate later” Silicon Valley model for technology products still works in today’s market. And the market responded to his comments in real-time as we have seen company stock prices tank as a result of his reviews. But I believe these events are only a glimpse of what lies in wake for companies that ignore seasons of great technological change in our industry, like the one we are currently witnessing with AI.
Companies considered to be Goliath in their industry are just as susceptible to the same market forces as the rest of their peers in the industry. And how they respond to significant changes in technology, could either spell death for their company, or lead to a safe transition.
In today’s post we will discuss how changes in technology affect companies, how companies can adapt to it and how it can kill companies that fail to adapt or try to fight the change. Will they choose to innovate in the direction of their customers or will they choose to economize to maximize profit? This is what we refer to as the Founder’s dilemma. Today’s post also includes commentary on the performance of Tech stocks during the past month.
A brief History of Technological Change
On 1 June 1999, Napster, a piece of technology software was released by a 19 year old hacker and it changed the way we listen to music forever. Inspired by his desire to listen to music for free, Shawn Fanning founded what would come to mark the end of the CD era forever.
It is not uncommon for people to overestimate the form of technological change versus its function. I say this because no matter how shiny a technology may seem to the ordinary eye, we judge its impact not by its sheer grandiosity but by its ability to change human behavior in an effort to make human lives better, because at its core, that is what technology is; a tool to make the performance of tasks easier and faster.
In the past several decades, many internet and software based technologies have been introduced to the world and have led to people working from home, swiping screens to meet new potential romantic partners and renting their houses to strangers for the weekend. As crazy as the technologies might have been at their inception, what is even crazier is how these innovations would have been perceived a few more decades before their inception. At the time of the phonograph the mere mention of free music would seem ludicrous let alone a CD player.
But we had the phonograph, vinyls then cassette tapes, and because of these successful innovations, human behavior has had to undergo certain changes as well.
It is important to note that as humans, it takes time for us to change our behavior from one model to another, but we rarely go back to examine what happens when we are able to change successfully. So for us to understand technological change, we need to take a look at its effects. What happens when humans forgo one piece of once innovative technology for a more recent innovation?
Characteristics of Technological Change
1. Redundant models:
The late 1990s were a period of peak profits for companies like SONY Records and an age of record breaking sales for artists like the Backstreet Boys. But all that came to an end when people realised that rather than buy a CD which might only contain one or two songs they liked, they could listen to music for free on Napster.
With that, people bought much less CDs than they used to, many stores removed their CD catalogues to make room for items that would pay their rent and SONY took to the courts to sue Napster.
2. Technological Waste:
Although many would assume that old technology immediately becomes antique or part of a “collection”, this does not happen until decades after said “old” technology survives the new wave of technology that sought to displace it.
3. Innovation Lag:
The amount of time it takes for the rest of the world to catch up to where the innovation is initially introduced or for companies to catch up to the pioneer innovating company is what I refer to as the “innovation lag”. During this period, the first few movers in the industry usually rake up a disproportionate amount of the value attributable to that industry.
If we look back at all the old tech that have become redundant, the scraps of metal that pile up in junkyards and the amount of documents in the cabinets of companies that represent decades of “research”, I believe it is safe to conclude that a lot has changed.
But the phenomena listed above are in no way new to the experienced business/technology manager, but they seem to be ignored when a new technology presents itself and they (the managers) and their companies are forced to make changes in response to market forces to satisfy their customers. Many companies stay in denial and try to fight this technology change for months, until it is apparent that they can no longer compete with the existing/redundant technology.
For companies to adapt to significant turning points in technology, they have to be reminded of certain truths about the business of innovation and the way it operates. What is true for a small garage startup may not be true for the same company when it reaches a billion dollars in valuation with over a million customers. So how do companies and managers know what to do when faced with change? or when not to focus on customers in light of new innovation?
How Tim Cooked Steve Jobs
Adapting to Change in Technology: (An Apple Case Study)
Apple has been making products since 1976, a few decades before many in my generation were born, but it only took part of my mental real estate when Kim Kardashian was first seen with an iPhone 6. If I can recall clearly, the iPhone’s ability to capture selfies were what popularized its brand. and the only reason for one to share a selfie would be to show how they looked in comparison to the people closest to them, or to put it more accurately: to fit into the culture of what a selfie should look like.
Apple’s brand was, and still is, built on the idea that people who think they can change the world are the ones that use Apple devices. Because their products are so good you would have to think yourself different from everyone else to buy them. But this idea appealed only to a small market of technology enthusiasts at its onset, some may call them nerds, creatives or geniuses, but it was nonetheless a market too small to take over the world.
As of today, the company’s most revolutionary product was not the MacBook neither was it the iPod. It was a product that had the best parts of both the Mac and the iPod in one device that could fit in your pocket: the iPhone.
With the iPod, Apple, and Steve Jobs initially showed us that we could carry thousands of songs in our pockets, we didn’t even think they could fit there in the first place, but Steve Jobs made it happen and he didn’t stop there. After getting music in our pants, he added some applications that an average user would find in a Macintosh and sold it as a mobile phone. All this was achieved between 2001 and 2007; 6 years.
But you should also understand that there is an even wider gap between the class of the Apple III: Apple’s first business-purpose personal computer released in 1980, and the iPhone which was released 27 years later.
Why is this Relevant?
Apple Inc. released the Vision Pro in February of 2024, and although I couldn’t purchase the device, by far my favorite review of the product is this video by Casey Neistat, followed by MKBHD’s video. Casey gives a simple, yet revealing tour, of the wonders of this new device Apple had birthed. But after watching the video, examining consumer sentiments, and doing some numbers; I had some opinions and questions of my own.
But my questions soon came to a halt when news reached the internet of the new headsets being returned by Apple customers. At a much higher rate than other apple devices (not combined).
Although Apple is yet to release official numbers, the device sold around 200,000 units, according to media sources. Considering it costs close to $3,500, the fact that it is an untested and under-marketed product, also compared to other devices of its kind in the market, the Vision Pro had a successful introduction to the world. But these numbers are nowhere near what the company’s shareholders expect by the end of the year. Again, Tim Cook was faced with the same decision that plagues all founders.
Innovation or profit?
The next few months would prove to be crucial for Tim Cook as he would be looking to improve customer sentiment about the fate of the company Steve Jobs established as a market leader. Could he release products that would prove to the world Apple were still on top of their game as innovating leaders of the personal computing world?
On March 8, Apple released the M3 series of MacBooks which many reviewers considered to be a feature dump, considering the rate of increase in performance of the M3 compared to the M2 and M1 chips.
The company also released the M4 iPad on May 7 with an ad a few prominent technology enthusiasts considered deplorable. Primary because: Steve Jobs, who handed the reins to Cook before passing away in October 2011, often sought to portray Apple as lying at the intersection of arts and technology.
To hit the nail on the head, Berkshire's stake in Apple fell by 22% to $135.4 billion as of March 31 from $174.3 billion at the end of 2023 as explained by Warren Buffet in his 2024 Annual Shareholder Meeting. The sale resulted in Berkshire realizing an $11.2 billion after-tax gain in the quarter from its sale of Apple stock and contributed to the rise in the company's cash holdings to a record of $189 billion per Fox Business.
Going by the events that transpired after Tim Cook released the vision pro as outlined above, it is clear that the future doesn’t look to bright for the company Steve Jobs founded.
According to Paul Graham (2012), Apple doesn’t seem on track to make the same kind of innovations it did under Steve Jobs. He writes in an essay:
“I was talking recently to someone who knew Apple well, and I asked him if the people now running the company would be able to keep creating new things the way Apple had under Steve Jobs. His answer was simply "no." …Apple's revenues may continue to rise for a long time, but as Microsoft shows, revenue is a lagging indicator in the technology business.”
We do not know exactly where Apple went wrong, but we believe that there are certain things we can learn as technology managers and more importantly as Founders, from the events that have transpired so far as regards Apple’s innovation, and its seeming inability to manage technological change.
The lessons outlined below seek to draw parallels from Apple’s successes and failures with those of similar products or innovations in the industry in accordance with the principles of disruptive technology expunged by a Professor of Harvard Business School: Clayton M. Christensen who was once named the No. 1 management thinker in the world.
Lessons In Innovation and Technology
1. Disruptive Technologies and Their Markets
As is common in the technology industry, it is very difficult to identify what constitutes disruptive technology. Particularly because nobody knows in advance what the outcome of a particular technology would be. The iPod may have been considered disruptive technology, but it is a stepping stone in hindsight compared to the iPhone. Failure is part of the journey to success.
Nobody could tell the Florida man above what the 10,000 Bitcoin he paid in 2010 for these two pizzas would be worth today and although he used Bitcoin as a means of exchange Bitcoin today is being used as a store of value.
Also, the technologies that would be attractive to new markets are much different from those that would be considered attractive in established markets. A device like Vision Pro is more likely appeal to a new albeit small market of techno-enthusiasts; nerds if you call them or death-motivated drivers in the case of electric cars. While a device like today’s iPhone appeals to an established market of the wannabe Kim Kardashians of today; a much larger demographic.
Founders of smaller companies are often times aware of this, so they innovate in the direction of their target market before expanding to a broader market. But this will prove to be difficult for a company as large as Microsoft, particularly because it will be difficult to get the company excited from the small wins that would result from releasing new technology.
2. Who Allocates Resources for Innovation?
This fact is the most difficult for technology managers to accept (not understand). As a result of their years of work and experience writing budgets and allocating resources to build new products and ship upgrades to customers of an established market, many managers and founders have come to believe that it is they themselves (not customers/investors), that allocate the resources needed for innovation.
This is based on the Theory of Resource Dependence, which posits that organizations depend on and compete for external resources for them to be able to survive or grow. This is not to say that a founder’s decisions and strategies are irrelevant, far from it. It just goes to say that customers and investors are more powerful in determining the direction resources should go to in order for a company to innovate.
3. Finding New Markets
Finding a market suitable for a new innovation can be challenging, particularly because [as we stated in lesson 1 above], the exact use and market for a new technology cannot be known in advance. It is up to the suppliers of technology and their customers to work together to find out what markets this new technology will appeal to.
AI (Artificial Intelligence) in particular is one disruptive technology for which no one knows what its dominant use will be and what markets this technology will appeal to. Many innovative companies have sprung up with theories about the future, but the reality is as founders and managers we cannot know for certain.
So, rather than develop strategies with an existing market in mind, founders and managers should approach planning (for innovation) with an intent to learn from customers what their needs will be and to discover what new market disruptive products will appeal to.
Although it is tough to say that Tim Cook failed in his attempt to make the innovative first-generation Apple Vision Goggles (Pro) become mainstream, it is evident that he faced a lot of challenges in its release (as we discussed above) together with other Apple products, and his success or failure I believe, will be more readily determined in a few years.
No Intersections, Just Parallels.
This month in Tech Stocks (Analysis)
Stock market commentary is a new addition to our Substack. We realize that understanding the investment world as it relates to the technology industry brings perspective to the topics, companies and founders we write about. This section will give you a birds-eye-view on the industry’s happenings in numbers.
We would focus on two Stock Indices:
The Standard and Poor’s (S&P 500) which is an index of the 500 largest companies in the United States by market capitalization and the Nasdaq 100 which tracks the securities issued by the 100 largest innovtive non-financial companies. The Nasdaq 100 is known for tech stocks as they comprise mainly of companies in the Bezos sector.
S&P 500
Investor sentiment around the S&P 500 remains relatively neutral as many analysts epect improvement on the stock index.
Stock prices rebounded on Friday, with the S&P 500 index climbing back above the 5,300 level and gaining 0.70%. On Thursday, the market sold off after a higher open, despite NVIDIA (NASDAQ:NVDA) stock rallying by over 9% following its earnings release.
Many analysts still expect a market correction on the index this following week. From my observation, the index is being held back by the poor performance of the financial companies trading on its index like JP Morgan, Bank of America and PepsiCo which all trade in the negative.
U.S. inflation also increased by 0.3% in April, slightly less than expected, offering some relief to policymakers, but policy makers are not the average consumer.
Nasdaq 100
As of Tuesday, 28th of May, The Nasdaq closed above 17,000 for the first time ever, underpinned by a surge in Nvidia as a result of increase in investor sentiment around AI. The demand for AI products was given further credibility as Elon Musk's xAI announced on May 26 that it had raised $6 billion to fund AI development.
Apple (NASDAQ:AAPL) stock gave up gains to close flat even as the iPhone maker’s smartphone shipments in China were 52% higher in April than a year ago, according to data from a research firm affiliated with the Chinese government.
Notes & References
Notes:
From our analysis of Apple’s recent activities, its unclear wether Tim Cook’s time at apple will soon come to a halt, but we can agree on the fact that the company is starting to loose its x-factor, that edge that sets it apart from other competitors in the market: its ability to innovate.
Although the market has not pulled its resources away from the company, the results will be disastrous if it eventually does, considering the capital and market share Apple has in its industry. And even the market unfavorites apple, who will the next Apple be?
References:
Clayton M. Christensen (website)
Paul Graham (Apple Essay)
Warren Buffet (Shareholder Meeting, 2024)