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My Sunday Business Washington Post column is out. This week, we look at the impact of Apple on the technology sector and their competitors. The print version had the full headline And then there were none: Apple’s destruction of rivals (The online version is merely And then there were none).

Thanks to TBP readers for emphasizing that Verizon and Samsung are key players in the space — these are two firms I might have overlooked otherwise. As I noted in the forward to BN, it was written with a similar input from blog readers.

Regardless, here’s an excerpt from the column:

“One thing that might have gotten lost in the avalanche of Steve Jobs coverage has been his impact on technology investors. Not the entire sector but rather the crushing effect that Apple has had on specific competitors. It is creative destruction writ large.

Jobs remade entire industries according to his unique vision. From music to film, mobile phones to media publishing, and now computing, his impact has been enormous. And rumors abound about the next new thing, Apple’s remake of traditional television.

While Apple 1.0 influenced how we think of the PC user interface, it was hardly the disruptive behemoth that Apple 2.0 became. The Cupertino PC maker hardly profited from its innovations — Apple was a marginal player with a tiny market share. Yes, we know the original Mac was hugely influential and mostly ripped off by Microsoft. Indeed, the Mac-maker was kept alive by a $150 million Microsoft investment in 1997. With that, Bill Gates could retain a weakened competitor and argue that his firm did not own a monopoly in operating systems. The irony is that lifeline allowed a competitor to recover to the point where it is now a threat.

But it is much more than just Microsoft. Today, the triple threat of iPod/iPhone/iPad has left behind a wake of overwhelmed business models, confounded managements and bereft shareholders. Let’s look at who has been hurt — and helped — by the perfectionist from Cupertino.”

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I really like what the Post did in the dead tree version of the paper — the layout and art work is great:
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click for ginormous version of print edition

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Source:
And then there were none: Apple’s destruction of rivals
Barry Ritholtz
Washington Post, September 4 2011
http://www.washingtonpost.com/business/and-then-there-were-none/2011/08/31/gIQANykH0J_story.html

Washington Post Sunday, September 4 2011 page G6 (PDF)

Category: Apprenticed Investor, Investing, Technology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “And then there were none: Apple’s destruction of rivals”

  1. wunsacon says:

    Near the end, you point out the danger of holding stock long term. I might add: especially with tech firms that tend to be stingy with dividends.

  2. wunsacon says:

    Nice “big picture”-esque column, by the way.

  3. Chief Tomahawk says:

    At the end it says “Ritholtz” as opposed to Mr. Ritholtz. Maybe I read too much NYT, but I think the Mr. is classier.

  4. sailorman says:

    Just some wonky computer history: The original Macintosh was a complete ripoff of Xerox, whose scientists at the PARC research center developed the original windows interface that used a mouse. PARC in turn, used lots of ideas developed at MIT. Jobs heard about the stuff at PARC and kept trying to get a demo, but many scientists at PARC knew that he would make a commercial product out of it while Xerox couldn’t get out of the box. He finally did get a demo and was blown away by what he saw. Apple developed the Lisa, the first windows based commercial system, but it was too slow and too expensive. As the price of hardware dropped, it became possible to build a viable system at low cost and Apple produced the Mac.

    They made a serious mistake with the Mac, by keeping it a closed system. Gates recognized the mistake and developed windows, but made it an open system that developers loved. The developers deserted the Mac and started building Apps for Windows and the rest is history.

    While Apple owns the end user space, IBM still dominates the large corporate systems and Apple has not focused on this end of the business.

    I believe Apple’s next focus will be commercial TV; cable companies beware: channels are as useless as teats on a bull when streaming IP data is available real time.

    ~~~

    BR: Consider too that Xerox did not know how to develop GUI into a usable product — certainly not a lowly consumer PC

  5. sailorman says:

    The concept of channels on able TV is very much like the old circuit switched voice system before VoIP took over. Using circuit switched telephony, when a user places a call, a direct connection between the two parties is established. This is very inefficient because there are pauses in conversation and gaps between words, but the bandwidth is tied up anyway because their is a physical connection that can’t be reused when it is idle. VoIP eliminates that problem by only tying up circuits over the last mile of the network. The rest of the backbone of the system uses internet protocol that is packet switched and shares the pipe with other packets. When someone stops talking, there are fewer packets sent, but no bandwidth is tied up.

    Channels on a cable network, tie up bandwidth regardless of whether anyone is watching the channel or not. Most of the revenue of a cable company comes from selling channels, a concept that is technically obsolete if Apple puts up a cloud database of TV programs that anyone can stream whenever they want.

    Streaming TV does not use bandwidth when no one is watching a channel, but uses more bandwidth in other cases, because it is “on demand” and there is no synchronized starting time. Streaming TV with no channels will turn the entire business model of cable companies upside down. Cable is necessary as a pipe to deliver the programs, but channels are irrelevant.

    Since this is a regulated business and the FCC does not have technical or business people that understand the issues, the next few years will be very interesting as the concept of Net Neutrality is put to the test.

  6. greg says:

    @wunsacon…
    “stingy with dividends”. I think the more appropriate term would be “prudent with dividends”.

    @sailorman…
    “they made a serious mistake with the Mac”. There was no mistake, rather there was vision and a plan, both of which are sorely missing in almost every other company out there.

  7. wunsacon says:

    Greg, that can be the case. But, I imagine many bankrupt tech companies’ execs thought they were “prudent” in not paying much in dividends along the way. The longer any company goes without paying dividends, the more opportunity there is for executives to eventually spend the money on bad investments or themselves — via a dividend-like continuous stream of options/restricted-stock grants — after having given little back to shareholders along the way.

  8. blackjaquekerouac says:

    I’m no expert but i was under the impression that Nokia was still the world’s largest cell phone mfg. Obviously Apple is by far the most profitable and best run of the bunch. It also has the “apps” which simply put no one else has. But it really is laughable to compare “cell phones” to say “the Bessemer process.” We’ve had two way wireless communications since WWII (where it almost allowed Nazi Germany to conquer the entirety of Europe I might add) and as much as Apple is a consumer and capital success bar none it’s still just a lifestyle choice–Big Mac vs. Whopper. “All Glory is fleeting.” Move along.

  9. sailorman says:

    They had a vision for the product that was a mistake. They gave the market to Microsoft by closing the development environment. I doubt it was their intention to give away market share and set themselves back years in market penetration. They recovered due to Job’s genius, but even a genius can make a major mistake and he certainly made a big one. That’s history, not my opinion. I was an Apple developer for a large part of my career (once they opened the system) and intimately tied to the success of the Mac.

    I am no Microsoft fan, but the fact is both Apple and Microsoft ripped the technical idea off of Xerox. I was there and saw it with my own eyes. By the way, I am glad they did that. Xerox would still be trying to decide what to do with windows if Jobs had not taken the idea.

  10. greg says:

    wunsacon, I don’t think you can argue that Apple has given little back to shareholders along the way, as evidenced by the rise in share price.

    Goldman Sachs and Microsoft both pay dividends. Which of the three would you rather own?

  11. greg says:

    sailorman, if it was such a big mistake, one would think with the talent Apple has, they would have corrected this with future products, and yet they have not. So we either have to assume they are not very bright or they have another agenda.
    The argument of market share is made over and over by bloggers and columnists, and I wonder how many times they have to see a market share leader go bankrupt before they will eventually see the flaw in this theory.

  12. WaltFrench says:

    sailorman, a couple of questions: why do you claim the Mac was a “ripoff,” meaning a “fraud or swindle”? The story is that Apple had a consenting-adult relation with the Xerox workers and some went to work for Apple, hardly what you do when you’ve been screwed. Perhaps you mean perhaps a “riff” off the Xerox work, a jazz improvisation.

    And I’m befuddled what you mean by the Mac system being closed. I owned one of the original Macs and purchased for a very nominal fee the tech documentation and developer tools. The new paradigm for user-interaction was daunting; there were many difficult concepts without today’s object-oriented frameworks; it used a little-loved language; there was no fallback to simple character-mode DOS programs, which are much easier; and there was little overlap with Windows or any other system, to make the programming more cost-effective. But all those obstacles were inherent in making the leap to a graphic-oriented user experience, and Apple absolutely paved the way.

    These factual discrepancies notwithstanding, I can’t argue that Apple did not figure out how to position the Mac for the market. But when your company fires you and then almost goes bankrupt, only a fool makes the same mistake again; Apple was absolutely brilliant in its timing of the iPhone (and some pivoting to embrace the subsidized model); brilliant in cleaning up the cesspool of music-sharing (my few efforts that way cost way more time to find an acceptable version of a song than what I could save versus a CD); pitch-perfect in pricing and timing on the iPad until it could get a huge number of users at a price that competitors couldn’t match.

    None of this is to say that Apple has been perfect. Most importantly, Apple’s exclusive with AT&T was perhaps its worst error, based on hubristic belief that nobody else was within 5 years of them. Verizon’s snappy response to help Google and Moto to bring out the Droid showed Apple off by a couple of years. But overall, I think Apple understands bringing products to market as well as any company in the world these days.

    ~~~

    BR: AT&T was the only major carrier that would play ball with Apple. The rest of the carriers refused such a powerful tool that they could not control. AT&T’s desperation was really the primary reason Apple even got the iPhone sold in the 1st place.

  13. kaleberg says:

    IBM had the operating system monopoly and a lock on the computer business until the anti-trust case got to be too much for them. When they introduced their PC, several years before Apple introduced the Macintosh, they handed their operating system monopoly to Microsoft who did very well by it, but never sold a PC.

    Apple took the old fashioned computer approach with its Macintosh, retaining control over the hardware and software. The Mac quickly became a cult computer, popular, but with limited sales. They tried opening the platform to other hardware vendors, but nearly went broke doing so. When Steve Jobs returned, he killed off the clones and started making money again.

    Xerox did turn their work at PARC into a product, but it was expensive and a completely closed system. On the other hand, the windowing systems, networking, mouse and icon stuff was being developed at MIT, Stanford, and a host of other places. PARC might have given the best demo, but there was relatively little research secrecy back then. You just had to look.

    Apple has three real advantages. (1) They are an old fashioned computer company, so they control the hardware and the software. This means they can limit configurations and get what they have to work fairly well. (2) They sell their software to the people who will actually be using it, not to third parties who have completely different interests. This hurts them with enterprise sales, but induces a lot of wallet opening. (3) They also have good taste in product design which has been increasingly important since the 1930s. It was designers like Geddes, Dreyfuss and Dohner who convinced people to buy streamlined toasters.

  14. contrabandista13 says:

    NO….! NO…! and NO Again… Apple….? Love’em…. However……..

    The Earth is flat…? Don’t think so….!

    In the end GOOG will dominate, incrementally perhaps…. However, dominate, it will….

    SJ is dead, smart guy, but done….. GOOG and Co. is the future…. Apple will turn from sexy, to milf, to skank….. End of story…..

    Buy-GOOG/AAPL…… !

    Or buy both…. Or just naked short AAPL… Or naked long GOOG…. All good trades… Not a lottery win by any stretch of the imagination, but AAPL….? Naw… not here, not now….

  15. contrabandista13 :

    You are looking forward, and offering a prediction.

    I am looking presently (or backwards) and offering an explanation.

  16. ToNYC says:

    Apple destroys its rivals by locking-in the presentation whatever elegant way they can devise in software and controlling access to the hardware. The not-so-great majority demands the least thought and the most automatic response in a complex device. The Apple is the Touch-App telephone screen and the natural progression. Mathematics and masses will combine with too much money and growth and like everything else so blessed, Apple will face its greatest challenge. ….
    in a world full of bricks.

  17. Livermore Shimervore says:

    The at&t deal was a loser. It unecessarily opened the door to a stunning proliferation of Android devices. Apple needed to weigh the threat of a competitor against their micromanagement. If the problem is carriers balking at giving Apple that much control then the answer is not to give the willing carrier a long term deal. And certainly not one that could potentially limit their future options or nullify their ability to respond to a competitor with half a million DAILY activations. This is what arm chair Steve Jobs would have done: an exclusive short term deal heavily weighted in favor of the carrier. Once the insane Iphone hysteria became a sales reality, where only a fraction of the 100 million iPhones would have been raked in by AT&T, the other carriers would have been under immense shareholder pressure to cave to Apple’s unprecedented demands. But now with a long term deal in the way the other carriers could say “nothing we can do now”. You didn’t need a crystal ball, all you needed is to understand that a long term committment, at outset of a tech revolution, was taking on too much risk when apple was the in the drivers seat: they had the magic unicorn. If the landscape as it originally existed (pre iPhone launch) did not give them leverage then they needed then to limit how long that landscape would exist with their unicorn running across the field. And let’s face it the carriers aren’t the most difficult lot to outmaneuver once people are screaming iPhone.

  18. sailorman says:

    By a closed system I meant that the development environment was non existent for the Lisa — the first product and minimal for the Mac until they provided an object library based on Pascal — a very unpopular language.

    By ripoff, I was referring to another post that accused Microsoft of ripping off Apple for the windows idea. The idea was not invented by Apple, it was Xerox that built the first working system based on research done at MIT and Stanford.

    Just to be clear, I think that Jobs is a genius, but his genius is not in inventing new technology, it is his applying technology in ways that change the way society functions. Even a genius can make a mistake and his mistake was not getting developers on board for the Mac for a couple of years. It wasn’t until 1986 that Apple provided a reasonable development environment with good support. I remember going to the Apple developers conference in 1987 and being blown away by the technology, but Microsoft had the momentum then and maintained 90% of the market for many years.

  19. bman says:

    apples rot. any business model build upon the restriction of access and innovation is bound to fail.

    Fanboys need to take off their glasses. Ppl need to stop playing their games.. A tiny screen that fits in your hand is still a tiny screen, regardless of how many pencil sharpeners you stick your fingers into.

  20. [...] Back in August, we made a list of companies that were collateral damage of Apple’s Creative Destruction. That eventually morphed into a Washington Post column, And then there were none: Apple’s destruction of rivals. [...]