Apple, the world's most valuable company, turns 40 this year. Building its wealth on a history of innovations that changed daily life — from its leading role in the personal computer revolution of the 1970s and 1980s to the smartphone tsunami of the last decade — Apple products have not just sold well, they've driven the creation of new markets, new industries, even new lifestyle habits. More than 1 billion Apple devices are in active use around the world, CEO Tim Cook said in March.
The question is, can this iconic company do the same over the next four decades, or will it fall victim to the stasis that turned onetime growth giants as old as General Electric and Wal-Mart into slower-growth value stocks and reduced one-time stars, like Sun Microsystems, to cheap merger bait.
— By Tim Mullaney, special to CNBC.com
Posted 29 April 2016
There's actually a fan website devoted to this early PC, complete with photos of an Apple II wedding cake. Such is the hold that the II had on the imagination of early computer geeks.
The earliest 1977 versions, designed by Steve Wozniak, used the BASIC programming language and a TV set for a monitor. Soon Apple added the floppy disk drive and the VisiCalc spreadsheet program and the boom was on. Apple sold updates of the II until 1993 and ended up selling between 5 million and 6 million units.
The first Mac, introduced by a notorious Super Bowl ad in 1984, was the computer that let Apple become a premier company, and its successors sold 20.6 million units last year, generating $25.5 billion of revenue. It was the first commercially successful computer to feature a mouse and a graphical user interface.
On the negative side, its global market share among PCs is only about 7.8 percent, according to industry researchers at IDC, and Macs are as subject as any other computer to the rapid shift of computing tasks to mobile devices.
Since that's a move Apple benefits from by selling iPhones, it's not a huge problem for Cupertino. And Mac has been gaining market share, especially in the United States, off its small base as it rides the popularity of Apple phones.
In 2000, BusinessWeek gave two cheers to Steve Jobs' return to Apple in a cover story titled: "Yes, Steve, You Fixed it. Congrats. Now What's Act Two?" The next year, Apple rolled out its answers — the one-two punch of the iPod and iTunes that disrupted the music industry forever. The idea was to let users walk around with 1,000 songs in their pockets, and many of them have.
Trade-press estimates say Apple sold 390 million iPods by the end of 2014 — the company no longer discloses iPod sales separately. iTunes had sold about 35 billion songs by 2014 — enough to let the population of Canada have 1,000 songs per person. But even iTunes is being affected by the spread of streaming-music alternatives, like Pandora and Spotify, as well as by illegal sharing of copyrighted materials. Apple no longer discloses iTunes sales and it has launched its own streaming music option, Apple Music, which boasts 13 million subscribers.
You had to ask? All the iPhone did when it launched in 2007 was take us from mobile phones to mobile computers that sparked an entire mobile economy. From advertising to music to logistics, nearly every business has the iPhone or its many imitators baked into its business model. But iPhone sales did shrink for the first time ever, by 16 percent, during the March quarter. The drop was especially sharp in Greater China, where Apple's overall sales fell 26 percent, to $12.5 billion, a quarter of the company's total.
Apple sold 231 million iPhones last year, generating $155 billion in revenue, up more than half from 2014 — with China already in a nasty growth downturn by year-end. At this point, iPhone sales are about two-thirds of Apple's revenue. Cook has suggested that India can pick up a lot of the slack from China's slowdown. But the company's April 26 guidance convinced analysts it will take at least another quarter to fix the situation. The real answer may be to hope the iPhone 7, due this fall, rekindles excitement.
The computer industry spent years trying to design a tablet computer people would buy before the iPad debuted in April 2010. Through early 2016 the company had sold about 300 million iPads, with 54 million sold last year. It included Apple's first branded chip and set itself apart from previous tablets with a touchscreen adapted from the iPhone. But in a sign that the technology industry waits not even for Apple, iPad sales declined 23 percent in fiscal 2015, which ended in September, and 19 percent in the quarter ending in March 2016.
One culprit: Larger phones that have usurped some of the iPad's role of delivering content over a screen big enough to be more comfortable for many users than a mobile phone. In dollar sales, the iPad gave up its position as Apple's second-leading product to the Mac in 2015. By the second quarter both the Mac and the iPad had been surpassed by Apple's services business.
Innovation doesn't come with guarantees, even when hugely successful companies play the game — and there is no clearer proof in Apple's recent history than the launches of the Apple Watch and Apple Pay, a service that was intended to make paying for coffee as simple as waving your Watch-clad arm at an Apple Pay terminal.
The company sold as many as 13 million watches after the product launched last year — and yet it's a disappointment to much of the market. Expectations when the watch launched ran as high as 36 million per year. The company is tinkering with the design of Watch apps to make the device more independent of the iPhone. Similarly, Apple Pay is widely accepted but hasn't convinced most people to use it more than the credit and debit cards they already carry.
Apple doesn't disclose Watch or Pay revenues individually, but the group of products that includes the Watch rose 30 percent in the first half of fiscal 2016. The services group, which includes Apple Pay and iTunes and the App Store for iPhone and iPad applications, grew 20 percent and became Apple's second-biggest business, edging out the iPad and Mac lines.
Few Apple products have ever been "just about to break out" for longer than Apple TV. But despite numerous delays, product reconfigurations and oddly passive marketing efforts, the existing Apple TV set-top box product appears to be outselling streaming-TV hardware rivals like Google's Chromecast and Roku. But Apple doesn't disclose how many TV boxes it sells.
Apple TV is designed to let people quickly search through the video both on what has traditionally been the domain of TV, as well as an explosion of web video and related apps, in a way it says is simpler and more versatile than smart TVs made by rivals like Samsung. But Apple backed off plans to make and sell its own TV sets, because it didn't think it could develop a product that was revolutionary enough.
The changes in TV — from the explosion of streaming services like Netflix to the proliferation of more than 350 scripted series and the emergence of people cutting the cord to their cable providers — make clear that remaking the future of TV is the kind of big opportunity iconic companies want. Yet Apple's strategy has been all over the lot, confusing even investors as astute as Carl Icahn.
No future product of Apple's is more talked about — with less known about it — than Apple's pursuit of electric-powered, driverless cars. They might be on the market as soon as 2020, or they might not come at all, depending on which investor you listen to. Cook declined to say much about it when asked directly on comedian Stephen Colbert's late-night show last fall.
If it happens, it would help usher in a new era of disruption. Some experts, like Morgan Stanley analyst Adam Jonas, hope autonomous cars usher in a massive shift from car ownership to a form of car sharing, as people divert the hundreds a month they now spend on cars, insurance and gas to ride-hire services like Uber instead. Everyone from local car dealers to insurance giants are in the crosshairs.
But other experts aren't convinced Apple will go ahead, reasoning that making cars would be much less profitable than selling iPhones. And there will be a ton of competition in the race to perfect the autonomous car, beginning with Apple's longtime frenemy Alphabet, aka Google.
Like a lot of Silicon Valley companies, Apple wants to play in the remaking of the $3-trillion-plus health-care industry to exploit information technology. That's part of what the Watch is intended to do, by gathering data from each user as do fitness trackers. The key, though, is using software from Apple and app developers to crunch the data to improve care, and making it run over existing Apple products, like the iPhone.
Last year Apple introduced a software platform called ResearchKit, hoping to make clinical trials and drug research faster and more nimble by letting doctors and researchers build apps to coordinate their work. In early tests, ResearchKit helped assemble the largest Parkinson's disease study in history, recruiting subjects overnight, chief operating officer Jeff Williams said in March. Researchers at Mass General Hospital in Boston used it to identify distinctions between patients who appear to have different variants of type 2 diabetes, paving the path toward personalized medicine, Williams said.
In March, Apple announced its CareKit platform, which lets patients use technology to improve their compliance with treatment regimens for chronic diseases, like Parkinson's and diabetes. How fast it spreads will depend partly on how app developers respond — and whether patients are willing to embrace being more in charge of their own care.
Not all of Apple's innovation has been about specific products. Sometimes the innovation is in the company's approach, especially the clean, uncluttered product design it has helped popularize in industries from electronics to furniture.
In the next 40 years, Apple wants other companies to follow its methods of building businesses to protect the environment. That is why it issued $1.5 billion green bonds to fund these initiatives earlier this year.
Apple's goal is to run 100 percent of its operations on renewable energy — and is 93 percent of the way there already, Apple vice president for environmental initiatives Lisa P. Jackson said in March. Its office and retail operations in China are already carbon-neutral, aided by a 40-megawatt solar farm Apple built in the country. The solar farm generates enough electricity to offset the carbon Apple uses locally. Apple said its data centers are 100 percent powered by clean power. About 99 percent of its packaging comes from paper that is recycled or grown in sustainably managed forests, said Jackson, formerly the head of the U.S. Environmental Protection Agency.
Other companies, for sure, think as hard as Apple does about sustainable business. But leadership from one of Corporate Earth's icons is already having an impact.