Taking a bite from the Apple

2009-02-20 09:30

Alistair Fairweather

If you'd told me a decade ago that Apple would be named Fortune's "most admired company" for 2008, I would have snorted derisively. At the time Apple were in the doldrums, laying off thousands of workers and living off Microsoft's table scraps. Now I own three of their products and the snorting is very much on the other side of the cash register.

Tomes have been written about this rebirth, but it can be summed up in four words, all of them made up by Apple: iMac, iPod, iTunes, iPhone.

The iMac - probably the first style icon in computing history - launched in 1998. It was the product of two revolutionary thinkers - Apple's CEO Steve Jobs and head of design Jonathan Ive. And they hadn't just created a pretty computer, but a creative and manufacturing pipeline with the power to disrupt whole markets.

Exaggeration? The iPod launched in 2001 - by 2004 it had sold more units than any other digital music player in history. They've since sold close to 200 million of them.

This growth was supercharged by something no one else seemed able to get right - a simple way to buy music online. The iTunes store launched in mid 2003 and has since sold 6 billion songs.

And now their newest baby, the iPhone, is repeating this pattern but with even more gusto. They've sold 14 million of them in 18 months.

Sideshow

But again it's the sideshow that is actually the main attraction: iPhones are built around handy little extra functions called "apps" (short for "applications") that can be downloaded directly to the phone is seconds. They've sold over a billion of these apps already, and made themselves close to a half a billion dollars doing so.

So what do all these giant numbers tell us? One thing: Steve Jobs is a magician. I don't mean he does magic - I mean he's always got us watching the wrong hand.

Apple makes very little money (relatively) from iTunes - it's a Trojan horse designed to make you buy an iPod. And the iPod, however profitable, is another Trojan horse designed to make you buy Apple's most profitable products - their computers.

This is genius for a number of reasons. By taking a smaller cut from song downloads, Apple keep the notoriously grumpy record labels happy. By charging less than they could for iPods, they put beautiful ambassador products into the hands of style conscious people around the globe.

And in typical fashion they've turned the whole thing on its head with the iPhone. No one can argue that it's cheap (the retail price in South Africa is over R6 000), but it has sold like water at a chilli eating contest. Why? Because the iPod has taught consumers two things: Apple stuff works, and Apple stuff is undeniably cool.

Touch me

The iPhone is easily their most disruptive product to date. Right now global phone manufacturers are lumbering around trying to bring out their own touch screen designs to imitate the iPhone's gorgeous interface.

But of course we're still watching the wrong hand. What Jobs is selling in the iPhone isn't really hardware (although I'm sure he enjoys the 50% margin they make) - it's a software platform. That's what apps are after all - software.

That means that even after you've bought the thing, Apple still has a way to make more money out of you. And because most of the apps are developed by independent geeks, Apple is just the middle man. They take 30% and give you the platform to sell your ideas.

If that sounds like a bad deal, ask the guy who made $600 000 in less than six months from a three-dollar-per-download game.

And the disruption doesn't stop there. iPhone owners have downloaded more eBook reader apps than Amazon has sold Kindles. That means the iPhone is the biggest eBook reading device on the planet. Jobs claims not to care about the eBook market - but where are those hands again?

Apple is hardly a perfect company, and many people find the snooty attitude surrounding it and its products quite distasteful. But I have to respect the chutzpah of a company that can make a miser like me shell out twenty grand for a shiny new MacBook.

And I can think of worse companies to rule the world - Microsoft anyone?

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