Of course, Apple is not Polaroid. Polaroid was 'just' an instant camera, made irrelevant by digital technology. Apple has a deep eco-system and the halo-effect of multiple products working with each other (iPhone buyers may buy a Mac, then a Macbook Air etc...).
The simple way value investors deal with something like Apple is simply that it goes into the "too hard" pile as it is in a fast changing, highly competitive industry.
Everyone seems to love Apple stores and Apple products now and they would never change to something else. But at one point in time, people felt that about the Palm Pilot and the "crack"-berry too. Apple may be better off and more deeply entrenched than these, but that doesn't mean it's a permanent situation.
Someone said to me that Polaroid was made irrelevant by technology. Well, of course it was. It's easy to see what happened now in hindsight, but at the time it may not have been so easy to see, or they may have figured they have time to evolve into digital technology. As for Apple, there is no telling what will come next in the tech world, and Apple is not guaranteed it's current status forever.
In any case, my argument really isn't about "this is tech and it's too hard", or that Apple is a fad or some such thing. My beef is quite a bit more specific than that, and that's why I am spending some bandwidth on this issue.
I'm not trying to convert Apple bulls into bears either as I don't think I necessarily have a strong bearish case. The point would be more that we have seen this movie before. Something gets so popular that's it's dominance just seems inevitable. The stock price is cheap so it attracts all sorts of investors; from growth funds to value funds (due to the low p/e) and even income funds (thanks to the dividend). Can it really be so simple?
The cheapness makes it a not so favorite short (although I know there is always a small group of bubble-callers on any popular stock; especially in the short-term trading world).
Anyway, my biggest problem is that Apple's success, to me, was a Steve Jobs story, not an Apple story. When Jobs died last year, people were worried. The rally in the year since his death reflected the continuing momentum at Apple, but also was a collective sigh of relief; whew, Jobs is gone but Apple is still doing OK. Maybe Cook can pull this off.
I tend to think that's the wrong conclusion. Apple is still coasting on Jobs' creation so they haven't really been tested yet. This is the thing that worries me. It's not about market share of iPhones/iPads or anything like that.
Anyway, as I read the Polaroid books, I jotted down these very interesting points (which admittedly supports my view/concern).
The first book I read was Land's Polaroid: A Company and the Man Who Invented It, by Peter C. Wensberg (published in 1987). It's a fantastic book. It takes a good, close look at Polaroid and Land. I do think Apple owners should read it.
Here is a snip from p. 235:
"In 1959, two years after the color work had first been shown to Kodak and several patent applications made for it, Land addressed the Boston Patent Law Association. Characteristically, he extolled the importance of the individual's contribution - Ptolemy, Copernicus, Galileo, Newton, Faraday, Maxwell, Einstein - rather than science as a group effort. He derided the notion of teamwork as the ideal framework for scientific endeavor. "There is something warm and appealing and cozy," he said, "about this picture of the human race marching forward, locked arm in arm and mind to mind; and there are insecure ages in life and insecure people in life to whom this vision of progress by phalanx brings comfort and strength. But I, for one, think this is nonsense socially and nonsense scientifically. I think human beings in the mass are fun at square dances, exciting to be with in a theater audience, and thrilling to cheer with at the California-Stanford or Harvard-Yale games. At the same time, I think, whether outside science or within science, there is no such thing as group originality or group creativity or group perspicacity."
While some in the audience grappled with the notion of Land having fun at a square dance, he went on. "I do believe wholeheartedly in the individual capacity for greatness, in one way or another, in almost any healthy human being under the right circumstances; but being part of a group is, in my opinion, generally the wrong circumstance. Two minds may sometimes be better than one, provided that each of the two minds is working separately while the two are working together; yet three tended to become a crowd."
This supports my (and others) view that Polaroid was a story about Land, not a company. I conclude that the recent Apple success was also a Steve Jobs story, not an Apple story. Of course, Jobs couldn't have done what he did without the company and it's employees, but the key driver of the success was Jobs. Land's above view supports this conclusion, I think.
From the Epilogue, page 247:
...He had wanted to create new things; the polarizer and the instant camera would remain the best known. But perhaps his most original invention had been his company. It was no less the product of a conscious process of experimentation and insight and repeated failure and creation and ultimate success than had been the other inventions. In the slough of the Depression he was already shaping the idea of a new sort of corporation whose characteristics were so unusual as to be bizarre, almost ludicrous.The italics are from the book, the underlines are mine.
At a time when steel companies, automobile factories, and textile mills were slowing to a halt, spilling workers into the streets, he was talking and thinking and writing about a company founded on science that would design new products not imagined by the public, which would be attracted to the products because they filled a hitherto unperceived need. He wanted a company to create an environment for art at a time when many were worried about meeting the next payroll. He talked about a company where the work life would be so satisfying that workers would look forward to the day's beginning and regrets its end, while sweatshops were in their heyday and unions fought to establish basic rights on the job. These were the ravings of a pioneer.
Despite the above, it didn't quite work out. Land thought he created the right company, but without him it went nowhere. Jobs was pleased that he got the culture right at Apple while Sony got it wrong. But I think he also said Land got the culture right. And look what happened.
Another book (I just got whatever Polaroid book was available at the library) The Polaroid Story: Edwin Land and the Polaroid Experience by Mark Olshaker (published in 1978) was also an interesting read since it was published in 1978, when Polaroid was still doing very well. (I read the paperback which was titled Polaroid Story, but the original hard cover was called The Instant Image.)
It gives us the sort of color/sentiment regarding Polaroid and it's post-Land future at the time:
Page 3, at the 1977 annual meeting, Land commented that:
...the corporation is currently involved "not with products and industries, but new concepts of what a company should be."
Page 47, a long time Polaroid employee said,
"Land told us what we were going to make, Bill McCune showed us how to make everything."(Is Tim Cook the Bill McCune of Apple?)
Page 22, in 1937 when Polaroid Corporation was formed with Wall Street financing, they said:
"So even at this stage, the 28-year-old Land struck the Wall Street establishment as being so unique that they turned back control of the company they had just bought and made the man they had bought it from promise to stay for at least a decade. Everyone acknowledged that the future of Polaroid Corporation would be determined by what went on in the brain of Edwin Land. Unlike most new business ventures, what they had bought into was not a new technology, a product or an array of concrete assets, but one man's mind." (my underline)
In the last chapter, "Conclusion", page 260, it says:
"Even at a time when the company is anxious to point out that the new generation of management has the situation well in control, Land's presence is still felt as strongly as ever. Though Land is far from being the only inventor inhabiting the Polaroid research laboratories, his interests, confidence, and personal dreams have determined each direction the company has followed. Will another individual emerge with both his inherent authority and his persistence of vision? Or will Polaroid's corporate direction be determined by the committee system in the future?
Regardless of Land's pervasive influence as Polaroid's single guiding force, the corporation will probably survive his loss at least as well as the Ford Motor Company survived the loss of Henry Ford and Eastman Kodak weathered the loss of George Eastman. Whether the basic nature of the institution Land created will remain the same is a matter of speculation. One corporate structure that is often compared with the relationship between Land and Polaroid is that of Walt Disney Productions. In both cases, the product and social impact of the company arose out of the imagination of one master.
When Walt Disney died in 1966, numerous observers predicted that the organization would not long outlive the Mouse King, just as many predict that Polaroid cannot continue in the same spirit without Edwin Land. But Disney Productions did survive, and continues generating both product and profit at an unprecedented rate. On the other hand, while the company is still brilliantly successful - in television and films and the two theme parks - it has not moved out in any new creative directions since Disney's passing. Instead, it has optimized what was already in the hopper when he died. Polaroid's second-generation leadership must obviously be cognizant of the lesson in this for them.
The author didn't really mention the long period of time that Disney did have trouble after Walt's passing. Steve Jobs famously warned Tim Cook not to sit around and ask what Steve Jobs would do (which is what post-Walt Disney had a problem with).
And on page 262,
The most carefully Land has publicly addressed himself this issue was in the interview he gave Forbes in June 1975: "There is only room for one of me in this company, and if while the one is there, all the others are growing and learning, the worst thing that could happen is that we could become one of the two or three best companies in photography and running along steadily. The best thing that could happen is that we would not merely do that, but one or two or five of the young people around me - the apprentices in every sense - will take over and we might go three or four times as fast."
This is a little off the topic, but there was a quote of Land's that is very inspiring from this book so I'll post it here:
The Five Thousand Steps to Success
If you dream of something worth doing and then simply go to work on it and don't think of anything of personalities, or emotional conflicts, or of money, or of family distractions; if you just think of, detail by detail, what you have to do next, it is a wonderful dream even if the end is a long way off, for there are about five thousand steps to be taken before we realize it; and start making the first ten, making twenty after, and it is amazing how quickly you get through those five thousand steps. (Edwin Land to Polaroid employees, December 23, 1942)
Anyway, this book ended with optimism that Polaroid will do just fine without Edwin Land. Again, we know that that wasn't the case. It took until 2001 for Polaroid to go bust, but they had many bad years before that.
There is an interesting new book out written by a former Polaroid employee that takes a close look at Polaroid of the post-Land era up to and even after the 2001 bankruptcy. It is quite an interesting read:
Fall of an Icon: Polaroid After Edwin H. Land: An Insider's View of a Once Great Company by Milton P. Dentch
Dentch lists all sorts of reasons why Polaroid failed post-Land and he feels that a different approach/managements might have been able to keep Polaroid viable. After reading his book, I still think the main issue was that without Land, Polaroid was toast. People will argue that Polaroid was toast way before Land was fired in 1982 as he was responsible for the Polavision fiasco. But either way, I tend to think Polaroid had very little chance of success after Land.
Anyway, the book quotes from the Polaroid Handbook from the mid-60s,
We have two basic aims here at Polaroid. One is the make products which are genuinely new and useful to the public, products of the highest quality at reasonable cost. In this way we assure the financial success of the Company, and each of us has the satisfaction of helping to make a creative contribution to society.
The other is to give everyone working for Polaroid personal opportunity within the company for full exercise of his talents; to express his opinions, to share in the progress of the Company as far as his capacities permit, to earn enough money so that the need for earning more will not always be the first thing on his mind - opportunity, in short, to make his work here a fully rewarding, important part of his life.
These goals can make Polaroid a great company - not merely in size, but great in the esteem of all the people for whom it makes new, good things, and great in its fulfillment of the individual ideals of its employees.
And about Jobs and Land:
Jobs himself spoke about Land in a 1985 magazine interview with Playboy. "Eventually Dr. Land, one of those brilliant troublemakers, was asked to leave his own company - which is one of the dumbest things I've ever heard of," he said. Jobs - a brilliant troublemaker in his own right, was pushed out of Apple months later. Polaroid drifted after Land's departure, and eventually filed for bankruptcy. Apple also fell on hard times after the Jobs exit, but the company revived when its founder returned to lead it again. Jobs and Land shared a creative gift that gave the world products it had to have. Call it genius or call it magic. You can't replace that. (Steven Syre, the Boston Globe, October 7, 2011)(emphasis is mine)
In a previous post, I mentioned how the intense focus of Apple can be a risk post-Jobs since they may focus on the wrong thing; if whatever they focus on doesn't sell, they might get in trouble.
In the case of Polaroid, it seems like they lost focus after Land. Here is the last two chapters from the Dentch book:
The lack of focus was a bigger problem than I realized when I started my book. When Dr. Land decided to produce instant color film, develop the perfect Instant photographic process, the SX-70, make Polaroid negative or Polaroid batteries, employees at all levels jumped on board gladly. It was exciting to be part of; we had focus and got the job done.
The Polaroid Corporation was the embodiment of one person, Edwin Herbert Land; he was the founder, inventor and the protective father figure to his employees. When Land was pushed out of his company by the board of directors in 1982, his successors never found or maintained a viable focus again.
(emphasis mine)
Yes, there have been great founders where the companies have survived for many decades after their passing or retirement. Most of the S&P 500 companies would probably fit into that category.
So why not Apple? I don't think they will necessarily go bust any time soon. When Jobs left the last time in the 1980s, Apple survived and the Mac never went away; Mac fans were loyal and continued to use them. It's just that the business trajectory shifted a bit without Jobs' 'magic'.
Sure, Cook is way better than Sculley so they may do better this time around.
But my thinking is that the Boston Globe reporter is correct from the quote above:
Jobs and Land shared a creative gift that gave the world products it had to have. Call it genius or call it magic. You can't replace that.
After reading these Polaroid books, which Jobs may have too, I wonder if Jobs had any doubts about Apple. I don't remember him expressing any doubt (except for him saying that the only problem is that Tim Cook is not a product guy), but I wonder if the Polaroid story hung in his mind in his last days. I wonder what instructions he left to the trust that owned Apple shares (did they sell?).
Anyway, there may be no new information here, but I thought I'd post some of my notes on reading these books. Some of it was very enlightening to me.
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