Thursday, December 27, 2012

Apple is No Polarioid, But...

I spent the last couple of weeks reading some books on Polaroid and took some notes that I thought were interesting and goes to the heart of my problem with Apple stock.

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.
  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.
The italics are from the book, the underlines are mine.

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.



  1. I enjoyed your recent two posts. No numbers! :-)

    I agree with your sentiment.

    Apple is in my too hard basket. But it doesn't do any harm to just tinker with opinions.

    Jobs has himself compared Apple to BMW, selling quality not quantity. The basic technologies in cars have not changed for decades. Yet BMW can continue to change a premium. The words "elegance" and "prestige" come to mind. I'm wondering, without any ground-breaking products, whether Apple can maintain its prestige status by just focusing on quality. When I looked at the beautifully polished glass edges on my friends' iPhone 5's, I could really appreciate the attention to details. (A friend of mine told me it's essentially the same finish you got from a Rolex watch.)

    Btw, talking about companies without its founders around, I think of Microsoft. When Bill Gates retired, he installed Ray Ozzie to take up his visionary role. Ozzie indeed had the right vision and saw where the world was heading. But without Gates around, Microsoft's effort on Azure has been halfhearted. It's quite scary now watching Amazon AWS chipping the platform market away inch by inch, unstoppable.

  2. Most consumers like Apple and it shows in the numbers, most investment analysts don't like Apple. It's hard to focus on the facts with a company that is so much in the news.

    1. Hmm... I'm not sure that "most investment analysts don't like Apple". I see 49 buys or strong buys and only 1 sell and 2 underperforms by Wall Street analysts.

      Back in December 2009, Steve Jobs was the largest shareholder (via Trust) with no large institutional shareholders, but now the two largest shareholders (as of 2012 proxy) are Blackrock and Fidelity who combined own 11.25% of Apple.

      Yes, consumers love Apple. There is no doubt about that. But people also love the Blackberry, and people swore by the Palm Pilot too, so customer affection is a crucial ingredient for continuing success, but not a guarantee of one.

  3. Thanks for this. If it isn't too much trouble, did you find in your readings any details about what kind of apparatus Dr. Land left behind at Polaroid to preserve the company's vision and culture? Given that he was pushed out (and presumably did not have time to properly prepare his exit) as opposed to Jobs's exit (and his efforts to create a "university" internally to preserve Apple's approach and culture), could this somehow mitigate some of these concerns?

    I'd also be curious about the personalities left behind at Polaroid, and how they would compare to the team Jobs left behind at Apple. Your point about Jobs being the curator and guiding hand leading the company towards the correct product and market choices is undeniable, and the loss of this role may well be the biggest issue hanging over the stock. If Jony Ive and others are in any way able to replicate this process, then it's possible that the concerns over Apple's post-Jobs transition may end up being overblown. It's been a while, but I seem to recall Isaacson's book talking about how towards the end, Apple's management team made the majority of the decisions with minimal input from Jobs, in which case the idea of them reaching the end of their post-Jobs roadmap may be moot, since they've been driving mostly as they please for a while already anyway.

    Again, your thoughts and observations are always fantastic, thought-provoking, and greatly appreciated.

    1. Hi, thanks for the nice comment.

      I thought about listing up the differences post-Land vs. post-Jobs, but having read all of this stuff, I just got the overwhelming sense that the biggest factor was simply the incredible genius, talent / brilliance of Jobs and Land that any comparison wouldn't mean too much.

      One big difference is that Dentch mentions is that Jobs only hired A-players, and Polaroid wasn't necessarily like that. That may make a difference for sure.

      But at the end of the day, the big decisions and key moves were done by Jobs and Land. They knew what customers wanted better than the customers did. I don't know if anyone at Apple has that skill now. They have the engineers and the design talent, but as I said in the previous post, who is going to be the ultimate editor that picks, chooses and demands changes?

      Jobs may not have been involved in many decisions in the last few years, but the big decisions and direction, I think, were already set. Upgrades, new markets and things like that may not require the immense talent of someone like Jobs. But it sure was needed when Apple went from building Macs to iPods, and then from iPods to iPhones. And then, of course, to iPads.

      McCune (Polaroid's first post-Land CEO) also did good things early on. He created cheaper versions of the SX-70, for example, and sold them into new international markets. It sounds like the iPad Mini (Jobs was against a smaller iPad as Land was against a cheaper version of an SX-70; he insisted it be made with real leather etc...).

      So it looked like there was hope at Polaroid too early on. But those extensions, upgrades/variations is not the same as building the next big thing which Jobs was so good at doing.

      Anyway, that's my opinion. I just don't know how you replace the magic and genius of Jobs, no matter how great the employees there now are. As Land said in one of the quotes above, creativity and genius is not a group activity, and I can't help think that Apple is now run by a committee. Of course, they won't ever say that. But if Tim Cook is not a product guy, how else is the place going to be run? Who is the product guy?

      I would recommend reading the Dentch book because it's mostly about the post-Land Polaroid (but it does fill in the history of Polaroid / Land); it's a quick read and it's available on Kindle for cheap. Definitely worth reading, even for general business knowledge...

    2. kk:
      Thank you for the kind comments on my book Fall of an Icon.

      Your point that Polaroid could not survive without Land is probably correct; however, Polaroid could not have thrived with Land, unless he made a near improbable change in his leadership style and obsession with silver halide based photography. About the time Land was leaving Polaroid in 1980, he met with Akio Morita of Sony. Morita suggested Land needed to lose his dependence on chemical- imaging. Land refused; Morita called Land “the most stubborn man I know”. The thought was Sony wanted to partner with Polaroid to market their new MAVICA, the first digital camera. In the 1980s- a winning combination: Polaroid’s extensive market and brand reach plus Sony electronic brilliance.

      One of your responders questioned the financial performance of Polaroid from 1980 (post -Land) to bankruptcy in 2001. Page 56 of Fall of an Icon presents a chart showing the steady decline in profits and rise in debt after Land. Land always used profits to fund new programs; he disliked debt almost as much as he disdained marketing and financial analysts. But, most Polaroid insiders can’t fathom how he would have kept “inventing” his way into the future. Fortunately, the next CEO, Bill McCune, created tremendous profits with the introduction of low cost cameras using the SX-70 film. A fact I did not expand on in my book: after the introduction of the novel SX-70 in 1972, Polaroid never again developed an invention that was a commercial success!

      Where Steve Jobs of Apple recognized the need to have someone with business acumen (Sculley) run Apple, Land continually refused to share Polaroid leadership with anyone, certainly not an “outsider”. Peter Wensberg’s Land’s Polaroid describes this mind-set nicely. No doubt, in my mind, if Land allowed Tom Wyman (CBS) in the early 1970s to manage the business, or Stan Calderwood (PBS) later, Polaroid would still be a viable company today. The one outsider, Gary DiCamillo, selected by Polaroid’s board to run the company was a very poor fit, but that is covered extensively in my book.

      Thanks again for the comments and blog. My collaborators on Fall of an Icon are Apple followers and enjoyed the comparison chatter with Polaroid.

      Milt Dentch

    3. Milt, thank you for reading and posting a comment. I enjoyed your book.

      And thank you for your insight.

      Actually, I too have thought about the possibility that Apple may have had a problem even if Jobs continued to run the company. He has created one hit after another and that is very hard to continue to do, so it may have been tough either way.

      Anyway, this is a really fascinating story that is unfolding in real time and it's great to have people who have seen similar stories in the past so we can learn from them, even if it may not lead to clear and simple conclusions.

      Thanks again for dropping by!

    4. Just received this nice endorsement of my book Fall of an Icon. Ann Leibowitz was a lawyer at Polaroid for many years with access to several generations of executives. Thought you might like to see her slant on Polaroid's failure.

      As a fellow-insider, I loved this book: it truly is an insider’s perspective of how Polaroid operated after Dr. Land. Until just before the very end, strategic decisions were made by and large not by “business people,” that is, finance, marketing, or sales executives, but by officers and executives whose background and expertise were engineering and manufacturing. This book captures the gestalt of that decision making. While much has been written about Polaroid’s business strategies, the human factor that informed the company’s post-Land decision-making is harder to capture, and probably impossible for anyone who wasn't there. Openness to unfamiliar and sometimes distasteful new ideas, willingness to take risk, confidence in and respect for fellow officers and executives—the book illustrates through its collection of anecdotes and observations how deficiencies at the top in these important leadership characteristics, together with perhaps an excess of hubris, led to Polaroid’s demise. Milt Dentch accomplishes this without whining or finger-pointing. Rather, he manages in his book to evoke the sheer joy of working at this quirky but quite wonderful company even as we spent down Dr. Land’s legacy. Ann Leibowitz

      While Apple may have the correct "business" people to keep Apple viable, the Polaroid lesson of dependance on the creative Land may catch up to Apple without Steve Jobs.

      If you have a chance, your review of Fall of an Icon on Amazon might boost some sales. We donate the profits over printing costs to Smile Train for kids with cleft lips. So far, have sponsored 4 surgeries.

    5. Hi,

      Thanks for the update. I will post a review later. It has been helpful in evaluating the Apple situation. Thanks for posting (and writing the book!).

  4. Hi kk

    I've just discovered your blog, it rocks. Really sound analysis. Indeed the short on Apple was bold but turned out awesome.

    I've began trading last year and made so many mistakes (the worst being buying/selling based on headlines!) Would you have a book or two to recommend for complete novice with good analytical skills?

    Many thank !!

    1. Hi, thanks for the comment.

      I set up a Brooklyn Investor bookstore because I do get asked quite often about books. You can look there in the must read investment books, other investment books or whatever categories I set up.

      But in short, I would highly recommend anything (and everything if possible) written by Benjamin Graham (Intelligent Investor, Securities Analysis etc.). For Intelligent Investor, I would actually avoid the edition annotated by Jason Zweig; that was overkill. There is way too much unnecessary stuff in there that the book is more than twice as long as the original and I actually don't think Zweig adds a lot to it. Read some of the original editions.

      Also, all the books by Joel Greenblatt are pretty much required reading as far as I'm concerned; especially "You Can Be a Stock Market Genius", which by the way, wins the prize as the worst titled book ever. It's a cheesy title; I would never have touched the book if I didn't know that Greenblatt was a real-deal hedge fund manager with spectacular returns.

      And of course, one of the best "schools" of investing is available for free online and that's all of Buffett's "Letter to Shareholders" of Berkshire Hathaway. You can get all of those for free at the Berkshire website going all the way back to 1978, I think. Reading all of those is hugely educational, and probably better than any single investment book out there. Read them once, and then read them again.

      Anyway, I would start there...

  5. People always assume that Company X will lose because someone beat them at their own game. In technology, that happens but it's not the only way to lose. The game also changes rapidly and X often can't adjust quickly enough. For example, Microsoft still hasn't lost their dominant position on workstation and laptop computers. Once the internet really took off, MSFT became obsessed internally with Google's threat to their core business. Meanwhile, the game (and threats) changed to mobile (Apple) and cloud (AWS).

    All that to say we shouldn't assume Apple will lose because someone defeats them head on. Maybe Android and/or Samsung can do that but there's a good chance we have a two player market with Apple on the high end...not a bad spot for Apple. Then the question will be how the basis of competition changes in the next five years and whether the current management team has the vision and authority to make the bold bets that Jobs did.

  6. "Something gets so popular that's it's dominance just seems inevitable." What dominance are you talking about. May be in wireless they have a good chunk of marketshare but on the desktop, the last I looked. Microsoft still had a monopoly. Sure Apple went from 4% North American PC market share to over 13% in last seven years but in world wide they are still in single digits on the PC front. Apple stores are growing now with more stores targeting these untapped international waters. However, to think they've reached anywhere close to saturation point would be absurd. 2013 will likely be the year of the corporate Mac. Many sys admins are finding Macs performing significantly better than Win 8 in their networks. This will establish a new baseline from which Apple will be hard to push down. Corporate markets don't tend to change as swiftly as consumer space does.

    1. Hi, thanks for posting. When people talk about Apple's dominance, I don't think they are thinking about desktops or even laptops. It was all about the iPod at first. They really took over the music player market. Nobody came close. And then the iPhone blew the world away. True, they don't have Microsoft-like market share there, but they are pretty big in the smartphones. And in tablets, I do think they are totally dominant.

      As for desktops moving to Apple and away from Windows, that may well be true and might happen.

      But the point of my post isn't about market share trends in existing products, but more about the next generation products that will inevitably come. Yes, it's not automatic that Apple will lose, of course. But it's not automatic that they will win either. This is the reason why I call it more of a speculation at this point.

      I do think that the iPad and iPhones will continue to do very well over the short term. But what comes next is anyone's guess.

      My argument, though, is that it was Steve Jobs that created the great new products that blew everyone away, and I don't know who that person at Apple today is. And even Edwin Land has said that creativity, genius, originality etc. is not a group thing but an individual thing. So without the key individual, Steve Jobs, I have serious doubts about Apple's future. That's my point.

      And again, that doesn't necessarily make Apple a good short at this point, nor does it mean it has to go bankrupt any time soon. Apple Macs were great and fans never lost faith even post-Jobs the last time around. It just wasn't the best time for investors.

  7. Jobs, along with Gates, will be remembered for implementing seamless computing; the way we communicate and interact with technology has been radically changed by these great innovators. Unfortunately, the Apple ecosystem has been an incremental innovation for the last couple of years and its success based on a first mover advantage secured in the absence of real competition. I believe that brand loyalty will not be enough for 2013 and certainly macroeconomic conditions and intense competition will put pressure on prices and margins as you have been already pointed out. As a technology enthusiast I am looking forward for the next radical innovations in personalised computing. Unfortunately, I don't think that Apple, without Jobs, will lead the next race....

    Happy new year to all!! Great blog!


    1. Thank you (and others) for the nice comments! Happy New Year to you too!

  8. You know what reading about this and Henry Singleton (George Roberts wrote a book on him called Distant Force) made me think of? Berkshire Hathaway.

    Buffett has already thought through all of this. You either have to deal with always finding the Jobs or Land to run a business that has the threat of making major mistakes every time a product changes, or you just find a business with a "trick" that is easy for future leaders to maintain.

    Every business within the Berkshire portfolio has as "trick" and they will be relatively easier to pass on than would a Polaroid/Apple. Singleton/Roberts could run Teledyne, but their performance after they both left fell down too. So there are even more examples in the more exciting industries of this issue.

    Berkshire though, isn't anything complicated for the most part. Net Jets is based upon the network effects leading the industry to a naturally occurring leader, which results in a sustainable moat that is very deep and grows every day as they expand their planes, locations, etc. One day at a time, it becomes tougher to compete with Net Jets. Every business in their portfolio has a "trick," and in my opinion, some of them are purely psychological, like in the case of GEICO. But there is always a moat and even if they get a bad CEO for a little while, the business won't go down the drain, the employees won't go running to Google's offices, etc.

    Buffett and Munger have a gem of a business, and if anyone is going to solve this transition problem, it's them. I don't know if they'll get it all right though - incentives are going to be a big deal just as 1 example, because the next leader won't be likely to have as much of his own money invested in the company as Buffett or Munger.

    Anyway - sorry for the long post again. I really like your posts here and appreciate the thought you're putting into this. Because Polaroid hit bankruptcy, I wonder what the actual value of the business turned out to be when you look at dividends, repurchases, etc. historically. I'm guessing it'll have been far less than people predicted early on using any method, whether it was based on a P/E multiple, DCF valuation, dividend growth model, or any fancy method. I like the obvious economics, because I can't even honestly say if Apple's margins will stay where they are forever. The low P/E could be misleading me into ignoring the fact that current innovations were entering the pipeline when Jobs still ran everything - they'll do fine for a while because of that pipeline, but it is questionable if it'll go on forever.

    One last point... Apple is worth 1/2 Trillion, right? The US economy is a $15 Trillion economy in terms of GDP? That's a big valuation even if it is comparing apples to oranges. (Market value vs economy's revenue)

  9. Great post - really enjoyed it (as usual).

    I think I spot a logical flaw though - check out my reply:

    What do you think?

    1. Hi, nice post. You make a good point.

      I guess where I differ is that I think Jobs was a brilliant product guy and entreprenuer, but maybe not the most brilliant CEO.

      Yes, he probably did all he can to guarantee the success of Apple but I don't really see him as a company builder. He, to me, is a brilliant visionary / product guy.

      This is the sort of analogy I see between Apple and Polaroid. Edwin Land was also brilliant, and if you read all of that stuff about what he did to create a great company, he seemed to build the 'right' sort of company with the right culture etc... but it didn't work out.

      I don't think they are the same sort of skill-set, and I don't know that Jobs was ever considered 'brilliant' in the managerial sense.

      I just think Jobs was so overwhelmingly amazing and brilliant in his creativity that it really can't be replaced by 'committees' even if Jobs cherry-picked his successor(s). And Land has stated that creativity and originality comes from the individual and not from a group.

      I fear that Apple is now run by a 'group' and not an individual. This is the key.

      Anyway, we can't really know so it'll be interesting to see how the story develops.

  10. Just saw this, and it's a nice analysis. If you're interested in more reading, I wrote a lot about the Apple/Polaroid connection, and also got into Polaroid's collapse at some length, in INSTANT: THE STORY OF POLAROID, out this past fall from Princeton Architectural Press.

    More at my site, too:

    1. Hi,

      Thank you for posting. The only reason why I haven't mentioned your book is that it hasn't come in yet; it's on hold at the local library, so it's totally circumstantial.

      I do look forward to it, and even more now, lol...

  11. Hi, you make mind blowing ideas and a spectacular article here street teams

  12. Brooklyn -- As a value investor, I don't place AAPL in the too hard pile. It is much more a case of that I just don't get it. I don't understand the early adopters and fads. That said, when I look at AAPL I see a company with impossibly high margins relative to their competitors (about four times as high) with few actual advantages over being the early entrant. AAPL does not need to fail for its investors to lost out going forward. All that needs to happen is for those exhorbitant margins to narrow. The problem with their margins is that much of it comes from vendors subsidizing the price of their products. Pressure on those subsidies will likely not just compress margins, but also pressure top line growth. A bad combination.

    1. Many apologies. I should have read the following post before commenting on the Apple/Polaroid discussion. Then, I would have seen you had discussed exactly this. Well, I look forward to reading more of your musings.

  13. Apple did a great job of making huge profits when they were creating a new market and no one could catch up to them. That's not the market they are in now. With or without Jobs that would be very hard to continue doing in the future.

    The only thing they really have going for them to keep out competition is apps. I'm betting a good portion of phone users don't need a lot of apps, and many publishers are making apps for 2-3 platforms simultaneously because there are already others with a substantial market share.

    This doesn't look like a repeat of Microsoft's play to lock up developer attention and win on desktops. It looks more like Microsoft when Google started to grow; important but not dominant.


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