The ubiquity of the technology company Apple today belies the fact that even a mere 18 years ago, the company was virtually nowhere to be seen on the cultural and economic radar. By now, though, Apple has become firmly established as the largest company ever, notably trumping its rival Microsoft by a large margin. This sample computer science essay explores how Apple overtook Microsoft in this way.
- A short history that outlines Apple’s development during the twenty-first century
- The three reasons for Apple’s meteoric success
- The visionary farsightedness of the company’s founder Steve Jobs
- Vertical integration of the company’s product supply chain
- The company’s ability to optimize its value proposition and maintain an incredible level of brand loyalty.
Short history of Apple and Microsoft
Regarding the situation of Apple in the year 1997, Stone has bluntly written the following:
“It’s difficult to remember how far Apple had fallen. Just a few months away from bankruptcy, the company had a dwindling 4 percent share of the PC market and annual losses exceeding $1 billion. Three CEOs had come and gone in a decade; board members had tried to sell the company but found no takers” (paragraph 4).
Ironically, it was at this point that Apple was in fact rescued by none other than Microsoft: Bill Gates agreed to invest $150 million into the company, in exchange for Steve Jobs agreeing to support Microsoft software on Apple computers for at least 5 years. From Microsoft’s side, this likely seemed like a wise move due to the fact that the company at the time had a damaged reputation related to antitrust issues. (That is, Microsoft was so dominant during this time that it had to contest with charges that it was behaving like a monopoly.) In this context, helping Apple would have helped restore the reputation of Microsoft while costing Microsoft itself very little in terms of immediate financial expenditure.
Additional Reading: Analysis of Apple’s Business
Microsoft, however, had unwittingly given Apple the resources the latter needed to inaugurate its revolution of the entire technology sector. With the money provided by Microsoft, Steve Jobs was able to take the necessary steps to get Apple back on track. This included the invention of the iPod and the evolution of all the product lines for which the company is known today, including the Macbook and the iPhone. How much has changed over the course of the past 18 years. As Stewart has written:
“This week, both Microsoft and Apple unveiled their latest earnings, and the once-unthinkable became reality: “Apple’s market capitalization hit $683 billion, more than double Microsoft’s current value of $338 billion” (paragraph 2).
Elmer-Dewitt This truly is incredible, if one bears in mind that in the year 1997, Apple was in such dire straits that it needed a mere $0.15 billion from Microsoft to even stay in business. This kind of radical turnaround clearly demands some kind of explanation. The present essay will now delve into some of the reasons why Apple was able to overtake Microsoft in this way.
Reason 1: Steve Jobs as the leader of Apple
It is impossible to talk about the success of Apple without talking abut the instrumental role that Steve Jobs played in bringing about this success. According to Kotterman, there is a fundamental difference between leadership styles: whereas the manager primarily thinks like a businessman and concerns himself with the management of resources, the leader tends to think like a creative artist and primarily concerns himself with developing and implementing an inspiring vision for his organization. This definition of a leader fits Steve Jobs in an exemplary way.
When Gates decided to give Jobs $150 million in 1997, Gates was clearly under the impression that this would be a harmless gesture. Jobs, however, surely understood that this was exactly the assistance he needed in order to begin implementing his creative vision for his company. Likewise, while Microsoft was enjoying its success with the personal computer, Jobs was able to perceive that this was only the beginning of the wave of the future—and that the ultimate objective would be not a computer on one’s work table but rather a computer in one’s jeans pocket. In short, Jobs’ farsightedness (relative to Gates’ more limited vision) surely played a crucial role in the fact that Apple was able to overtake Microsoft.
Jobs’ creative influence
Jobs’ visionary and fundamentally aesthetic sensibility can also be seen in the very design of Apple’s products, which continued to inspire Apple’s 2015 product line. In an article in Smithsonian, Isaacson has conducted an in-depth discussion of the evolution of Jobs’ aesthetic vision; and one fundamental principle that emerges time and again in this discussion is simplicity. This was apparently inspired at least in part by Jobs’ fondness for the spiritual tradition of Zen Buddhism. In any event, it is clear that Jobs was never interested in producing a technology that merely worked; rather, it was crucial for him that the products manufactured by Apple were also beautiful to boot. That is, he insisted on applying aesthetic criteria to technological products.
At the time, it would seem that this was relatively unheard of; it is likely, for example, that Gates was primarily concerned with technological functionality and not with aesthetic design. With Jobs at the helm, then, Apple played an integral role in essentially redefining how people were beginning to think of their relationships with their personal technologies. This would prove to be very important in light of Apple’s inventions of the iPod and iPhone, insofar as these technologies could not be meaningfully dissociated from their seamless integration into the everyday lives of countless people.
Reason 2: Apple practices vertical integration
Another factor that has contributed to the incredible success of Apple is the fact that it has pursued the vertical integration of its product supply chain. Essentially, this means that Apple is in charge not just of one or another part of the technologies it sells (e.g. either hardware or software) but rather controls several or even all phases of the product development process (e.g. both hardware and software). As Bajarin has written:
“Competing with Apple is so difficult because Apple, Inc. is actually four diverse and thriving companies all wrapped up into one. It’s a hardware company, a software company, a services company, and a retail company. Compare this to other similar companies like Samsung that don’t produce “the whole banana.” Most technology companies in the world can manage one or two of these disciplines, but only Apple has all four entities working in harmony” (paragraph 3).
This kind of vertical integration confers a huge market advantage upon Apple.
A concrete example may be helpful here; consider the iPhone. Apple manufacturers the iPhone itself, or the hardware. It also develops the operating system, or software, run by the iPhone. The iPhone is then sold in stores owned and run by Apple itself (retail); and finally, Apple is also responsible for services such as iCloud that optimize the user experience. This can be meaningfully contrasted against (for example) a phone that is manufactured by Motorola, equipped with Android software and third-party services, and sold at a store like Best Buy. In the latter case, there is fragmentation of the different component technologies that go into a phone; in the case of Apple, on the other hand, there is perfect harmony; and this harmony is the direct result of vertical integration.
It is likely that this is related to the visionary nature of Jobs’ leadership, as discussed above: Jobs wanted to control all aspects of the production and sale of Apple products, in the final analysis, he aspired to nothing less than perfection. In any event, there is nothing comparable to this kind of vertical integration within Microsoft; and Apple’s success over Microsoft can surely to a significant extent be traced to this fact.
Reason 3: Apple customers have brand loyalty
Finally, another reason that can be cited for Apple’s triumph over Microsoft is the company’s extraordinary capacity to win and maintain the loyalty of its customers. As many Apple product owners are fond of saying: once you “convert” to Apple, you never go back. In marketing terms, this loyalty can be understood in terms of the concept of value proposition. As Porter and Kramer (2008) have indicated, a company’s value proposition consists not only of its product but also of the myriad connotations and subjective emotions associated with the product in the minds of the customer, including those that emerge from the company’s reputation and/or business practices.
In this context, it can be suggested that aside from the value of Apple’s products themselves, many Apple customers may find intrinsic value in the very identity of being “one who buys Apple products”. This is because thanks to both Jobs’ leadership and the aesthetics of the company as a whole, Apple has become something of a symbol whose value transcends the value strictly intrinsic to the products themselves.
Another way to put this would be that Apple has clearly experienced great success with creating a brand community around the company (see Muniz and O’Guinn), which as a byproduct, has done wonders for Apple’s stock. People do not just buy Apple products; they partake of the Apple aura. This is a high-level marketing achievement that most companies in the world only dream of. Moreover, it is notable that there would seem to be no such psychological dynamic associated with Microsoft products. One seldom hears people speak about the intrinsic beauty and quality of Microsoft products, or about they pride they take in being associated with such products.
In contrast, the brand loyalty that Apple has managed to generate suggests that the company has spoken to its customers not only at the level of immediate technological need but also at some deeper non-rational level of subjective emotion. This has surely played at least some role in Apple’s success in overtaking Microsoft over the past few years.
Final thoughts on why Microsoft failed to keep the lead against Apple
In summary, this essay has consisted of a discussion of the reasons why Apple has overtaken Microsoft. The essay began with a short history of Apple, including its 1997 bailout by Microsoft itself; and then it proceeded to delineate three main reasons for Apple’s success. These reasons were:
- The visionary leadership of Steve Jobs
- The vertical integration of the product supply chain
- Avery high level of brand loyalty
Insofar as Apple has these qualities and Microsoft lacks them, it is in fact not illogical that Apple has triumphed in the way it has, even as it would have been inconceivable to almost everyone at the very beginning of the twenty-first century. In essence, Apple has succeeded because according to basic marketing and media strategies, the company has done virtually everything right over the course of its evolution.
Looking toward the future, one concern that could be expressed is that Apple has become increasingly reliant on its iPhone product line over the past couple years (see Stewart). This potentially puts the company at some risk, insofar as if an innovation were to overtake the iPhone, this would have dramatic negative effects for the company. It is difficult to imagine what such an innovation could be; but then, it is worth remembering that the iPhone itself was difficult to imagine until it was actually invented. In any event, Apple has had a habit of cannibalizing its own product line: for example, the larger iPhone has detracted from the sale of smaller iPads. If Apple continues to make sacrifices like this for the sake of its iPhone product line, this would amount to increasingly putting all the company’s eggs in one basket. This may be a worthy venture, but it may also put the company at risk for going the same way as Microsoft.
Bajarin, Ben. “Why Competing with Apple is So Difficult.” Time. 1 Jul. 2011. Web. 12 Feb. 2015. http://techland.time.com/2011/07/01/why-competing-with-apple-is-so-difficult/.
Kotterman, James. “Leadership versus Management: What’s the Difference?” Journal for Quality Participation 29.2 (2006): 13-17. Print.
Isaacson, Walter. “How Steve Jobs’ Love of Simplicity Fueled a Design Revolution.”Smithsonian. Sep. 2012. Web. 12 Feb. 2015. http://www.smithsonianmag.com/arts-culture/how-steve-jobs-love-of-simplicity-fueled-a-design-revolution-23868877/?no-ist.
Muniz, AConsumer Research 27.4 (2001): 412-432. Print.
Porter, Michael E., and Mark R. Kramer. “Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility.” Harvard Business Review. 2008. Web. 15 Feb. 2015. http://www.stockholmresilience.org/download/18.aeea46911a31274279800090883/1381790092816/susannesweet.pdf.
Stewart, James B. “How, and Why, Apple Overtook Microsoft.” New York Times. 29 Jan. 2015.Web. 12 Feb. 2015. http://www.nytimes.com/2015/01/30/business/how-and-why-apple-overtook-microsoft.html?partner=rssemc=rss_r=1.
Stone, Brad. “Steve Jobs: The Return, 1997-2011.” 6 Oct. 2011. Web. 12 Feb. 2015. http://www.bloomberg.com/bw/magazine/the-return-19972011-10062011.html.