Has Apple Reached The Tipping Point?

We can take all the precautions we like, but eventually every system can undergo a shift that shakes it to the core. We see it with the weather when a rare alignment of meteorological events tears a calm environment to shreds. We see it in business when a dominant company or brand in a particular market is suddenly toppled. Mathematicians and scientists variously explain these phenomena in “chaos theory,” “catastrophe theory” and “tipping point theory.” Today, one major corporation that may have just reached a tipping point is Apple Inc.                                                                                                                           

Somewhat ironically, Apple’s fortunes had already started changing course just as its stock hit meteoric levels in 2011. Then Steve Jobs died. The death of a brilliant business leader is a blow for any company, but it’s a potential disaster for Apple for three reasons. First, Apple doesn’t just have customers like any other corporation; it has disciples, or more accurately, Jobs had disciples. He exercised a near-messianic influence over these followers by creating a quasi-mystical aura around Apple’s products, which some regard almost as sacred amulets and Jobs their divine creator. That was no mean feat for a mere mortal and it was mainly where his brilliance lay. He wasn’t a trained product designer, software engineer, or mathematician, but he was exceptionally clever, had an inspired imagination, enormous ambition and a sharply focused sense of purpose driven by a sizeable ego. In short, he was a genius.

Corporate bosses rarely attain the high profile that Jobs enjoyed. Indeed, most shun the limelight, which is just as well since few have anything remotely like his natural charisma. That brings up the second reason his death is so significant for Apple: He was more than a charismatic business leader; to many people, he was the company. That was a huge asset for Apple while he was alive, but with his death, it’s the reason the corporation is perilously close to a tipping point.
The third reason his death is so significant for the company is that Jobs is not just a hard act to follow; he’s an impossible act to follow. The new boss is probably a good CEO, but he’s not a guru and, for the next few years, he’s likely to be referred to as “the other guy, what’s his name again?” At best, Tim Cook (that’s his name) will be just another CEO of a large corporation well known in business, media and investment circles, but a grey man to the millions of iPhone and iPad users. He will have a mammoth task trying to motivate company employees used to the inspiring energy of Jobs, and he can never hope to receive anything like the veneration that Jobs elicited from customers. It won’t be easy being the grey man dogged by such a legacy; yet, it’s likely to be the least of Tim Cook’s problems.
Threatening clouds were forming on Apple’s horizon long before Jobs died. Its products began displaying less than mystical traits. Whether the problems were with antennae, batteries, front glass panels or the iCloud service, it seemed that Apple was rushing models and services to market a little too soon because it feared the faithful might, well, lose faith. Apart from technical issues, Apple began experiencing serious competitive pressure for the first time in years. During 2011, Samsung’s Galaxy smartphone outsold the iPhone, and the other “iGadgets” like the iPad witnessed several significant rivals gathering on the horizon. Not least was Amazon with the Kindle Fire tablet, which went on sale for half the price of an iPad. Worse was to come: the technical press accorded very positive reviews to Microsoft’s new smartphone operating system, Windows Phone. The New York Times columnist Nick Bilton, writing about the Nokia Lumia 900, which uses the Microsoft operation system, enthused “…I just publicly lusted after a non-Apple smartphone. A phone that runs Microsoft’s Windows Phone 7 operating system, no less.”
Catastrophe theory holds that too many unpredictable factors govern the world for humans to reliably predict or control them, so tipping points are inevitable. When one is reached, enormous change takes place. Usually, that change happens very rapidly and is virtually impossible to control. The disruption lasts until a new state of equilibrium rises from what’s left of the old system, and the relentless march towards the next tipping point starts again. Apple will likely reach its tipping point in 2012. The company will still exist after the dust settles, but it will be a very different operation. It will be a tech company, no more profitable or innovative that half a dozen others. It won’t be leader of the pack and its stock price will reflect that fact.
Jeff Robinson
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21 thoughts on “Has Apple Reached The Tipping Point?

  1. David Martin says:

    I think you are missing the point, the iPhone is a gadget, not a business model. Apple have P/E of 15….Google P/E of 21 and Apple the only company in the world that has physical and virtual infrastructure to offer wireless payment in the next 5 years. Apple still cheap in my opinion…

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    • Hi David and thank you for the comment. That is of course what makes a market – You having your opinion and me having mine. I’ll do an update mid year and we will see where we are at.
      All the best wishes and have a great 2012!

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  2. Hi Jeff,

    Good, interesting post. While I agree that Apple lost something very crucial to their recipe with the death of Jobs, I disagree that Apple’s tipping point is imminent. Of course we can’t discount Jobs’ contribution, especially seeing as the man was responsible for several new device CATEGORIES (mass-accessible music player, touchscreen smartphone, tablet) over the past ten years. That’s not even mentioning the game-changing iTunes and App stores.

    However, I think Apple still has plenty of steam to keep pushing. While other smartphones may out-SELL iPhones, market share hasn’t ever been Apple’s top priority. It’s been profit. In Q3 2011, Apple took 52% of smartphone profits on just 4.2% market share! (http://www.forbes.com/sites/afontevecchia/2011/11/04/apple-took-52-of-smartphone-profits-on-4-2-market-share-in-q3-stock-to-hit-560/) That’s a LOT of money to put into R&D of future hardware and software, which should keep them squarely in the lead. While Tim Cook may not be the brilliant visionary and salesman Jobs was, Steve knew who was putting in charge; Tim Cook is an operations man, and he has largely been responsible for Apple’s stellar supply chain, that allowed Apple’s devices to be sold at very competitive prices (remember, this wasn’t always the case). I think Cook knows his strengths, and hopefully he will delegate the design work to more capable hands. Let’s not forget that Apple still has a brilliant product design team headed by Ives (best in the biz).

    While we may not be seeing many game-changers in the next few years from Apple, they’re still in a great position to keep their lead, seeing the lack of creativity in the rest of the industry (everybody basically sees that what Apple has created is working, and tries to make their own “version” of it.

    By the way, here’s a chart that plots iPad use, alongside its “competition”: http://www.flickr.com/photos/49361977@N06/6722273753/

    While the Nokia Lumia is an awesome phone that runs an awesome OS (Disclaimer: I directly worked on that OS — and I do believe it’s superior to iOS in a lot of ways significant to the end-user :P), Microsoft has no viable sales channel so far. When you walk into a carrier’s store, they push Android, because that makes them the most money. Apple doesn’t have the problem because the iPhone is knows so well know that people know they want it before they walk in.

    I really really want WP7 to succeed so iOS finally has some worthy competition, but it doesn’t seem to be happening.

    So I think what you’re saying must happen eventually, but Apple simply has so much momentum right now, that I don’t think 2012 is likely for a tipping point.

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  3. advocatalog says:

    Fantastic article Jeff! Totally agree. You have a great insight in to the changing stages of a company’s lifecycle. Keep up the great articles!

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  4. Pat O'Connell says:

    This hasn’t been specifically discussed, but Apple, Microsoft, and other software companies should be designing their software so it has legs. I can just see someone coming into a store, and suddenly finding out that the their calculations are based on aren’t available for daily use.

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  5. Bartek says:

    While i agree with the overall premise that apple (or any other company) cannot remain the market leader forever i wouldnt bet that this will happen this year. I was at the barcelona apple store yesterday during a week day where i picked up a 4s. While almost every other store was empty the apple store was packed full of customers and looking at their faces it did not seem that they were affected by jobs passing while making their purchases. The fact is that apple has a product pipeline of at least 3 years into the future. Steve was a great visionary, but his best talent was his ability to build a company like apple, which is comprised of the worlds best designers, engineers, etc…and these ppl like cook and Ive are still there and will continue to deliver awesome products. With regards to 2012 apple will launch the next ipad further solidifying its tablet dominance and taking another huge bite out of the laptop market. Then a new iphone! Think they will be ok this year :)

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    • Hi Bartek and thank you for your valuable input. As they say ” Only time will tell”. I’ll do a follow up post in the middle of the year and we can all see where we stand.
      Have a great weekend and enjoy your new phone!
      P.S. I’ll be picking up a new Samsung Galaxy 3s in March…

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  6. Great article Jeff with some very interesting points.

    Clearly, apple’s an incredible company and will be for the foreseeable future. They do an amazing job selling products that are simple and beautiful and, before I even walk into the store, I know I want an iphone rather than one of the 40+ other options. In addition, and as mentioned in other comments, they are an incredibly well rounded company that invests heavily in the future.

    But do I think they’ll continue to enjoy exactly the same level of success they’ve had in recent years? In the short term, yes! But in the longer term, I think it will be increasingly difficult.

    Firstly, I agree with Jeff that Jobs’ death was a hugely significant event for Apple. To say otherwise would be to take credit away from Jobs as a driving force behind the company. Cook’s good, but not AS good. Aside from anything else, people loved Jobs and this invariably led to more, and better, press coverage that helped position Apple in the minds of consumers as a cool brand.

    But Apple’s “coolness” isn’t unconditional. I once read a great quote about a hobby of mine, which explains what I think has happened and is happening to Apple: “the fact that windsurfing is cool attracts uncool people, making it less cool”. In my opinion, Jobs was Apple’s buffer against this phenomenon, which has now gone.

    Secondly, the competition is getting better. As products become the norm and the excitement wears off, everything becomes rather functional. Because Apple innovates like a beast, they’ve never had problems creating hype. But, as competitors become more savvy (specifically, in my opinion, Samsung), it might be enough to remove some of Apple’s magic.

    This advert, promoting the new Samsung, takes a small dig at Apple and illustrates both my points quite well: http://www.youtube.com/watch?v=GWnunavN4bQ

    Ultimately, it’s the story a brand tells that affects not only who wants to buy their products and the price they can charge, but an investor’s appetite for the stock. In Apple’s case, they’re still doing amazing things and I can see the line rising for the near future. In the longer term, less so.

    Separately, I wonder if the infrastructure Apple has built up would become a significant burden if sales did fall?

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  7. Thanks for the great feedback Harry!

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  8. Quora says:

    Will Apple stock go to $1,000?…

    We can take all the precautions we like, but eventually every system can undergo a shift that shakes it to the core. We see it with the weather when a rare alignment of meteorological events tears a calm environment to shreds. We see it in business whe…

    Like this

  9. Robert Bremner says:

    Thank you for the fantastic article. I love your blog!
    I agree with all the points made. Despite the fact that Apple still retains most of the elements that made the company so successful, I agree that Apple’s tipping point is imminent. Nevertheless, Apple still has the potential to overcome any barriers that may emerge, and this is particularly evident when looking at how the company’s management are implementing new plans to increase quality and reduce the manufacturing costs of their iPhones. For example, they have chosen LG Display, Sharp and Japan Display as the supplier that will manufacture the new 4-inch display screens, and not Samsung, one of Apple’s former major suppliers. This evidences that Apple’s leaders are willing to implement the changes required. The question is, will they be able to do it before the company reaches its tipping point?

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  10. Taranu Cosmin Andrei says:

    I think that once Jobs has died, Apple will slowly but surely will be dethroned because Jobs, as you all know, was the head and the one who brought the ideas which made Apple the spearhead and I think Jobs carried his secrets and ideas with him in the grave and I don’t think there will ever be original ideas anymore and the “adepts” of Apple will want more and more and Apple will not be able to cope with that and these adepts will get bored and finally forget Apple and move on to another corporation which brings new ideas every few months. I personally think Apple now does nothing more than improving each version with some simple applications and that’s all.

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    • Staying on top is extremely difficult. Apple is a great company and has created some very innovative products. But society is fickle, after awhile we get bored and look for the “next best thing”.

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  11. Mr. 1500 says:

    Apple is definitely at an inflection point. I think the thing that will determine where they are in 5 years more than anything else is the development of products and services that extend their ecosystem.

    Right now, I can take a picture with my iPhone. It shows up automatically on my iPad and Macbook in Photostream. It works great and is super convenient.

    Now, what about the rumored TV? What if could take a movie with my phone or buy a movie from iTunes on my iPad and then it automatically shows up on my TV. Even better, the iPad Mini becomes a super easy to use, intuitive remote. Even better, what if the TV used the iCloud as DVR, letting me save programming to the cloud that I could access on any iDevice?

    Now, what about home automation? What if I could adjust the thermostat, turn on the security system, unlock my front door or open my garage door with my iDevice. I hate carrying around keys and this would be just awesome.

    The ecosystem makes products sticky. No way I’m going to buy a competitor’s phone when I’m already tied to all of these services.

    So, that is the direction that I hope to see Apple go and I hope they do it sooner than later. If not, the future may not be so bright.

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  12. Simon says:

    Hi Jeff, you make a very compelling case on your view of Apple and obviously you were right. I am not a shareholder, but having several apple products, I see the “stickiness” of IOS. I think that it will be more difficult to disrupt a new sector with an Apple device without a charismatic leader. I am not sure if Tim Cook was the key speaker at the iPad launch, it would be a huge success. However, if they can maintain what they have now with new product derivatives and no new disruptive products. They can be a powerful and successful cyclical company with huge cash flows. The current risks are 50% of the profits (w/ 40% margins) coming from 1 product type scares a lot of investors. Not to mention the risk of carriers ending their phone subsidy model.

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    • Thank you Simon for your feedback. As they say ” only time will tell”. I will be doing a follow up update to my Apple post, I look forward to hearing your comments.
      Wishing you all the very best for 2013!

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  13. [...] I was one of a small number of commentators who raised the red flag early. See my January 2012 blog “Has Apple Reached the Tipping Point?” Yet most experts and investors chose to ignore powerful evidence, and followed each other like [...]

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