Cook's first decade of leading the world's most valuable company was successful, but the next decade will be difficult.
However slow it is, the "Apple" will fall from the tree. Ten years ago, when Tim Cook took over from founder Steve Jobs, even diehard Apple fans were worried that the company might be destined to go downhill. Without Jobs, Willie Wonka, Apple's chocolate factory was taken over by Cook, a robot that started by integrating global supply chains and reviewing reports. How can such an unattractive person follow the famous vision of Jobs and inspire Apple employees to continue to create "cool" products?
It turns out that Mr. Cook can. On August 24, when he celebrated his tenth anniversary as Apple’s boss, no one raised objections. This is a matter of course. In the technology industry where managers are generally hard to match the founder, he staged an almost greatest succession drama. In fact, from a purely financial point of view, Cook is much more successful as president than Jobs.
Mr. Cook is the president who has created the most shareholder value in history. When he took over from Jobs, Apple had a market value of US$349 billion, and now has a market value of US$2.5 trillion, setting a record for the market value of a listed company. Under his leadership, annual sales rose from US$108 billion in 2011 to US$274 billion last year. Apple's net profit more than doubled to 57 billion U.S. dollars, surpassing Saudi Aramco's profits from oil and becoming the most profitable company in the world. What has received less attention is that under Cook's tenure, Apple's economy (Apple's own annual revenue plus revenue from other companies on its platform) has grown sevenfold to more than $1 trillion.
With such achievements, Mr. Cook could have retired honorably (and joined the Billionaires Club at the same time) amid widespread praise. However, he is likely to work until at least 2025, until the existing stocks are fully mature. This also raises questions about how long he can keep Apple on the ascending channel. In short, it will be much harder than his first ten years. The global winds that pushed Apple to such dizzying heights have now reversed many of them.
To give a more detailed answer, it is necessary to understand what Mr. Cook did right. In addition to becoming an unparalleled manager, he proved that he can control the kinetic energy of the technology industry and the global economy in the 2010s.
Foremost among them is the digitization of life led by mobile. In order to meet the world's urgent needs for mobile computing, he continues to promote continuous improvements to the iPhone. Although the iPhone 4S released shortly after he became president is already a very powerful mobile phone, the iPhone 13 that is expected to be released in September this year will become a handheld supercomputer with a 50 times faster processor. Even the main new products Apple Watch and Airpods launched after he took office can be regarded as an extension of the powerful iPhone. There are currently 1 billion iPhones in use around the world, with an average of 1 for every 7 people on the planet.
Another force that Mr. Cook uses flexibly is globalization, especially the rise of China. Even before taking over Jobs, he paid great attention to outsourcing the assembly of Apple devices to China. Foxconn, Apple’s largest contract manufacturer, now employs about 1 million people in China, most of whom assemble Apple devices. In addition to treating China as a factory, Mr. Cook discovered its potential as a market early on. Now China has become Apple's largest market outside of the United States and Europe, accounting for 19% of total revenue, and the proportion of profits may be even higher.
Mr. Cook's third achievement is to understand the importance of network effects, that is, the economic mechanism of Evergrande, a major player in the digital market. Even Jobs didn't even see this. He was once ambiguous about Apple's App Store. In contrast, Mr. Cook has doubled his bet on the digital "flywheel"-the APP Store attracts more application developers, which also attracts more users, and therefore attracts more application developers-to promote it Become the world's highest-income digital market. According to a study sponsored by Apple, there are now nearly 2 million apps in the App Store, which will help app developers earn $643 billion in subscription and sales revenue in 2020.
Among the bosses of large technology companies, Mr. Cook was the first to speak out that a company of the size and capability of Apple must bear some responsibility for its own influence on the world. In the Jobs era, the appearance of electronic devices was more important than the way they were manufactured. Lisa Jackson was the former head of the U.S. Environmental Protection Agency. She is now involved in product development from the beginning as a vice president of Apple and reports directly to Mr. Cook. Apple has set a commendable goal for itself to achieve carbon neutrality in all products by 2030. Mr. Cook also referred to privacy as a "fundamental human right", forcing app developers to ask users if they want to be tracked by advertisers.
Of course, unlike Facebook and Google, focusing on privacy is in line with Apple’s business model because it does not make money from targeted advertising sales that require data collection. Because of its relatively shallow carbon footprint, Apple's embrace of the climate can meet the psychological needs of most wealthy users at a lower cost. According to an analysis, this also prevents regulators from staring at Apple behind the scenes, which helps it become one of the most valuable brands in the world.
Long-term Apple observer Horace Dediu pointed out that from another perspective, after a decade of Cook’s leadership, Apple has become a bigger and better self, but this does not mean that it is without problems. Three challenges are outstanding: growth, geopolitics, and competition.
On the surface, Apple's growth is healthy enough. To many analysts who predict iPhone sales will decline for many years, the device continues to be a cash cow for Apple. The number of iPhone sales worldwide has fallen from a peak of 231 million units in 2015, but only a little bit: 200 million units were still sold last year. But the smartphone market will eventually mature. Even if there is still a lot of time, Apple still faces more and more problems common to all major companies: the larger the company, the more difficult it is for rapid growth.
According to Neil Cybart of Above Avelon, Apple’s analytics website, Mr. Cook can expand other sources of income. Apple's service business, including APP Store and Apple Music, has grown from US$8 billion in 2011 to US$65 billion in the past year. Although wearable devices such as the Apple Watch and Airpods are smaller in volume than the iPhone, they can generate a lot of revenue: nearly US$9 billion from March to June this year. Last year, Airpods were worn on 200 million ears and Apple Watch was worn on 34 million wrists, surpassing all other high-end headphones and Swiss watches combined.
However, at a certain point in time, Apple still needs milestone innovations like the iPhone. There have been discussions about "iGlasses" glasses, that is, adding a data layer to the physical reality perceived by the wearer, and even "iCar" cars. Although not directly admitted, it is an open secret that Apple has been studying both aspects for many years. The whistleblower believes that augmented reality glasses will eventually be launched in the next year or two, and Apple has also announced plans to launch electric self-driving cars in 2024. But everyone knows that things are not always going well, and there have been cases where products could not be launched on schedule in the past.
Unlike glasses, cars are not a natural extension of Apple's existing consumer technology product line, and it is even more difficult to achieve. Even without gasoline engines and gearboxes, car production is still much more difficult than smartphones. Whether it is to build its own self-driving car, or to provide other automakers with the necessary electronic equipment and software, Apple's car route is also swinging back and forth.
Mr. Cook’s second major challenge is geopolitics. Although Apple has also increased its manufacturing capacity in countries such as India and Vietnam, there are no substitutes for most of its production lines in China, and it is difficult to find them. Only China has the sufficient worker reserve necessary to rapidly increase production of the latest iPhone models. Judging from Apple's latest supplier list, the company has even increased its dependence on Chinese companies. Of its 200 suppliers, 51 are located in China, an increase from 42 in 2018.
The third challenge for Mr. Cook is competition. For companies like Apple, network effects are not the only factor in their favor, and there is also a lack of real rivals. Some people think that Alphabet, Amazon, Apple, Facebook, and Microsoft are like monopolistic alliances where members strategically agree not to infringe each other’s core business areas. Apple has never made any effort to create a strong social media, and Facebook has never tried to create another app store. Apple did not build its own search engine, but reached an agreement with Google to use it as the default search engine for the iPhone (and charge Google $8-12 billion per year for this privilege, which is equivalent to 14-21% of Apple’s 2020 net profit. ).
This intimate arrangement is disintegrating. In order to maintain the trillion-dollar valuation level, all major technology companies are looking for new sources of growth and have found them in the territories of other rivals. Apple allows iPhone users to have more control over their own data, perhaps because of its true desire to protect user privacy, but it also keeps Facebook from getting data, which is conducive to Apple's creation of its own advertising business. According to rumors, Apple is also developing its own search engine.
Competitors are also coveting Apple's hardware business. In the United States, the iPhone is still in a dominant position. But according to data provider Canalys, from a global perspective, the iPhone accounts for only one-seventh of all smartphones sold. Earlier this year, China's Xiaomi Company surpassed Apple in shipments and became the world's second-largest smartphone manufacturer.
Apple's entry into new markets is also facing fierce competition. HomePod smart speakers entered the market late and are not very competitive with Amazon and Google products. Even if Apple's mixed reality glasses can actually go on the market, they must compete with similar cool products such as Facebook's Oculus and Microsoft's HoloLens. iCar also needs to challenge Tesla and a large number of mature car manufacturers.
Regulators will also strive to make the digital market more competitive. Apple may win the trial of Epic Games, a maker of popular online video games such as Fortnite, which accused Apple of illegally protecting its App Store, and a verdict may be pronounced later this year. Even if Apple can win in the US courts, other antitrust actors may not let it go so easily.
In July, Margrethe Vestager, vice chairman of the European Commission and EU antitrust leader, warned that the digital market bill submitted by the department would not allow Apple to use privacy and security as reasons for restricting competition in the App Store, as in the Epic lawsuit. If the App Store regulations are relaxed and commissions are lowered (currently a maximum of 30% is charged for most app purchases), it will have a significant impact on the company's profitable service business.
A manager with status and qualifications like Mr. Cook may be able to overcome these difficulties, but it is not certain whether he can overcome them. He is 60 years old and once said that he will "probably" not work for another 10 years. This also makes people question where to find a successor with his vision and skills.
A former executive once had an extreme suggestion: Apple should stop being a seller of luxury goods. He believes that the company's maintenance of such an "abhorrent" gross profit of more than 40% in the previous quarter will make it lazy and need to squeeze developers and suppliers. In contrast, Apple should use its capabilities and cutting-edge technology to develop equipment and services for the 3 billion people on the planet who have not yet enjoyed the benefits of the electronic age.
This may help solve Apple's growth problems, but it is unlikely to obtain the consent of its shareholders who are pursuing profit margins. Jeff Williams, the frequently mentioned possible successor of Mr. Cook, is unlikely to deviate too much from the status quo. Mr. Williams is considered by many insiders to be the "Tim Cook of Tim Cook": not only does he look alike (tall, thin, with gray hair), but his thoughts and experiences are also similar. Since 2010, he has assumed the responsibility of Apple's supply chain and operations that Mr. Cook was responsible for. In the past 10 years, these skills have benefited the company a lot. In order to ensure the company's continued prosperity, Apple's next president may need a completely different set of capabilities.
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