Time to Buy Apple Stock?

In February of 2012 I wrote a blog post called Chocolate Cheesecake, Apple’s Flat Panel TV and Steve Jobs. The post was my way of processing sadness over the loss of this wonderful man, who had made a huge difference in my life. I predicted iTV was coming and even described how it would work. At the same time I questioned if Apple could continue to innovate without the vision of Steve Jobs. I pointed out some things I was seeing in the updates to the Macintosh OS that worried me.

“I really wonder now that Jobs is gone how will Apple fair at this magical process? With no one like Steve to say “its crap start over” what will happen to new products being developed?”

So now, a year later (mid April 2013), can the question be answered with anymore clarity?

Based on the precipitous drop in Apple’s stock price from the $700 range to under $400 it would seem that Wall Street has lost faith in Apple’s ability to continue to alter the landscape they owned in 2012. Why? There are probably two major reasons.

Market Share. Apple has felt the power of Samsung and the Android OS developed by Google. Even though they are not as well constructed as the iPhone and iPad, Samsung offers a greater range of cell phones at all prices including low cost. In smartphones Android has more international market share than Apple while Apple still dominates the tablet marketplace. It’s not like Apple has stood still, over the last year they have developed several new models of the classic iPad (smaller screens, more resolution, more memory) but these are all evolutionary incremental changes, not the revolutionary changes that sprung from the brilliant mind of Steve. Rumors abound of the iTV, a low cost iPhone and most recently a iPod-screened wrist watch encased in a glass bracelet. Since these products have remained rumors a good deal of confidence in Apple’s fulfilling Steve’s dreams has been lost.

Perseverance. It’s too early to write Apple’s epitaph. Steve left us only a year and a half ago on October 11, 2011. While that might seem like a long time in the world of computer tech, I don’t think it’s long enough to design and test a product of the scale of Apple’s past innovations. Steve first hinted at the iPhone in 2003, and it was not ready until January of 2007. That is 4 years! So assume by “cracked the code” Steve meant that in 2011 he had an iTV design he felt could be successful. Then using the same math as the iPhone, it stands to reason we would not see an iTV until 2015, over 2 years from now. Add to this the fact that Jonathan Ive, the industrial designer responsible for all of Apple’s case designs, is now heading up the software division and you’ve added more potential delays. Couple that with the loss of iOS visionary Scott Forstall plus the fact Tim Cook runs Apple by consensus instead of conflict, and it’s easy to tack on another year of delays, taking the iTV to at least 2016.

Steve was only able to focus on a single revolutionary product at a time. Indeed he often pulled engineers off existing projects to make sure to make sure whatever was his favorite product got the priority he wanted. Thus to assume Apple is working on multiple revolutionary products, such as an iPad based watch or radial digital glasses seems unlikely to me.

The Broadcast and Cable Establishments

There is one major wrinkle in iTV’s future. The Broadcast and Cable Establishment. The term Broadcast Establishment was coined by Ted Turner when he took on the television networks during the Regan era, when the White House would not share it’s video’s with anyone but the big 3 networks. Ted showed you could beat the establishment when he created CNN’s  24 hour television and changed the model itself. But for Apple it’s way more difficult now. The nemesis is the way the networks and cable industry have locked down the commercial models distribution of television in America. There is not enough room on our the drives of our SQL server to discuss this issue in proper detail. But you can find some amazing articles online that describe why the networks and cable companies don’t want to see Apple gain a foothold in television like they have done to the music industry with the iPod and iTunes. Without the iPod there would never have been iTunes and without Jobs getting the music industry to agree to selling 99 cent tracks there would have never been the revolution in music we now enjoy. Apparently Steve Jobs has been  unsuccessful in getting his reality distortion field to hypnotize the Broadcast and Cable Establishment.

Here’s what Forrester’s James McQuivey had to say on his blog :

“Let’s be clear what the company is up against in its long-rumored interest in the TV business. The reason it has failed with the Apple TV so far is not that it hasn’t tried. It’s that the TV business is a tough nut to crack: Content is still controlled by monopolists unlikely to give Apple the keys to their content archives. And simply introducing a new display on which to watch that content as it is currently delivered by existing distributors won’t offer consumers much that’s new.”

The basic concept here is that Apple will never be able to strike deals with content providers sufficient to support an iTunes for television. And if all Apple plans to do is improve its current Apple TV set-top box, which means steaming content through television set, it will not have a compelling offering.

Time to buy Apple Stock

So with all this going against Apple it’s my opinion that Tim Cook will strike a deal with the broadcast networks. The price of Apple’s stock was run up to unrealistic levels and it has similarly been unrealistically beaten down. Indeed if we are 2 to 3 years away from an i-television you can wait to buy a while longer. However given the fact that the iPhone is due for a major hardware update, and June 2013 is the most likely time such a product would be launched, I would not be surprised to see Apple’s stock jump from its current under $400 price to as high as $500, before dropping again. It won’t be until we see the iTV, digital watch or i-Glasses that the stock will return to its highs of 2012.

Chocolate Cheesecake, Apple’s Flat Panel TV and Steve Jobs

I’ve parked my buns at Barnes and Noble, with a steaming venti Americano, a double chocolate cheesecake and a few magazines including the newest issue of Wired UK (The Smart List 2012) and Popular Science (The Future of FUN – How Science is Reinventing Play). I’ve picked out a few new books to browse: Robert Harris’s The Fear Index, Sebastian Seung’s Connectome: How the Brain’s Wiring Makes Us Who We Are and Preston and Child’s Gideon’s Corpse.

Normally I have shied away from allowing my personal tastes to leak into this blog. I came to Barnes and Noble today to review the development schedule for our current iPhone app but I have been wrestling with some personal questions I feel like sharing, even if it’s to the small audience who reads this blog.

The Future of Apple without Steve Jobs

I’ve just finished reading Inside Apple: How America’s Most Admired–and Secretive–Company Really Works by Adam Lashinsky. A few months ago I devoured Steve Jobs by Walter Isaacson. I really loved Walter’s book and didn’t want it to end. Having known Steve and written about him on this blog the book resonated with the Steve I knew (Lessons I Learned From Steve Jobs). Walter’s book gave me more insights about who Steve really was, since my impressions came from when he was just starting out and while I followed Apple’s products (which I used in my business since the day the Lisa came out.) Walter “opened the Kimono” as they say and showed how much more complex a character he was then the persona presented in the press.

The first hundred pages of Adam Lashinsky’s Inside Apple seemed to rehash a lot of what I had learned but was still very interesting because it showed how other people saw Steve. And in taking that approach Adam caught a side of Jobs that Walter didn’t focus on. The real meat of Inside Apple starts in Chapter 8 – Apple After Steve and that is what really grabbed me and made me wonder if there was way more to Apple and Jobs than Walter had revealed. In this chapter I really began to understand that as great as Apple is, the companies product development is “single-threaded”. This is a term from the CPU chips in today’s computers – they are capable of running multiple processes or routines in parallel, and each can run independently without interfering with another. Apple on the other hand runs like a single process when it comes to product development. When Steve started on a new product he would pull talent from other divisions and those divisions woud feel the pain. For the iPad (which became the iPhone before it was released as a tablet) he pulled people off the Mac OS and as well all know the OS was delayed.  Steve’s focus might have had the intensity of a thousand lasers but he could only focus on one product at a time. And this, Adam Lashinsky says, will have to change if Apple want’s to survive in the long run.

I don’t want to ruin the Inside Apple book for you so I am not going to give much away about it other than to recommend it highly. But I do want to explore some of the thoughts I’ve had since I finished the part about “Apple after Steve”. One thing that became really clear to me after reading it was that Steve’s dictatorial rule over Apple created people who were highly motivated but a great amount of that motivation came from fear. Fear of failing Apple, fear failing your coworkers and most of all fear of failing Steve. I am not saying Apple is a good or bad place to work just that its not for a lot of people. It’s even more of a puzzle to me how Apple has been able to retain so much great talent. But what helped me understand that is what Adam made so clear; the people that are retained at Apple are not really entrepreneurs. They are more great generals, captains and lieutenants in an army.  Its not an incubation environment like say General Electric where dozens of managers went on to great riches with their own businesses. Apple’s talent seems like a religion in that to leave Apple is like leaving your church.

Steve’s Remarkable Talent for Home Runs and Who Will Keep It Up

Besides all the great things that are said about Jobs many of them can be found in other leaders. But the ones that are truly his alone are his ability to visualize the kind of products people would fall in love with. Now in my life I have seen lots of inventions grow up to be incredibly successful: autos, televisions, computers, etc. And looking back in history the inventions like electricity, the telephone, and even radio seemed huge but in a certain class of invention that everyone who heard about it instantly knew it would be a huge success. Talking over wires? Very few people thought that would fail. Watching movies in your home that are transmitted over the airwaves? That is a no brainier anyone would want. But when I think of the products Steve created they are all in a class that require a great deal of explanation before you can grasp their value. And really until you use his products you won’t fully grasp what makes them so special. I’m thinking of the iPhone. The task of explaining to a alien why it turned the existing smartphone market upside down would take a lot more effort then explaining why the television was such a success.

So with Steve running Apple he brought not just incredible vision but the guts to take the risk to build the vision. And not just a crude version of it but one that is elegant and tested over and over until its perfect. Like Adam I really wonder now that Jobs is gone how will Apple fair at this magical process? With no one like Steve to say “its crap start over” what will happen to new products being developed? But we know from Walter’s book that Steve claimed he had “cracked the code” for how to make an Applesque flat panel television. And if he was willing to spill that fact to Walter its probably not unlikely that the company had gone far down the development path. So what about the Apple TV?

Will the Apple iTV Be As Huge a Success As the iPhone?

A useful thought experiment is to consider the rumored Apple iTV and what we would expect to come out of Apple if Steve was still around to guide its development. This product is supposed to break Apple into the flat panel television market and at the same time like other Apple products, to turn the market on its head. And we all know what a terrible job manufacturers like Sony, Samsung and others are doing with Flat Panels. Sure they have got the prices a lot lower and they are getting skinner everyday. They suck fewer watts. But the UI for a flat panel television still sucks big gas. Pick up any modern TV remote and you’ll know exactly what I mean. And it’s not just the remote its the entire television. Have you taken a recent look at the back of one the big LCD panels? They are a ugly mess of black plastic and randomly laid out connectors with labels that are unreadable without a magnifying glass. The cooling vents dominate the back along with the mounting screws for the wall bracket that none of the come with.

And its not like no one else is trying to build the Flat Panel television of the future. Have you tried Google TV?  I have two of them in different rooms and one of my coworkers has one in her home. Can we learn anything from Google TV? As much as I want Google TV to be a success I am sorry to report that the one thing we can learn is how NOT to build the television of the future. Google is certainly making a valiant effort but the product is really a mess. I just got the 5th update to my Logitech Revue (mistake number 1 Google is not using the Motorola engineers to do the hardware) and it did not go well. Anyway I digress.

Apple’s iTV will come in a remarkable custom box with with small wheels on the bottom of the flat panel so it rolls out with a gentle tug.

You should already be able to already visualize how the Jobsian Apple iTV will look. It will be a dark slab of gorilla glass with no sharp edges, wrapped in a white sculptured case that looks like it came from the future. Instead of needing a razor knife to cut into huge amounts of brown cardboard and two people to haul it out of the box and Styrofoam wrapper, Apple’s iTV will come in a remarkable custom box with with small wheels on the bottom of the flat panel so it rolls out with a gentle tug. Roll it out and remove its black cape and you’ll gasp at a visually stunning tactile work of art. It will have an amazing wall bracket like nothing ever seen that doubles as a stand so you can set it up and watch immediately.

Siri TV and Your Personal Concierge

There will be just one power button on the iTV and everything else will be controlled by talking with your own personal TV concierge at Apple. When you first turn it on Siri will begin the conversation with you, gently guiding you along though the initial set up. She’ll first help you to get iCloud working so Apple’s servers can get involved with the install. Then a support person from Apple will join in the chat to make sure your set up goes smoothly (what you didn’t’ expect that? Your paying twice the price of a television from Japan so you better have a personal concierge.)

Now if you think this is my double chocolate cheese cake and Americano talking your vision glasses need to be cleaned. There is nothing I have described that could not have been built when Steve was alive and in his prime. I have no doubt that at least 10 versions of this product are sitting on a table in front of Johnny Ive while he walks around them over and over, looking at the TV while its OFF from every angle.