Apple’s last fiscal quarter has come and gone, and the company posted (once again) record revenue, earning a million dollars and ending its last fiscal year with only $100 billion in profit.
Let it sink in for a moment. 100 billion dollars is such a large amount that it is completely incomprehensible to most of us, who will never even come close to one billion in our lifetime. This is more than the gross domestic product of some countries, and not just some of them. More than half of the countries in the world. Most of them. And again, this benefitrather than the $316 billion in revenue that placed it among the top 40 countries.
On the one hand, good for Apple. There was a time in living memory when the company teetered on the brink of bankruptcy; it has since become, by some estimates, the most valuable in the world. Yes, this is a testament to the business acumen of its leaders, and also to the fact that it produces excellent products.
It makes it all the more frustrating to see some of the steps the company has recently taken that seem, for lack of a better word, cheap: the almost pathological need to take a cut of every App Store transaction, the recent influx of ads, the price hikes for their services. All of these tactics would probably benefit a company trying to make a living, but when they are applied to a company that makes more money than most countries in the world, they seem obscene.
While there are many reasons why Apple has chosen this path of evolution, for me it comes down to three main factors.
Not dead yet
When I was a teenage Apple fan in the 1990s—yes, yes, dinosaurs still roamed the earth, and right now I’m shaking my fist at a cloud to tell it to get it off my lawn—Apple was on the brink of bankruptcy. The CEO’s office had a revolving door, and the company regularly pinned all its hopes on technology that was only marginally superior to blank software. This was very upsetting for those of us who considered their products to be far superior to the masses of PC clones.
Spoiler: Apple, of course, did not go bankrupt. Instead, she bought NeXT, bringing with it the return of Steve Jobs, and continued the cavalcade of hits like the iMac, the iPod, and, of course, the iPhone.
But this near-death experience left an indelible mark on the company. Like Scarlett O’Hara declaring that, with God as her witness, she will never go hungry again, Apple seems to be operating in paranoia that all this wealth may someday suddenly vanish, leaving the company just steps away from being dissolved once again. Titanic, eventually drowned in less than three hours. (Do not confuse my cinematic metaphors.)
Apple
I believe this is the main reason the company has been sitting on a giant cash pile for so long: it needed a cushion to soften the blow if its business was yanked out from under it. Only relatively recently has the company attempted to achieve a “cash-neutral” position, which has proved extremely difficult as it has proven to be quite difficult to actually get rid of the amount of cash it has.
The world is spinning
When Apple averted its descent into the abyss, it was in no small part due to the return of co-founder Steve Jobs. Jobs brought with him a special mindset, born in part of his own attitude that served the company well in those days: Apple got its cut. As my colleague Jason Snell told me on the latest episode of the Upgrade podcast, Jobs seemed to have a deep conviction that anyone who makes money from Apple products—accessory makers, developers, media companies—owes the company a share of that profit.
This led to things like Made for iPod (and later iPhone) accessory licensing programs and a 30 percent cut in the iTunes Music Store, which was later imported into the App Store.
The idea of transaction fees is not new, and not even that unacceptable in theory: retail outlets have always had markups on the goods they sell; this is how they pay overhead and make a profit. Agents and others regularly charge commission for their services.
Lewis Artist / Foundry
Apple’s model shift has also been beneficial: for example, being a registered Mac developer used to cost at least $500 a year, and in some cases a lot more, but the success of the iPhone app market prompted the company to move that down to a more affordable $99 a year, where they have remained to this day. (Yes, Apple takes a percentage of the app’s revenue as compensation, but that doesn’t change the fact that the barrier to entry is lower than it was.)
But over the years, Apple has continued to be militant about capturing the 30 percent each transaction in the App Store, regardless of its involvement, and, even worse, makes it less and less convenient for those developers who want to take alternative paths, cracking down on any attempts to exploit loopholes. So much so that the company was under the gun of antitrust authorities around the world.
All of this may have served Apple well in the days when it had to count every penny, but then again, that’s far from the situation it’s in now. Instead, aggressive tactics eventually lead to discomfort and sometimes greed for money. Does the company really need to alienate its developer base – let’s not forget that all of them also of your customers to increase your income? Where does it end?
Growth at any cost
Not all of this is directly Apple’s fault. After all, we live in a capitalist society where shareholder profit maximization is paramount. (Although well-informed scholars of Adam Smith’s original treatises on the subject will point out that such thinking ignores his view that it should go hand in hand with social improvement.)
Wall Street demands growth, quarter after quarter, year after year, which honestly seems ridiculous when your coffers are full and you literally can’t spend money fast enough. It’s like having more food on your holiday dinner table than anyone could ever eat and then demanding that next year’s treat be even more lavish. It’s a system that, quite frankly, is broken and maybe even a little crazy.
And it has its price. The idea of growth at any cost has a downside: one of those costs is customer trust. Tim Cook likes to display customer satisfaction numbers with Apple products as if it were the company’s guiding star, but this is a moving figure: in many cases, you don’t know when customer confidence has burned out until it’s too late. Look no further than Twitter, which is currently going through undermining user confidence in real time. Or Meta, the epitome of distrust in the tech industry that lost half its stock value. The simple fact is that no company grows forever.
The parallels are not exact, but there is a lesson to be learned here, and while changing the whole system is not a task that can be solved easily and quickly, who can best achieve such success as not the most expensive company in the world, with enough money to weather any resulting storm? You just need to decide on it.
And he moved his hat in that direction. A few years ago, Apple, along with 200 other major companies, put its name on a statement proclaiming that business is more than profit, including protecting the environment, providing for employees, combating economic inequality, and creating value for customers. While Apple has made great strides in some of them, the most valuable company in the world is bound to make the biggest moves. Change starts at home, as they say, and Cupertino should take a close look at what he’s sacrificing for a few more bucks.