History tells us “Yes.” Wearables will be his Rubicon.
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Apple CEO Tim Cook is already one of the most successful managers in the history of business. Yet one must wonder whether Cook will ultimately suffer the same fate as Steve Ballmer, who resigned as CEO at Microsoft amid widespread calls for his ouster.
History tells us that such an ending will likely come to pass. It will probably be because Cook does not adequately deal with disruptions enabled by the intersection of wearable computing and the Internet of Things.
Ballmer, like Cook, was the key lieutenant to a legendary CEO and deserves much credit for building a dominant, profit-making juggernaut.
Cook, as Apple’s chief operating officer under Steve Jobs, deserves significant credit for shaping Apple into one of the most profitable companies ever. Since Cook joined as SVP of worldwide operations in 1998, Apple has generated more than $500B in revenue and almost $175B in earnings before taxes. He took the reins as CEO after the loss of Jobs and guided a graceful transition. He continues to deliver new products, growth and profitability in a manner that outshines most other CEOs.
Ballmer helped Bill Gates construct Microsoft. Over Ballmer’s 13-year run as CEO, Microsoft revenues grew from nearly $30B in FY2002 to almost $80B in FY2013. Over that stretch, Ballmer delivered over $650B in revenue and nearly $250B in earnings before taxes. He did this by maintaining Microsoft’s personal computing dominance through Windows and Office. He also oversaw reasonable growth in the entertainment and enterprise business segments.
Ballmer’s reputation and legacy, however, center more on what he did not accomplish than what he did. $650B in revenues is fine, some argue, but that pales in comparison to the growth opportunities that Ballmer missed. Indeed, the list of opportunity areas that Microsoft missed or underperformed is long. Instead of Microsoft, they are dominated by others, including Google, Yahoo, Amazon, Facebook, Twitter, Apple, SAP, IBM, Oracle and HP.
The combined market value of those companies is more than $1.6 trillion. A sizeable portion of that immense value was Microsoft’s for the taking—if it could have leveraged its dominant assets and seized the innovation opportunities. Instead, Microsoft’s stock price has been relatively stagnant for the last 10 years.
The challenge of transforming Microsoft in the face of rapidly evolving search, advertising, cloud computing, smartphone, tablet, social media, big data, enterprise software and other information-technology-intensive market opportunities is now left to Ballmer’s still-to-be-named successor.
Like Ballmer, Cook’s legacy will be defined by whether he successfully launches new post-Jobs killer apps. Yes, Cook will be branded a failure if he does not to defend Apple’s franchises in smartphones and tablets. But he clearly seems to be up to that defensive task. His alliance with China Mobile opens the world’s largest smartphone market. His willingness to make cheaper phones, without appearing to be cheap, is a nod to inevitable margin compression while fending it off as long as possible.
But, to be truly successful, Cook will have to innovate beyond iPhones and iPads.
This is no small task. Surviving next generations of technology is notoriously hard. IBM let Digital Equipment Corp (DEC) beat it in minicomputers. Both IBM and DEC let Intel and Microsoft grab almost all the value from personal computers. Motorola, Nokia, Blackberry, Microsoft and others let Apple almost run away with smartphones and tablets.
And, of course, it is not only computer companies that have fumbled the future. Kodak was killed by digital photography, even though it invented it. Borders so misunderstood the threat of online retailing that it once outsourced online sales to Amazon. Blockbuster laughed at Netflix’s DVDs by mail model before being crushed by it. Every department store other than Dayton-Hudson (which evolved into Target) missed the shift to discount retailing. The list goes on and on.
History tells us that the new technological landscape that will likely define both Apple’s next horizon and Cook’s legacy is somewhere at the intersection of wearable computing and the Internet of Things.
As long observed by Gordon Bell, the legendary computer engineer and angel investor, and illustrated in Figure 1, every decade or so advances in computing technology enable a new, lower-price computing class based on a new programming platform, network and interface.
Each computing class is about 10-15x faster than the previous decade’s class and 10 percent as expensive. The new class enables, in turn, a new industry to form to build, sell, apply and create content for a new set of users and uses—as exemplified by mainframes, minicomputers, personal computers and, now, smartphones. Each new computing class is also the basis for attracting peripherals and applications from an emergent ecosystem of providers.
The pattern has been so consistent that there’s even a name for it: Bell’s Law. And Bell’s Law predicts that the intersection of wearable computing and the Internet of Things is the next stage of this decades-long progression.
The challenge that tripped up IBM, DEC, Microsoft, Kodak and every other leader vanquished by Bell’s Law was not a lack of technological awareness. In fact, quite often, researchers and technologists in those companies were key enablers of the generational advances. Instead, what tripped up the companies was the inability to understand, accept and navigate through the strategic and business-model disruptions that came with the next computing class.
If history repeats itself (or even rhymes), this will be Cook’s challenge, as well.
It is an open secret that Apple is working on an iWatch wearable device. But, more likely than not, Apple is trying to position its iWatch as an iPhone peripheral, rather than as a distinct computing platform. The iWatch will be fed by iTunes, run apps in Apple’s App Store, and generally fit neatly in the current Apple ecosystem.
This incremental, extend-the-ecosystem approach makes all the sense in the world—to Apple. It rhymes with how Kodak attempted to use digital capabilities as preview mechanisms for its film cameras and how Microsoft hoped that integration with PCs and Office would be the killer feature of its handheld products.
In other words, the incremental approach fits very nicely with how customers interact with the Apple world today—and how Apple hopes that they will interact with it in the future. It does not matches, however, how the future has played out for every previous computer class.
The dominant wearable computing platform will be the epicenter of a whole new ecosystem of peripherals, applications and developers, not just a smartphone peripheral.
Imagine an iWatch-like device that is the principal hub of a body-area network that includes peripherals like Google glasses, fitness monitors, embedded heart and blood-sugar monitors, and even partially digested pills.
Or maybe some cloud-based personal assistant will process all your information sources, including your mail, calls and text messages but also the smart, dust-sized sensors and cameras spread throughout your house and garden, and contact you via your tee shirt when necessary?
The possibilities are numerous, and there’s no way to predict the outcome except by inventing it.
The Rubicon that Cook must cross to have a chance at such invention is the acceptance of the possibility that the next computing class might be incompatible with Apple’s current competencies, ecosystem and business model. He cannot be single-mindedly focused on enhancing Apple’s strategic iOS ecosystem moat—as Ballmer’s Microsoft was obsessed with enhancing the Windows/Office moat.
He must, for example, encourage and protect innovation efforts that dare to think big, including the exploration of next-generation strategies that might weaken or even cannibalize the iPhone ecosystem.
He must demand very focused, option-based and experiment-driven innovation efforts that start small and learn fast.
He must guard such efforts from the internal and external antibodies that will fight desperately to maintain the status quo—while at the same time be prepared to kill failed efforts himself.
Apple can afford the monetary cost of sloppy innovation; like Google and Microsoft, it is flush with more cash than it could possibly squander through research. Apple cannot afford, however, to squander the time and management attention it will need to out-innovate everyone who wants to leapfrog it.
And that field is crowded. The biggest technology companies and numerous start-ups are already in the race. Google has invested heavily in Google [x] project like Glass and its Self-Driving Car, and it just bought Nest for $3.2B. Samsung has already launched two generations of its Galaxy Gear smart watch. Both GE and IBM are pursuing massive Internet of Things initiatives.
Cook certainly knows this history and is fully aware of the challenge in front of him. Unfortunately, awareness is not enough. As my colleague Paul Carroll has noted, Bill Gates and Steve Ballmer used to laugh at how IBM squandered its assets and gave away the personal computer business to them. In a number of ways, Gates and Ballmer let Microsoft become like the IBM of their youth.
To avoid the same fate, Cook cannot let Apple become like Ballmer’s Microsoft.
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How do you think Tim Cook’s legacy will be defined? What will it turn out to be? Please share your thoughts below.
Chunka Mui is the coauthor of The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups. Follow him at Facebook, Twitter @chunkamui or at Google+.
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