Apple Inc.: Keeping the “i” in Innovation Robin Chapman, Robert E. Hoskisson, Gail Christian / Arizona State University One of the most well known and respected com- position it has held since 2008.2 In March 2011, Fast panies in the world, Apple Inc. was one of the few Company also has named Apple the Most Innovative companies that emerged from the recession stron- Company. According to Editor Robert Safian, “in ger than ever. By spring 2011 Apple had an array putting together this month’s special package on the of impressive products including the iPad, iPhone, 2011. Most Innovative Companies, we really had iPod shuffle, iPod nano, iPod touch, iPod classic, no choice: Apple had to be No. 1.”3 With net sales Apple TV, MacBook, MacBook Pro, MacBook Air, of $37,491, $42,905, and $65,225 in 2008, 2009, Mac mini, iMac, and MacPro.1 Apple that has main- and 2010, respectively, Apple’s stream of innovative tained its status as number one for innovativeness on products supported CEO Steve Jobs’ philosophy that Fortune Magazine’s list of the World’s Most Admired if you make something “really great, then everybody Companies in both prerecession 2007 and postreces- will want to use it”4 (see Exhibit 1). sion 2011. Apple is also named the World’s Most Although Apple started in 1976 as a computer Admired Company overall in 2011 by Fortune, a business, much of Apple’s success has been attributed Exhibit 1 Apple Inc. Selected Financial Data 2010 2009 2008 2007 2006 Net sales ($) 65,225 42,905 37,491 24,578 19,315 Net income ($) 14,013 8,235 6,119 3,495 1,989 Earnings per common share ($) Basic 15.41 9.22 6.94 4.04 2.36 Diluted 15.15 9.08 6.78 3.93 2.27 Cash dividends declared per common share ($) 0 0 0 0 0 Shares used in computing earnings per share Basic 909,461 893,016 881,592 864,595 844,058 Diluted 924,712 907,005 902,139 889,292 877,526 Total cash, cash equivalents and marketable securities ($) 51,011 33,992 24,490 15,386 10,110 Total assets ($) 75,183 47,501 36,171 24,878 17,205 Total long-term obligationsa ($) 5,531 3,502 1,745 687 395 Total liabilities ($) 27,392 15,861 13,874 10,347 7,221 Total shareholders’ equity ($) 47,791 31,640 22,297 14,531 9,984 aThe company did not have any long-term debt during the five years ended September 25, 2010. Long-term obligations excludes non-current deferred revenue. Source: Apple Inc. Annual Report 2010. C-1 776812_Apple.indd6812_Apple.indd C-1C-1 88/25/11/25/11 44:54:54 PPMM C-2 Apple Inc.: Keeping the “i” in Innovation to its music- and video-related products, in addi- whose innovations and inspirations are so closely tion to the iPhone. According to Steve Jobs, Apple’s tied to the vision of one leader when that leader’s charismatic CEO and cofounder, “This will go influence is in decline?”10 down in history as a turning point for the music To understand how Apple became a leader in industry. This is landmark stuff. I can’t overestimate innovation and how closely Steve Jobs is associated it!”5 Jobs was referring to the April 2003 debut of with Apple and its many achievements, it is neces- Apple’s iTunes Online Music Store, the first legal sary to first examine Apple’s history. online music service to have agreements with all five major record labels. Although initially avail- Early Company History able only for Macintosh users, iTunes sold more than 1 million songs by the end of its first week in On April 1, 1976, Steve Jobs and Stephen Wozniak operation. Not only did iTunes change the nature of began the partnership that would eventually become the music industry, it also added greatly to Apple’s Apple Computer. Both electronics gurus, Jobs and revenues by way of promoting the purchase of the Wozniak had known each other since high school iPod—a portable digital music device that could and had worked together previously on other proj- store downloaded iTunes songs. As Apple quickly ects.11 In early 1976, Wozniak had been working became known as a company that made innova- on combining video monitors with computers. His tive consumer electronics products instead of just a idea was to invent a user-friendly computer that company that made computers, it changed its name ordinary consumers could buy. Wozniak, who in 2007 from “Apple Computer” to “Apple Inc.” worked for Hewlett-Packard (HP) at the time, Jobs said, “The Mac, iPod, Apple TV and iPhone. decided to approach his employer with his idea. Only one of those is a computer. So we’re changing HP, however, did not see a future for personal the name.”6 computers (PCs) and soundly rebuffed him. At that Apple’s focus on innovation has helped it main- point, Steve Jobs told his friend Wozniak that they tain a competitive advantage and marketing prow- should go into business together and sell computers ess over other industry players that have historically themselves.12 been much stronger than Apple.7 However, Apple Their first computer, the Apple I, was built in must continue to beat the competition on a number the garage of Jobs’s parents (see Exhibit 3). Known of levels. iTunes faces stiff competition from new as a “kit computer,” the original Apple consisted and existing online music and video download ser- merely of a circuit board and did not even have an vices. The iPod, iPad, Apple TV, and iPhone all face exterior casing. It was intended to be sold to hob- the threat of lower-priced rivals and possible sub- byists only. Jobs called the computer an “Apple” stitutes. in honor of his days working at an orchard while Then on January 17, 2011, Apple was faced seeking enlightenment—and because neither he nor with an additional challenge when Steve Jobs Wozniak could come up with a better name.13 The handed control of the company to chief operating Apple I received mixed responses from hobbyists, officer Timothy D. Cook, with the announcement of and the duo decided it was time to expand the mar- another medical leave.8 This would be his third med- ket for PCs by building a more attractive and useful ical leave in less than six years. Jobs would retain machine, the Apple II14 (see Exhibit 2). the title of CEO, but Cook would handle day-to- day operations at the company. He did not share his Growth reason for leaving the company or tell his employees when he might return.9 After taking on new partners to fund expan- Diagnosed with a rare form of pancreatic can- sion plans, the company officially became Apple cer in 2004, Jobs took an undisclosed leave of Computer, Inc., in early 1977.15 Within months, the absence that year for treatment. In 2009 he took recapitalized company introduced the Apple II, the a six-month leave to undergo a liver transplant first computer to come with a sleek plastic casing at the Methodist University Hospital Transplant and color graphics.16 Annual sales increased dra- Institute in Memphis. Although these absences did matically to $10 million, and the company began to not interrupt Apple’s run of successes, the new ques- grow quickly in size, adding thousands of employ- tion became: “What happens to a modern company ees.17 On December 12, 1980, Apple became a public 776812_Apple.indd6812_Apple.indd C-2C-2 88/25/11/25/11 44:54:54 PPMM Apple Inc.: Keeping the “i” in Innovation C-3 Exhibit 2 Select Apple Product Releases 1976 Apple I 2004 iPod Mini 1977 Apple II eMac iPod (Click Wheel) 1980 Apple III iPod (U2 Special Edition) 1983 Lisa iPod Photo 1984 Macintosh Graphical User Interface (GUI) 2005 iPod Shuffl e 1986 Macintosh Plus iPod nano 1987 Macintosh II iPod color iPod with video 1991 Macintosh Quadra PowerBook 100 2006 MacBook 1994 PowerMac 6100 Mac mini 1997 PowerBook G3 2007 Apple TV 1998 iMac iPhone 1999 iBook 2008 iPhone 3G 2001 iTunes iPod classic (120 GB) iDVD 2009 iPhone 3GS iPod 2010 iPhone 4 2003 iLife suite iPad iTunes 4 (online music store w/200,000 2011 iPad 2 downloadable songs) Source: www.apple-history.com. company. On the first day of trading, its share price The memorable commercial featured an Orwellian increased from an initial $22 offering to $29.18 By 1984 world filled with stoic human zombies, all the end of the year, Apple reached $100 million in watching a large-screen image of “Big Brother.” annual sales.19 The fledgling company, however, A young woman rushes into the room and dra- soon faced some experienced competition. matically destroys the screen. Apple used this 1984 In 1981, IBM released its first PC. IBM’s sheer imagery to depict IBM’s computer dominance being size ensured its domination of the young PC market. destroyed by the new Macintosh.21 With features Steve Jobs realized that Apple would have to move that made the Mac easy to use for publishing and fast in order to remain a viable company. Over a marketing strategy that concentrated on uni- the next few years, the company released several versities, the new computer sold very well, push- new computer models, most notably the Apple III ing Apple’s fiscal 1984 sales to an unprecedented and the Lisa. Neither of these models sold particu- $1.5 billion.22 larly well.