The Making of a Utility Company Pt. 3

It's not like Apple isn't still going to be an innovator in the tech space. More so than Microsoft, which has always been about creating efficiencies, Apple's corporate soul--even ex-Jobs--is infused with adoration for the creative process, its solutions to everyday problems elegant and friendly as opposed to workmanlike. That won't be changing, even if Jobs steps down, as long as the company remains fiscally strong enough to promote from within and nothing catastrophic happens to the wells that fill its creative pipeline. Right now, the company is too well-run, and too good to its employees, for either of those things to be realistic concerns near-term. As long as they keep spitting out clever platform products they'll do just fine.

It's the nature of the platform that's going to change, though. The integrated systems that the company pioneered during the 1980s and 90s aren't going to disappear, but going forward we're going to see a greater focus on app platforms. Again, Apple's been the key innovator in the app realm, although the technology world has changed enough over the past couple decades, with open-source software, cloud computing, and rapidly-increasing bandwidth combining to lower barriers to entry and limit any competitive advantage first-entrants might enjoy. Without taking the analogy too far--applied to the cloud, it breaks down quickly--Mr. Jobs' Apple would do well to start taking cues from its once-perennial-superior Microsoft. Here's to hoping there's no antitrust action in Apple's future, but a strategic shift towards aggregating and overseeing would behoove it.

How would that work? Simple. Just like Microsoft in the 1990s, Apple now owns the dominant personal-computing platform. Up until early this year one could have made the argument that Google would hang around to give Apple trouble in this space, but the NexusOne setback coupled with Google's super-successful Android technology suggests that Brin, Page & Co. will content themselves, for now, with their back-office runner-up spot. One day, they may make another run at the hardware market, and when that happens Apple had better watch its back. For now, though, it's smooth sailing. In any event, the company's drive towards becoming the country's premier app gatekeeper continues apace. There's clearly still some philosophical issues left to be worked out: whether it's songs purchased on iTunes (remember that dust-up a few years ago? seems like ancient history now) or apps created by third-party developers and licensed for use on the iPhone or iPad (a more recent and potentially more worrying issue, given that it's still early going and Apple's decisions on the subject are sure to have an outsize effect on intellectual-property disputes on the cloud) Jobs seems to have trouble letting go of things. Indeed, in twenty years we'll probably identify the early part of this decade as the beginning of the end for internet "freedom," however defined.

Looking at Jobs' stinginess with Apple's intellectual property (real or imagined, ahem), it's hard to argue that he doesn't know exactly what he's doing. In theory the cloud, user-generation, and the whole mobile space signify openness, transparency, a synergy between the individual and the community of a sort that couldn't even be imagined back in the Microsoft era. The smart money, of course, knows that's baloney. As paywalls begin to descend and bandwidth commands an ever-increasing premium, Apple's going to be positioned well in the sense that they already do and will continue to enjoy a competitive advantage as the proprietor of the pre-eminent app platform. Even if they don't quite own the programs that use the iPhone and iPad, they'll be able to exercise de facto control over them as proprietors: see Comcast's campaign to hit up their bandwidth hogs, a move that's going to become increasingly common as more and more data travels through the air over long distances.This isn't to say that Apple won't do the right thing and keep things relatively fair and open. Jobs is too savvy to play outright censor, of course. But what is likely--what the smart money is betting will happen--is that Apple will be able to charge more for the little programs that we're increasingly relying on to cut corners and perform everyday tasks. It'll be a slow creep, naturally, and depending on how it's swung maybe it won't turn out to be such a bad deal for consumers or developers. But it's going to be big money for Apple.

This in a nutshell is why the financial press is salivating over this company and its stock. The last half decade has been unbelievable for Apple, no question, but we all know what they say about past performance. Even given what we've gone over so far, which to be sure is but a small part of the Apple equation, we could be forgiven for wondering if Jobs & Co. have it what it takes to continue the company's breathtaking run. Microsoft- or IBM-like corporate sclerosis probably won't set in until well after Jobs is gone, but that doesn't mean they don't have anything to worry about in Cupertino. Next time we'll talk about growth potential and, natch, the upside for Apple stock.

At least they're modest.
http://www.apple.com/iphone/