Apple products, perhaps most notably the iPad, the iPhone and the Mac, have provided some of the biggest opportunities for companies generally to piggyback off great corporate product design. In the world of technology there has been a symbiotic relationship between providers of content for such mother ships, firstly personal computers, then the internet itself and now portable devices such as smart phones and tablets. Yet unlike some other key technology players, Apple has steered clear of intertwining itself through equity ownership with many of the companies which live off the ecosystems it has created.
This of course puts it at odds with US-based chip manufacturer Intel, which through corporate venturing unit Intel Capital has become a powerful player in the venture world. Perhaps most interestingly it also sets it against key Apple rival Google, which through Google Ventures is now reportedly looking to deploy $200m a year in venture, according to VentureWire. This is especially notable, as Google’s agreed acquisition of US-based handset maker Motorola Mobility this month, puts it even more squarely in competition with Apple.
A key question is how much was this decision to ignore the corporate venturing strategy, which key rivals appear to be using to some effect, to do with the top-down decision making of Jobs? Popular perception has it Jobs was keen on control. If the following articles respectively, from news providers the Wall Street Journal, the Financial Times and Gawker are correct, this was true of his attitude to controlling his board, his succession, and the flexibility he allowed users of his devices to have. This control over users meant Apple devices have reportedly blocked fairly ubiquitous content elsewhere, including Adobe products and even pornography. You can understand his aversion to minority stake ownership of fast-growth companies, which might well do things not in keeping with the perfection Apple so stridently tries to sell through its strong brand.
Of course, it also has a powerful collaborator doing the venturing for it, in the shape of US venture firm Kleiner Perkins, which doubled the size of its fund to invest in Apple products to $200m last year. Perhaps it is felt with such focus from one of the best known venture capital firms on Apple products there is no strategic need to fuel its own ecosystem, and its resources are better spent elsewhere.
My hunch is that the future heralds more of the same from Apple for a while. The command and control approach appears to be deeply ingrained in Apple’s highly perfectionist corporate culture. Yet should the stellar company ever hit a bump in its impressive growth trajectory, perhaps it will alter its ways, especially without such a seemingly strong character as Jobs controlling the show. In 10 years’ time we may well see the advent of an Apple Ventures.
Reading the Editorial, beyond the KPBC deal for iPhones/Apps, you forgot to note Pixar and ARM – both were bankrolled by SJ in some way – the first, Pixar, off his own chequebook and the second, ARM through an Apple investment and later IPO which rewarded Apple with a high X times returns on initial investment.
Warren East from ARM responds: They [Apple] invested in the autumn of 1990 [during Steve Jobs’ absence from the company between 1985 and 1996] at the founding of ARM. That was the only Apple investment.
Your recent speculation about Apple lacked your usual deep insight. You might want to ask around Silicon Valley next time.
For example, Apple did had an active CVC program (when Jobs was not there) founded by Barry Schiffman,
and also Dan Eilers, http://www.vanguardventures.com/team/de.html .
In truth, all major VCs have a partner dedicated to mobility and usually another involved in investing in the "arms race" for hardware-based differentiation being led by Apple.
The question raised was (understandably) whether Jobs exit would make Apple more interested in Corporate Venture and in ecosystem development. Here’s why I don’t think so:
- Apple, unlike any company of comparable value, basically sells only two products: mobile computing devices and Cloud Services.
- Apple doesn’t do anything speculatively and it is a strong competitor (or leading provider) in the markets in which it participates. When Apple introduces a product in plans for initial production in the millions of units.
- Apple doesn’t manufacture anything but instead uses the contract manufacturers and ODM’s that everyone else does. Contrary perhaps to the view that these are only 21st Century sweatshops that take advantage of areas of low wages, these contract manufacturers are very competitive, technically excellent, and highly innovative organizations. Apple doesn’t need to invest in innovation in design-for-manufacturability or minimal cost manufacturing – this tier does it and with Apple’s volumes lets it pick the leaders as partners at any given time.
- Apple doesn’t need to innovate in areas like user interface technology. Any entrepreneur who has innovation in (say) displays or controls would go early to see Apple (what is the possible benefit of slighting your most important potential customer?). Apple’s expressed interest would assure venture backing for development. Apple’s minimal product runs are in the millions assuring either later stage VC or investment bank funding for a product that Apple selects. Apple will demand (and get) the lowest possible price without any strategic investment.
- Apple has 70B$ in cash and obscene profitability. They can choose to buy what they really need at a later stage. In contrast to many companies where VC returns look attractive compared too much of the base business, Apple is quite different.
This is very different from (say) IBM who 20 years ago developed much of the technology they employed. Apple never has (MAC’s were just computers) and very different from (say) Intel. For years Intel Capital invested in things that could conceivable increase the PC market as a whole or create greater value in high-performance systems. Apple isn’t interesting in nurturing the industry as a whole.
The question of whether Apple should use more (say) Intel parts is equally revealing:
- This year more smart phones will be shipped than PC’s. Intel would like to be a leading vendor in mobile devices but it isn’t. Apple is.
- Apple ships a small number of devices and only requires a few different CPU’s at any time, each of which they consume in very large volume. Intel makes scores of different CPU versions to serve the diverse OEM needs. In most cases it follows that Apple volumes exceed Intel volumes for specific CPU’s.
- Apple uniquely owns the software, the software tools and the underlying system hardware. This gives Apple the unique opportunity to optimize the entire software/hardware stack to its advantage which one has every reason to believe it does when it comes to energy efficiency (the amount of operating time per gram of battery weight at a given level of application performance). Apple bought Palo Alto Semiconductor, a company that had been founded to build CPU’s optimized for energy efficiency. Intel has never been a leader in this aspect, although Intel is a leader in semiconductor process development and Intel’s latest 22nm process looks ideal for energy optimization (often where Intel has demonstrated the greatest differentiated value with its latest parts).
- There has been speculation that Intel might act as a foundry for Apple, running Apple designed parts on Intel’s fab lines. It’s likely that would make Apple’s parts even better. The question is whether a deal can be struck without Apple disclosing its design technology in a way that unnecessarily benefits its competitors.
The lesson is simply that Steve Jobs has brilliantly grown a differentiated and highly valuable business that shouldn’t play by the same rules and a company for which common wisdom often does not apply. The $64,000 question is how long all of this will endure in the post-Jobs era. But it won’t be a question of Steve Jobs parochial decisions being overturned; it will be a question of Steve Job’s Midas touch fading.
James Mawson responds: That’s great feedback and a cogent argument. Jobs leaves on a high with proprietary platform intact but unless Apple works out how to change its strategy its destined to go back to the wilderness of the 1985-1996 period (ie the last time Jobs wasn’t there). That involves a more inclusive and thoughtful approach to open innovation; this is a lesson Microsoft and IBM (the only two triple-wave tech companies in history) learned the hard way.
There’s no current pressure on Apple to do venturing – in effect the status quo argument of how the succession is being run will mean it almost certainly will not start immediately (but the last time Jobs wasn’t there Apple set up a corporate venturing unit). But as other platforms catch up with the app store and developers face a trade off between cash and sales via, say, Android or Salesforce or Amazon or Facebook and losing a cut on Apple SaaS and proprietary system the pressure to make sure its tapped into the entrepreneurs will grow. Its impossible to say but the argument for open innovation and having venturing as part of the tool kit is powerful. In five years with a rocky product/platform development the pendulum might swing.