MarketLine Blog

Tim Cook needs to take a bite into Apple’s innovative core

Following his death in October 2011, Steve Jobs was always going to be a tough act to follow. He was named CEO of the decade by Fortune Magazine in 2009 and turned a loss making company into the world’s most valuable one. The increasing sales revenue the new CEO, Tim Cook, has managed in a more competitive market, saturated with similar products, is therefore very impressive. Selling 150m iPhones in 2013, compared to 72m in 2011 is no mean feat, either operationally or in terms of obtaining the sales.

However, the vast majority of the revenues currently generated by Apple are based on the Operating System (“OS”) that Jobs introduced and the iOS that Scott Forstall developed, both of whom are no longer with the company. It therefore remains to be seen whether Cook can lead the next major innovation for Apple by either outstripping the dominant Android OS or entering a new product category, and do it all with the same high standards and design quality as Steve Jobs. Given the rapid developments that take place in the technological sector, this is not an easy task.

Speculation is rife as to what new product category Apple might develop. Patent applications, business negotiations and staff appointments are followed keenly to second guess the next big development. Trademarks have been sought for an iWatch in Japan, successful negotiations with car manufacturers should see Apple’s Siri voice activation software being used in vehicles, and the hiring of health sensor experts suggests an expansion of the Nike+ style technology on Apple products (Tim Cook is also on the board of directors at Nike). A recent deal with China Mobile Ltd also highlights Cook’s intention to obtain a much wider expansion in the Asia-Pacific region.

Much like Jobs, Cook appears to be holding back products until he thinks they are ready and may well have already discarded those that have not felt right. Their approach so far has therefore been fairly similar; steady progress whilst increasing sales, to be punctuated by major innovations that can be sold to a wider customer base. Cook is clearly successful at the steady stage of Apple’s business model but without a new significant development during his time as CEO, competition is getting fierce, biting away at industry profit margins through pricing pressures.

Cook has focused on his strengths of operational efficiency and financial acumen, delivering a gradual approach to change. He is therefore looking more and more like the conservative choice he appeared to be in the first place, based on his successful background in top companies compared to Jobs who famously dropped out of college. Nevertheless, he does not seem to be heading for a fate similar to John Sculley just yet, who succeeded Steve Jobs in 1985 and performed well initially, only to see profits decline sharply and lose his position in 1993. If Cook wishes to continue in the same fashion as Jobs rather than focus on operations however, he needs to deliver a game changing product category in the near future to make current competitive forces irrelevant for Apple.

For an in-depth analysis of how Apple has developed under Tim Cook, see my Case Study: Apple Inc. -Life After Steve Jobs

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