Steve Jobs And The End of Apple

Steve Jobs announced his resignation from Apple Computer. Is this the beginning of the end for Apple? Previously , I wrote that Apple is “trapped” in China. Without Jobs, that trap is likely to be sprung, making Apple just another HP, or Dell Computer. A commodity company making a commodity product.

Jobs, besides his design vision (less than appreciated, witness his famous “you’re holding it wrong” video about the Iphone antenna screwup) understood what made Apple different. Which was software and hardware integration. Far more than rival products, Apple products “just worked.” So they could charge a premium over rivals for making a system that ordinary people could use, mostly, without lots of help and hand-holding. Oh yes, there was the yuppie, SWPL-snob appeal, the trendiness, the design mastery, and the hype. But simply making things work was the core of Apple’s success. There were other MP3 music players, and other smartphones before Apple. But none that made using either device so easy.

The danger for Apple is of course, China. Chinese contract manufacturers make almost everything for Apple. With Steve Jobs in place, Apple could cajole, threaten, and flatter China’s top political leaders, because Jobs was a crony of Bill Clinton, Al Gore, and Barack Obama. Current or former Presidents and Vice Presidents and thus important. This is why Apple until recently was not the target of widespread gray-market manufacturing and selling. The clone-Apple Stores opening up by pirate retailers, with genuine Apple merchandise, was evidence of Steve Jobs being unable to fulfill this role.

Yes, successor Tim Cook is quite able in wringing inefficiencies and costs out of Apple’s supply chain. But that was not the skill-set of Steve Jobs, and what made Apple great. What made Apple great was stuff that just “worked” … and keeping a flood of copy-cat merchandise out of places like Asia, Europe, Latin America, and North America. Cook lacks the connections and cronyism to top Democratic politicians needed to keep Chinese Contract Manufacturers, many of them connected to their own top political people, from simply running off lots of extra Iphones, Ipods, Mac laptops, and the like, and selling them for their own pure profit.

Really, what’s Apple going to do? Sue the cousin of a top Politburo leader? When they flood not just China, but Japan, South Korea, Taiwan, Singapore, and Europe, and the Americas with the exact same kind of Ipod and Iphone made from the exact same factory as those Apple takes delivery of?

All that money is just sitting there, on the table. Apple has margins of around 35%, astonishing for a computer company (the industry average is about 4-8% or so) and in part that depends on there being limited, and Apple-authorized supply of their electronic merchandise. No, Best Buy and Amazon will not sell gray-market merchandise. But Mom and Pop retailer and swap meet and flea market folks will, at far less prices. At least part of the untold story of the DVD collapse in terms of prices has been the easy availability of DVDs from Asia on the semi-black market. The same factories that churn out say, copies of the latest Hollywood blockbuster on contract will inevitably run off millions more for their own sales. “Hostel” producer-director Eli Roth famously discovered copies of his movie on sale in Mexico city for what amounted to twenty-five US cents. They were pirated DVDs of course, but ran just the same. They were no doubt pressed from the very same factory that ran off officially authorized copies for sale in the US.

HP’s discontinued tablet, selling at $99, was sold out in a matter of days. That’s the price point for things like an Ipad. It is naive and unrealistic to expect Apple’s manufacturers to not sell those things for about that price, one way or another. What the hell do they care about Apple’s intellectual property? Contracts? Rule of Law? In China the rule is of crony, of power, of connections. And nothing else. The Red Emperors, Princes, and the like do as they please. Steve Jobs when he was healthy was able to delay this process, but even had he not been sick, these contract manufacturers would end up screwing Apple over. In order to make more bucks.

The “Chinese advantage” has always been a trap. Yes, manufacturing costs are far cheaper there, but producing things in China just makes it easier for the factory to run off millions more copies and sell them on their own. Apple post-Steve Jobs is going to be a wonderful example of just how much a trap the Chinese manufacturing cost-advantage really is, and how far a company can fall. When its previously expensive, hip, and trendy stuff gets sold like pirate DVDs.

About whiskeysplace

Conservative blogger focusing on culture, business, technology, and how they intersect.
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14 Responses to Steve Jobs And The End of Apple

  1. Jeff Burton says:

    Apple does not sell computers or phones. It sells a luxury status symbols. That was Jobs genius – to convert a tech company into something more akin to Coach, Armani, Prada. None of your analysis obtains.

  2. Emery James says:

    Coach, Armani, and Prada. They all take a Chinese style grey market screwing every day.

  3. Anonymous says:

    Jeff, I don't think that Whiskey is saying that Apple is going to disappear, any more than Armani or Prada is. But he is saying that Apple's days as a "special" company and a monet printing machine are over, and there's a lot to indicate that he's right. As always, Whiskey has a lot of good points, once you knock off about 15% as hyperbole…Tschafer

  4. Coach, Armani, and Prada. They all take a Chinese style grey market screwing every day.Exactly.

  5. Pete says:

    I don't know, man…you really think China was holding off copying Apple's stuff out of fear of retaliation from Clinton, Gore, and Obama?I just don't see it. Clinton and Gore are now irrelevant windbags, and none of America's enemies have hesitated in giving Obama the finger and doing whatever they pleased.

  6. Thrasymachus says:

    I recently read "Poorly Made in China", and I recommend it. It's not an overview of Chinese manufacturing, just one man's experiences working with Chinese manufacturers, mostly using examples from one factory. But it's an eye-opening introduction to the Chinese mentality.

  7. DaFarmer says:

    I would think Apple can control its own fate until Microsoft products are as good as Apples…a day of reckoning that is,like Bill Gates' fixing of the schools,far far off into the future!

  8. Nullpointer says:

    You think the day of reckoning is far off?//BUILD is in about two weeks, wait until you guys see what's been cooking.Let's just say Sinofsky got Windows to pull their shit together.The issue is always of profit margins. HP tried to turn itself into Apple and failed. Hardware is a losing game, because your margins are razor thin. Everyone wants to do "services", because you can make a lot more profit. That's why the US has become a service provider. Eventually, though you need to have stuff made and that is the crux of the issue.

  9. Whiskey says:

    Apple is not going to disappear. But it won't get 35% profit margins for too much longer. Its not sustainable, neither the market for luxury status items OR holding off gray market exports is something that will go on forever.If the world is headed for a Japan-style slow/no growth economy, who can afford luxury goods? At best you're talking cheap Iphones (Apple is rumored to be coming out with one) or lots of Ipod shuffles instead of pricey Ipod touch models.Yes Coach, Armani, and Prada take Chinese and **EXPORT** gray market screwing, and it is seriously eroding margins and earnings, according to the WSJ. Suits against Target, by Coach, alleging sales of counterfeit merchandise, date back to 2007. Essentially the luxury goods are priced too high ($1,500 handbags?) and the same factories in China churning out the real thing can make the fakes.

  10. Jules says:

    Whiskey, I wish you had a twitter feed.

  11. Whiskey says:

    Yeah I'll have to get on Twitter. I just hate the whole thing but need to get on it. Sigh.

  12. Jeff Burton says:

    Gray market knock-offs a threat to Apple? Have any of you ever met an Apple customer? And the luxury brands I mentioned do not have the war chest to conduct a scorched earth campaign to keep gray market junk out of their lucrative markets. Apple does. BTW, I am a confirmed Apple hater – just a realistic one.

  13. Jeff Burton says:

    Whiskey, perhaps some grist for your mill here.

  14. Jules says:

    I have an iPad 2 so I find twitter a lot more useful now using the twitterific app. Which just spit out this tweet.

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