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.