Apple's iDecade

In a 10-year span when so much went wrong, the maker of the iPod and Mac got a lot right

There's not much I will miss about this decade.

And to think it all began with such promise. At the dawn of the new millennium, optimism abounded. The U.S. economy was roaring, with gross domestic product increasing 6.1% in 1999. The Dow Jones industrial average gained 2,300 points in a year. Unemployment was at 4%. America was at peace and largely unchallenged.

It didn't take long for things to get ugly. Terrorist attacks, two wars, the burst of the tech bubble; an all-too brief recovery that gave way to the near collapse of the banking system and the biggest financial crisis since the Great Depression. For a period that began with such high hopes, the first decade of the 21st century was by many measures disastrous.

There are a few exceptions. One of the biggest is Apple (AAPL). If you worked for, held shares in, or bought products from the Cupertino (Calif.)-based consumer electronics maker, you had plenty to love about the past 10 years. The writer Douglas Coupland once called the band R.E.M. "one of the few things that didn't suck about the '80s." And so it is with Apple in the Noughties, or whatever else we're calling the decade that dare not speak its name.

Bleak Times

Ten years ago this week, Apple seemed destined for irrelevance. Sales had dropped to $6 billion in 1999 from a peak of $11 billion in 1995. Apple's share of the U.S. PC market plummeted to less than 4% in 1999 from 9.6% in 1991. And the company's stock lost more than half its value in a single day at the end of September 2000 when the company issued a dour profit warning for its fiscal fourth quarter.

Then again, founder Steve Jobs had only recently begun reasserting his influence over the company he rejoined in 1996. The iMac, released in 1998, was one of the first products introduced by Apple after his return.

But the impact of that acclaimed computer would pale in comparison with the influence of Apple's next big project. In early 2001, Apple created iTunes, which it described as "jukebox software" for organizing and playing digital music. Ten months later, Apple produced the first iPod.

The iPod Becomes Dominant

If it sounds overdramatic to say the iPod changed the world, consider this: In 1949, American homes had 2 million TV sets. By 1959 that number was 42 million. At the end of 2001, only 128,000 people had iPods. At the end of 2009, Apple has sold somewhere near a quarter-billion iPods. That sounds like a cultural shift to me. I challenge you to find a single object that more fully represents the zeitgeist of the early 21st century.

By 2003, iTunes had morphed into a music store and two years later it started carrying video, too. By 2008, Apple was the world's biggest retailer of music, supplanting retail giant Wal-Mart (WMT). Consumers around the world have purchased 8 billion tracks from iTunes.

The century-old music industry reordered itself around the iPod. In 1999 consumers spent $39 billion on music, mostly CDs. Today it's a $17.6 billion industry and CDs are clearly on the way out.

The iPod became a permanent fixture in the social and political culture. Candidates for public office are asked not only what books they read but also what songs are on their iPod. U.S. President Barack Obama raised diplomatic eyebrows when he gave an iPod to the Queen of England. Critics sputtered that it was ill-considered, but as I wrote at the time, it was the perfect gift.

The iPhone Upheaval

Half a decade after turning the music industry on its ear with the iPod, Apple would send shockwaves across telecommunications with the iPhone. Conceived initially as a phone that would play music and video from iTunes, the iPhone's primary appeal quickly became the 100,000 head-slappingly useful software applications that run on it.

The iPhone, introduced in 2007, certainly plays music, but owners are just as likely to use it to check the weather, book dinner reservations, read a newspaper, get directions, or play a quick game of Tap Tap Revenge on the subway. Users of the iPhone, along with those who own the sibling device known as the iPod touch, have collectively downloaded 2.5 billion applications.

In the wake of the iPhone's release, consumer expectations for smartphones shifted radically. Companies as varied as Nokia (NOK), Motorola (MOT), and Research In Motion (RIMM) rushed to adapt, adding touchscreen-based devices to their own product lineups, for example. Many vendors opened their own online app stores. Smartphones are the new personal computers, and the smartphone business resembles the personal computer business circa 1983, with numerous companies vying to be the handheld equivalent of Microsoft (MSFT).

The combined influence of the iPod, the iPhone, and iTunes has left practically no form of media untouched. Established interests in radio, television, motion pictures, print media, and even handheld video games have all felt Apple's presence with no small amount of dread because it meant changes were coming, like it or not. Colleges issued iPods to students as a study aid. Medical doctors used them as reference tools. IThings were everywhere.

Mac Might

Meanwhile, Apple's Mac line of computers has thrived. In its 25th year, the Mac accounts for 9% to 10% of the U.S. PC market, a level not seen in 20 years. Mac sales tripled from 3.5 million in 1999 to 10.4 million in 2009.

Apple was not without its stumbles. In 2000 the company failed to sell a computer called the Cube. Apple TV, a TV set-top box, has yet to catch on. A mess associated with a grant of stock options created short-lived worries that Jobs would be barred from serving as an executive. A bout with pancreatic cancer in 2004 and a liver transplant in 2009 sowed fears about the executive's long-term role at the company, though after a six-month leave, Jobs returned in September, thin but energetic as ever.

Apple stockholders had little to complain about in the past 10 years. Asked in 1997 what he would do to fix a then-flagging Apple, Dell (DELL) founder Michael Dell retorted: "Shut the company down and give the money back to shareholders." Had you invested $1,000 in Dell in late 1997, you'd have $1,360 now; the same $1,000 invested in Apple at the time would be worth $45,000. Dell may sell three or four times more computers than Apple, but unit for unit, Apple does it more profitably. Its gross margin of 36.3% in the most recent quarter was more than twice that of Dell's. Apple's market cap was $190 billion as of Dec. 31, almost seven times greater than Dell's.

Microsoft Left Behind

Apple entered the decade seemingly defeated by Microsoft. A $150 million Microsoft investment in 1997 proved a crucial lifeline, but equally important was Microsoft's promise to continue making Office for the Mac. Most of the world's computers still run Microsoft software, of course, but in other areas there's no contest between Microsoft and Apple. After seven years of trying, Microsoft has failed to conquer the smartphone business it had hoped to define. Its share of the smartphone operating system business stands at less than 8% and is declining, according to Gartner (IT). Apple's share is north of 17% and growing, Gartner says. Apple stands in third place behind RIM's BlackBerry and Nokia's Symbian.

If Apple has a formidable challenger now, it's Google (GOOG), backer of the Android smartphone operating system, which garnered 3.5% of the smartphone market in a year. The rivalry between them is shaping up to be the definitive battle in technology for the next several years.

Apple's profound business transformation over the last decade, its overarching influence on the worlds of media and technology, coupled with its leadership position in the burgeoning world of mobile technology, lead me to one conclusion: The 10-year period now ended should henceforth be known as the iDecade. And I don't think it's anywhere near over.

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