The Innovator's Curse

When Clay Christensen discusses innovation (for example his talk at BoxWorks here) he puts forward theories on the causes of success and failure of innovation. Through a repertoire of case studies evoking David vs. Goliath he offers a convincing alternative to the management orthodoxy which prevents innovation, especially the meaningful disruptive kind, in established organizations. More importantly he asserts that innovation is not something that happens randomly or only through the incantations of a Chief Magical Officer. There is a process and even perhaps a repeatable process for successful innovation.

But one assumption that underlies this narrative is that innovation is good. Or more precisely, that innovation is rewarded–making its goodness desirable through market mechanisms. The happy ending to the story is that the innovator solves the dilemma, delivers the great innovation, perhaps more than once, and then basks in glory.

But my observation is that the way markets behave often contradicts this measure of worth of innovation.

Here’s the problem: If a company produces a string of successes, the conventional wisdom is that the chances of another success are precisely zero.  A company is valued based on its cash flows and foreseeable improvements to them. What it’s not valued on is its innovation flows (and foreseeable improvements to them).

In other words, if you’ve succeeded in the past, the only certainty is that you will not be able to succeed again. This assumption exists even if you’ve succeeded more than once. The wisest will offer as many excuses for being lucky more than once as they will for being lucky once. In fact, just as the illusion of a run of heads means the next coin flip must surely be a tail, a string of random successes is deemed to increase the probability that the next attempt will end in failure.

This discounting of repeatable success means that the reward for a process of innovation is zero and therefore that innovation itself is a priori value-free.[1]

This means that an innovator not only has to struggle with getting an organization to create something new (the gist of The Innovator’s Solution) but also to do so without the benefit of capital markets. When trying to raise financing for a sustainable innovation engine, the markets speak unanimously: you haven’t got a chance.

Therefore the only way an innovator can finance the next innovation is to use proceeds from a previous innovation, having faith in his engine of creation. Listening to the market would only convince the innovator that the new thing is pointless. In fact, the best idea is to stop trying.[2]

I call this The Innovator’s Curse: that building repeatable innovations provides the innovator no respite. There shall be no basking in glory, only expectations of imminent failure and attribution of success to good fortune.

When I first realized this I thought I chanced upon a remarkable paradox. That this must be some new insight into human nature. That realizing this will change everything.

But just like Disruption Theory is beautifully illustrated through the ageless David vs. Goliath parable, The Innovator’s Curse is but a retelling of this fable:

A cottager and his wife had a Goose that laid a golden egg every day. They supposed that the Goose must contain a great lump of gold in its inside, and in order to get the gold they killed it. Having done so, they found to their surprise that the Goose differed in no respect from their other geese.

Even if the cottagers were naive enough to have faith in the replicating miracle of golden egg laying geese, wise men would quickly advise them to kill it and get the gold more quickly. The Goose is doomed no matter what.

  1. A company will be priced according to products it created in the past, and that price might be significant, but as competitive pressures increase, the value itself is discounted. What is certain to be worthless however is the ability of any company to come up with something new.
  2. When managers give in to the temptation to stop trying they build great sustaining companies which are subject to disruption and invariably fail.


  • Ben Thompson

    Wonderful post Horace. I love how you generalized it.

    I made a similar point about Apple specifically, although my bird of choice was a black swan.

    “I believe the market thinks of Apple as a Black Swan: their success is so inexplicable, wrong even, that they simply have no idea how to value the company – in fact, they don’t even try.”

    • r.d

      Apple already has the highest market cap in Wallstreet.
      To expect it to have PE of 15-30 is kind of ridiculous.
      Only companies that can form a bubble that Pros can inflate
      and pass on the regular investor get that high a PE.

      How possibly do you expect Apple to be able to do that
      when regular investor hasn’t even come back after 2008
      and they are no going to buy $600 stock when they do.

      If all buyers have already bought AAPL then only thing
      can happen is stock to grow with either the market or profit growth.
      and all the Pros can do is short or manipulate the options market.

      • Sacto_Joe

        “To expect it to have PE of 15-30 is kind of ridiculous. Only companies that can form a bubble that Pros can inflate and pass on the regular investor get that high a PE.”

        Even a modicum of web browsing proves you wrong.

        Please come back when you have something sensible to say.

  • marcedwards

    > “If a company produces a string of successes, the conventional wisdom is that the chances of another success are precisely zero.”

    This is a significant issue if the company is public and requires share price increases, as the opinion of observers matters.

    If the company’s management understands how to repeatably create hits, and knows they will do so in the future, maybe the next innovation required is to manoeuvre to place where market analysis doesn’t matter and can’t hurt them?

    Staying private and keeping sales figures private seems like a good way to be removed from at least some of the harmful speculation.

    What are the reasons Apple would care about the opinion of market observers (not customers)? Staff moral? Share price? Staff options? Anything else?

    • Ted_T

      Staff retention/recruitment if their compensation involves stock or stock options. Being permanently private engenders the same staff retention/recruitment issue because they can’t dream of riches due to stock options…

      • marcedwards

        There’s an easy solution to that though — simply pay staff more rather than giving them options. People tend to prefer cash anyway.

      • The Silver Fox

        stock can have tax advantages for employees over cash

      • Tax advantages don’t overcome the risk of having your compensation determined by lunatics.

  • Nicolae_Mihalache

    Turning the view angle of this story to the independent investor’s perspective, this is a great reliable and repeatable way to make money from the clueless Mr. Market.

    Clue: find a company with an innovation engine, enough cash and self-confidence, a messy P/E and go long with the leverage you are comfortable with. Wait for the next innovation wave. Sell into bulb mania (or semi-reasonable valuation, depending on the name of the fruit). Wait for the new wave of doom and gloom. Rinse and repeat.

  • Pingback: Innovator’s curse | Meru Consulting()

  • Ted_T

    My question is this: Does the serial innovator have any advantage over others in market response, at the moment they reveal their latest creation but before the marketplace has had a chance to determine its success or failure?

    For example, should Apple announce the “iHDTV with a new content distribution method” tomorrow, will the stock market assume its failure is preordained?

    And Horace, I really have to say, bringing in the Golden Goose fable is one of your finest moments.

    • When a new category is launched reaction can vary. It may be seen as being worthless as a newborn baby or it may be seen as having potential. But prior to launch the net present value of all future cash flows from it and all other unknown products is zero.

  • Micromeme

    Hi Horace,
    Great post, but I’d like to offer a slight counterpoint from two sides. One if you look at pharma, which does depend on a stream of new innovations (drugs) it does appear that looking over many drug candidates and projects most fail. And there is no evidence that anyone’s past success renders them much better at picking or developing winners. I would say that in that case the number N for either candidates or successes is much larger than apple has gone through (6 if I count apple I/II, mac, ipod, itunes, iphone, ipad). But when developing new drugs in a large company there are two separate issues (1) does it work and (2) if it does will it have a big enough market for my company?
    In large pharma companies that need for market size to be able to “move the dial” causes many drug candidates to be avoided rejected. Intel has had the same problem, in the case of a company with a high value/margin near monopoly, what case can be made to get into new markets, where even with great invention it can’t have the monopoly margins?
    Does apple have the same problem? In some sense another great innovation the size of the ipod wouldn’t even count as a success- in acompany with the iphone and the ipad in it. In the shift from mac to ipod to iphone apple moved steadily up in potential market size (using N as the number of potential customers). But since we are moving to the world where the N of mobile phones is the N of world population its not obvious that anyone can do better. TV is small by comparison, as is cars and most things on the pc or household side. Even if you assume as I do that apple can pull off more insanely great products its very non obvious that they can do so with something as big as the iphone. And if its not as big as the iphone why should that move their stock?

    • SubstrateUndertow

      Health products like no-test-strip-required glucose measurement with automated diagnostic metrics.

      Those test-strips are $82 per 100. Diabetics would gladly pay $1000 dollars for a watch with that single feature. Not expecting Apple to release such a product just yet but lots of that stuff will be in the work over the next few years.

      Ounce that’s been cracked add the auto-insilin pump etc. . . .

      • r.d

        Do that Apple would need FDA approval
        Which requires years of testing and approval.

        No way will Apple be making any health claims.
        There are already apps which FDA is sniffing around
        for regulation.

      • SubstrateUndertow

        “years of testing and approval”

        maybe your right ?
        but . . .
        there are no complex side effects to test for such a unit. it simply needs to prove accuracy equal to present test units which have more than a 10% inaccuracy rate.

        anyway I was just suggesting that such health applications are an area that has much future potential for Apples and others, certification costs no withstanding.

      • Micromeme

        diabetes prevalence is about 2.5% rising to 4% in 2030, the iphone might be sold to 15-25% of the worlds population on a 2 year replacement cycle. how to make a diabetes product revenue compatible with the size of the iphone revenue? the blood test systems are now 100 and falling and not charging $10 per day. One of the earlier commenters in a prior asymco post noted that apple wants about $1/day for two years for the iphone. I don’t see how to get $5 per day per diabetic to be revenue equal to the iphone. It could be a great product though, but it wont move apples dial.

      • SubstrateUndertow

        diabetes prevalence is over 8% in the US and similar in other 1st world countries.

        the test units are largely given away free so to capture the test-strip revenue at about $80 per/100

      • Micromeme

        looking globally check wild et al 2004 “Global Prevalence of Diabetes” for prevalence estimates. yes test strip revenue is ~$1 per day or less, probably has to drop a lot to get to world wide coverage (the large numbers)… there is a product there, but I don’t see that its another disruptive one or one that would have the revenue potential of another iphone– please that is the argument.

      • Micromeme

        I just checked a more recent reference and prevalence is:

        “The world prevalence of diabetes among adults (aged 20–79 years) will be 6.4%,
        affecting285 million adults,in 2010,and willincrease to7.7%, and 439million adultsby2030.”that ref is shaw et al 2010 in Diabetes Research and Clinical Practice. Still the same conclusion though about world wide market potential.

  • Walt French

    I take a very different message from the fable.

    To this day, we don’t know what produced the golden eggs. The owners’ greed could have just happened to have come when whatever powered the glitter, suddenly ran out — just as my pear tree produced no fruit this season.

    For that matter, golden eggs don’t exist in reality; disruptive innovation comes in every type of business, although it’s a bursty phenomenon.

    Now in the twilight years for the iPod, I think we have enough history to see Apple’s M.O. Jobs spent a couple of years determining how to do retail (store-within-stores first in Japan, then the US, before opening the first Apple-branded ones). Spent years arm-wrestling with the labels. Acquihired SoundJam to become iTunes. Built an online store appropriate to what were then “micro-transactions” (the first such?). Oh yeah, took music players to a new level, mostly by integrating them into the above-described ecosystem that Apple built piece-by-piece. Heavy brand advertising.

    Then 8 years ago, foresaw the arc of the iPod turning down, and followed it up with the iPod being one of three modules (the first-named one) of the iPhone, not so much cannibalizing it as seamlessly succeeding it.

    Doesn’t seem like a mystery at all; it seems like concentrated, ambitious, iterated planning and production.

    Exceptional work, well-rewarded.

    Which lies in stark contrast to the “oh yeah, we should do a music player, too!” that produced the too-little/too-late Zune that was already an orphan when it was born. That’s Microsoft’s curse: wanting to achieve Apple-type success without looking at what produced it.

    • blenheimorange

      The reason why venture capital firms don’t invest in lottery winners is obvious. As eloquently put by Walter French, it is plain to see how Apple did it and what a formidable company it is for any diligent person to study – or read resources such as this and PED’s blog. For most analyst, financial journalists and investors, it’s too much effort to find out. Simpler to suggest the innovation died with the founder especially during a so called ‘dry patch’ where we’ve seen the rise of competitors. A very contagious meme. I’m not sure such curse is a common affliction amongst companies practicing serial innovation. It seem obvious to me however that there has been a lot of jiggerie-pokerie in getting the stock price down to where has been this year.

  • Sergei

    Or it could be that serial innovator’s cash flows are discounted at a higher rate due to their inherent unpredictability and potential higher risk.

    • Sacto_Joe

      Of course. That’s really saying the same thing Horace just said. “The wisest will offer as many excuses for being lucky more than once as they will for being lucky once.” IOW, if it’s only “luck” that’s creating the cash flows, then the wise thing to do is discount the cash flow.

      But that’s really the point behind all this; is it just “luck”? Because if it isn’t, and it’s being discounted as if it was, then the market is continually screwing up.

      See, that’s the other aspect of this whole thing; volatility as a sign of the market’s constantly screwing up. The market is ALWAYS struggling to keep up with the direction an innovative company takes. It tends to punish them when they don’t produce a new innovation in a timely manner, then tends to reward them after the fact when the new innovation finally makes an appearance. They forget that innovation, even on a small scale, takes time to bring to fruition. Think about how much effort went into making Apple’s original mouse-driven GUI (Graphics User Interface). Or how much had to go into making Apple’s touch-driven GUI. And think about how much effort continues to be put into making Apple’s VUI (Vocal User Interface, aka Siri) all that it promises to eventually become.

      So we see a market that careens from high to low, always being dragged along like a recalcitrant child, or tugging ahead like a rambunctious one. And that’s the way it will continue, because the chances are basically nil that the market will ever grow up.

    • Yes. That’s the entire premise of the Krugman piece (linked within the post.) The serial innovator is considered (by reasonable, intelligent people) to be far more vulnerable (read: discounted) than a non-innovator. [Therefore the reasonable, intelligent person should withhold funds from the serial innovator and support the non-innovator. Implying further that the serial innovator needs to self-finance, the thesis I call The Innovator’s Curse]

  • davel

    This is a nice post that succinctly lays out Wall Street’s problem with Apple and why Apple would do best to ignore them.

    • It’s not just Apple management that should ignore “them.” Everyone should ignore them. In fact, “them” should not be personified. The market is an “It” as much as a herd or a mob is an it and not a them.

  • Mark Howard

    Now that the stock is down nobody talks about the law of large numbers theory anymore. But, today AAPL is $459B vs XOM $384B. Not even close!

    It is not within investor’s psychology to imagine AAPL doubling to almost a trillion dollar market cap, EVEN IF IT IS RATIONALLY SUPPORTABLE.

    How can one company be so large? It is unfathomable.

    All giants fall, it is just a matter of when.

    This conventional thinking is ingrained, from birth, in all culture’s fables and morals and religion, and that is why we are all still waiting, in Dr. Seuss’ Waiting Place, for AAPL to fall.

    If it refuses, we WILL it to, attempting mass hypnotism upon it.

    And they still make money hand over fist. Now we are just angry. If Icarus’ wings do not melt from the Sun, well then we will shoot arrows at him.

    Yet still, there AAPL is, sitting up there, impervious.

    Now Carl comes along and says, wait a minute, there is some value there to be unlocked. Yes, of course, the value is there, but not in their cash alone.

    I actually have come round to agree with Carl in some respects.

    I don’t think human psychology will allow AAPL to double again. Investors will be dragged kicking and screaming to buy the stock, and only due to fear, as greed doesn’t work anymore.

    SO. Plow those cash flows into buybacks to support the stock back up to around 650. Beyond that most won’t buy anymore, regardless. So keep buying back, squeezing it up to 700.

    That’s the psychological barrier where it topped before, and nobody will go beyond it. Carl will be satisfied by then anyway.

    Then, they can vacuum up the remaining shares over time, or increase the dividend to possibly make the shares go a bit higher.

    But AAPL will never be a trillion dollar company until XOM or another are right behind them at 700 or 800B.

    • sne

      Horace had an interesting post a while ago (2011) where he observed the recent history of the share price was close to a fixed multiple of current assets. The drop from 700 is, I suspect, a deviation from that relationship, but it makes me wonder: does that correlation imply that a share buyback, exchanging cash (which the market apparently values) to boost future EPS (which the market, on the face of it, is skeptical of) is counterproductive for the share price.

      Would it be better to just continue accumulating sky-high piles of cash?

      As a long term shareholder who believes that Apple has a superior business model and isn’t just enjoying temporary outsize profits as an aberration, I favor the buyback. I just don’t think that it supports the short-term share price the way it might for a financial or industrial company whose P/E metrics are viewed more conventionally by the market.

    • AAPL seems to suffer from what I would call “the biggest house on the block” syndrome, where the value per square foot — or in this case, value per dollar earned — is discounted relative to its peers. However, if the house gets big enough, if AAPL is sitting on an even bigger mountain of cash, or if they find a way to keep their margins up while serving the low end markets in China, India and elsewhere, and they break into now product categories that are also very profitable, a trillion dollar market cap is not out of reach.

      A note on market capitalization that bothers me — in the last Critical Path, Horace stated that Icahn’s tweets added something like a few Motorolas and Nokias — I don’t recall the exact quote — but the notion is that Icahn’s backing added tens of billions of dollars to Apple’s market cap. This comparison is apt at this level, for he was comparing market value to market value. But too many others will confuse market value with it’s cold, hard cash equivalent.

      The truth is that the intrinsic value of the stock, the fundamentals, as it were, did not change — this is basically the cash and liquidation value of equipment — while the extrinsic value, the bet on the future revenues and profits, the preconceived worth of the business operation, grew by something like a third. This extrinsic value is not equivalent to cash.

      When Apple lost $300B in market cap, investors didn’t actually lose $300B, not even as a group, because they only lose or gain when they lock-in profits and losses. To put it another way, extrinsic value is zero until it is traded, just like a piece of cotton paper that is accepted as legal tender has no value until it the moment you buy something with it.

      • Disqus sucks on the iPad. Yeah, there are edits I need to do, but I ’m not at my computer right now.

      • Walt French

        Although a tweet doesn’t change Apple’s fundamentals, you don’t have to read much about the Keynsian Beauty Contest aspect of markets to realize that market value is intrinsically NOT about intrinsic value.

    • Greed and fear are in a perpetual tug of war. Don’t expect that either will have the upper hand for long.

    • StevenDrost

      I agree with the resistance of the market to accept a trillion dollar market cap, but the beauty of the buyback is that we could see a higher shareprice without a rise in market cap.

    • blenheimorange

      It is difficult to argue with this law of large numbers. Is there a valid theoretical basis for it? Surely just another term for ‘comfort-zone’? I believe with the success of lower-end iPhones, you will see very few competition making any money. We have started to see them flounder this year at a time when Apple was experiencing their so call ‘dry-patch’ of product launches. The pin will drop and when they all start piling-in to buy AAPL there won’t be enough to go around as they’ve been bought back. 700 dollars easy. Think double that.

      • Mark Howard

        I will follow Horace’s convention and refer to the market as an ‘it’.

        It was burned before when Apple reached $700. It lost a lot of money. It lost faith in AAPL and Apple.

        It believes now the stock is a ‘broken’ stock.

        The psychology of a trillion dollar company is one thing, also there is the psycholgy of $700 per share.

        Even with a split or a buyback you would get rid of one without changing the other.

        Higher dividends will be the only way to return value to the shareholders in the short term. Expect plenty more shareholder activism if they dont raise it and the stock continues an arduously slow climb over the next two years.

        If they do a combined larger buyback, share split, and higher dividend, all bets are off. But given Apple’s methodical history, I wouldn’t count on all those happening at once.

      • blenheimorange

        regarding Apple’s methodical history, we are under a new boss. More connected (finally) with investors. So certainly further buy backs and dividend increases are possible. I am sceptical of any effect of stock split, which is more psychology. People has short memories and like childbirth, pain is quickly forgotten when you have a pretty baby.

    • Shawn Dehkhodaei

      I have long believed that Apple, and companies similar to it (not DELL, but maybe Tesla) should stay private, or at least FAR out of reach of the regular investor, and the market media.

      Warren Buffet’s Berkshire Hathaway has a market cap of $286B, but only 1.65M common shares, mind you, priced at $173,000 PER SHARE !!!

      Apple should either do a full buyback and remain completely opaque to the financial markets, or at the very least do what Warren Buffet did; eliminate the amateurs 🙂 Once you’ve eliminated the hedge funds, and institutional investors, and john does, then all you’re left with are wise, value investors, who don’t care at all about share price …. they care about long-term growth.

  • Christian Peel

    The Innovator’s Curse seems very much related to the Capitalist’s Dilemma; both are impediments to disruptive or ’empowering’ innovation. To summarize, the capitalist focuses on short term gain via sustaining innovation in companies she participates in and does not want to invest in empowering innovation because the time horizon is too long. She may believe in disruption and empowering innovation, but expects it to come in an uncontrolled or magic way. Here’s a link:

  • Space Gorilla

    No matter how much Apple succeeds, Apple is not succeeding.

    • Andre Richards

      Forever beleagured.

  • Jurassic

    The truth is that most people do not see or understand innovative products until quite a while after they have been introduced and sold.

    This happened with the first Macintosh (it took a few years before other computers went from DOS to GUI and mouse), the first iPod, the first iPhone, and the first iPad.

    Even with the iPhone, it was initially viewed as a “toy” and not a “serious smartphone”, and people (including one named Ballmer ;-)) thought it wouldn’t sell. But 3 years later Android phones followed in the iPhone’s footsteps.

    Too many people lately are saying that Apple doesn’t innovate anymore, because the iPad came out 3 years ago, and no revolutionary products have been introduced by Apple since then. But those people are jaded and unrealistic. If you look at Apple’s history of introducing innovative new products, it averages out to 7 years between each one… so we still have another 4 years before those people should be griping.

    But those complainers won’t even have to wait that long before Apple’s next major innovation. There is one coming in the next couple of months ahead!

    That revolutionary new product is already being advertised on Apple’s website, but again many people have not grasped the significance and magnitude of innovation of that product yet (and as previously it may take some time after it goes on sale for it to sink in).

    That product is the new Mac Pro. Many people think that this is just another Mac. But it is “just another Mac” in the same way that the first iPhone was “just another smartphone”.

    The new Mac Pro is a professional server-class computer, but put into a tiny, beautifully designed, and near-silent package. The entire computer is an aluminum tub only 9.9″ tall and 6.6″ in diameter, yet with components like a 12-core Xeon processor and TWO server-class GPUs, it will be one of the most powerful production desktop computers available.

    It may take a while for it to sink in just how much of a game-changer this product is, but I have no doubt that Apple’s competitors will follow with their own mini pro computers a few years from now (just as they did after Apple introduced the MacBook Air in 2008).

    • Walt French

      It’s taken me a while to understand why the Mac Pro is a game-changer. I can see its strong appeal to various pro users, e.g., videographers, but can’t see how its specs drive a positive ROI to any but the most demanding 2% of users.

      I have speculated that it’s somehow a halo device for the next Apple TV, which could in turn be a halo for iProducts as powerful gaming machines. But I’m not understanding its role as a lustworthy proxy as a game-changer, either.

      As something that’ll attract competitors? Hard-core gamers are already customizing boxes… and complaining about the hard-wired graphics cards in the Mac Pro. And I sure don’t see that Dell’s purchase of AlienWare helped its business one whit: if anything, they’ve re-discovered that it’s all about price, price and price.

      Could you elaborate?

      • I think the new Mac Pro as it stands right now, is very much like an expensive toy — cue Ballmer saying “$5000” — but what is missing in this equation is the type of computing tasks that this new computer open up, allowing for more developers to be solving problems with OpenCL, maybe even unlocking the enormous potential of parallelization, which is right now in its infancy (and a very hard problem to boot). Imagine we could develop for a thousand ultra-low power cores, utilizing that compute for voice processing, movement tracking, even Watson-like AI on a device. That’s why the new Mac Pro is such a big deal.

      • orienteer

        I agree that there will be a significant outcome as a result of this kind of power being made accessible, probably in unforeseen ways. As a graphics professional I can attest that no “state of the art” machine has ever kept up with me, and my conversations over the decades with peers are far less about design than the search for hacks to optimize our tools. Just maybe this shiny little obsidian drum is “it”… and that’s almost scary.

    • obarthelemy

      The issue is that desktop computing is not about a single device. Companies will not starting decking out all employees with $xK computers, nor will end-users buy them.

      I see the Mac Pro as a racket to make iOS devs pay through the nose. Mac Minis and iMacs don’t cut it for dev work, so now the only way to develop for the iOS market is a gold-plated flower pot.

      • Kizedek

        “I see the Mac Pro as a racket to make iOS devs pay through the nose.”

        Of course you do. No surprise there!

        “Companies will not starting decking out all employees with $xK computers, nor will end-users buy them.”

        The companies and users who need them will. You certainly can dev for iOS on a Mac Mini or iMac. But there are others in “Pro” markets — markets that thought Apple was neglecting them: Video editors, music producers, photographers and 3D modelers to name a few.

        They will readily see what you don’t see: the beauty of this “gold-plated flower pot” is that it can be expanded externally and infinitely when they want to upgrade their $xK cards and attached hardware. The $xK computer is a minor part of their setups.

      • Ted_T

        The vast majority of iOS devs use MacBook Pros. Mac Pros are sold to film/video companies, recording/music production companies photographers, universities doing calc heavy science, etc.

      • Walt French

        I work on much smaller projects than an iOS app would be, but my 2010 MBP (supplemented by a big SSD) is fully up to the job when I plug in a second screen. My wife’s new iMac, possibly with a bigger or second screen, would be luxurious.

        The Mac Pro is optimized for people whose work is heavily oriented to graphics and other media processing — videographers, photogs, music producers, etc. Most of the expense — and concern about flexibility — is in the heavy-duty GPU cards. In contrast, software development can make much less use of multi-threading and almost none of GPUs.

        Meanwhile, Apple recently cited 275,000 iOS developers in the US, which I take as far smaller than the number of media production types. A large fraction of them are low-volume/budget-conscious types who are well-served by the midrange hardware Apple offers.

        Your vision of the Mac Pro just can’t be Apple’s because there just isn’t a big enough market of high-income iOS developers who would benefit enough from its capabilities.

      • obarthelemy

        Agreed. I just feel like there’s a huge hole between that high-perf monster, and either AIOs or Mac minis that seem badly suited for midrange work, leaving a need for some kind of midrange desktop , with room for 2-3 disks, a graphics card, an optical drive, … It feels like Apple have very high-end and rather low-end, but no midrange. Maybe my vision of corp. IT is just obsolete.

      • Walt French

        I have no idea how fast the HP my company provisions is: it’s almost only ever limited by network speed (especially, our VPN). In my corporate IT experience, garden-variety X86 chips in generic boxes are more than good enough except for some specialized work, and it’s more valuable that they can be set up by the hundred or thousand. Oh, and that the company not pay for systems integration or whatever that it’ll re-do anyway; a flexible, open-ended and generic box is the clear winner in that world.

        It’ll change—IT will change—as PCs become increasingly reliable (making cheap boxes as high quality as expensive ones), as IT is outsourced so complications are harder to deal with and companies want off-the-shelf products with platform-agnostic, even web-based apps. IBM has sensibly fled; HP and Dell aren’t far behind. The higher-end IT marketplace is imploding.

        For corporate users, disk has moved to the network. For home and small business use, local disk is more of an issue. But that technology is moving even faster than CPUs, and except for laptops, even a single user very likely wants an external backup disk in the basement or a networked box rather than a built-in. (My laptop: I took out the optical drive to get both a very fast SSD and still have a 1TB spinner.) Generally, disk has moved off the desktop: to the LAN and even to the cloud; I’m sure it’s not lost on you.

        Following my post this AM, I confirmed with a developer acquaintance: very few devs need the Mac Pro level of hardware; meanwhile the ordinary iMac is very speedy thanks to its very smart SSD/spinner combo, and easily connects to external disks that meet higher-spec needs. It’s a solid machine for high-end individuals and business use.

        Your traditional PC-based gamer, somebody looking to enjoy playing with cutting-edge features while performing his own hardware integration: yes, they’re left out. Others who like to tinker — such as was necessary when I was a lad in the 1600’s — are also. They should find other products than Apple’s. But I personally believe those users are disappearing as the machines mature.

        (Gratuitous car reference: I once met the President of whatever the Packard (car) Club was actually called. Ordinary motorists used to need to band together in user groups and clubs. Now, only for antique lovers or tinkerers; the rest of us just gas ’em up and go.)

      • StevenDrost

        I think what you are point out is that they wisely choose not just which markets to enter, but which price category to enter as well. One only needs to look at the profit being made on laptops sold for less than $1000 for proof.

  • obarthelemy

    Any examples of a company successfully keeping at innovating ?

    Is Wall Street such an issue once you have hundreds of billions in reserves ?

    • For a start, serial disruptive innovation was produced at GM, IBM, Sony and Disney for a period of a few decades in each case.

      • obarthelemy

        Is there a list somewhere of those disruptive innovations ? I’ve failed at locating any list, and I’m having trouble coming up more than a very few, unless one counts reducing HDDs from 8″ to 5.25″ like wikipedia does …
        I’m also struggling with the difference between innovation and pure technical invention, as well as normal innovation vs disruptive innovation. Looking at wikipedia’s list, I’d put most in the invention or “regular” innovation category, I don’t see that many disruptive ones, if by disrupting you mean not simply replacing another product, but creating a new market, or at least disrupting several markets ?
        They way it seems to be tallied, a new car model is a disrupting innovation to the previous year’s …

      • David

        “I’m also struggling with the difference between innovation and pure technical invention”

        That explains all of your bad posts, even though you had a few decent ones months ago….

        I think you are struggling with much more than that after reading some of you recent posts.

        But your statement will be noted.

        Food for thought…

        Where would Samsung be if Google didn’t give them Android?

        Where would Google be if they didn’t buy Android?

        If all competitors have access to the same tech, what makes one better or unique, what’s the differentiator? Skins?

      • obarthelemy

        I noticed you did not supply an explanation, just heckling.

        More food for thought:

        – what does it matter ? Where would Apple be if MS hadn’t given them hundreds of millions of dollars back in the day ?

        – same place Apple would be if they hadn’t bought NeXT, Siri, iTunes, …

        – Well, having a choice of skins is nice, “night mode” skins are very easy on the eyes, and my parents love their XL “BIG LAUNCHER”.
        Also form factor, pen input, SD slot, price, screen technology, sound system, FM radio, casing materials and design, IP-xxx dust/water/shock proofing, NFC, HDMI out, Gov security certification, camera… this a very partial list of stuff that varies depending which Android phone/supplier you choose. Mind-blowing, heh ?

      • Andre Richards

        “Where would Apple be if MS hadn’t given them hundreds of millions of dollars back in the day?”

        Do some research. Microsoft didn’t give Apple any money. The money Apple received was part of a joint settlement of ongoing lawsuits between the two companies that Steve Jobs wanted to finish off when he returned to Apple. True, Apple didn’t have the resources at the time to continue with costly legal battles and doing so might have bankrupted them, but this myth that Microsoft graciously gave Apple money to keep them rolling is nonsense. Jobs and Bill Gates hammered out the details of that arrangement and settled multiple lawsuits in one go. That’s what the cash was all about. And if you don’t believe that, then please explain why Microsoft was on the hook to support Office on Mac for 5 years. Why would Microsoft have agreed to do that? It was part of the settlement. It wasn’t a gift from Microsoft to Apple.

      • macyourday

        Buy or steal?

      • Walt French

        Methinks “a list” of disruptive innovations would be reductionist, suggesting either you have it or don’t. Probably better to read Christensen’s The Innovator’s Dilemma by Horace’s prof, to understand how innovations work their way into business, and how they can demolish the existing way of an industry’s working.

        For example, Android was built with the express stated purpose of disrupting Microsoft, which then dominated the market for non-OEM phone OSes in the US, and appeared on a track to out-class Symbian and whatever Moto, Sony-Ericsson and others used. By giving the OS to OEMs for nothing, Google destroyed Microsoft’s profit motivation in developing WM—no OEM would buy it; Microsoft could not profit the way it had been, and its ad capability was in disarray. * Google’s plan had zero invention or unique quality of Android in 2005 when they hatched this plan, but instead was a hugely successful—and disruptive!—business model innovation. They were also smart enough to step on the gas and commit to implementing an iPhone-like touch experience when Apple revealed that concept, but at least until Froyo in 2010, that was a truly inferior UX and Google’s claimed “innovations” were largely side-effects of taking linux without much adaptation for the unique requirements of the phone, versus Apple’s heavy pruning of OSX to make iOS.

        If Dilemma is too business-specific/boring, Kuhn’s The Structure of Scientific Revolution describes how new ideas insinuate themselves into our worldview more generally. I see a lot of Kuhn in Christensen’s social adaptation to new ways of doing business.

        * I just read a couple of days ago that one of Ballmer’s great bonehead moves was to have passed on acquiring Overture, which was the patent originator that subsequently allowed Google to create AdWords, without which Google Search would’ve been merely a neat research project. Again, Google’s innovation was in its business approach, whereas its (Larry) Page Rank algorithm invention was useful but neither necessary nor sufficient for Search to succeed as a business.

      • obarthelemy

        This is what I don’t get: the business model of giving away something (anything), or more precisely software, or even more precisely an OS, to get get an opportunity to make money via linked stuff is, and was, by no means new: Red Hat (for example, there are many) had been doing it for years though to sell service, not ads. How does doing the exact same thing Red Hat had been doing for servers and service, but for mobile and ads, qualify as innovation ? Disrupt it did. But innovate ? Carriers were already doing just that with the very hardware we’re talking about, too.

        (side note, I of course disagree with Android by itself not being innovative, what with the intents system, the first successful CPU-independent ecosystem, various UI elements…)

      • Walt French

        Android is FAR from the first CPU-independent ecosystem. At the lowest level, FORTH systems exist on anything with more CPU than a wristwatch; IBM’s System 360 ran on hardware that (IIRC) spanned a couple of orders of magnitude of performance.

        For ordinary micro-computers, the UCSD P-System that started in 1974 ran on something like 60 different microcomputers. This was a complete system with a complete compiler, utilities, etc. James Gosling cited it as a major influence in the development of java, so it’s a direct predecessor of Android, over 30 years beforehand.

        I was one of perhaps a couple thousand people who bought a Western Digital machine that re-jiggered the PDP 11-03 chipset to be a full 16-bit hardware implementation of the OS. (That machine ran circles around the 8-/16-bit IBM PC that came a couple of years later.) Today, the Dalvik VM does in software what WD did in microcode.

      • Walt French

        Android is an innovative business model in that Android® is completely owned by Google—it is NOT open sourced and essentially nobody contributes to it from outside Google.

        Unlike Red Hat linux, the software is not free in any sense because although Google does not charge cash to its OEM partners, it requires specific commitments for the privilege of getting the releases timely. Occasionally one sees things like the SkyHook kerfuffle, exclusivity to one vendor, or other conditions that remind us that the software is Google’s to control until Google (alone) elects to release parts of it to the AOSP.

        OHA partners are obviously not free to share the current Android version with anybody, although I’m pretty sure no OHA contract has ever surfaced.

        That lack of clarity notwithstanding, I’m pretty sure that Google makes not one penny directly from its OHA partners. The business model is for them to give away the Android razor, the better for Google to profit by selling blades to advertisers whose ads Android customers almost of necessity, see.

        You can come up with other analogues, too, I suppose. Various sources have long supplied free programming to radio and TV stations in order to get distribution for their ads. But I think there were mostly dollar fees as a quid pro quo on those deals, such as a station’s affiliation with a network.

        I don’t know when Microsoft pledged never to interfere with OSS that was not sold for profit, but you don’t have to look at anything more than that for the oddball reason why Redmond has successfully sued every single Android handset maker (except Motorola, which is in court here today), but not Google itself, which distributes the software at issue. (What underlies Apple’s and Google’s seemingly similar deal, I have no idea.)

        So the business model is unique and perhaps very specific to the always-contentious relationship between Google and the Old Hegemon that it disrupted.

      • obarthelemy

        Android IS open source, see what Amazon are doing with it, completely outside of Google’s influence. Or the Android-x86 port that allows to run Android on desktop PCs. Also, please feel free to grab sources and compile it from there:

        The proprietary part is the access to Google’s apps and services (PlayStore, Maps, Hangouts…) none of which are necessary to use Android, and which for now (That might not last forever) are rather easily added to non-Google versions of Android, with Google intently looking the other way.

        I’m also fairly sure Android OEMs need Google consultants to adapt Android to their devices, so that’s an extra pressure point for Google.

        I disagree with your dichotomy between fully internally developed FOSS and FOSS resulting from a wider gamut of contributors. FOSS is FOSS, whomever the devs work for.

      • Walt French

        Android® is controlled by Google and only released to the Open Android Source Project when Google sees fit. Anybody can use that software for any purpose, but they may NOT call it Android. (Go to Amazon’s site: apps sold there work on “Android and Kindle Fire” devices and if you go to the Fire site, there’s no mention of the version of Android that it runs, nor the fact that Fire apps are Android.)

        According to its website, AOSP was developed to reassure partners that they would always be able to take a recent version of the OS and fork it, so they could sign on to Android without fear of being orphaned. But implicit in that is that Google indeed controls Android.

        I’m not trying to make TOO big of a deal about the openness of Android—other open source projects I’m familiar with are often developed primarily or even exclusively by a single source. But it’s clear that the Android project is a different business model in that access to competitive, current software is conditioned on non-financial terms which include partners’ promotion of Google’s business.

        I think it was recently that Ben Thompson, in his Stratechery.Com post, distinguished how different Google, with its “horizontal” business model was, than Apple’s “vertical” approach. You might enjoy the post if you can dig it up.

      • DesDizzy

        OB, I assume that you are aware that Android was one of the two project teams within Apple for the iPhone system and when they lost out to iOS they left and were bought by Google. As this is common knowledge.

      • obarthelemy

        you’re funny !

        I’m just not sure whether to laugh with you or at you ?.

      • Andre Richards

        “I assume that you are aware that Android was one of the two project teams within Apple for the iPhone system and when they lost out to iOS they left and were bought by Google. As this is common knowledge.”

        WTF? That’s common knowledge only in your mind.

        You confused. There was a raging debate within Apple amongst the execs at the company whether to use Linux or OS X as a starting point for their mobile OS. Apparently, the debate got pretty heated and some egos were bruised but in the end, OS X won out.

        Linux, BTW, is *not* Android, so it’s entirely silly to say Android was in the running to be Apple’s mobile OS. It never was.

      • obarthelemy

        Off topic: I’m getting (old) experienced. I’ve seen several théorie du jour come and go, always trying to control the discourse and reasoning via some version of newspeak, and always shamelessly and retroactively picking and choosing the precise examples that supported the theory. After a few years, once the predictive powers and repeatability of said theories turns out to be close to nil, they duly fizzle out and make room for the next one. I’m getting a very strong vibe this is just another case of theoritis.

      • berult

        The story of conscientious evolution. Fine-graining its way onto coarse-grained perfection. An ‘ad infinitum’ process fueling itself from fossilized epistemological constructs.

        ‘The Innovator’s dilemma’, ‘The Structure of Scientific Revolution’, are but a stratus of rationale atop others, thoughts sediments atop others that light up upcoming bequests of discoverability.

        We’re simply on our tentative way to observable perfection.

      • berult

        My apology to Thomas S. Kuhn. The title should read “The structure of Scientific Revolution(S)” of course.

      • Walt French

        Structure was published in 1962. Dilemma, 1997. I recommend seeing them both as exemplars of how we can understand difficulty in changing thinking, and the somewhat random time it takes for a new idea to beat down the door of resistance. They both have antecedents (obviously, Schopenhauer) and similar thoughts (Planck’s “Truth never triumphs — its opponents just die out. Science advances one funeral at a time.”)

        Trying to apply them too literally, as I cautioned you against, indeed can make your head hurt. But I think they’re good watchwords.

      • obarthelemy

        Even the whole “let’s finance our stuff via ads” that Google so successfully adapted to the web does not strike me as innovative as a business model. Old media had been doing it for years. “The Fifth Dimension” creator’s pitch to advertisers is a delight (as is the series :-p).

        As for the genius idea to display ads depending on search content, I think my corner grocer’s great-great-grandparents were doing that decades ago pushing overpriced Sauternes to every foie gras customer. I think AdWords is more of a statement on the US’s patent system…

      • Walt French

        This is why the advertisers are fighting DoNotTrack so vigorously: without their current “smart” ad systems, they have to give up the only thing they know about you — which they obviously rely on.

        My similar experience: asking Google to dredge the SF Ballet’s casting sheets out of the site’s awkward structure (so we, as subscriber fans, would know who we were going to see), resulted in SFB ads highlighted many other places I went. No, one subscription is enough, thank you.

        What is the greatest threat to Google’s business? First, with ads as stupid as we experience, businesses won’t get much value out of showing the ads, and therefore websites won’t get much revenue from showing them. Peak Ad. And secondly, Mountain View should keep a wary eye on Bezos; he will undoubtedly attempt new monetization models—maybe, nanopayments—for web content, using the Washington Post as his breadboard.

      • The Innovator’s Solution includes lists of disruptions (categorized by low-end, new market). Suggest reading the works of Christensen and his collaborators on more recent research. The gist of current research is that disruption is nearly universal across industries, putting the lack of disruption as an anomaly (and hence the more interesting question is why it does not happen and what are the consequences of it not happening).

      • KirkBurgess

        Couldn’t you include Big Pharma? There is absolutely no guarantee they will continue to create new successful drug therapies, and what they have already created has a limited time on the market before generic clones are allowed.

        Yet I hear little in the way of critics of big pharma companies saying “they can’t innovate new products” – constant innovation seems to be accepted in that industry as reality.

      • macyourday

        They seem to be able to push through products as they wish seeing they seem to be one of the corporation types that dictate terms to governments around the world. Apple doesn’t seem to be in that position or play that game so I don’t feel that their (big pharma) type of innovation is quite the same.

      • Big Pharma reveals its research agenda years in advance and hence the future value can be assessed. The curse applies when an innovation’s value cannot be assessed. In other words, when it cannot be foreseen.

  • obarthelemy

    To me, Apple’s innovation recipe is fairly simple: in a market that’s tech-driven, make a product that’s both easy to use and socially desirable.

    That works wonder for markets that have historically been tech-driven, with ugly product and unfriendly UIs. I’m just unsure if there are any more such markets (TVs maybe, desktops maybe), and if Apple can work up a new recipe ?

    • Ted_T

      You are ommiting Apple creating new markets: before the Apple ][, the LaserWriter the iPod, and the iPad the markets for PCs, desktop publishing, DMPs and tablets simply didn’t exist. The numbers being sold by their predecessors did not constitute a market in any material sense.

      • obarthelemy

        Commercial successes all indeed, but apart from the PostScript interpreter of the LaserWriter, none created new markets: these markets were created by other players before Apple:
        1- the Apple 2 was successful, but neither alone nor leading, several other computers appeared at the same time or even before (–present)#Fourth_generation)
        2- Ditto the iPod, not the first DMP by far. (
        3- and ditto the iPad:
        4- the LaserWriter came *after* HP’s LaserJet. Sure, Postcript >> PCL, I’m not sure how much DTP PCL could handle at that time, probably not much.

        The LaserWriter did enable new stuff( sorry, unveiled new jobs to be done). The other 3 were very successful, but I see them as mainly marketing successes, on the technical side they didn’t really bring anything new, and they certainly didn’t create markets, just expanded them (sometimes expanded them *a lot*), but they came after very similar devices.

      • macyourday

        Well….apart from the roads, viaducts, etc, what have the Romans given us….

    • Space Gorilla

      If you can’t see the markets where consumers are not terribly happy with their current experience, then you are blind.

      • obarthelemy

        it could be worse: I could be making contentless and aggressive comment on websites ?

    • DesDizzy

      I agree with your first para. However, I wonder if you have ever started or been part of a business that tried to do this once, nevermind repeatedly. It is horrendously difficult, takes blood, sweat and tears and 99% failure rate. But other than that “is fairly simple”.

    • StevenDrost

      I would not say that designing products to be socially desirable is high in their list of intentions. They very much build easy to use, we’ll built products. It’s about making a low risk purchase, like buying a toyota. The socially desirable part comes from their products being in such high demand, which then pulls in the ISheep crowd, but most are looking for the dependable low risk purchase from a brand they trust.

      • obarthelemy

        Frankly, I can’t explain the aluminum, the “designed in California”… and now the champagne… otherwise :-p

      • StevenDrost

        Challenge accepted. Aluminum is a very durable material, quite a bit harder than the plastics used in most devices. Designed in California is a playful spin on made in America and a way of saying its an American product which is a selling point on this side of the pond. And champagne color is a rumor, no comment required.

      • obarthelemy

        Are we sure about alum vs plastics ? I never saw any scientific measure of durability, resilience to scratches, breaks, bumps… Anecdotal evidence suggest that aluminum scratches quite easily, does not protect more from falls (on the contrary, it doesn’t amortize at all), and is a lot more expensive and hard to work with. I’d bill it a purely aesthetics (ie, “social desirability” choice. Also, it dampens radio signals :-p
        I wouldn’t associate “playful” with “Apple”. Not at all.
        We’ll see later about Champagne then.

  • Ben

    Isn’t the point of a coin flip or random walk that the event in t=0 has no correlation with the event in t=1 and so on? If success in innovation is indeed random then wouldn’t previous success be neither an indicator nor a deterrent of future success?

    • Success in innovation is not considered random. It’s considered to be less than 10% probable based only on the rate of success of those who are best at picking winners and losers–the VCs. But those are rates for a filtered set of opportunities starting usually with a clean slate. Corporate rates of success are discounted further to near zero. The point is that this rate of corporate success is discounted regardless of track record because causality for the string of successes is unknown of mis-attributed.

      • obarthelemy

        If it’s not random, then there’s a way to determine beforehand which 10% of innovations will be successful ? Why are we bothering with the other 90% at all ?

      • Ben

        I think what Horace is saying (and I could be misinterpreting) is that out of the group of seed firms selected by Venture Capital, on average 1 of every 10 is successful. Knowing the probability of success doesn’t necessarily dictate success. Just because I know the odds at a roulette table doesn’t mean I won.

      • obarthelemy

        Indeed. Having a handle on the aggregate success rate of innovation does not make success in innovation not random. It would be like saying that knowing the average life expectancy allows one to predict one’s own death.

        Hence I can’t grok Horace’s answer.

        The original poster’s point is valid:

        Instinctively, people, knowing that success happens once in a blue moon, expect lightning to NOT strike twice in the same place, ie they expect a company that successfully innovated 10 times to have run dry. Probabilities don’t work that way, and, if successful innovation is random, a company that successfully innovated 10 times has as great a chance as any other company to successfully innovate the 11th time.

        What the OP is pointing out is a kind of intuitive-but-wrong backlash effect that is even worse than raw probability, let alone acknowledging the fact that Apple are good at innovating. Similar to thinking a die roll to not possibly have a chance in hell to come up 6 again after already having rolled 6 ten times. That 11th 6 is as likely as the first one. Yet punters would bet more heavily against it.

        Edit: gosh ! have I mixed enough metaphors ? :-p

      • Here’s an anecdote from Taleb’s The Black Swan — from memory, so bear with me:

        You have a coin that has come up heads 99 times in a row; what is the probability that the next flip will come up tails?

        The academic answers, “Elementary. It’s 50%, like it’s been the whole time.”

        The trader — I think his name is Fat Tony — answers, “Less than 1%. It can’t be a fair coin.”

        I agree with the trader, because 99 heads or 99 tails in a row, a probability of .5^99, does not happen outside of Rosencrantz and Gildenstern in the state of Denmark.

        Let’s assume that there is a 10% probability of successful innovation. Apple has done it more than a few times. That’s .1^i where i is the number of successful innovations. The iMac, the Apple Store, the iPod, the iTunes Store, the iPhone, the App Store, the iPad. That’s .1^7, or .0000001. Maybe Apple has Casanova’s unfailing luck, but I’m willing to bet that there is something else at work.

        I’m sure that you may discount some of these are being not terribly innovative because the basic ideas weren’t “new”, but that is a failure in understanding innovation. Innovation is a creative process — a creative process most often works by the synthesizing other processes — it’s the recombination of ideas in a specific way. That requires taste and discernment to choose which ideas to combine, and throwing a lot of shit against a wall to see what works. It’s really not that complicated.

  • Iterative innovation needs higher visibility on the innovation continuum. After all, in many ways it better describes the things that Apple does. iPhone 5S will have some roots in the 3rd-gen iPod (capacitive touch) and even iPod 1 (ARM processors). It also has roots in Apple’s fanaticism over higher-spec displays (Cinema Display series).

    iOS itself has roots dating back to NeXTSTEP and in a sense as far back as Apple’s joint venture formation of ARM in 1990. (While iOS is presumably “processor-independent code” the way OS X is or at least was, it’s made to sing on ARM.) iPad is an iteration of iPhone.

    Any Apple TV will have its roots based on iPhone, iPad, and Apple TV learning, with a healthy dose of iTunes/content provider negotiations.

    Any iWatch will have its roots in iPod touch/iPod nano/Nike+ learning, with wireless philosophies dating back to the first iBook.

    We’re talking bold bets, shrewdly cultivated over many years, even if it sometimes takes good fortune/happenstance to get to that position or stay on that path (Fadell’s confrontation with Steve to use ARM for iPhone, for example).

    Let others continue to misapprehend the full nature and more-sustainable-than-imagined business model of the innovator who iterates. Apple remains on a trajectory to happily ignore them for some years yet.

    • Space Gorilla

      I’ve always said Apple has probably 10 years of work just building out the products and services it already has in hand (some not fully baked/released of course, but they are still well in hand). At the very least five years, but I think it will take closer to ten years.

  • The Silver Fox

    Horace, is Carl Icahn about to kill the goose?

    • StevenDrost

      Maybe he invested a billion or two, but that will not buy him much of a 4-500 billion dollar company. It might get him coffee with Tim Cook though.

    • Walt French

      Interesting question, AC. Care to offer your thoughts?

    • No.

  • peter

    ‘Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.’ — John Maynard Keynes makes a few more astute observations about the nature of investing in the same section of The General Theory of Employment, Interest and Money.

  • Claude Hénault

    And how much more likely are these wise persons to want to kill the layer of golden eggs when it is not a sleek and elegant goose, but instead an odiferous and secretive perpetual Skunk Works.

  • “When I first realized this I thought I chanced upon a remarkable paradox. That this must be some new insight into human nature. That realizing this will change everything.”

    Spontaneous Kenshō. I’m curious, when did you have this insight?

  • james

    um, hang on a minute. capital markets price companies based on their expected forward earnings. Sure a company has to have a credible forecast to convince the market, which therefore means the forecast is likely to be weighted towards existing products and markets. But there are plenty of examples of where the market has priced in extraordinary growth which will require innovation in either products or markets to be achieved.

    • Walt French

      Don’t forget the discount factor part of your equation. Theoretically that’s determined by beta—and Apple’s beta is about 1.0 by Bloomberg (1.14 per Barra) but if you asked any of the sell-side analysts, they’d probably cite a very large discount.

      So I think I’m more in line with Horace when I say that textbooks use discounted earnings, while the markets use whatever they use. A nod to discounted earnings is usually in there somewhere on analysts’ writeups.

  • ssiinnaa

    “In other words, if you’ve succeeded in the past, the only certainty is that you will not be able to succeed again.”

    I think a better interpretation is “if you’ve succeeded in the past, it is not certain or even probable that you will succeed again.” It seems the market views innovation as a random draw from nature.

  • macyourday

    Hopefully Mr Cook is well aware of the lunacy and self serving of “the markets”, and will attempt to ignore their pressures and advances to return earnings, buy back shares and other irrelevant courses proposed by the leaches. I still can’t believe they went down the dividend path. It seems, as outlined in the above article, their war chest is the only real defense or insurance against the barbarians tearing down the walls but it still doesn’t deter the vultures waiting for any opportunity to descend.
    Maybe large portions of the company can be repurchased at some suitable time and still have enough to fund capex without risking being weakened or undermined.

  • lucy Smith

    Having a handle on the aggregate success rate of innovation does not make success in innovation not random. It would be like saying that knowing the average life expectancy allows one to predict one’s own death.Casquette Snapback