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But Apple does not pursue profits either!

In my essay on Google’s absence of profit (or income or business) motives questions were raised on the stated absence of hunger for profits from Apple and what difference there might be from Google’s philosophy.

Indeed, Jony Ive stated:

“Our goal isn’t to make money. Our goal absolutely at Apple is not to make money. It may sound a little flippant, but it’s the truth.”[1].

He was probably repeating what Jobs had previously stated:

“I remember very clearly Steve announcing that our goal is not just to make money but to make great products”[2]

However, note that both quotes are qualified. In the case of Jobs, he said “not just to make money”. Jobs clearly stated that great products lead to money. That great products are causal to money and therefore that if you make great products you make money. One leads to the other.

Ive also continued in this reasoning:

“Our goal, and what gets us excited, is to try to make great products. We trust that if we are successful people will like them. And if we are operationally competent we will make revenue. But we are very clear about our goal.”

I would paraphrase the Apple logic as “Great products are the means by which we sustain our business. By focusing on the product, the customer is satisfied and through that satisfaction we create the free cash flows which can be used to fund more products.”

There is a difference between Apple’s “indifference to money” and the “indifference to business models” that Google exhibits.

Google steps even further away from cash flows. Its goals are to build great things guided by their vision and patterns in the data they collect. The value is in the data itself rather than in any transaction.

As long as the source of money is unfettered, its provenance is uninteresting. A business model is a profit algorithm. It could be linked to the data but it need not be. Markets are messy and imperfect. Data provides much clearer views into value. You could conclude that value itself cannot be trusted to the judgement of the public. Value is to be determined through the recognition of patterns on data privately collected.

So when I say that Google has disdain for market mechanisms I mean that they believe they can do better. Apple still values the user as the ultimate adjudicator of its actions. Google looks past the user and interprets their intentions.

Google sees markets as ultimately obsolete.

Notes:
  1. at the British Embassy’s Creative Summing in July 2012 []
  2. Walter Isaacson’s Steve Jobs []
  • http://www.subprint.com joemccann

    “Apple still values the user as the ultimate adjudicator of its actions.”

    Issuing debt with that much cash on their balance sheet is user-driven? Swapping out adapters/connectors every few years to embolden partners’ (makers of peripherals) business is user-driven? Acknowledging Icahn’s share buyback program is user-driven?

    I respect your position, but I respectfully disagree.

    • http://www.isophist.com/ Emilio Orione

      Ive: if we are operationally competent …
      Great product alone does not make the job, execution and operation has to be great to.
      Those you describe are operations, not products. Money is the result of a goal that resonate with users and an execution that demonstrate the goal and operations able to sustain the business.

      • http://twitter.com/matthewwanderer matthew

        Yes. I see a vital combination of factors at work that explains most of Apple’s success.

        Steve Jobs’s decision to mix Tim Cook’s operational brilliance (forgive the hyperbole) with “great products” eventually placed Apple on its unusually sound financial foundation.

      • marcoselmalo

        Every P/L from Apple shows that it’s not hyperbole. Just saying.

    • vincent_rice

      a) Apple are not ‘user-driven’ and that’s not what Horace said. The difference is the essence of Apple’s approach.
      b) Debt is issued because it is more tax efficient than profit repatriation.
      c) Connectors are not ‘swapped’ they are improved; you know, progress.
      d) Icahn is an irritant that has to be handled – none of which has anything to do with the article.

      • http://www.subprint.com joemccann

        The user as the ultimate adjudicator does not imply user-driven or user-oriented? Please explain.

        You don’t have to explain debt issuance’s tax benefits; you left out the part that rates are extremely low and it makes total sense…to Apple, not the users.

        Systematically modifying connectors on a regular cadence certainly speaks to progress, but evaluate the ratio of pleased users vs. unhappy users at the changes to the connectors. You are in the minority, sir.

        Icahn, debt issuance, etc. has directly, nothing to do with the article except it has a lot to do with business models and profit as a motivator…not users.

        If one casts a wide enough net for how Apple is a “user-oriented, user-first” business, then the aforementioned items are captured as well.

      • http://www.isophist.com/ Emilio Orione

        There are opinions and there is reality, if reality has to be adjusted to fit opinions …

      • vincent_rice

        If you do not understand the difference between user-driven, user-oriented or the user as the final adjudicator then I am afraid you have no hope of understanding Apple’s motivations.

        The rest of your faux-Dickensian post is irrelevant to the discussion.

      • Space Gorilla

        “evaluate the ratio of pleased users vs. unhappy users at the changes to the connectors. You are in the minority, sir.”

        I think you’re confusing vocal minority/media hype with majority. We can look at Apple’s repeat customer data as well as customer satisfaction data, both of which point to a large majority of users being very happy with Apple’s products.

        As for the connectors specifically, I would guess most users don’t even care. Gasp!

      • charly

        Every Apple user loves the fact that he can’t use usb /s

      • macyourday

        And you know this (whatever it is you think you are being smart about) because…..

      • point

        What reason do users have to care either way about issuing debt or buying shares? I honestly don’t understand your point at all. Do you think these things are somehow user-hostile?

      • macyourday

        Exactly. Once a a company claims it is running the business for its shareholders or it starts playing around with shares you know they have no ideas left or are on the road to tanking. I don’t understand why apple bothered with dividends, but I hope it’s nothing to do with street pressure. Hopefully apple will ignore Icahn’s self promotion and stay the course of building their reserves. Shareholders can like it or lump it. They can always buy amazon, google or Enron shares if they don’t like it.

      • Walt French

        Legally (and it’s usually obvious in most cases that it’s practically, too), “the company” is an entity owned by, and controlled by, the shareholders. Management is hired by the shareholders, and subject to the shareholders’ terms, even “take it or leave it” class terms . Exhibit A: Steven P. Jobs and Apple Computer, Inc. Exhibit B, also in the news lately: Steven A. Ballmer and Microsoft Inc.

        Shareholders have a range of differing time horizons for their investments. Some may be willing to wait 30 years; some want to sell right after some short-term action boosts other investors’ perceptions, and the share price. So company statements are usually made for the audience of prospective customers, encouraging them to buy more of the company’s products, and/or not to defect to a competitor’s., without necessarily saying what they are doing long- or short-term. Shareholders expect a certain amount of spin on these statements, and no savvy shareholder should be fooled into believing the company PR line.

        Likewise, analysts should not be fooled into believing general PR spin as having any purpose than advancing the company’s overall objective.

        Both Google and Apple practice their business under these understandings. But to my eyes, Google has replaced Apple as the one with more users in the thrall of a PR RDF. Certainly many commenters here are saying utter gibberish, such as that Google doesn’t try to increase its business profits.

      • Shawn Dehkhodaei

        Dividends were ALL due to Wall Street pressure … I think they explicitly mentioned it in one of the quarterly results. And why would appeasing the shareholders preclude them from having any ideas? I don’t see how the two things are related …. Every public corporation has a fiduciary duty to return value to their shareholders …. their accounting/finance department handles that. Their R&D and product division handles their products. One has nothing to do with the other in terms of operations, especially for a company like Apple …. their problem is a really good one to have …. they have too much cash on hand !!!!

      • marcoselmalo

        “If one casts a wide enough net for how Apple is a “user-oriented, user-first” business, then the aforementioned items are captured as well.”

        Debt issuing: completely orthogonal. My automobile is “transportation oriented”. Making lease payments is orthogonal to what my car does and how it does it.

        Connectors: let me ask you a related question. Do you miss floppy discs? Was the decision to drop floppy drives from the iMac anti-user in the long run?

        No one is saying that profits, revenues, financial transactions, diplomatically dealing with shareholders are not all part of running a major business. However, these things are some of the mechanical aspects of executing on a business model. It’s absurd to say that how a company structures it’s debt is somehow directly regulated by the users of its products. No one is suggesting this but you.

      • StevenDrost

        It always seemed that Apple was not willing to do anything for Wall Street. Tim Cook has certainly change that. Under his watch they issued a dividend, buyback, revised earnings estimates to be more accurate, tied his own compensation to the stocks performance, etc. But one quick look at the amount of money they are returning to shareholders tells you that Wall Street and the performance of AAPL is not their primary motivator.

    • Space Gorilla

      You’re getting caught up in the short term details. From a wider perspective Apple is indeed driven by its users. Apple has a strong financial incentive to please me.

    • http://www.noisetech-software.com/Home.html Steven Noyes

      Connectors? Seriously? Connectors?

      The 30 pin iPod doc connector was 10 years old. Much more than a few.

      FireWire lived for 10+ years.

      TB I am sure will live 10+ years or so.

      The new lightning connector is light years better than the old 30 pin doc and will, likewise, have a 10+ year life span.

      Yes, they have some dogs (good but never accepted) like ADC and such… But connectors? Really?

    • Davel

      The connector is absolutely user driven. It is smaller so they can make smaller devices and be less constrained. It does more and it does not have a side so it is easier to use.

      The financial stuff you mention worries me. But someone brought out a point that if they don’t there may be a class action lawsuit for ignoring their owners. It ALS sought to mute their criticism so everyone and their mother doesn’t complain about the money. That is all the street sees. When there is a lot of it they scheme to part you with it. That is why they exist. To take your money.

    • Shawn Dehkhodaei

      How is issuing debt affecting their “user-driven” focus …. it’s an accounting trick, which will never touch the user in any way or form …. it’s just politics.

      FYI, they opposed Icahn’s buyback program, and he retreated, but nevertheless that has NOTHING to do with their products or their users … those are just accounting and stock market related stuff …. keep in mind, the performance of AAPL has nothing to do with Apple Inc. …. the stock market has a mind of its own.

      And as for adapters and connectors …. they’re a technology company !!! Things change quickly, and they have to keep up …. look at any other vendor in their league, and it’s identical.

      The points you mentioned are so narrow in focus, so irrelevant and so off in the left field, that I’m not sure whether you lack vision, or comprehension or both. Your comment had NOTHING to do with the article.

  • poke

    I was surprised by your original suggestion that profit might be the ultimate “why” of business. I think profit is like survival. We worry about survival when things are looking bad, but it’s more like the ground of our purposes than our ultimate purpose. I can’t secure my goals if I haven’t secured my survival, but my goals are not normally directed at survival. It’s the value of my goals that makes my survival valuable, not vice versa. I think the same is true of profit: We (should) value profit insofar as its absence threatens our ability to continue pursuing our (product-oriented) goals, but no more. Profit maximisation, shareholder value, etc, are based on a similar incoherence as that held by people who think Natural Selection somehow means they should act like a jerk.

    The difference between what Apple does and Google’s by-the-numbers research centre approach isn’t the attitude to profitability, but that Apple makes products and Google is conducting experiments. The problem with experiments is that they don’t have customers. Apple’s novel approach is to always have a customer. What Google is doing is nothing new, it’s the standard failure model of corporate innovation initiatives: do research, let someone else figure out how to turn it into a product. Profitability isn’t the main concern here, it’s the relationship with the customer, which makes the difference between spinning your wheels and genuine innovation. Google[x], like Xerox PARC, Microsoft Research, the MIT Media Lab, etc, is building bridges to nowhere. That’s a common outcome of subsidies, but I think the real issue here is that the outcome of this kind of “blue sky” experimentation carries no weight. Whose problem does it solve? Who does it delight? Ultimately it serves to keep engineers entertained and the outcome reflects that.

    • http://www.isophist.com/ Emilio Orione

      Money if always the result not the goal. When it becomes the goal decisions become shortsighted and users are put in the background.

      • vincent_rice

        Absolutely, and a lesson for life frankly.

    • Mark

      Poke, a number of years ago a finance professor said to the class that business survival is more often a function of cash flow than profit. Profits important, but unless it is relatively liquid it won’t pay your daily, weekly, monthly bills.

    • http://www.noisetech-software.com/Home.html Steven Noyes

      About 4 years back, there was a talk by Simon Sinek and the basics were: People don’t buy what you do, they buy why you do it. It is a great talk and gets right to the point of profit being the motivation and why business mostly fail when that is the goal.

      Both Apple and Google are highly centered on “why” they do what they do and both companies seem to get that. I think Steve Jobs really got the “why” and there is little doubt Apple lost a vision with his lost. But I think the new Mac Pro shows Apple is still willing to go off on their own direction and break the box. And given the 2 month back order, it seems to be a hit.

      Google also knows why they exist and this resonates with a huge number of people. I think lots of people respond to the why Google does things even if it does result in profits. This in turn keeps people engaged in Google’s services and that DOES generate a profit.

      • StevenDrost

        Apple without him Jobs is still a great company. Their designs are top notch and operations are better and more efficient than ever. But, they are still executing the mission he left them. For over a decade new product categories were released and set on a evolutionary trajectory of becoming thinner, lighter and faster. Since he left the products have continued to improve, but no new categories. There is no question they know their mission. The looming question is can they do more than evolutionary improvements on existing products without him?

      • http://www.noisetech-software.com/Home.html Steven Noyes

        My hope is Jobs taught everyone WHY Apple exists as a company. Not just the words but reason. The Mac Pro gives me great hope they know.

  • stefnagel

    Aiming at profit. Isn’t that like a baseball player aiming to hit the scoreboard with every swing, trying to make the digits advance? Money is only a means of keeping score.

    The Venerable Bruce Lee warned against mistaking our pointing finger for the moon we are pointing at. Mission can be likened to the bright moon in the sky. Money is a finger. The finger can point to the moon’s location. But to watch the moon, we must ignore the finger.

  • echotoall

    The ‘company A’ vs ‘companyB’ thesis reminds me a lot like IBM’s structure. (Although IBM’s research division is more pronounced.) The street eventually lost interest in ideology, and begins to focus on revenue and earnings. And when/if there is a hiccup on the money side, the street will care. Just like they did/do with IBM.

  • obarthelemy

    I distinctly remember reading an insider’s account that finance ultimately drives/vetoes Apple products though. Taking PR declamations at face value is… very naive…

    • Kizedek

      I can see some truth to that. Reality has to play a part, after all.

      Apple sets price points (and sticks to them pretty well, too).

      So, Apple might say, “Can we make an awesome all-in-one, get our margin, and sell it for 600?”

      “No, we could do a headless Mac for that; but we could do the all-in-one we want to make for 1100″.

      “OK, our research indicates people would buy them, so go for it. Go and make the best headless and all-in-one Macs you can given these basic constraints…”

      And there’s your MacMini and iMac.

      Having real-world constraints does not mean Apple does not try to make the most awesome products it can. These are not mutually exclusive. It just gives them a target and a place to stop, instead of striving for “perfection” forever. I’m a perfectionist, while my wife is my CFO; she definitely needs to tell me when to stop a lot of the time.

  • Pete

    The distinction is between Apple and Google is like the difference between the artist and the politician.

  • jameskatt

    Google is like the government. It gets its tax money no matter what. So it doesn’t have to pay attention much to earning the money. Instead it pays attention to what pork it can spend it on.

    Apple is like a blue-collar craftsman. It has to work extra hard to make sure it does a great job so it doesn’t get fired or laid off. It makes itself valuable so that it can get bonuses and other rewards of great work and to keep its job. It spends frugally, with as little waste as possible. It saves as much as it can because it has always been on the verge of losing its job. Never knowing when the economy tanks or when you lose income or your job because of tough times, Apple saves saves saves. When Apple does spend, it spends well in order to get the best tools and supplies so it can do an even better job and make itself valuable. Apple is never penny-wise and pound-foolish.

    • Kenton Douglas

      “It gets its tax money no matter what” … don’t agree. I think Google are acutely aware that their main revenue stream (advertising) will become increasingly commoditized – like any other market. Within the “pork” you have to look at how the underlying technology might be utilized.

  • http://www.linkedin.com/in/ashujoshi Ashu Joshi

    Horace – This is thought provoking, to use your analogy ‘take three years and understand it” – this needs to sink in even more. Google, IMO, is not poetic to use your words BUT I do believe independent to that in the process they are adopting they are forcing radical change beyond beautiful products.