Eighteen billion dollars in profit in one quarter. It’s tough to put a number like that in context because it is completely unprecedented.
Apple, Inc. is the richest, most powerful corporation on the planet. Its products are the gold standard, not just as a technology brand, but also as a lifestyle brand. If you had to pick a poster child for the glories of unfettered Capitalism, I don’t know any sane, knowledgeable person who wouldn’t pick Apple.
To me, there’s a tremendous amount of irony in that. Because, if I had to pick any company as justification for the innovation presented in The Currency Paradox, it would also be Apple.
You see, despite all of its amazing success, Apple is somewhat of an anomaly in business circles. According to people who study business trends, it should be well on its way to becoming obsolete. Lower priced competitors with “good enough” products should be eating its lunch. But instead, it is Samsung, the overwhelming leader in commodity Android device sales, which is being eaten alive by Apple at the high end and upstarts such as China’s Xiaomi and India’s Micromax at the low end. Apple’s iOS juggernaut is proving to be surprisingly resilient to disruption.
What Apple is doing is shattering a long-held myth that is practically sacred in business circles:
Price is the prime driver of markets.
In other words, it is widely assumed that the main factor for the overwhelming number of people when making purchasing decisions is price. The thinking is that people start with a price in mind and then find the greatest level of value they can within that price range. It’s a completely sensical position, especially in today’s uncertain economic climate.
But if that’s the case, then why is Apple, a company that sells premium computing products at more-than-healthy margins, completely dominating smartphone sales, not just in profits but increasingly in sales volume as well? It’s a simple, though somewhat controversial, idea I alluded to in The Currency Paradox:
Price only drives markets because, in Capitalism, value rarely can.
Rather than try to explain the previous sentence, let me try an analogy:
Let’s say you lived in a country that outlawed farming and only allowed people to eat garbanzo beans. On top of that, you limited the amount of beans anyone could acquire at any one time to 100 beans.
If you wanted to justify this garbanzo bean policy, your state economists (who are allowed to eat whatever they want, not just garbanzo beans) could come out and claim that your people love garbanzo beans because that’s all they eat. Of course it’s silly and circular, and plenty will point out that the people would eat other things if given the opportunity but how could you prove it? If all the people are given to eat are garbanzo beans, even common sense yields to a complete lack of evidence to the contrary. If you can’t prove that people will eat something other than garbanzo beans because they are given nothing else, your state economists can continue to make their spurious argument.
While I’ll admit this is a pretty crude analogy, I think it’s pretty accurate in explaining the price argument. Money is exceedingly difficult for most people to acquire in significant sums. Economists gloss over the fact that this condition is by design. So a situation exists in which price motivation derives from external factors generally beyond any one person’s control. So price motivation itself is an economic distortion. It’s only a valid condition if everyone had an equal opportunity to acquire significant sums of money. It is an externality treated as an inherent condition of the system. Like the argument of the state economists in the analogy, it’s circular by nature.
Apple has proven the basic concept that price only drives markets because it is generally impractical for value to do so. When conditions allow value to drive a market, that is exactly what happens, price be damned.
Apple has also inadvertently proven something else:
Commodification generally breeds homogeneity.
Why is there only one tech company in the world with the unique characteristics of Apple when all of the elements of its success are replicable? In theory, there is nothing preventing other companies from creating a blend of business, logistical, and branding elements similar enough to Apple to allow them to compete effectively with it at the high end. However, Apple is practically unchallenged in the space for premium computing devices. In a world of commodification, shouldn’t that be impossible? Shouldn’t a “good enough” challenger have risen to undermine any greater perceived value Apple supposedly has at the premium end of the computing landscape?
Instead of another analogy, let me tell you a personal story:
In 2006, I was designing a user interface called Simplicity. At the time, there was a very real threat that Windows Mobile would do to phones what Windows had done to PCs so my intent was to design a user interface for mobile phones that would eliminate the entire concept of “applications”; it would be action driven rather than object driven. In Simplicity, there are no apps, the entire experience is both mode-less and chrome-less. It was designed to be able to be used effectively with any of the popular input methods of the time, such as click wheels, optical touchpads, and resistive touch (and would have worked just as well with capacitive touch).
However, in 2007, Apple introduced the iPhone and, though my UI framework was more or less complete, I decided to shelve my work. Why? Because, though I didn’t think it was conceptually superior to what I was creating, the iPhone represented a superior market solution. Rather than overthrow them, Apple had refined the current computing metaphors to a state of usability that, until then, had not been achieved. The iPhone was both state-of-the-art and familiar. It was a perfection of the current computing paradigm.
When I first witnessed the iPhone, I knew it was the immediate future, not just of phones but personal computing as well. And when Android was introduced, I knew that shelving my concept was the right move at that time. There simply wasn’t going to be any air supply for a concept that deviated so greatly from the current paradigm. iOS and Android elevated what people already knew, I was changing it entirely.
The truth is that, under Capitalism, there can only be one company like Apple. The nature of commodification is such that it can only be the case. Rather than argue the intricacies of this position, let me just ask you a couple of questions:
Could a company that openly stated that it intends to compete with Apple get funded in the developed world?
Could companies like Xiaomi and Micromax, located in countries with huge gluts of cheap skilled labor, be started in the West TODAY?
Indeed, commodification has mostly bred homogeneity. The user experience of the hundreds of millions of iOS devices in the world is, more or less, identical. The market response to iOS was Android, the experience of which for hundreds of millions of users is also, more or less, identical (Xiaomi being a notable exception as it more closely mimics iOS). For the most part, the way we use smartphones and tablets today hews to the same metaphors we have used for the last 30+ years. iOS and Android represent enhancements of the same user experiences we have used pretty much since the dawn of personal computing.
Which brings me back to my garbanzo bean analogy. When all you know is one thing, how will you ever know if you like something else? We assume that iOS (and, by extension, Android) are loved and enjoyed… maybe they are, maybe they aren’t. But we can never truly know because our economics doesn’t make it feasible for there to really be any experimentation. The free, open source software movement has only managed to produce imitations of major closed source software initiatives (though in fairness, when good user experience hasn’t been a necessity, it has produced winners, such as the Apache web server).
In the economy conceptualized in The Currency Paradox, money is not an artificial constraint. So there is more than enough of it to fund better schools to produce more and better mathematical, scientific and engineering talent. Without money as a constraint, pursuit of the classical arts, liberal arts and humanities becomes practical from an economic standpoint, allowing these skills to be more readily fused with science, mathematics and engineering to not just create better technology but also more approachable, more humane, and more useful technology. With an abundance of talent available, problems like scale are easily addressed when circumstances demand rather than as a market-distorting default. In the economy of The Currency Paradox, every company is like Apple.
Or maybe it isn’t. We may never know. The only thing I have are these garbanzo beans.
PS – Simplicity is still as relevant today as it was when I initially developed it, probably more so. It would be particularly useful for a company like BlackBerry that needs a highly differentiated user experience but also needs to overcome the “chicken/egg” problem related to creating a robust ecosystem. If anyone from BlackBerry reads this and is interested, please feel free to contact me.