Andy Kessler explains in the WSJ’s opinion section, how he would go forward in an effort to take down Apple. He writes:
When Apple announced last week that it will soon replace Intel processors with its own, I had a flashback to 1993. Morgan Stanley’s technology investment banker Frank Quattrone called me in New York: “John Sculley”—CEO of Apple—“wants to meet with you Friday,” he said. It was Thursday morning. “About what?” I asked. “I don’t know, do your virtual thing.” I booked the 9 p.m. to San Francisco and the redeye home.
Meanwhile, I was on the phone all day with the banking team to help create “the book.” No investment banker worth his salt shows up without a spiral-bound pitch book put together by lowly associates pulling all-nighters, with strategy ideas and suggested transactions (investment bankers’ payday!) to solve the company’s future problems.
Back then I was intrigued by companies organized in horizontal layers attacking vertical behemoths. IBM was a vertical giant and did everything from soup to nuts: chips, hardware, operating system, software, applications, services. They had 50% of the computer industry’s revenue but 90% of its profits. They used FUD—fear, uncertainty and doubt—to freeze out competitors.
But IBM was vulnerable. A loose horizontal confederation threatened its power: Intel processors, Microsoft’s operating system, Western Digital hard drives and Compaq hardware, along with Lotus, Adobe and Microsoft applications, added up to a “Virtual IBM” and eventually toppled the giant. The same thing happened in the late 1990s with AT&T. A horizontal internet of network equipment, browsers and websites created a Virtual AT&T and toppled the vertically integrated telecom.
He continues later:
Apple was worth $7 billion back then, and now it’s $1.5 trillion, with close to a quarter trillion in sales and maybe $70 billion in operating profits. Not quite half of industry revenues or 90% of profits, but powerful nonetheless. Apple’s FUD is fanboys’ universal desires.
Well, what goes around comes around. At last week’s Worldwide Developer Conference, Apple announced Apple Silicon, its own line of processors. With that, Apple finally closed the loop. It already makes its own graphics chips, operating system, applications, app store (with a 15% to 30% cut), cloud storage, Siri voice interface, maps, even mediocre TV shows—soup to nuts. Its phones, tablets and Macs are world class compared with, say, Google Maps, Spotify music streaming, TikTok video clips, or Dropbox cloud storage. Apple has become IBM, it’s become AT&T—a vertical giant waiting for a future David to come along with a horizontal slingshot.
If I were an investment banker today (Lord help me) I’d be running around pitching a Virtual Apple. Neutralize its strengths and then attack new markets. Apple is showing that it’s vulnerable by selling an iPhone SE for $399, not $999. Unit sales of iPhones and iPad peaked years ago. As the company runs out of new customers, growth is coming from adjacent markets like watches and earbuds, and from online services. And now the Justice Department is investigating its app store for abuse.
Will a Virtual Apple put together a collection of cloud services that capture the imagination of consumers? Or a robust social-media market—outside Facebook and Twitter there are scores, from Fortnite to Nextdoor. Will the next-gen consumer platform be speech, augmented reality, home automation? I’d bet on a cloud-based intelligent service that simply knows what we want and does it.
Remember, IBM didn’t fail overnight—it took decades. But its growth rolled over and the stock market eventually figured that out and cut off access to cheap capital. Apple is a machine. Its devices are sleek. But new phone features—like “Wind Down Mode” to help you get to sleep on time, and a watch that scolds you if you don’t wash your hands long enough—leave me underwhelmed. A Virtual Apple might beat it at its own game.
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