The tide is finally turning on the negative press that has helped to depress Apple's stock.
Journalists, bloggers and financial analysts have had a field day the past two years attacking and predicting Apple's imminent downfall. But the flood of armchair analysis about Steve Jobs' supposed Herculean powers, the limits of corporate growth and the nature of product innovation are about to ebb.
Sour Apple is about to become Sweet again. Here's how this transformation came about -- and why it's ending.
Apple's Goliath Effect Coming to an End
Soon after Steve Jobs' death, the New York Times began attacking Apple for supposed lapses in its factories in China, and for allegedly sidestepping "billions in taxes." Each series of stories ran right after Apple reported financial earnings to have the highest material effect on the stock. The factory series won the New York Times a Pulitzer, and legitimized Apple Goliath stories. As I wrote in the Huffington Post in the spring of 2012, "The Goliath Effect explains the drastic shift in media, financial and public perceptions of Apple the past few weeks. This is about the power of story to move markets. Most of all this is a story about how the facts don't matter when you're targeting Goliath."
Critics pointed out that the Times unfairly targeted Apple when virtually every major American high-tech firm used either the same contract factory or had a worse track record. Similar criticism was leveled at the Apple dodging taxes story.
But Apple -- the erstwhile underdog that now enjoyed a colossal market valuation of well over $500 billion -- was suddenly seen as a big, bad ugly Goliath. That new twist sold newspapers and won bloggers millions of clicks. In the fall of 2012, after a huge recent run-up in the stock (Apple stock more than doubled between late May 2011 and late September 2012 (from $335 to $700), the stock did something it rarely did -- it fell hard.
This added a Snowball Effect to the Goliath Effect: i.e., "Apple must be losing its value because its stock is sinking." This superficial proposition was used to justify any number of Sour Apple stories, from the oft-repeated meme "Apple Losing Innovation Edge," to "Apple Losing Smartphone Share" to "Apple is Losing to Samsung" to "the iPhone Magic wears off."
Apple's stock fell for many routine reasons. Hedge funds and others had bought it at under $400 and sold it at nearly $700 to grab handsome profits. Taxes on capital gains were expected to rise the following year, increasing the rush to sell before January 2013. And as these and other standard and somewhat predictable economic factors slashed the stock's price, stories about deepening Apple doom were a sure thing for newspapers, online publications and bloggers. Trashing Apple got you attention, and as the company's stock continued to decline in 2013, erasing much of its huge 2012 run-up, it became increasingly hard to find a positive story.
Apple deserves a good chunk of the blame for this narrative black hole. Apple does its own PR, which more or less means it doesn't do PR. Apple was excruciatingly slow (as Goliaths tend to be), at reacting to the reality that after Jobs' death it could no longer pull off the magic trick of appearing to be the underdog. Perhaps most critically, Apple didn't understand that it needed smart, creative narratives to counter the mindless nonsense about Tim Cook not being Steve Jobs, or the end of innovation at Apple. Swamped by the business equivalent of a blistering, negative campaign, Apple pulled a John Kerry and tried to wait it out.
Now that Apple's stock has roared back (no I didn't sell my shares, even when my trusty Charles Schwab agent advised me to diversify when it dipped under $400) it's worth examining why so many Americans were duped. Why did so many stockholders lose millions by falling for the anti-Apple storyline? Here are four reasons:
ONE: Perspective and Analysis are out of Style. Most newspaper stories and bloggers take one or two statistics or facts and blow them out of proportion. That's super for getting a headline -- "iPhone sales fall" -- but lousy for understanding a company's long-term prospects.
TWO: Wall Street Doesn't Fairly Calculate Brand Value or "Experience." Apple has built tremendous equity in its products, experiences and stores. But it's hard to convey that in financial projections and numbers. Wall Street doesn't get it.
THREE: The Whole is Bigger than the Sum of the Parts. Apple sells the world's top three mobile products, and a year ago hit 500 million iTunes accounts. At its current rate it will not be long before it has one billion customers.
FOUR: Journalists Failed to Report Critically about Samsung, Google, Amazon, Microsoft, etc. During the Apple Sour period, the New York Times and other major publications conveniently ignored Samsung's many potential limitations (it's controlled by one Korean family; by losing two major patent lawsuits to Apple it will be forced to stop mimicking Apple's products; and it missed its chance to build a retail empire and now is stuck with the sinking Best Buy chain). Ditto on Google and Amazon, two American giants that received kids glove treatment by the Times and other publications during the Apple Sour period.
Who will be the new Goliath? My vote goes to Amazon. Project the Amazon value proposition down the road, and its not hard to imagine how the behemoth may devastate towns and cities around the world by removing independent stores and local character and neighborhoods, and replacing them with automated warehouses, drones and fleets of delivery trucks.
We already know Amazon is not above the brutal hardball negotiating tactics of taking the buy button off of books from publishers -- and authors -- it doesn't like.
Sounds an awful lot like the next Goliath to me.
Jonathan Littman is the founder of Snowball Narrative and co-author of the bestsellers The Art of Innovation and Ten Faces of Innovation.