THE BLOG

Apple and the Simple Case for Capitalism

05/05/2015 07:05 am ET | Updated May 05, 2016

Twenty-one years after the stunning introduction of the Macintosh in 1984, Apple continues to astonish. Last week the company announced it had sold over sixty million iPhones in the first three months of 2015, many millions of them in China. The company's profit for the quarter was an eye-watering $13.6 billion, which is a third higher than the same quarter last year, and an annual rate of over $54 billion. Not bad for a business started with $90,000 capital, and, infinitely more important, the genius of two people.

What I like about Apple is the passion it shows for creating great new products and for simplifying them. In Steve Jobs' view, and mine, business is a very simple matter. All he ever did was concentrate utterly on creating products that were so good, and simple, that they were a joy to use. "Products," Jobs said, "are everything". As his biographer, Walter Isaacson noted, Jobs "made devices simpler by eliminating buttons, software simpler by eliminating features, and interfaces simpler by eliminating options. He attributed his love of simplicity to his Zen training."

Jobs' greatest creation, though, was Apple itself, amazing not just for its fantastic new products but for the ability to create a string of them. It is the legacy of a perfectionist, who may have been the world's worst manager -- notorious for insulting and humiliating even his best people -- yet who instilled not just a culture of creativity and perpetual innovation, but also the ability to scale up and push out the products in their tens of millions. And to enjoy fat margins -- a net pre-tax profit margin of over twenty per cent over many years is almost unbelievable. As testimony to Jobs' commercial sense, Apple now has over $190 billion of cash, enough to buy BP and have plenty left over.

But why does Apple vindicate capitalism?

Apple's story is also an epic tale over the long haul, because it was a very slow burn. Apple was directionless from 1985, when Job was pushed out of the firm, to his "second coming" in 1997, when Apple was only five weeks from bankruptcy.

On the stock market in May 2000, Microsoft was worth twenty times Apple. Ten years later Apple was worth 70 per cent more than Microsoft. Today Apple is the most valuable firm in the world, worth $742 billion.

It was virtue rewarded, because all Jobs' efforts went into creating beautiful, useful and easy-to-use products that everyone wanted to own. All Apple devices are simple to set up and turn on. They are also easier to use. Before Apple computers, users had to learn to use command-line prompts to drive the operating system. Jobs made using a computer intuitive. The Mac operating system, with its desktop and bitmapped graphical displays, was far easier to use and required less training and expertise than the DOS systems that used to be de rigueur. It was also more useful. For the first time, documents could be accessed and stored on the desktop. Apple also provided overlapping windows that scrolled perfectly, and the ability to compose a document and print it exactly as seen on the screen. And it was beautiful too -- with playful and intuitive icons, and a wide range of artistic fonts. The hardware design was clean and light. The Mac was the first computer to be an attractive consumer product rather than the gun-metal grey from IBM.

Later devices continued the story. The iPod was another extraordinary feat of simplifying. It began with iTunes, launched in January 2001. As the Apple team played around with hooking up existing MP3 players to iTunes, they found the machines "horrible, absolutely horrible." As Phil Schiller, one of the iPod development team said, the existing machines "really stink. They hold about sixteen songs, and you can't figure out to use them."

Within a year, Jobs and the team had devised the simplest possible player. Jobs decreed, to general astonishment, that the iPod would not have a switch to turn it on and off. The designers provided a drive that would hold a thousand songs, an interface and scroll wheel to let you navigate those thousand songs, and a battery that would last through every one of them. As Jobs said at the time, "We knew how cool it was, because of how badly we each wanted to own one personally ... a thousand songs in your pocket."

And so on. The iPad, which is literally child's play. The iPhone. The Apple Watch. Products which do things that could not be done so simply before, or done at all. Intensely practical works of art.

This is the point of capitalism. Either you create a huge mass market by halving the price of a product, as Ford, McDonald's, Southwest Airlines, IKEA, Honda, and many other innovators have done; or else you create products that are so desirable that they sell in their millions at high prices. Here we have billions going into the pockets of entrepreneurs. Why? Simply because they make products people really want. Everyone is happy, except those who hate rich people on principle. Employment goes up, suppliers and app developers benefit, and innovation is wonderfully contagious. The world is richer in every sense, not least in having products and services that used not to exist. And only the free market system can deliver these improvements, enlarging markets, enjoyment and employment year after year, decade after decade, and sometimes day after day.

Note, however, that invention is not as important as innovation more broadly defined. As Greg Lockwood and I will say in our forthcoming book, Simplify, we often think of innovation as invention. There is rightly a cult of the inventor. After all, it takes a very special person to extend the bounds of knowledge, to create something fresh, or to conquer an unsolved problem. However, the first creation of knowledge touches relatively few people. Those who bring the most economic benefit are people like Jobs, the simplifiers, the people who bring the fruits of invention and discovery to mass markets.

(Benefit) times (People Affected) is when the world really changes, and where, as Jobs proved, the highest economic rewards rightly reside. The inventors deserve their pedestal. Equally, Lockwood and I will argue, next to the cult of the inventor another should stand, one that celebrates bringing fantastic new products and extraordinary value for money to the millions. This is the cult of the innovating simplifier - the person who both innovators and then scales up to sell the new product everywhere around the globe, in millions and millions of copies.

Where is the British Apple?

Finally, here's a question that has not been given the attention it deserves. Where is the European Apple? Where is the British Apple? As my friend Jamie Reeve has noted, why has no politician talking in this week's British general election said, "I'm not going to rest until the UK produces a company as great as Apple?"

The irony, of course, is that the lead designer of all Apple's tremendous products, Jony Ive, was British, the son of a silversmith from Chingford, on the fringes of North East London. It is not that Britain doesn't have the talent. It is hard to put one's finger on the reason, but the network effects of Silicon Valley seem so magnetic. To create something comparable but more specialized should be the goal of some of Britain's most determined and creative people. Anyone who knows how this could be done should please comment or get in touch.

My thanks to Greg Lockwood, Jamie Reeve, and Justin Walters who have contributed ideas to this blog. They are, of course, not responsible for any of my own opinions or errors.