Apple's SaaS: Software as a Soul

Over the weekend, The New York Times ran a piece entitled Lessons in Longevity, From IBM. In it, author Steve Lohr looks back at the past 100 years of IBM and points out the keys to their longevity: shifting and adapting to new markets and times. He then lays how three tech powers today — Microsoft, Google, and Apple — may make similar moves to weather the inevitable storms.

At a high level, the parallels make some sense for Microsoft, and to a lesser extent, Google. They make no sense for Apple.

Microsoft and Google, as Lohr points out, are hugely successful companies right now. But their businesses have potential points of weakness because almost all of their money comes from one or two areas. In Google’s case, the one area is search advertising. In Microsoft’s, it’s Windows and Office (the Server division makes a good amount of money, as Lohr notes, but it’s peanuts compared to the two towers).

Lohr says that Microsoft up-and-coming gaming division could eventually be a key to saving them. And for Google, it could be Android. Again, this all makes sense (though is hardly anything new).

But when it comes to Apple, Lohr loses it. First of all, Lohr talks about IBM’s near-failure in the 1990s, but completely leaves out the fact that Apple too almost went under in the same time frame. In fact, they were much closer to death. Then Steve Jobs came back and — we all know the story.

The key is that Apple, as successful as they are right now, has already had to reinvent themselves. And they did it with stunning success. In fact, their reinvention has been more successful than IBM’s most recent reinvention. It’s just that Apple is not 100 years old. Nor is their metamorphosis something that any other company in the tech world (and perhaps beyond) is likely to be able to replicate anytime soon. And in fact, Apple’s metamorphosis is still ongoing.

And that leads to point two.

In remarking on the same article earlier today, Daring Fireball’s John Gruber tears into Lohr’s assertion that Apple’s hardware business could be easily “mimicked”. Specifically, he questions if Michael A. Cusumano, a professor at MIT that Lohr cites, understands Apple at all when he suggests that Apple in the future will have to shift to software and services to stay alive.

“I wonder if the professor thinks companies like, say, Rolex and BMW ought to shift to ‘software and services’ too?,” Gruber writes. He also notes that while Lohr brings up how Macs are still dwarfed in sheer unit sales by Windows PCs, Lohr completely disregards the fact that Apple is now in command in terms of profit share amongst PC-makers.

This is something which, comically, is almost always overlooked — even though it’s entirely deliberate on Apple’s part.

I also think that Lohr and Cusumano completely disregard something else important: innovation. As in, while it’s certainly possible that “Apple’s product designs, however impressive, will eventually be mimicked and come under price pressure,” as Cusumano suggests, that seems to be assuming Apple stands still and stops innovating in the areas of hardware design and manufacturing. That’s ridiculous.

I’ve been buying Apple products for just about ten years now (yes, that’s all). In that entire time, I’ve yet to see a product by a competitor that matches the build quality and aesthetic of Apple’s products in their major areas of focus (Macs, iPods, iPhones, and now iPads). Not once.

I know that sounds like just about the biggest fanboy thing to say… well, ever. But am I wrong? Even Apple haters cannot deny the quality of the products. Bitch about price, bitch about control, bitch about the fruit logo — but quality is simply never a compelling argument. Because Apple wins.

That hasn’t changed for at least a decade, and some would argue much longer. Why is it going to change all of a sudden? Because the manufacturing and designing processes will get cheaper? Sure. For shit products.

Competitors have been trying to mimic the look and feel of Apple’s products for much of this past decade. Guess what happens? They always come up short. We’re left with a ton of products that sort of, kind of look like Apple products, but never feel right. They feel like cheap knockoffs. Which is exactly what they are.

That’s part of the reason why I think Apple’s lawsuit against Samsung is silly. Is Samsung trying to mimic Apple’s products? Of course they are. Basically everyone is. But I’ve used a handful of the products Apple names in the lawsuit. And, well, a quote comes to mind.

“Senator, I served with Jack Kennedy, I knew Jack Kennedy, Jack Kennedy was a friend of mine. Senator, you’re no Jack Kennedy.”

If Apple fired their design teams and kicked Jonathan Ive to the curb, then sure, maybe in a decade competitors would be able to mimic Apple’s current designs and build-quality at a lower price that would threaten Apple. But that’s not going to happen. At least not anytime soon. And to not even bring up that fact is a slap in the face of what Apple has done in terms of manufacturing innovation and industrial design. Believe it or not, these things are an extremely important part of what makes Apple, Apple.

And none of that speaks to the astounding success Apple has had managing their supply chains. Again, there are good reasons that competitors aren’t able to copy Apple so easily. Under COO Tim Cook, Apple today is perhaps the most well-oiled machine the tech industry has never seen.

And there’s more.

In his WWDC keynote a few weeks ago, Steve Jobs said the following. “You know, if the hardware is the brain and the sinew of our products, the software in them is their soul.”

Obviously, he said this because WWDC this year was entirely about software with the unveilings of OS X Lion, iOS 5, and iCloud. But he also said for a much more important reason: Apple actually believes this.

Even though they make the vast majority of their money from selling hardware, without software, their great-looking machines would be absolutely worthless. Sure, you could jerry-rig them to run Windows, but then they would just be really expensive PCs. Apple doesn’t sell only hardware or only software — they sell the entire package. They sell the experience.

This is what the vast majority of their competitors do not understand. By outsourcing their “souls”, as it were, to Microsoft for PCs or to Google for phones, they can never do what Apple does.

One big exception may be HP. Despite their denials that they’re in the process of transforming their own business to be more like Apple’s, they are well, transforming their business to be more like Apple’s. With webOS now in place, they control the software (at least outside of PCs for now — but soon those too) and the hardware (not Apple-level yet, but you can be sure they’re working on it). Will that transformation work? Maybe. Maybe not. But give them credit for trying. At the very least, they seem to get it.

So when Lohr and Cusumano suggest that Apple may one day survive as a company that relies on software like iCloud to milk money-making opportunities out of things like advertising and marketing, you have to laugh. If anything, more companies are going to attempt to alter their models to be more like Apple’s, instead of the other way around.

Apple will remain in a position of power for the foreseeable future because they have nailed that model. And it is not nearly as easily assailable as the NYT piece suggests.

At the same time, Apple will continue to innovate, and yes, transform themselves. Most of their revenues now come from phones. Ten years ago, that was unthinkable. In another ten years, most of their revenue could come from tablet computers. Or maybe something else no one is thinking about right now.

Apple certainly won’t be becoming a “software and services” company anytime soon. They follow the “SaaS” model — that is, “Software as a Soul”. As in, the software cannot be decoupled from the hardware. They tried that once before. It was a disaster. It led to the near-collapse and subsequently, the complete reinvention that we’re seeing now.

They won’t have to “pull an IBM” because they’re already doing it one better.

[photo: flickr/confidentjohn]