This graph really says it all.
Why Apple will become Intel in five years
An old friend who has been involved with Intel from the mid 80s visited recently. We both have a love of tech, business and strategy. I am firmly planted in the Apple echo system while he is living in the Google/ Android world. It was fun to compare products and discuss the business strategies of these and other relevant companies.
But I was reminded of my days at Intel and the mixed blessing of being extremely profitable. At one point, Intel has the highest market capitalization in the world. Something that Apple experienced recently. Now many tech companies are worth much more than Intel. Intel would not take on new business ventures which on their own might have been excellent compared to most business opportunities but looked meager when compared to Intel’s microprocessor business.
Many successful companies have this problem. This is why I am so bullish on Amazon. Bezos does not believe in making a profit at least at this point in time. He would rather invest the money into growing the business. He is in the admiral position of just having to slow down to make a profit. He also understand that high profits come from high margins and the creates room for companies to compete with lower prices. He knows that over time it is harder and harder to add functionality to a product line to justify the higher price.
Plan C
So if a companies strategist goes to the CEO of a very profitable company and says, “things are going to change. If we take action now, our stock price will be $400 in five years. However, since our current stock price is $500 a share, the action I am recommending will cause it to drop by at least 40% first. That is plan A.
If we take no action, our stock price will stay up for a while. It might even increase but then it will slowly fall and we will find ourselves with a $100 share price in five years. Which plan shall we take dear CEO”?
And the CEO answer “Plan C. We will take Plan C. We will keep doing what we are doing and we will figure something out before we find ourselves on Plan B (or before another CEO takes over). Then he fires the strategist.
Long on Amazon and short on Apple anyone?
Two Thirds Done 
Exactly right. I lived it.
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Avram,
I totally agree with your assessment. Having been on the green business side of Intel was like being a Leper! It was when our execs realized that another architecture was emerging within Intel it was time to shut it down! Now we are trying to get into a market that passed us by!
Tony
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I’m very, very worried for Apple. Here’s another troubling stat: Android increased its global market share to 79.3 percent in the second quarter from 69.1 percent in the same quarter last year, according to research firm IDC. Apple’s share of the market, meanwhile, slid from 16.6 percent in the second quarter of last year to 13.2 percent in the most recent quarter ending in June. Not good. Not good at all.
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Dear Avram,
What an excellent posting! The challenge to incumbents generated by their own successful franchises is under-appreciated in the literation, including by Clayton Christiansen. See Doing Capitalism, p. 46.
Cheers,
Bill
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mostly agree but a tad unfair. Apple has (so far) been able to create categories and products, which avoid the “creosote” bush issue you describe. They are very clear saying “soon, the world will be on ipAD and we will no longer sell macs”. Intel could never say that. The pbm is that they seem unable (since jobs) to launch the next category. My sense is that its fear of failure. It’s been so long since they have failed at a new category that they are afraid. This is their own cresote bush. What if our next category isn’t as successful as our last? What will Avram say about us then? Let’s stay pat and keep making sure it’s perfect. In a way they are right. Their strategy per jobs is a classic “hits business”. If they fail in the first 7 days of a product launch or ship, they fail entirely. This is the legacy of Jobs launch strategies. Make it so that it will be a box office winner first weekend and great things will happen.
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Avram
Great piece! I agree with your premise about Intel. As you might remember, I was one of the principles at MRI Systems Corp when the company was purchased by Intel. Spent another 7 years at Intel. What I experienced was that within the first year I was sent to Deer Valley to critique the 3805 solid state replacement for the IBM 2305 drum. A few weeks after this I was told to take on the project. My staff and I then were asked to propose a solution to the project. We did propose a Native mode 3805. The product proposal was accepted and was given high priority by Andy and Les. We produced the 3805 Native Mode firmware and successfully marketed the 3805 to many customers. All sounds wonderful but … even though the development phase took only 10 months with a staff of 20 the effort it decimated my senior staff (mostly MRI engineers) and demanded 95% of my time for the duration.. As a result the database products suffered and the remaining technologists became disheartened. Two years after this program I left to join a startup. and 8 months later Intel sold the operation to SAS. .A number of my friends had similar experiences, The point is that it takes more than good intentions to follow a growth pass through acquisition, In “Silent Movie” Mel Brooks created “Engulf & Devour”. That is what generally happens sooner NOT later.
Highest Regards
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i more think for Avram – if he’s still reading. I said 15 years ago and I say it again today. Intel is a company whose top 10 people have never WORKED at another company besides Intel. That may not be so unusual for a boring chip company (which is what intel is) but in the computer software and internet world its pretty unheard of.
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I am not sure in which period you are speaking. The original team (Noyce, Moore, Grove etc) worked at two companies prior to forming Intel. It was their third start up. But after that, the top management all grew up inside Intel and that is true for the current management (Brian and Renee). What is worse they always worked for a large company.
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avram
My company was purchased by Intel (Mostly Andy and Les) in 1978 and the transfer actually took place ion 2/15/79. I stayed at Intel until 1983 but my Intel records give a starting date of 9/1970 which is when I joined Management Research International as VP Research and Development which evolved into MRI Systems Corp.. Before MRI I had a startup software company which we sold to Pennsylvania Railroad (???) shortly after I left. Small company (45 people) and my partner and I took turns at President/Chairman) Had a good bit of experience at that point. At issue is the fact that I knew that a railroad had no ability to run a software company. Even though I was an integral part of the negotiations with Intel (mostly Phil Kaufman and Les but often with Andy) the fact that Intel had little understanding of the software BUSINESS).
Lets talk sometime.
CIAO
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