Apple may be undergoing a huge corporate culture change because 'the hit-driven mindset is demoralizing internally'

Advertisement

steve jobs unveils first iphone

AP

Apple's management may be trying to play down what has historically been a central part of its culture - its ability to repeatedly deliver new hit products, according to Apple analyst Horace Dediu.

Advertisement

Speaking at the recent UBS Tech Conference on a panel of Apple experts, Dediu said:

"I think Apple management has been trying to de-emphasise the hit-driven business. That's not to say they're not going to have more hits, but they don't want the company to be seen as a hits business. One of the big audiences that Tim [CEO Tim Cook] has is actually internal employee morale. I think the hit-driven mindset is demoralizing internally, and there is a concerted effort to tone down this 'Let's hit home runs' mind-set."

Complimentary Tech Event
Transform talent with learning that works
Capability development is critical for businesses who want to push the envelope of innovation.Discover how business leaders are strategizing around building talent capabilities and empowering employee transformation.Know More

If Dediu's comments accurately represent the internal dynamics at Apple, it would be a dramatic shift in the company's cultural identity. It would move Apple from being a "new hit product business" to a "services/recurring-revenue business," Dediu believes.

That would be a massive internal change of direction. For years, Apple has relied on a series of annual set-piece events at which founder Steve Jobs and then CEO Tim Cook stood in front of an audience and unveiled something "magical." The most interesting three words published by Apple every year are "one more thing." Jobs first used those words in 1998 to announce that the company had returned to profitability. They traditionally come at the end of each presentation as if they were a mere footnote. The joke is that the company is about to say something huge. More recently, "one more thing" was used to launch Apple Watch. In advance of these events, Apple works relentlessly to maintain secrecy on its new products so that the launches are a surprise.

Advertisement

That rollercoaster of secrecy and surprise has been Apple's cultural cornerstone for nearly three decades.

Bloomberg's Apple journalist, Mark Gurman, a writer who gets more internal scoops than most about the company, was also on the panel. He elaborated on the recurring-revenue business: "In terms of the subscription, I can imagine there are some people who spend north of $60 (£47) a month on Apple. A high-end iPhone is $45 (£36) a month, iCloud storage $3-10 (£2-8) per month, Apple music is $5 (£4) per month. That doesn't even include the extras like movies, songs, and TV shows." Dediu estimates that Apple customers pay between 78 cents and $1 per day to stay on Apple's devices and services.

That suggests it would be easier for Apple to grow the amount its existing customers pay for new devices and services than to invent a dramatic new product that creates a whole new line of business. New product launches are risky. If they fail to move the needle - i.e. Apple Watch - then you are back where you started. But persuade the average Apple customer to buy a few more things every year, and you have moved their spending from 78 cents per day to 88 cents per day and added 10% in revenues out of nowhere: That would add $22 billion to Apple's topline sales, annually.

Apple has already started to publicly emphasize the recurring nature of its revenues. Apple revealed in January of this year that it hit 1 billion active devices in use. But its hardware metrics "have plateaued" Dediu says. Apple may be adding customers but it is not adding iPhones, because those customers hold into their iPhones longer. The company reported a decline in the sales (on an annual basis) of its latest, and biggest, hit - the iPhone. Last year's iPhone 6s was a major factor in that decline and this year's iPhone 7 does not look like it has jumpstarted Apple back into aggressive growth.

There is one area of Apple doing well: Services. That is the division that includes the App Store and iTunes and other virtual goods. Indeed, Apple's last earnings statement had the headline "Services Revenue Grows 24% to All-Time Quarterly Record of $6.3 Billion," as if Services was Apple's most important business.

Advertisement

What was perhaps most intriguing about the panel's discussion is that not even the experts - some of whom have often been cheerleaders for Apple's ability to innovate in the past - have any conviction on the strategic direction Apple is heading. As another member of the UBS panel (Fortune journalist Adam Lashinsky) said: "I'll play both sides of it for you, Steve. On the one hand, they haven't had innovation for a long time and it looks really bleak and it's been six years [if you measure by the iPad, which was introduced in 2010]. On the other hand, if after eight years they do something as big as the iPhone or the iPad or the iPod, then we'll forget about, we'll forget about those doubts."

Apple may be undergoing a huge corporate culture change because 'the hit-driven mindset is demoralizing internally' EXCLUSIVE FREE REPORT:
25 Big Tech Predictions by BI Intelligence. Get the Report Now »

NOW WATCH: How to supercharge your iPhone in 5 minutes