My Apple Analysis Track Record: Circa 2007

[Guest valueInv]

I thought it would be fun to go back and see how my past analysis worked out.

 

In 2007, I saw Jobs announce the iPhone. It had just been announced but not yet released.  No one had held the device, much less use it.The blogs were on fire, with most pooh-poohing it. Its was too expensive, it would never work, the battery life would be horrible, Apple did not know how to sell a phone, etc.  I thought about it for a few days and on Sat evening, I decided that it was worthy of an email to my friends and teachers. This was a time of the iPod and BB.

 

I've copied and pasted the email below. There were a lot of things that I did not have answers to;And a couple of predictions that will likely come true only in the next few years. I got a lot of things wrong. But then again, I got a few right.

 

Subject: A Historic Day, Indeed.

Date: Saturday, January 13, 2007 6:16 PM

 

Many of us watched the events unfold at Moscone center this week in complete awe realizing that Steve Jobs’ keynote

may have changed the consumer technology industry forever. Apple has pushed the efficiency frontier of mobile computing and

entertainment with a quantum leap in capabilities.

 

The significance of the iphone is that it alleviates the primary bottleneck that has encumbered mobile devices so far– the user interface.

A full screen for output and a new method for input hold the promise to make the interaction with the device far richer. This in turn opens up

tremendous new possibilities for applications and services on the iphone. The operating system and the processor seem powerful enough to further multiply

the possibilities. With full functionality, it wouldn’t surprise me if the iphone conquered both consumer and corporate markets. With the barricade of

up to 200 possible patents and the limited technical & design capabilities of competitors, it seems likely the iphone will dominate for years to come.

One only has took look at the incremental capabilities between successive releases of smart phones to get an idea of how long it would take competitors

to match the iphone’s capabilities. Unfortunately for competitors, the iphone is not built out of of-the-shelf components like the ipod.

 

Apple TV gives the company a foothold into the living room. With it, Apple now has launched a bid to dominate the four main locations at which

we interact with content: desktop/laptops, the living room, mobile devices and the car (with the ipod). These four points now form a foundation for Apple to build many more products, services, integrations, content distribution channels and features in the years to come. The interaction of the three product lines is what makes this keynote so interesting.If a two-way interaction between a single function device (the ipod) and personal computing was able to create a halo effect that (by some accounts) doubled Apple’s desktop/laptop market share, what kind of a halo effect will the new four way interaction between Apple’s product lines create? The halo effect is likely to be further strengthened by the fact that Apple TV and the iphone are both  multi-function devices. Now, the iphone can pull users into not only itunes but also Apple’s PIM application.

 

Amazingly, Jobs has pulled of such a feat with the releases today with the very strategy that history has condemned him for. In the past, he has come under sharp criticism for following an integrated strategy while Microsoft stole the market with its army of hardware partners and third party developers. Yet today, that camp seems increasingly vulnerable and (in comparison) unable to innovate. Apple seems set to gain increasing volume (and hence scale advantages) despite its high price point while a majority of the value chain of the Wintel camp seems to be sinking in the quicksand of commoditization. Apple seems to set to move further into vertical integration as evidenced by the lack of capability to install third party applications on the phone. Such heresy in the age of mashups?

 

It may be that Apple is simply repeating the Newton story with the iphone. There are many areas where the iphone may fail to deliver such as battery life, keyboard performance, etc.  Regardless of the deficiencies, Apple has set effectively the industry benchmark for mobile devices this week. Whether the device succeeds or fails, it effect of the presentation in the blogosphere and the internet leaves no doubt it my mind that the iphone will be held as the gold standard that all other devices will aspire to.

[txlaw]

Whoa, you've jumped the shark on this one.

 

I've been pretty entertained by the AAPL discussion for a while now, but good lord . . . ;D

[bmichaud]

Whoa, you've jumped the shark on this one.

 

I've been pretty entertained by the AAPL discussion for a while now, but good lord . . . ;D

 

 

hahahahahahah

[Palantir]

And yet you won't tell us your estimate of Apple's intrinsic value.

[Guest valueInv]

Whoa, you've jumped the shark on this one.

 

I've been pretty entertained by the AAPL discussion for a while now, but good lord . . . ;D

 

 

Not as much as I've been entertained by your buzzword bingo on the RIM and Dell threads.  ;D

You like to pretend that you never said things or reframe your posts as "speculation" once you've been proven wrong.

 

Me - I am happy to be judged for my track record.

[texual]

Easy boys. Its Friday!

[Guest valueInv]

Easy boys. Its Friday!

 

Believe me, if it was Sat, he would've gotten a more fitting response .

[Parsad]

Easy boys. Its Friday!

 

Yes, and a week before Christmas...err, Berkshire Hathaway AGM.  Santa...I mean Warren...is watching!  ;D  Cheers!

[nkp007]

http://en.wikipedia.org/wiki/Cognitive_dissonance

 

In modern psychology, cognitive dissonance is the discomfort experienced when simultaneously holding two or more conflicting cognitions: ideas, beliefs, values or emotional reactions. In a state of dissonance, people may sometimes feel "disequilibrium": frustration, hunger, dread, guilt, anger, embarrassment, anxiety, etc.[1] The phrase was coined by Leon Festinger in his 1956 book When Prophecy Fails, which chronicled the followers of a UFO cult as reality clashed with their fervent belief in an impending apocalypse.[2][3] Festinger subsequently (1957) published a book called A Theory of Cognitive Dissonance in which he outlines the theory. Cognitive dissonance is one of the most influential and extensively studied theories in social psychology.

 

The theory of cognitive dissonance in social psychology proposes that people have a motivational drive to reduce dissonance by altering existing cognitions, adding new ones to create a consistent belief system, or alternatively by reducing the importance of any one of the dissonant elements.[1] It is the distressing mental state that people feel when they "find themselves doing things that don't fit with what they know, or having opinions that do not fit with other opinions they hold."[4] A key assumption is that people want their expectations to meet reality, creating a sense of equilibrium.[5] Likewise, another assumption is that a person will avoid situations or information sources that give rise to feelings of uneasiness, or dissonance.[1]

 

Cognitive dissonance theory explains human behavior by positing that people have a bias to seek consonance between their expectations and reality. According to Festinger, people engage in a process he termed "dissonance reduction", which can be achieved in one of three ways: lowering the importance of one of the discordant factors, adding consonant elements, or changing one of the dissonant factors.[6] This bias sheds light on otherwise puzzling, irrational, and even destructive behavior.

 

Note: I don't have an investment in Apple either way. It is likely to go up as it is to go down. Either way, I don't care. However, the trumpeting of an uncertain situation as a certain one reeks of CD.

[Yours Truly]

Where will Apple be in five years?

[kevin4u2]

Sounds like someone should read Buffet's talk at Sun Valley in 2002 on investing in the rear view mirror. 

[CorpRaider]

I want to buy some AAPL.  I'm waiting for my buy signal: a week going by with no posts in the AAPL thread.  ;D

[LC]

Where will Apple be in five years?

Not sure. But I can say with more certainty that it will not be out of business, which is how it's priced today.

[RichardGibbons]

I think it's an interesting email.  Definitely more perceptive than I was at the time.  It wasn't nearly as clear to me that the iPhone was a game-changer.

 

The other thing I find interesting is the areas where you were off a bit.  For instance, the iPhone dominance only lasted a few years, and wasn't sustainable.  Despite iPhone's success, only six years later, Samsung has the dominant phone and is the one pushing the boundaries today.

 

The other interesting one is Apple TV, in that Apple's had this huge lead-time but is very likely to fall to Microsoft's next xBox release.

 

It really goes to show that in tech, even when your prognostications are largely correct, it's extremely difficult to identify in advance something that will turn into a sustainable competitive advantage like that of Microsoft and Google.

[Guest valueInv]

I think it's an interesting email.  Definitely more perceptive than I was at the time.  It wasn't nearly as clear to me that the iPhone was a game-changer.

 

The other thing I find interesting is the areas where you were off a bit.  For instance, the iPhone dominance only lasted a few years, and wasn't sustainable.  Despite iPhone's success, only six years later, Samsung has the dominant phone and is the one pushing the boundaries today.

 

The other interesting one is Apple TV, in that Apple's had this huge lead-time but is very likely to fall to Microsoft's next xBox release.

 

It really goes to show that in tech, even when your prognostications are largely correct, it's extremely difficult to identify in advance something that will turn into a sustainable competitive advantage like that of Microsoft and Google.

 

Keep watching  ;)