If He's So Smart...Steve Jobs, Apple, and the Limits of Innovation

But wait. What can possibly be wrong with that? After all, we worship innovation as an absolute corporate good, along with such things as teamwork and leadership. Even more than these virtues, it has come to be seen as synonymous with growth. Political economists have assigned tremendous significance to it since at least the mid-20th century. Innovation is at the heart of Joseph Schumpeter's idea of creative destruction, for example: the process of "industrial mutation" that keeps markets healthy and progressive. Management theorists embraced the notion in the intervening decades, and a stream of academic papers and books promoting innovation as the critical element of business success issued forth from the likes of Peters and Drucker, Foster and Christensen. Innovate or die, we were told. It's the core of excellence and the root of entrepreneurship. It's the attacker's advantage, the new imperative, the explosion, the dilemma and the solution. (You can play this game at home, too, with any of the 49,529 titles that come up for "innovation" on Amazon.) And yet it's hard to look at Apple without wondering if innovation is really all it's cracked up to be.

Nor is Apple's the only case that should give us pause. Truth is, some of the most innovative institutions in the history of American business have been colossal failures. Xerox Corp.'s famed Palo Alto Research Center (Xerox PARC) gave the world laser printing, ethernet, and even the beginnings of the graphical user interface--later developed by Apple--yet is notorious for never having made any money at all. Polaroid, which introduced us to instant images decades before digital photography, collapsed under mismanagement and filed for Chapter 11 bankruptcy protection in October 2001. The Internet boom of the late 1990s, of course, now stands revealed as a sinkhole of economically worthless innovation. ("I know: Let's offer online ordering and free delivery of $1.49 bags of Cheez Doodles!") And Enron was arguably the most innovative financial company ever. So it turns out that not all innovation is equal. Not all of it is even good.

But the paradox of Apple is in many ways more disturbing because its innovations haven't been precommercial, like Xerox PARC's; they haven't been superseded, like Polaroid's; they haven't been frivolous, like those of the dotcom bubble; and they haven't been destructive, like Enron's. They've been powerful, successful, useful, cool. Since its earliest days, Apple has been hands-down the most innovative company in its industry--and easily one of the most innovative in all of corporate America.

Jobs was justly proud as he regaled his audience of 3,700 at the Palais des Congres in September. He prowled the stage for two hours, exulting in the details of Apple's numerous 2003 product launches. Chief among them were the new G5 desktop, the first 64-bit computer and the industry's fastest ever; a new operating system called Panther; a 15-inch laptop that comes with an ambient-lit keyboard for working in the dark; and Apple's first wireless mouse. Even by Apple standards, it was a banner year for snazzy new gear.

And as if that weren't enough, Jobs then reminded the crowd of the year's most important product debut, Apple's digital-music store known as iTunes. When it was launched in late April, iTunes became the first legal, pay-as-you-go method for downloading individual tracks of recorded music. Music fans and the recording industry alike loved it, and by the end of the year, more than 20 million songs had been purchased and downloaded off Apple's site. Soon the trade press was touting iTunes as "revolutionary," "groundbreaking," and a "paradigm shift" for the market. Time magazine recently hailed it as the "Coolest Invention of 2003."

But even in that banner year, Apple's creative energy hasn't amounted to very much in financial terms. For its fiscal year ending September 27, 2003, Apple reported just $6.2 billion in revenues, three-quarters of it from the sale of personal computers. The father of the PC--and, remember, the industry's number-one vendor in 1980--has since sunk to a lowly ninth, behind competitors Dell, Hewlett-Packard, and IBM, just for starters. Sadly, Apple is also behind such no-namers as Acer (seventh) and Legend (eighth). So much for innovation and creativity. These clone-makers, based respectively in Taiwan and China, exist solely to churn out gray boxes at the lowest possible cost. It may very well be that, without its relentless innovation, Apple would have simply ceased to exist long ago, going the way of Commodore and Kaypro in this unforgivingly Darwinian industry. But all its creativity certainly hasn't put it at the top of the food chain.