How Apple Could Mess Up, Again

How Apple Could Mess Up, Again
The Innovator's Dilemma author Clayton Christensen outlines his case for why Apple's proprietary strategy will soon fail, just as it did before

by Peter Burrows

These days it's hard to find a pundit willing to question Apple Computer's (AAPL) long-term prospects or the calls of its famous CEO, Steve Jobs. After all, Apple's fortunes have been on the rise for nearly a half-decade now, and they seem to be only gaining steam.

That has caused even some of the most devoted skeptics of years past to stop fretting over Apple's future. For years, many felt that Apple's past mistakes were bound to come back to haunt the Cupertino (Calif.) company -- the refusal to license the Mac OS in the 1980s; the stale products, bloated expenses, and management turmoil that hobbled it in the mid-1990s; the software availability and falling market share that plagued it right into the 21st century. These days, with Apple's stock price the talk of Wall St. and its products once again defining techno-chic, all that's a distant memory.

That is, unless you're Clayton M. Christensen, the Harvard professor and author of the seminal 1997 book The Innovator's Dilemma. Christensen, who more recently wrote Seeing What's Next: Using Theories of Innovation to Predict Industry Change, isn't willing to jump on the Apple bandwagon just yet. As well as Jobs & Co. is performing now, Christensen fears that success is built on a strategy that won't stand the test of time. Christensen spoke with BusinessWeek Computer Editor Peter Burrows on Jan. 5. Edited excerpts follow:

Apple is doing phenomenally well these days. It seems it's doing a textbook job of maintaining huge market share in digital music players, long after most experts thought that share would erode. And it's doing so with the same proprietary strategy that many thought would never stand up to an onslaught from the likes of Microsoft (MSFT), Wal-Mart (WMT), and Yahoo! (YHOO). Can Apple keep it up?

I don't think so. Look at any industry -- not just computers and MP3 players. You also see it in aircrafts and software, and medical devices, and over and over. During the early stages of an industry, when the functionality and reliability of a product isn't yet adequate to meet customer's needs, a proprietary solution is almost always the right solution -- because it allows you to knit all the pieces together in an optimized way.

But once the technology matures and becomes good enough, industry standards emerge. That leads to the standardization of interfaces, which lets companies specialize on pieces of the overall system, and the product becomes modular. At that point, the competitive advantage of the early leader dissipates, and the ability to make money migrates to whoever controls the performance-defining subsystem.

In the modular PC world, that meant Microsoft and Intel (INTC), and the same thing will happen in the iPod world as well. Apple may think the proprietary iPod is their competitive advantage, but it's temporary. In the future, what will matter will be the software inside that lets users find exactly the kind of music they want to listen to, when and where they want to, with minimal effort.

But Apple has that software. It can be the one to provide that to everyone else, if it chose to, right?

I'm concerned that they'll miss it. It's the fork in the road -- and it's comparable to the fork they faced when they chose not to open up the Mac in the 1980s, when they let Microsoft become Microsoft.

How long will Apple have to make this change?

I'd be very surprised if three years from now, the proprietary architecture is as dominant as it is now. Think about the PC. Apple dominated the market in 1983, but by 1987, the industry-standard companies, such as IBM (IBM) and Compaq, had begun to take over.

But let's assume Apple has learned its lesson, and that it's intent to not repeat history.