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Forbes.com

 

Has Apple Peaked? Hardly.

May 14, 2012

By Mark P. Mills

In 1980, no one – no one – anticipated what Apple would become. That era was dominated by Central Computing. No one foresaw the revolution Distributed Computing would unleash. Hundreds of new companies emerged, many old ones evaporated, and millions of new jobs were created in an employment tsunami that transformed American businesses for the next two decades.

I wrote about this massive transformation recently in the San Diego paper – and why we are now on the cusp of a similar tech revolution. But the trillion dollar question circulating in the investor community is whether Apple’s value [NASDAQ:AAPL] has peaked, like those companies it ended up pushing aside back when Ronald Reagan was in the White House?

To see where Apple is trending, don’t look at SEC filings or slick media events. Look to the emerging technologies epitomized by three tiny companies: Narrative Science, Audience [NASDAQ:ADNC], and Touché (the latter not even a company yet). These software innovators illuminate the future of computing, and Apple – and whatever we’ll end up calling the emerging post-Internet Cloud-centric era.

Noting that scale alone is no guarantee of survival (just ask investors in PanAm, Sears and many others) fellow Forbes contributor Eric Jackson forecasts a short life for two current tech giants, Google [NASDAQ:GOOG] and Facebook. But on Apple’s future he punted, and I respectfully point out he made the mistake of labeling Apple "a hardware company." I believe Apple’s success and future are anchored in software.

Of course Apple uses and makes hardware too, consummate hardware. But software is what differentiated Apple from the get-go, software built on a silicon computing revolution developed by others. Can Apple, can anyone, bring as much progress to the user-interface as Apple’s three original core software innovations? To answer that, consider what Apple did at its outset to make computing friendly, setting a standard subsequently emulated by competitors.

The magic of the 1984 Mac and its progeny resides first in its underlying software operating system (OS) – the reason early Macs didn’t freeze or even get infected. The OS was fast, stable, and consumer-friendly. Everything else at that time was clunky, complex or confusing.

The second software brilliance was in the graphical-user-interface (GUI) – what the screen looked like. If you don’t remember, Google-Image a picture of a typical computer screen from 1979. Greek. The Apple GUI was huge, revolutionary. Of course it was copied.

The third innovation was another man-machine interface – the mouse. Yes, it was a piece of hardware, but the innovation wasn’t the little beige box with a roller wheel. It was the software that interpreted what you did as you scrolled around. This feature beat the socks off typing in long strings of arcane keyboard instructions.

All together, that trifecta of software tamed the underlying powerful logic engines. In simplistic terms, that user-friendly software did the same for logic engines what automatic transmissions, power steering and power brakes did to tame the internal combustion engine and launch the age of the automobile.

There were other computing incumbents circa 1980. Apple didn’t invent the microprocessor, the floppy drive, or the low-cost cathode-ray-tube screen that were the PC’s physical platform. Apple’s physical design – packaging — was distinctive and compelling both then and now. But if the first Mac in that unique box had the operating system and interfaces of, say, those early PCs, or DEC’s engineering-centric minicomputers, Apple would never have become Apple.

Apple continues to ride the wave of advances in hardware; microprocessors, radio chips, display screens, batteries, etc. And they continue to design elegant, sometimes downright beautiful packaging. But what do they have up their sleeve to make computing ever easier, simpler, more intuitive and natural?

Since Apple is highly secretive about what’s going on in their Skunk Works, we can only deduce the future from one recently deployed software feature and two more about which I’ll speculate. All radically advance the human-machine interface that can change computing as much in the next couple of decades as those following 1984.

We begin of course with Siri voice navigation on the latest iPhone. A good part of what Siri (and S voice on the Samsung) can do comes from the software embedded in the logic chips from Audience, a small software-anchored tech company that successfully went public last week. Audience’s sophisticated algorithms emulate how humans hear voices by focusing on the signal instead of trying to eliminate background noise. This sounds easy, but the Bell Lab brainiacs started to try to solve this problem, unsuccessfully, back in the 1980s.

It’s far easier to ask your iPhone something like, "when was Steve Jobs born?" than to type the question in Google. This idea didn’t escape Google with it’s own voice recognition, but with Audience’s software the audio interface gets that much better. Useful voice recognition, via software, is here and getting better all the time. As it becomes ubiquitous, and inevitably selective to just use your voice if you want, "search" becomes a native device feature bypassing Google’s iconic homepage, and maybe hollows them out (if they don’t keep migrating as well).

Audience has competition of course. We’ll see how they innovate. But the ability to talk to your computer, iPad or TV (soon?) sure beats the mouse and its descendant, the touch-screen.

Then there’s Touché, not a company yet, but a software-centric research team from Disney ResearchPittsburgh and and Carnegie Mellon. They’ve come up with another leap forward for the human interface. Watch the video. It will boggle. Touché’s innovation radically enhances not just interaction with your smart phone, but every thing around you as we move in to the world of the Internet of Things, all ubiquitously connected with the Cloud.

Touché’s software recognizes not just touch, but what and how you touch, everything from a pinch, to recognizing the number of fingers, a whole hand, an arm or number of arms resting on a table. It doesn’t just recognize your touching a screen – but your touching anything from your own arm, to doorknobs and even water. Current touch-screen technology recognizes the electric capacitance change from the touch of your finger – but it effectively works like a simple on-off switch. Touché’s software scans all the nuances of the pattern of electrical changes associated with all manner of touches.

With Touché a simple App could you turn on your phone when you touch the back of your left hand with two fingers from your right hand – yes, touch your hand not the phone. The possibilities for ease-of-use, for gaming, for medicine, are limitless. There’s nothing I can find that reveals what Apple thinks about Touché. Will Apple be the one that unleashes Touché’s potential? We’ll see, but it’s a decent bet.

Finally, the third piece of human interface in this Holy Trinity of emerging interface software is how the Cloud presents data to you. That’s where Narrative Science comes in, a private company spun out of Northwestern University. When you Siri search for the latest MLB scores, the screen shows you a hard-to-read data table. With Narrative Science software, the table is instantly converted to a simple journalism-style story that looks like it was penned by a sports writer.

Narrative Science’s Web site is telegraphic. The power here is not, of course, in sports data, but in the exabytes of data accessible across every kind of business that are generally opaque to quick interpretation – data that Narrative can now instantly render into clear text. It would be a small leap (though Narrative apparently doesn’t discuss this) to have the narrative read aloud as well.

Narrative Science epitomizes the emerging software era of intuitive analytics. Many more similar will come, but I expect Narrative to be a leader. Is Apple making their own version, or talking to Narrative? Dunno. But I’d be stunned if both weren’t the case.

It bears noting that when you talk to Siri you’re really talking to the supercomputing capability in the Cloud – the iPhone is just an adroit conduit. The power is in the Cloud. Think of an iPhone as the Forest Gump of computing; always in the right place, at the right time. Mama Cloud has the brains. This completely eclipses even the wildest imaginings of science fiction from Arthur C. Clarke with HAL of 2001 fame. ("Are you still there, Dave?")

While any company can tap into these new capabilities in theory – that was true in 1980 too — Apple still exhibits the right creative DNA. It also has scale now, but sometimes scale is not your friend. Could Apple emulate IBM’s 1980 strategy to survive Apple? (In 1980, IBM sent a team to Florida, away from corporate, to independently function like a quasi-start-up to invent their own PC, unveiled in 1981.)

Once Apple blew past Exxon [NYSE:XOM] to become the world’s largest market-cap company, speculation about Apple’s future became a sport, not just an investment question. Is it a bubble or a beast on track to the never-seen trillion-dollar market cap?

Apple could end up like IBM circa 1965 when IBM had a 65 percent share of the computing market. The seven major competitors at that time were called the Seven Dwarves. Not one of those seven, and many were big companies, either survived at all or stayed in the computing business. (For the historians the "dwarves" were Burroughs, Sperry, Control Data, Honeywell, General Electric, RCA, NCR.)

Not all of Apple’s competitor companies are dwarf-like. The most daunting is Samsung with its Galaxy, an excellent iPhone option. Apple and Samsung have roughly co-equal global shares of the high-end smart-phone market. But Samsung is a GE-like $220 billion revenue Korean conglomerate. And while its electronics division is about the same size as Apple, Samsung’s market cap is a fraction of Apple’s. You have to wonder if Samsung might spin-off their Apple-like beast from within the mother ship to unlock value. Supposedly it’s not the Korean way. We’ll see.

Meanwhile, there is something delicious in juxtaposing the world’s two largest market cap companies. Apple, on the one hand, is anchored in the business of moving information and bits. Exxon on the other, is anchored in atoms, i.e., moving people and stuff.

It’s a safe bet that both domains expand. It’s hard to imagine a world (though some try) where Exxon doesn’t grow. The unmet demand for driving and flying is still huge globally. But growth in the atoms-moving economy is moderated by inertia and thermodynamics. That explains why Exxon’s $480 billion in sales, more than triple Apple’s, still yields a lower market cap. The market votes on future growth.

The fact is, in the bits-centric world where Moore’s Law and math-centric algorithms dominate, growth will be torrid for decades yet. And the unmet demand for gigabytes is astronomically bigger than for gallons. At their current employee-to-revenue ratio, if Apple grows to the employee-size of IBM today, it would approach $1 trillion in sales.

What a world that would be: wireless pipes filled with bits lacing the planet, connecting every human to hundreds of thousands of supercomputing data-centers, with Apple at the epicenter. Wonder what HAL would think?

Original Source: http://www.forbes.com/sites/markpmills/2012/05/14/has-apple-peaked-hardly/

 

 
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