Three Takeaways from Apple CEO, Tim Cook’s Testimony to Congress

Congressional hearings are known for their grandstanding; and tech entrepreneurs are known for seeing the world as it can be.  So when four tech CEOs of the largest companies in the world stand in front of Congress to talk about the states of their company, industry and actions, there are bound to be some interesting takeaways – even if they’re facing each other over the Internet.

Between the political soapboxes posing as questions (from both sides of the aisle) and the brilliant minds finding their ways to spin the stories so the entrepreneurs sound benevolent and as if their companies are going to be toppled tomorrow by somebody who comes out of nowhere with a new technology, it was actually fun to watch.  We’ll address the testimonies of the CEOs from Google, Facebook and Amazon later, as well as what we took away from the whole darn affair.  For now, let’s look at a few of the highlights from Tim Cook’s testimony.

Keep in mind that Mr. Cook, with Apple since 1999 and with an MBA from Duke’s Fuqua School (a few years after I was there), was an architect of the company that we see today.  Standing in the shadow of Steve Jobs, Mr. Cook was responsible for building the processes and making sure the business was strong while the visionary hat was worn by others.  His demeanor doesn’t require him to be the center of attention, and his testimony today exuded the same home-spun qualities, even as he stood his ground on both facts and viewpoints; and didn’t let the steam roller flatten him.

A few key takeaways:

1.     Apple does not dominate any market

On one level, he was absolutely accurate.  In Q1 2020, the company sold 46% of all cell phones, which at this point is the market with which they are best known as the key player.  In 2019, they owned a 7% share of personal computers, in fourth place, well behind Lenovo, HP and Dell, each of which owning more than double Apple’s share.  And the company is number 2 in smartphone operating system market share in which Google’s Android OS holds more than half.  (According to Statcounter, Google’s share, at 74% is 3x Apple’s iOS market share at 25%, with the others each having less and than 1% share.)

In the $365 Billion App market, Google Play Store features 50% more apps than Apple’s AppStore (3.3 million to 2.2 million).

So it seems like Apple continues to play second fiddle to others – and Cook would seem to have you think that it means that not being number 1 in the broadly defined market means they are not a dominant company.  But there are a lot of ways to cut markets; and the disparity in these statistics are highly related to the way Apple works.  They own their stack with highly intertwined hardware, operating system, and applications.  Compare that to Google, who licenses their mobile OS, Android, to other hardware and whose Pixel phone brand is a bit player from a hardware standpoint in that market, at least compared to Apple and Samsung.  Similarly, the most dominant operating system for computers is Microsoft Windows; and Microsoft’s Surface computer doesn’t even break the top five vendors for computer sales.

It’s a good position for Mr. Cook to take, as it helps him position Google, Facebook and Amazon as the three bad guys to blame, because they each have very high market share in at least one very important market for the US and global economies.

Keep in mind that you don’t have to be THE dominant player to be A dominant player and to push your weight around.  For instance, Apple’s surge in computer market share to their current position was in large part created when the iPhone surged to what was once the dominant position in mobile phones.  When the AppStore started, developers needed to get in on the action, and the Android PlayStore wasn’t born yet.  But development for the iPhone had to be done on a Mac.  So many developers traded in their primary Windows computers for the Mac; and many of them (perhaps most of them; I don’t have that stat) have stayed.

2.     Apple Concentrates on Quality; not on Quantity

That’s so true on a number of levels.  Apple has achieved their position by providing a quality product for those who wanted to have the best – or the best designed – or the coolest.  Apple typically starts high, stays high, and only occasionally goes down market for economy pricing.  Often their economy models are not new technology on the cheap; they’re the older models, recycled with new bells & whistles and smaller configurations.  So they keep their quality product, without letting the large price conscious market slip away.

Similarly, while I haven’t seen all the analysis that goes on at Apple, I am confident that much of it has the goal of optimizing profit while growing revenue.  After all, Mr. Cook and I shared some of the same teachers at Duke; and that’s a main tenet of how they trained me.  So I can stand confident that while quality products is how they concentrate their brand, that their seedling products would not stand the rigors of product marketing if they weren’t expected to sell enough to reach extensive goals on the revenue side as well as profits.  Importantly, stock price is key; and in the tech industry, healthy growth forecasts creates higher stock prices.  You can read that as: quantity is important.

3.     If Apple is the Gatekeeper to Apps; then Apple has Opened the Gates

Spot on correct.  Apple has enabled applications developers at every step of the way for the mobile market while keeping tight fisted control over almost every aspect of how they get to market, are supported, and get paid.

This is not a bad thing if monopoly power is not wielded to hurt the app makers; and there is question on the part of the Congressional committee as to whether Apple has favored its own apps over third party apps – a fair question to ask.  In general, though, it is in Apple’s best interest to nurture a growing app ecosystem, for a number of reasons.

Take the stat I mentioned earlier – 2.2 million apps in the Apple AppStore.  There’s a lot behind that.  First, as I mentioned earlier, if you need a Mac (or even if it’s just easier with a Mac) to create apps, it spurs a lot of sales of Apple product to developers.  Add to that a trickle-down effect to all the people who rely on those developers for guidance in buying products – and all those iPhone users who buy iPhone because their favorite app is on Apple’s iOS/iPhone when it might not be on Android (or in some cases, might not be as good as Android).

Then there are the fees that Apple charges just to be in the game.  Most consumers are not aware that every person who wants to have access to the AppStore for development needs to pay $99 annually for that privilege.  That’s $218 Million in annual revenue alone – high variable margin.  A quarter billion dollars of revenue that they can count on year after year.  And since my computation is based on one developer per app, it understates that revenue significantly; perhaps it’s a half-billion annually.  If they can increase the number of apps by 10%, that’s a cool $20 million in annual revenue (again, probably understated) without doing a thing.

The biggest advantage of Apple wanting to open the gate, though, to more paid applications is because they get a piece of the sales revenue – up to 30% for each application that is sold in their ecosystem.  They have a vested interest in having more apps that are paid, not free, and if these app developers can raise their prices, Apple wins.  They have no reason to try to push the price level down except if it sells more units to take in more revenue than it loses due to the lower price.  (For a great discussion on this concept, read Peter Theil’s Zero to One.  I figure if Mr Theil’s name can be brought up in the hearing for his relationship with Facebook, I can bring it up here for education purposes – even if I am leading you to his book on Amazon.  Hey, aren’t we concerned that they have dominant market share too.  It’s in part because other people are also referencing products on Amazon, like I’m doing for you.)

The Unsaid (so far) Takeaway

There is good reason that Mr. Cook and the other tech CEOs should be on the stand, although after listening for several hours, I don’t think many of them were brought up for more than a passing moment; and not in a manner in which real solutions could be expected.  But it did give Americans a chance to see them and maybe a bit about what they think.

Mr Cook did a great job of positioning Apple as the player that may be least threatening to the global and US economy.  And he did set fire to the others by planting the seed that market dominance is the key ingredient (like Google’s in search and advertising; Amazon in online retail platform; Facebook in well, you name it, not just social).  He did it in a believable way, and had an opportunity to speak his piece, which was not afforded to all the participants.

I’ll talk later about some of the other issues raised here, the other CEO testimonies, and some real threats that may not have been messaged adequately by any member of the committee.  In the meantime, please feel free to watch some of the expert panels that I was lucky enough to moderate.  They’re available to view on-demand on my channel at YouTube.  (Speaking of another dominant tech player).  If you like them, please subscribe to the channel.  There is more coming.

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David Radin is CEO at MMasters Corporation, and CEO of Confirmed LLC.  A long-time tech entrepreneur, tech/business columnist and author, David is a keynote speaker, trainer, and consultant.  He has hosted a national radio show and has helped companies large and small.

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