Jun 7th 2007 From The Economist print edition
FOR a company that looked doomed a decade ago, it has been quite a comeback. Today Apple is literally an iconic company. Look at your iPod: the company name appears only in the small print. Some of the power of its brand comes from the extraordinary story of a computer company rescued from near-collapse by its co-founder, Steve Jobs, who returned to Apple in 1997 after years of exile, reinvented it as a consumer-electronics firm and is now taking it into the billion-unit-a-year mobile-phone industry (see article). But mostly Apple's zest comes from its reputation for inventiveness. In polls of the world's most innovative firms it consistently ranks first. From its first computer in 1977 to the mouse-driven Macintosh in 1984, the iPod music-player in 2001 and now the iPhone, which goes on sale in America this month, Apple has prospered by keeping just ahead of the times.
The company, which is shortly to join the S&P 100 index of leading companies, is not without its critics. The not-always-lovable Mr Jobs is still stuck in a greedy-looking share-option "backdating" scandal. The firm has come under attack for refusing to make its operating-system and music-protection software available to others (a price worth paying, Apple responds, for greater reliability and consistency). And there are grumbles about manufacturing defects and customer service.
Apple is hardly alone in the high-tech industry when it comes to duff gadgets and unhelpful call centres, but in other respects it is highly unusual. In particular, it inspires an almost religious fervour among its customers. That is no doubt helped by the fact that its corporate biography is so closely bound up with the mercurial Mr Jobs, a rare showman in his industry. Yet for all its flaws and quirks, Apple has at least four important wider lessons to teach other companies.
Not invented here, and very welcome
The first is that innovation can come from without as well as within. Apple is widely assumed to be an innovator in the tradition of Thomas Edison or Bell Laboratories, locking its engineers away to cook up new ideas and basing products on their moments of inspiration. In fact, its real skill lies in stitching together its own ideas with technologies from outside and then wrapping the results in elegant software and stylish design. The idea for the iPod, for example, was originally dreamt up by a consultant whom Apple hired to run the project. It was assembled by combining off-the-shelf parts with in-house ingredients such as its distinctive, easily used system of controls. And it was designed to work closely with Apple's iTunes jukebox software, which was also bought in and then overhauled and improved. Apple is, in short, an orchestrator and integrator of technologies, unafraid to bring in ideas from outside but always adding its own twists.
This approach, known as "network innovation", is not limited to electronics. It has also been embraced by companies such as Procter & Gamble, BT and several drugs giants, all of which have realised the power of admitting that not all good ideas start at home. Making network innovation work involves cultivating contacts with start-ups and academic researchers, constantly scouting for new ideas and ensuring that engineers do not fall prey to "not invented here" syndrome, which always values in-house ideas over those from outside.
Second, Apple illustrates the importance of designing new products around the needs of the user, not the demands of the technology. Too many technology firms think that clever innards are enough to sell their products, resulting in gizmos designed by engineers for engineers. Apple has consistently combined clever technology with simplicity and ease of use. The iPod was not the first digital-music player, but it was the first to make transferring and organising music, and buying it online, easy enough for almost anyone to have a go. Similarly, the iPhone is not the first mobile phone to incorporate a music-player, web browser or e-mail software. But most existing "smartphones" require you to be pretty smart to use them.
Apple is not alone in its pursuit of simplicity. Philips, a Dutch electronics giant, is trying a similar approach. Niklas Zennström and Janus Friis, perhaps the most Jobsian of Europe's geeks, took an existing but fiddly technology, internet telephony, to a mass audience by making it simple, with Skype; they hope to do the same for internet television. But too few technology firms see "ease of use" as an end in itself.
Stay hungry, stay foolish
Listening to customers is generally a good idea, but it is not the whole story. For all the talk of "user-centric innovation" and allowing feedback from customers to dictate new product designs, a third lesson from Apple is that smart companies should sometimes ignore what the market says it wants today. The iPod was ridiculed when it was launched in 2001, but Mr Jobs stuck by his instinct. Nintendo has done something similar with its popular motion-controlled video-game console, the Wii. Rather than designing a machine for existing gamers, it gambled that non-gamers represented an untapped market and devised a machine with far broader appeal.
The fourth lesson from Apple is to "fail wisely". The Macintosh was born from the wreckage of the Lisa, an earlier product that flopped; the iPhone is a response to the failure of Apple's original music phone, produced in conjunction with Motorola. Both times, Apple learned from its mistakes and tried again. Its recent computers have been based on technology developed at NeXT, a company Mr Jobs set up in the 1980s that appeared to have failed and was then acquired by Apple. The wider lesson is not to stigmatise failure but to tolerate it and learn from it: Europe's inability to create a rival to Silicon Valley owes much to its tougher bankruptcy laws.
None of these things, of course, guarantees success: you can buy in clever ideas, pursue simplicity, ignore focus groups and fail wisely—and still go bust. Apple very nearly did so itself. No doubt the bumptious Mr Jobs will overreach himself again: the iPhone's success is not guaranteed. But for the moment at least it is hard to think of a large company that better epitomises the art of innovation than Apple.