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The Open Economy

2015 November 29
by Greg Satell

In a recent Businessweek article Jack Clark explains how Apple’s famously secret culture is inhibiting its ability to compete in artificial intelligence. Simply put, top scientists want to be able to publish openly and be recognized by their peers. At Apple though, they can’t even disclose their positions on social media.

This is in stark contrast to competitors like IBM and Microsoft, whose research divisions do attract world class scientists and allow them to publish openly. Tesla has even taken it a step further and open sourced its patents. Increasingly, technology is becoming less proprietary and more open.

So should Apple worry? Clearly, it remains the world’s most valuable company by far, with arguably unrivaled talent in design and engineering. What’s more, it’s latest earnings report shows that even with its massive scale, the company shows no signs of slowing down. Yet its inability to make headway in crucial technology areas exposes a flaw in how Apple innovates.

What Makes An iPhone Valuable?

To understand Apple’s problem, let’s look at the iPhone, which makes up more than 60% of the company’s revenues. In terms of raw materials, it’s probably not worth more than a few bucks, yet people gladly pay $649 to buy one. The difference, MIT’s Cesar Hidalgo argues in his new book, Why Information Grows, is what he calls “crystallized imagination.”

What Hidalgo means, in a nutshell, is that the special thing about an iPhone is that it embeds the imagination of people like Steve Jobs and Jony Ive. It is their ideas that make Apple products uniquely desirable. Without that, an iPhone is really just a hunk of plastic infused with some rare earth elements from China.

At the same time, it is the lack of people like Steve Jobs and Jony Ive which makes it so hard for places like China, whose minerals are essential to make high tech products, or Germany, a top plastics exporter, to create their own iPhone. If it was just a matter of clumping stuff together, anyone could do it.

Apple is a very special company because it has mastered the art of crystallizing imagination in its products in such a way that they are more desirable—and hence more valuable—than anything anyone else can produce. The problem for Apple, however, is that there is a lot more imagination in the world than Apple can control by itself.

Ecosystems Of Value

If we take a deeper look at an iPhone, we quickly find that it crystallizes the imagination of not only Steve Jobs, Jony Ive and other people who work for Apple, but also lots of others too. For example, Corning makes the glass for its screens. Other companies supply the microchips, batteries and so on.

Go back a little further and it becomes clear that an iPhone crystallizes the imagination of even more people. Von Neumann, Shockley and Engelbart were pivotal figures in the development of computing. Alexander Graham Bell invented the telephone. Maxwell and Faraday discovered the basic principles of electricity. We could note hundreds more.

The iPhone is not unique in this way, nor is this a new phenomenon. As Leonard Read aptly pointed out in his 1966 essay, I, Pencil, the manufacture of even the simplest modern objects are beyond the reach of a single person. Today though, the world has become far more complex and the need to collaborate effectively is even greater.

The Importance Of Diverse Networks

The journal Nature recently noted that the average scientific paper today has four times as many authors as one did in 1950. One reason why is that as we tackle tougher and tougher problems, it becomes less and less likely that any one person—or one company for that matter—will be able to figure out every piece of the puzzle.

What’s more, studies of currency traders and of employees at EMC found that those with the most diverse social networks tend to have the best ideas. So for a really tough problem, not only are you less likely to find someone who has information that can help you in your organization, but in a certain sense the fact that they work with you makes them less useful.

Now we can see Apple’s dilemma. Creating an iPhone is largely a problem of engineering and design. A more complex problem like artificial intelligence, however, pushes the boundaries of what’s possible. Not only do you have to attract really smart people, but those people have to work with a wide and diverse group in order for them to be really smart.

Nobody Can Succeed As An Island

The need to collaborate effectively to tackle more complex problems is a real challenge for Apple. Steve Jobs, recognized the problem himself in a joint interview with Bill Gates in 2007. He said at the time:

 

You know, because Woz and I started the company based on doing the whole banana, we weren’t so good at partnering with people. And, you know, actually, the funny thing is, Microsoft’s one of the few companies we were able to partner with that actually worked for both companies. And we weren’t so good at that, where Bill and Microsoft were really good at it because they didn’t make the whole thing in the early days and they learned how to partner with people really well.

 

Apple’s current CEO, Tim Cook, also seems to recognize the problem and has taken steps to rectify it, such as its partnership with IBM. Yet what I think is really important about Apple’s secrecy problem is that if a firm as successful and well managed as Apple can’t operate as an island, what chance do the rest of us have?

The truth is that we can’t think of competitiveness as a strictly internal matter anymore. We no longer operate in an industrial economy in which we can gain competitive advantage merely through engineering greater efficiency. Rather, we need to widen and deepen connections.

So we can’t continue to think of success in terms of clawing our way to the top of the heap. Rather, we need to learn to position ourselves at the center of networks. Nobody, not even a company as special as Apple, can succeed alone.

– Greg

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