Spin off a joint venture or two.
Apple’s internal corporate structure is unusual for a large company because it’s built almost entirely around functional groups defined by expertise (design, software engineering, hardware engineering, hardware technology) rather than divisions structured by products (iPhone and iPads, Macs, peripherals). This strongly functional structure is the main reason Apple has started struggling with the seemingly banal task of keeping its pro-level personal computers, and especially its Mac Pro desktop, up to date with the latest and most powerful computer chips.
Functional organization means Apple can put enormous resources behind top priorities. In recent years, that’s meant regular updates to the iPhone (which drives the bulk of the company’s revenue) plus exciting new projects like the Apple Watch and exploring the car business. But at the same time, the entire Mac universe took a back seat, and in particular desktop Macs took a back seat to laptops. More broadly, boring stuff like upgrading graphics cards took a back seat to envelope-pushing new technology.
At the same time, as Apple’s closest observers know this functional organization is one of Apple’s core strengths. As Jonathan Gruber writes, “if Apple had a standalone Macintosh division, there might never have been an iPhone or especially iPad, because the Mac division chief would have been motivated to protect the Mac.”
Gruber is almost certainly correct. Restructuring Apple into conventional divisions with independent profit and loss lines would resolve one current set of salient problems, but also set Apple up for exactly what it most fears — becoming a company that loses its agility and unique strengths. That said, Gruber’s faith that Apple will recover from current problems simply because “Apple ran into ‘can’t walk and chew gum’ problems even when they were a much smaller company” and recovered strikes me as excessively complacent.
Things really do get harder when you reach a bigger scale, and Apple ought to do something structural to address problems while retaining its functional core. My suggestion: a joint venture or two.
The Mac Pro is essential, but a poor fit
Apple’s functional organization causes the greatest and clearest pain when it comes to the Mac Pro, which is supposed to be Apple’s high-end workstation.
One basic problem here is that high-end workstations are a small share of the personal computer market, and Macs are also a small share of the personal computer market. Put the two together, and there just aren’t very many customers for high-end workstation Macs. So it never makes sense for Apple’s key decision-makers to spend a lot of time thinking about this corner of the market.
Yet it’s also not a market Apple can afford to totally ignore. Having a high-end workstation also keeps some of Apple’s most loyal and lucrative customers happy — especially in graphics, video, and scientific research. That, in turn, helps to ensure there’s a healthy market for Mac software, which in turn benefits everyone who uses the Mac.
Customers for high-end workstations also include an even more crucial constituency: professional computer programmers — the people who write the software that other Mac and iPhone and iPad users use. Having those people use a Mac instead of a Windows or Linux workstation is a huge strategic asset for Apple.
The other problem, however, is that the priorities of workstation customers are simply a poor fit for Apple’s corporate values. A person who genuinely needs raw computing power for his or her professional work needs to care a lot about a computer’s value proposition in terms of pure specs. He also needs to care a lot about upgradeability.
A huge amount of Apple’s success in the marketplace has come precisely from ignoring those values. Computers started as professional gear, but the pocket computers we call smartphones are very much personal devices. They are affordable luxury items, whose buyers are willing to pay a premium over what the internal components really cost for the sake of obtaining something that’s really nice and user-friendly.
The nexus of these two things means that Apple is never really focused on what workstation customers really want, which is basically a big box full of super-powerful chips that have all been configured properly to run Mac OS. The last time Apple really made a computer like that was the 2010 Mac Pro, that then went years without an update. Then in late 2013 they went in a new direction and updated Mac Pro hardware in the context of a radical new innovative design. It was a cool product but had very limited upgradeability, and since its release Apple has allowed its internals to become obsolete.
Because it’s a small market, none of that hurts the company on a day-to-day basis. Reorganizing the whole company to serve this niche market would be a mistake. But neglecting its needs is dangerous.
Mac Desktops, Inc. could solve the problem
One natural solution would be to try to form a joint venture with a company like Dell or Lenovo that currently makes tower-style PCs.
You’d have a new, separately incorporated entity called Mac Desktops, Inc. with its own CEO and its own headquarters — ideally someplace far away from Cupertino (Dell’s home outside of Austin or Lenovo’s US base of operations in Morristown, North Carolina, would work fine). The company would be jointly owned by Apple and the partner company, with the partner probably supplying most of the executives and Apple supplying a license to use Mac OS in a standalone, high-end desktop computer that replaces the Mac Pro. Jonny Ive’s design group could bequeath to them a sketch of a distinctive-looking desktop computer tower if they felt like it, but could also not bother if they don’t care.
As a standalone company, Mac Desktops would be fully incentivized to keep its eye on the ball and maintain laser-like focus on working out cost-effective configurations of high-end hardware that are compatible with Mac OS.
This is already done in a rough-and-ready way by “hackintosh” enthusiasts who regularly assemble buyers’ guides of usable hardware that hobbyists can build themselves before using a kludgy workaround to install Mac OS on unauthorized equipment. It would require very little work on Apple’s part to allow an authorized joint venture to do this seamlessly and market the resulting prepackaged machines to pro power users. The computers could also be sold in Apple retail stores and on Apple’s website, or if Ive finds them too aesthetically offensive to be placed alongside his beautiful objects they could be sold elsewhere instead. The pro users who need these machines will know where to find them.
The basic conflict inherent in a divisional setup would still exist here, but the problems would flow in the right direction. Apple, as the part-parent company, would prevent Mac Desktops from reaching its full potential by vetoing any effort to compete with the all-in-one iMac or various laptop and tablet markets. Mac Desktops would be hobbled from the start, limited to a niche market and unlikely to ever grow very big. Still, the cash flow to the partner company would be welcome — especially since non-Apple PC makers are already used to dealing with slim margins and limited growth prospects. And for Apple itself, the real advantage would be strategic — the knowledge that developers and other power users would never face pressure to abandon the Mac ecosystem in the pursuit of horsepower.
The joint venture concept could expand
Of course, a manufacturer of standalone desktop computers might want to expand into natural complements like monitors, mice, keyboards, and trackpads.
Apple used to make monitors but recently announced an end to that. And while they still make a keyboard, it’s a bit of an odd product that seems derived from the company’s ongoing efforts to engineer ever-thinner laptop keyboards. That’s an important part of the company’s overall design goals for portable products, but obviously a keyboard that sits on your desk doesn’t have any particular need to be thin. Many people (I’m one) find keyboards with longer travel distances or even old-school mechanical switches to be more comfortable. Others have special ergonomic needs or like wide keyboards with numerical pads.
Apple has good reason for not bothering too much with this kind of thing that would be a distraction from more pressing matters. But there is a market for these products, and making ones that are deliberately designed for maximum Mac compatibility would be a reasonable approach for a joint venture.
Alternatively, Apple might prefer to try separate joint ventures. They informally partnered with LG on LG’s new SuperFine 4k display (and on a forthcoming 5k version) and you could imagine that partnership expanding into a more formal and larger effort to make a complete line of peripherals. Partnerships of various kinds are already a big part of Apple’s strategy for making watch bands, and it’s reasonable to think that will expand with Apple focusing on the core technology product while others work on endlessly iterating the more fashion-focused band aspect.
This approach has some downsides, of course, compared with Apple’s traditional approach of trying to directly control as much of the relevant computing stack as possible. But that focus on control, paired with a functional organizational structure and an obvious financial need to keep expanding into new product categories poses a dilemma: A single executive team simply can’t do everything at once.
Apple needs to keep iterating the iPhone. It needs to keep trying to develop new hardware products. And it needs to play catchup on the online services front. That’s going to make it really difficult to do anything other than neglect lower priorities. But simply ignoring niche products is dangerous, since in the end casual Mac users rely on the work of high-end professionals to drive the entire ecosystem forward.
A network of joint ventures might strike the right balance between maintaining focus in Cupertino and keeping a hand in the small-but-important markets that are currently flagging.