Will 2010 be another year of Apple iteration, not innovation?

Apple is ending 2009 with a seemingly big bang. The stock is soaring higher than ever, lifted by scathes of rumors about an impeding tablet announcement. But tablets are oh-so 2001, when Microsoft Chairman Bill Gates showed off the Tablet PC. Apple tablet rumors show how much hype -- and not might -- is lifting Apple's share price. Hype has a way of turning on companies. Just ask Microsoft, which hype meter measured off the scale in 1995, but barely registers a decibel today.

Few companies reach Apple's success level in a day, a week, a year or even five years. Successful companies make strategic investments over time and many still fail to reach the stratosphere, or, for that matter, escape velocity. Apple made some wise strategic investments after the turn of the century, benefitted from good luck and rebuilt the brand image through its retail stores and smart marketing efforts.

But Apple's end-of-decade successes come from past innovations. As I explained in mid-September post "2001: An Apple Odyssey," strategic investments made during the last recession were the foundation of all the company's current successes. In 2001, Apple released iTunes, launched Mac OS X (and issued the 10.1 release), opened retail stores and introduced iPod. I'll once again assert that next to 1984, 2001 was the most important year in Apple's history. It most certainly is not 2009, which successes can be chocked up to past innovations.

For the long haul, I predict that 2009 will turn out to be the year Apple stumbled -- as companies often do at the height of success. I do not share the optimism of those people warming in the glow of tablet hype or rising Apple shares. Nineteen days ago I blogged "Why Apple succeeds, and always will," knowing the title would draw in readers. But that always is qualified by Apple continuing to use "David Thinking," which challenges the status quo rather than tries to preserve it. I warned: "The challenge ahead: Resisting the temptation to protect the status quo -- to truly be Goliath." In preparing last week's twin posts "10 things Apple did right in 2009" and "10 things Apple did wrong in 2009," I am disturbed to conclude that the year was almost all about preserving the status quo through iteration, rather than delivering innovation that has defined the company.

The principal reason isn't rocket science. Apple's legendary cofounder and CEO, Steve Jobs, took six-month medical leave in January. That effectively put COO Tim Cook in charge of Apple. Cook proved to be a competent manager, but not a visionary one. He kept the good ship Apple on course, but never ventured into dangerous waters. With so much perception about Apple's success tied to Jobs' persona, Cook had few options but to stay the course -- for concern about toppling Apple shares already pushed down by the September 2008 stock market crash. Cook steered Apple competently, but in process gave up -- perhaps because of circumstance, personal character or both -- making important strategic investments during the current recession that will be important to Apple in just three years.

Microsoft CEO Steve Ballmer is right. During the Consumer Electronics Show 2009 keynote, he asserted: "I believe that companies and industries that continue to pursue innovation during tough economic times will achieve a significant competitive advantage positioning themselves for growth far more effectively than companies that hold back." Apple is example (not that Ballmer used it), based on risks taken during the last recession.

2009: Apple's Year of Iteration

Iteration defines Apple 2009. What major Apple product greatly improved during this recessionary year? The iMac and iPhone got hardware refreshes, but no new designs or splashy features. OK, iPod nano has a camera, but what's really innovative about that? So Apple upgraded the hardware on its major products, but it is innovation in software that made for truly compelling products. Where was the software innovation in 2009? No question, iPhone UI improved -- and in many good ways -- but by iteration. New App Store features aren't that different from older ones. The iTunes makeover added clutter, even as Microsoft cleaned up rival Zune 4.0.

Cook's competence shown brightly through pricing and resisting the temptation to slash Mac selling prices south of $1,000. Another smart decision: Lowering 8GB iPhone 3G to $99. Competent management certainly is a good attribute. But Apple missed opportunity to innovate the way it did during the 2000-01 recession -- and it was risky, too. Apple's stock price collapsed in late 2000, following a profit warning, and remained in the dredges even into 2003. The last recession's innovations and investments were taken with great risk. In a way, Apple bet its future on risks taken in 2001 and early 2002.

Where is the risk taken in 2009? In surveying the year, I see only one major Apple investment in the future -- and it's one the hype makers and share price chasers completely overlook: Mac OS X 10.6 (aka Snow Leopard). I've criticized Snow Leopard's tired user interface -- another place where Apple failed to innovate in 2009 -- but under the hood, 10.6 improvements are substantial. I'll repeat my previous assertion that Snow Leopard is the most important Mac OS X version since the original March 2001 release (and its September 2001 10.1 upgrade). The $29 pricing was a brilliant (and competent) strategy, allowing Apple to quickly move the install base to 64-bit architecture.

Apple's year of iteration closes strong not on past performance but promise of the future: The long-rumored tablet. What happens if the hype proves false -- that Apple doesn't announce a tablet in about a month, as widely rumored? What happens if the tablet is announced but not released for many more months? What if the tablet is innovative but not ready for the mass market?

The real 2008-2009 risk taker was Google, which through Android, Chrome, Chrome OS and Wave, among other products, has invested in the future. Google, and not Apple or even Microsoft, is the company to watch in the next decade. The information giant innovated and took risks doing so.

Surely some commenters will wrongly assume I predict the ruin of Apple. That's absolutely not the point of this post. Apple is hugely successful and will continue to be -- but largely from iterations of past innovations. The 2008-2009 recession was opportunity for Apple to truly innovate and make investments that would pay off in another three to seven years. Apple missed this huge opportunity. Plain, pure and simple.