August 2, 2018

Apple’s Trillion-Dollar World

Now the business founded by Steve Jobs and his pal Steve Wozniak in a Los Altos garage in 1976 truly stands alone. Apple Inc.’s market capitalization was a paltry $3 billion when Jobs returned to the wounded company in 1996, after it had acquired his startup, NeXT. Passing the $1 trillion mark a little more than two decades later puts an exclamation point at the end of a remarkable run of success—one that started with Jobs's introduction of the iMac, iPod, iPad, and, especially, the iPhone, and was extended by his successor, Tim Cook, who now presides over the most valuable business in modern history.

A valet holds a sign for Jordan Wolf at an airport baggage claim A woman’s fingers are shown typing on an iphone

These sorts of big, round-number milestones are subjective. Does it really matter if Apple was worth $950 billion earlier this year and more than $1 trillion now? The persnickety might also point out that long-defunct concerns such as the Dutch East India Co. and the South Sea Co. were much more valuable in their times, adjusted for inflation. And the planned initial public offering next year of Saudi Aramco, the state-owned petroleum company, could yield a market capitalization much bigger than Apple’s.

But with those caveats out of the way, let’s agree that a trillion dollars is serious money, and that Apple has crossed a psychological threshold as much as a numerical one. Its valuation is on par with the gross domestic product of Indonesia, the 16th-largest economy in the world. Apple operates at a scale that makes it hard for customers or even governments to hold it to account. “The image of a company of that size certainly yields the perception of a Galbraithian world that many of us have never really considered or conceived of,” says David Yoffie, a professor of international business administration at Harvard Business School.

As the lore (and Businessweek’s own archives) can attest, Apple almost didn’t make it here. “The Fall of an American Icon” blared a bleak, all-black cover of the magazine in February 1996. Bureaucracy, shifting strategies, and an abundance of unremarkable, beige products plagued that long-ago company. Even a few years after Jobs had retaken control and winnowed the product line, Apple had less than 5 percent of the market share for personal computers.

But then Jobs and his lieutenants parlayed their uncommon obsession with design and ease of use into an historic run. Few had professed an undying need for digital musical players until Apple introduced the elegant white iPod in 2001. Five years later, keyboard-punching BlackBerry addicts—­including this one—were fairly certain they had all the “smartphone” they needed.

A group of people holding iphones and a child in stroller
A woman sits on a small boat taking a picture of a man and boy opposite her

Then Jobs took the stage in January 2007, during a now legendary appearance at MacWorld in San Francisco, and said in his usual pugilistic style that smartphones “are not so smart, and they’re not so easy to use.” The iPhone, he told us, “works like magic.”

A chart showing the number of units Apple has sold

Thus was Apple’s winning formula refined: slick, simple products with hefty price tags, accompanied by splashy press events, mesmerizing advertising, and the numbing repetition of words like “amazing” and “phenomenal.” Just as Galbraith had predicted, Apple wasn’t meeting customer needs as much as it was inventing them. “Steve had a kind of elitist point of view,” says Ken Segall, the author and advertising copywriter who helped conceive the “Think Different” campaign shortly after Jobs’s return. “He didn’t care what people wanted and had no desire to do any kind of research. He wanted Apple to dream up things people couldn’t imagine.”

When Cook took over the company in August 2011, right before Jobs’s death, not many thought he could match his predecessor’s accomplishments. He was a supply chain guy from International Business Machines Corp., more familiar with manufacturing than marketing or making innovative products. But Cook has helped Apple defy gravity. Its stock is up fourfold since he became CEO. Jobs handed him the iPhone, sure, but Cook turned it into a business that generated $141 billion in sales last year and 62 percent of Apple’s profits.

A man takes a picture of a scenic vista on his iPhone

As critics enjoy pointing out, the company under Cook has failed to come up with another iPhone-type hit. But that’s like saying da Vinci never came up with another Mona Lisa-type painting. The release of the iPhone is up there with the founding of Standard Oil as one of the greatest business moves of all time. And while the iPhone has altered daily life so much that no one remembers life before it, Apple has also persuaded customers to embrace other inventions they never knew they wanted, such as connected watches that buzz and beep (to cure the distraction of the phone, Apple says) and wireless dongles that hang ridiculously from their ears.

People sitting on a bench in a museum on their iPhones People sitting on a bench in a museum on their iPhones

Apple isn’t alone on this mountaintop., Alphabet, and Microsoft are likely at some point to pinwheel across the $1 trillion finish line, too, and they’re almost as good as Apple at manufacturing customer desire. No one told Amazon they needed a speaker they could talk to, or Google a self-driving car, or Microsoft a … OK, it’s been a while since Microsoft has driven civilians wild with desire.

Anyway, the classical economic theorists, whom Galbraith railed against, held that even a monstrously big company such as Apple is vulnerable to new players fomenting disruptive plans in another garage. But the sheer specter of Apple at $1 trillion undermines that comforting idea. The big tech companies can use their size and might to extract better terms from partners and suppliers than smaller rivals can, and they have close to unlimited access to rare materials and components. And if a threatening upstart squeaks through, well, the giants just buy it—Apple has more than $260 billion in cash sitting in the bank and could raise even more capital if it needed to. “There’s no company on the planet that it couldn’t go and acquire, at least in terms of price,” Harvard’s Yoffie says.

A man sits in a transit terminal looking at his iPhone
A main sits in a hotel lobby looking at his iPhone
A chart showing Apple’s market capitalization

What could stop Apple is government action, of course. The company has a $1 trillion-size target on its back; soon other tech powers will have such a mark as well, provoking more political and legal challenges. The swing of public sentiment against Big Tech over the past year is sure to intensify this scrutiny. “The way that Facebook has been implicated in elections and the systemic abuses at places like Uber have made people more sensitive,” says Sarah Kaplan, a professor of strategic management at the University of Toronto’s Rotman School. “This is a tipping point moment when people are starting to worry.”

In the past, governments have risen to meet such anxiety about gathering corporate power. The abuses of the industrial revolution led to the creation of the Sherman Antitrust Act and lawsuits against Mellon, Carnegie, Rockefeller, and other robber barons. It happened again in the 20th century, when people worried about the market strength of AT&T, IBM, and then Microsoft.

A group of women take selfies

But it’s not clear that governments have the appetite to take on a $1 trillion company—or that it would make a bit of difference if they did. Penalties in Europe against Apple for tax avoidance, and against Google for anticompetitive behavior, have amounted to little more than a slap on the wrist. James Galbraith, a professor of government and business at the University of Texas at Austin—and the son of the famous economist—believes the power of Apple and its peers is largely unchecked. “Right now, what we are doing in general in politics is undermining the structures that we did have, such as the FTC and the EPA,” he says. “We are in a system that is governed by business leaders, and that is intrinsically problematic.”

That doesn’t mean these companies are immortal apex predators, free of all threats. Apple can hardly rest, taking refuge in its size, or else it risks Alphabet, Amazon, or Microsoft swooping in and stealing customers. Competition among members of the trillion-dollar club may provide its own system of checks and balances, ensuring they will keep elbowing each other in a scramble to create the next big thing.

Back in ’67, the elder Galbraith thought the corporate giants would be able to coast, maintaining their hold on customers via savvy marketing. He was wrong about that. But if he were around to see Apple at $1 trillion, he’d likely still be scared.

A man records an image of downtown New York City from his iPad

(Corrects the location of the garage in the first paragraph.)

Photographs for Bloomberg Businessweek

Development: Michael Frazer and James Singleton