How Did Apple Get So Big?

Apple (AAPL) made history on Aug. 2, 2018 by becoming the first publicly traded U.S. company to be valued at $1 trillion as measured by market capitalization. The company broke records again in August 2020 by becoming the first U.S. company to reach a $2 trillion market cap. That escalated to a $3.68 trillion market cap by December 2024.

Apple has been one of the most valuable companies in the world since 2010. The reason it’s so highly valued is simple on the surface: The company makes popular products with generous margins. A curious reader who digs a little deeper will find mistakes and overthrown CEOs, however, and much more.

From Apple I to Steve Jobs 2.0

Understanding why Apple became so successful requires looking back at its origins and history from the first Apple computer (the Apple I that was just a motherboard without a monitor or keyboard) to the latest iWatch.

Apple was founded by Steve Jobs and Steve Wozniak. It started in the business of kit computers with the Apple I. This initial production run is popular as a collectible but it will mainly be remembered for helping the company get enough capital to build the Apple II in 1977, the same year Apple officially incorporated. Wozniak primarily built both these computers and Jobs handled the marketing side of things.

The Apple II drove the company’s revenue until the mid-1980s despite the hardware remaining largely the same. Apple attempted updates like the Apple III and the Apple Lisa but these failed to catch on commercially. The Apple II was still selling but Apple as a company was in trouble as the 1980s began.

The 1984 release of the Macintosh was a leap forward for Apple but IBM caught up in the intervening years between the Apple II and the Macintosh. Disappointing revenues from the Macintosh and internal struggles for control led to Apple’s board dismissing Jobs in favor of John Sculley. Some sources say Jobs decided to leave, however.

Jobs worked on NeXT Inc. after leaving Apple. Apple began growing its product lines under Sculley who served as Apple’s CEO until 1993.

Apple enjoyed strong growth during those years. It created new products, including laser printers, Macintosh Portable, PowerBooks, and the Newton. Its products continued to sell at a premium so the margins were generous for Apple and led to strong financial results. Cheaper computers running Windows were serving a far larger middle market during the same period, however, while Windows also benefited from powerful Intel processors. Apple seemed to be stalling in comparison.

Two CEOs, Michael Spindler and Gil Amelio, failed to turn the tide against the relentless spread of systems running Microsoft operating systems. Windows was becoming the industry standard and the Apple Macintosh was showing signs of age. Amelio eventually set about addressing some of these issues by buying NeXT Inc., the company run by none other than Apple founder Steve Jobs.

The Second Chance CEO

Apple has been either a reflection of or a reaction to Steve Jobs from the time of the Macintosh onward. It was trying to create a machine in the Macintosh that made computing simple and enjoyable. Jobs was out to create a user experience that would convince everyone to buy a Mac.

Jobs believed that a truly revolutionary product couldn’t depend on customers’ needs and wants. He thought customers couldn’t understand the value of a product until they were using it. Jobs was unfortunately 12 years ahead of his time in 1985.

The hardware had caught up to his vision for all things digital when Jobs overthrew Amelio and took Apple’s reins once again in 1997. He launched the iMac with a strong marketing campaign featuring the “Think Different” slogan. Jobs is often given credit for spending the money and time on marketing but excellent marketing and branding have always been key to Apple’s growth. The real difference between the iMac and all the products preceding it was the beauty and design.

It wasn’t a tower and monitor setup like every other PC on the market. The iMac almost looked like a racer’s helmet photographed at speed. It was a colorful blur sweeping back from the screen. The iMac was the most aesthetically pleasing machine on the market in 1998. It was the computer no one knew they wanted until they saw it. It was elegant and it was user-friendly thanks to the OS upgrade.

The iEcosystem

The iMac was just the start as Apple released a string of hit products that reflected its new focus on elegance and user experience. They included the iBook, the iPod, the iPhone, the MacBook Air, and the iPad. The iPod became the category killer in MP3 players and the iPhone essentially launched and then dominated the smartphone market. The iPad somehow convinced millions of people that they needed yet another screen to consume content.

All these devices were perceived as being better in quality and certainly in design than competing products. Jobs was relentless when it came to design and he indoctrinated the entire culture of Apple into the art of design.

He brought Apple back to its ease of use. After a few minutes of using the wheel on an iPod or tapping icons on an iPad, these new forms of control became part of the simplicity that makes Apple appealing. Every product update from Apple is anticipated by the media and the general public in addition to the fans the company had from the start.

All of these products moved Apple into a new business model of creating a tight ecosystem of hardware, software, and content. Apple didn’t create iTunes to be a simple program for users to transfer MP3s onto iPods as was the case with many other manufacturers’ offerings. The company instead attacked the concept of an album by breaking them into songs that would be sold individually at a fraction of the whole album’s price.

The same process took place with software. Many popular computer functions could be accomplished on Apple’s mobile devices using stripped-down apps that were of course available on Apple’s App Store.

Apple was the first big mover into many of these markets. It built the stadium and set the rules for the game. Apple gets a cut when you pay for books, movies, apps, or music on an Apple device. Of course, this business doesn’t generate as much revenue as selling an iPhone or an iPad where the markup is much more generous.

It’s the content purchased through Apple that locks many people into buying Apple again when their i-devices get old. The content part of the ecosystem pays off for Apple in both the short term and the long term. It’s the integration with your content that keeps you there after you migrate to Apple because of the design or the simplicity.

The Post-Jobs Era

Steve Jobs died in 2011 of pancreatic cancer. He served as CEO until shortly before his death when he turned the reins of the company over to Tim Cook.

Some analysts feel that Apple has become solely iterative in its tech releases rather than transformative without Jobs as the creative force. The Apple Watch has been the major release of the post-Jobs era. The firm also created Apple TV devices and launched the Apple TV+ streaming video-on-demand service to go with it.

Apple has been heavily reliant on the iPhone’s production cycle to power its financial success in the absence of a groundbreaking new product. Critics say that Apple has lost its innovative edge without Steve Jobs at the helm and is riding on its brand to drive sales.

The company still produces some of the best products with the most integrated ecosystem but the gap between Apple and competitors like Samsung and Google is no longer as pronounced as it once was. Companies like Samsung are increasingly poised to take the lead when it comes to product innovation in some categories.

Apple in the 2020s

Apple’s market capitalization reached new heights in 2020 as the company enjoyed some successes and set new goals for the future. The company’s revenue from wearable technology such as the Apple Watch set new records. Its revenue from services also rose to record highs during the 2020 COVID crisis as contactless payment options like Apple Pay became more popular.

Apple also announced two major changes to the Mac in 2020. It began transitioning the Mac away from Intel processors to its own custom-designed chips. These processors are based on the ones used in iPhones and iPads, making them more energy-efficient. The chips give Apple’s laptops longer battery life and more processing power than PCs.

Apple is also changing the macOS so developers can make iOS and iPadOS apps run on the Mac without modifications. This dramatically expands the number of apps available on the Mac and makes it more competitive with PCs.

The Bottom Line

There’s a fairly good chance that you’re reading this article on either an Apple device or with one near you. Maybe you’re doing it on a MacBook Air while listening to an iPod touch and occasionally glancing at the newest Apple Watch for alerts from your iPhone. The reason behind that and Apple’s success is that its devices are beautiful to look at and a pleasure to use. That’s why the company has such a powerful brand and lofty stock valuation.

The marketing helps and the media and fan frenzy never hurt, either. It’s the quality of the products that drive Apple’s success, however. Add in the iEcosystem that makes it much easier to stay with Apple than to try something new and you have a company with what Warren Buffett called an economic moat. It shouldn’t be surprising that Buffett invested heavily in Apple.