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BLOG: Steve Jobs' value proposition

Dallon Christensen | Oct. 14, 2011
Much has been made of Steve Jobs' legacy of design. His focus on being great, instead of just big, is even more important.

Much has been made of Steve Jobs' legacy of design. His focus on being great, instead of just big, is even more important.

With Steve Jobs' untimely passing at age 56 on Oct. 5, most media tributes have focused on Jobs' eye for how products were put together and presented, and especially for his passion for simplicity. I agree with those sentiments. I converted to Apple products because they were easy to use and worked right out of the box. However, when I think of Steve Jobs, my initial reaction is about the power of his focusing Apple on greatness as a company, rather than bigness.

Several years ago, I read Bo Burlingham's outstanding book Small Giants. Since I am the son of a small business CFO, I wanted to read about companies that made the decision to not grow at all costs. Companies like CitiStorage and Zingerman's showed a range of businesses that chose to build great companies and sacrifice some growth to which many companies aspire.

While Apple's 2010 revenue of $65 billion hardly qualifies it as a small company, I have always admired Apple's ability to maintain a focus on delivering high value to its customers. When the company floundered in the 1990s, it lost its focus and slid toward the commoditization impacting many PC makers today. The "race to the bottom" has led to indistinguishable product lines and no differentiation in consumers' minds. Apple has wanted no part of that race.

Apple is one of the most valuable companies in America, and even, for a while, has surpassed ExxonMobil as America's most valuable. However, Apple's computer market share is just under 11%. Hewlett-Packard and Dell outpace Apple significantly in terms of market share.

Still, Apple's focus on great products and creating high value results in significantly higher margins than its key competitors. In 2010, Apple's net income margin of 21.4% vastly outpaced H-P's 9.1% and Dell's 4.3%. While margins are not always an indicator of market value, I find it interesting how the company focusing on value instead of market share commands a higher market value than its two major competitors.

When I took MBA classes at Indiana University, one of my professors passionately stressed the importance of margins and "spread" as a key way to build company value. Steve Jobs understood that point, and it's a major reason why Apple is such an admired and valuable company.


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