How to Scale: Use Cloud Inflation to Grow Sales

There is a reason why Apple’s stock has not been killed by Steve Jobs’ departure:  the company is a system, not a person, that scales on the cloud.  Our Soccer Ball Metrics — the surface remains the same no matter the size of the sphere — show just how this is done.

Here you see the core — no joke — of Apple’s success:  no matter that it was a $6 billion company in 1998 or $125 billion today, it has kept days of sales in inventories running at about three.  This all important Soccer Ball Metric, when combined with a second, the relentless drive to bring down days of sales in accounts receivable, brings to the surface cash touch points and wait states in the supply chain not visible to anyone else.  An insuperable advantage.

While Apple payables data suggest a company that is putting unnecessary stress on its suppliers by forcing them to bank its deals and eliminate its need for debt — and it is doing this — it is notable that during the Crash it made supplier lives easier rather than harder.  And the company discloses that it uses its excellent Soccer Ball Metrics to prepay for critical supplies well ahead of its new product launches.  And before shortages that others miss, but that its Metrics allow it to foresee.

In addition, we know from long experience with these data that the competitors with the best Soccer Ball Metrics get a customer information premium.  Identifying cash wait states and other interstitial costs generates a massive amount of customer, and supplier, information that is leveregable.  The result is a bigger brand envelope than anyone else.  And whoever has the biggest brand envelope wins.

Apple’s DSOs in inventories and receivables are strategic to the company.

Moreover, Apple’s soccer ball-like structure allows it to scale on the cloud during a period of rapid cloud inflation.  Between 1996 and 2006, it doubled in size.  Between 2006 and 2010 it doubled again.  And it will double a third time by the end of this fiscal year.

During this time it has:

• Sucked all the air out of competitor markets.
• Scaled profitably and fast on competitor customers.
• Exploited markets that its customers saw and its competition didn’t.

And done this in multiple markets:

• Consumer electronics
• Cell phones
• Music
• Film
• TV content
• Computers
• Retail
• Telecommunications infrastructure

The results are scary.  Here is a chart from The Economist showing how, even with its tiny share of cell phones, Apple has taken all the profits.  You can see Nokia’s demise clearly presaged four years ago and you already know that we were on the case at that time, so nothing about this was news.  We were on the Hewlett-Packard case many years before that and there is no news for our clients in what is happening there either.

Even scarier, anyone could have done this, as Steve Jobs told Walt Mossberg, in 2010, “anyone could have done this.”