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The Reason Behind Apple’s Wild Success (and Its One Major Failure)

Daily Ticker

Apple (AAPL) hit two major milestones this month: the stock traded above $500 a share for the first time and the company's market cap exceeded $500 billion, a feat accomplished by only a select few corporations. There's talk that shares of Apple have the potential to top $1,000 in the next few years, including by its co-founder Steve Wozniak. "Apple has that much growth left," Wozniak said in a CNBC interview Thursday. (See: Apple Is Now Worth A Staggering $500 Billion--Can It Hit $1 Trillion?)

The technology giant will continue to make headlines next week at its San Francisco product event, where announcements of an iPad 3 and updates to the Apple TV are expected.

Apple's inimitable success can be attributed to former founder and CEO Steve Jobs' relationship with Apple's partners, says Ron Adner, author of "The Wide Lens: A New Strategy for Innovation" and strategy professor at the Tuck School of Business at Dartmouth College. He says Jobs was able to dictate favorable terms for Apple to cell phone operators and app developers. Apple's partners played by Apple's rules allowing Apple to attain ownership of consumer data, force huge phone subsidies and charge low prices for apps.

"The way Jobs built up this ecosystem is the real differentiator" between Apple and its competitors, Adner tells The Daily Ticker's Aaron Task. "The root cause of Apple's success is not just their great products. Apple has been able to pull together partners into its ecosystem on terms that allow it to control the transactions and capture the lion's share of the profits in a way that none of the other platforms have been able to do."

Apple's relationship with Chinese supplier Foxconn has not tarnished Apple's reputation with consumers yet, Adner says. Unlike Nike, which experienced a global backlash when it was revealed the company's shoes and apparel were made by workers in Asian sweatshops, Apple has been able to stem the negative response by consumers and human rights advocates. In a recent interview, Apple CEO Tim Cook said the company takes working conditions very seriously and every worker has the right to a fair and safe work environment. The company also agreed to allow the Fair Labor Association, an outside monitoring group, to inspect its Asian suppliers' factories.

Apple may have revolutionized the way people view and use technology, but the company does have one glaring failure: the Apple TV, Adner says. "It's not clear to me that they've found a way to turn that around," he notes. Apple does not make its billions by selling content, he says, which gives content providers mixed incentives for working with Apple. The video people have been loath to play Apple's game and they're "not afraid to walk away from Apple."

Many people want to compare the iPhone to Google's Android phones but that's not a fair comparison, Adner says. Android is to Apple's iOS operating system as the iPhone is to Samsung. As for the iPad, Adner says Amazon's Kindle is its "most viable" competitor in the tablet market but argues that the two companies could in fact become content sharing partners.